Hyams v. Old Dominion Co.

• Decision Date: 05 May 1913
• Docket Number: 702.
• Citation: 204 F. 681
• Court: U.S. District Court — District of Maine
• Parties: HYAMS v. OLD DOMINION CO.

204 F. 681

HYAMS v. OLD DOMINION CO.

No. 702.

United States District Court, D. Maine.

May 5, 1913

Isaac W. Dyer, of Portland, Me., and Edward M. Colie, of Newark N.J., for complainant.

Brandeis Dunbar & Nutter, of Boston, Mass., for respondent.

HALE District Judge.

This case now comes before the court upon the defendant's motion to dismiss the bill. The complainant, the holder of 3,056 shares of the capital stock of the Old Dominion Copper Mining & Smelting Company, a corporation of New Jersey brings this bill in equity, in behalf of himself and of such other stockholders of his company as shall join in the prosecution of the suit, against the defendant corporation the holder of a majority of the stock of the New Jersey corporation. The complainant seeks to enjoin the defendant corporation from voting its stock in the New Jersey company, and from electing any person a director of the New Jersey company who is a director or officer of the Maine company. The bill alleges that the New Jersey corporation is a mining company, with a capital stock of 162,000 shares, having a mine in Globe, Ariz., immediately adjoining the mine of a company called the United Globe Mines, incorporated under the laws of New York; that the Maine company, the defendant, is merely a holding company, holding a majority of the stock of the New Jersey company, and substantially all of the stock of the United Globe Mines; that the New Jersey company and the United Globe Mines have certain relations with each other, existing by contract, and fully stated in the bill; that the Maine company is controlled by persons who control certain other corporations enumerated in the bill, with which the New Jersey company has dealings; and that these corporations and the defendant have directors in common; that the New Jersey company has three out of seven directors in common with the defendant, but has no directors in common with the United Globe Mines, or with the other companies set out in the bill. The bill contains an allegation that the defendant, the holding company, has acted in an illegal and fraudulent manner in its control and management of the New Jersey company, by so exercising its control that some of the capital of the New Jersey company is in danger of being dissipated in dividends, and that this fraud taints the other transactions set up in the bill. The learned counsel for the complainant state fully the principles upon which they claim the bill is founded. Among the principles upon which they rely are the following:

'That a corporation must carry on its business by its own agents, and not through the agency of another corporation.

'That a corporation can only act through its officers and directors, and that the acts of the directors are the acts of the corporation.

'That the complainant is entitled to have the affairs of the corporation, of which he is a stockholder, managed by a board of directors uncontrolled by another corporation, which holds a majority of the stock of his corporation, acquired for the purpose of control, which corporation also owns all the stock of an adjacent and kindred corporation producing the same character of ore, and in fact worked in part through the shaft of his company, and having large inter-relations with his company, the majority of the directors of which holding corporation also own and control other corporations having large inter-relations with his company.

'That such control, as is demonstrated by the allegations in the bill, exercised by a corporation so acquiring a majority of the stock, for the purpose of control, is unlawful.

'That where such a control has been so acquired, the corporation so acquiring it constitutes itself, and virtually becomes, the trustee for the minority stockholders, and as such it is its duty not to place itself in a position where it assumes a position inconsistent with such trust relation; that where the trust relation is established, every act involving inter-relations can stand only upon the condition that the trustee satisfies the court fully and completely that the beneficiary has received a full equivalent for that which he parted with, and that the burden of proof in all such cases rests upon the trustee to clearly free himself from the imputation of fraud arising from the fact of the trust relation.

'That where a holding company has agreed, as here, to compel the complainant's company to dissipate a part of its capital as dividends, and has caused complainant's company to undertake to so dissipate the capital of the company, such flagrant fraud upon the complainant's rights characterizes the control and domination by the holding company of the complainant's company.'

The charging part of the bill concludes with the allegation:

'That the conduct and the matters herein set forth on the part of the said defendant have caused great and irreparable injury to the said stock owned by him, and to the Old Dominion of New Jersey as a corporation, and that said acts and conduct, if continued, and against which an injunction is hereby sought, would cause great and irreparable injury to the said stock, and to your orator as a stockholder in said corporation, and to the said corporation itself; that such injury and damage to him, and to said corporation, cannot be computed and estimated, and cannot be compensated in damages at law; and that your orator has no adequate remedy in law for the matters herein complained of.'

The defendant moves that the bill be dismissed: First, because it is brought expressly on behalf of the complainant as a stockholder, and of all other participating stockholders of the New Jersey company; that said New Jersey company is an indispensable party to the bill, but is not joined as a party; and that the suit cannot proceed without such joinder.

The motion is to be treated as a demurrer would have been treated previous to the present equity rules, since equity rule 29 (198 F. xxvi, 115 C.C.A. xxvi) abolishes demurrers, and provides that every defense, arising upon the face of the bill, which might heretofore have been made by demurrer or plea, shall be made by motion to dismiss, or in the answer. The thirty-ninth equity rule (198 F. xxix, 115 C.C.A. xxix) provides that in all cases where it shall appear to the court that persons, who might otherwise be deemed proper parties to the suit, cannot be made parties by reason of their being out of the jurisdiction of the court, the court may, in its discretion, proceed in the cause without making such persons parties. The general purpose of this rule is undoubtedly to broaden the old rule, and to give jurisdiction wherever the court has before it such parties as will enable it to make an effective decree. Can this court, then, make an effective decree, without the joinder of the New Jersey company?

By speaking of proper parties, it is clear that rule 39 did not intend to change the principles of equity law, or to provide that the court might proceed in a cause without having before it such necessary...