Klugh v. Coronaca Milling Co.

• Decision Date: 20 April 1903
• Parties: KLUGH et al. v. CORONACA MILLING CO. et al.
• Court: South Carolina Supreme Court

44 S.E. 566

66 S.C. 100

KLUGH et al. v. CORONACA MILLING CO. et al.

Supreme Court of South Carolina

April 20, 1903

Appeal from Common Pleas Circuit Court of Greenwood County McCullough, Special Judge.

Action by J. S. Klugh and others, minority stockholders of the Coronaca Milling Company, against the Coronaca Milling Company and Percy Lumley, president. From an order overruling a demurrer to the complaint, defendants appeal. Affirmed.

The following is the circuit decree:

" This was a motion to dismiss the complaint upon the ground that it fails to state facts sufficient to constitute a cause of action. As will appear from an inspection of the complaint, it is an action brought by certain stockholders in the Coronaca Milling Company against the said company and Percy Lumley, as president, for the appointment of a receiver, for an accounting by the said Percy Lumley, and for the liquidation of the affairs of the said corporation.

In order to sustain a complaint of this character, it is necessary that it should charge on the part of the board of directors or a majority of stockholders (1) fraudulent acts (2) ultra vires acts; (3) negligence of corporate directors (4) that the corporation has been requested to correct the alleged wrongs, and refused to do so, or facts which would excuse such application. See Cook on Stock & Stockholders & Corporation Law, §§ 644, 646; Latimer v. Railroad Company, 39 S.C. 52, 17 S.E. 258; Wenzel v. Brewing Company, 48 S.C. 83, 26 S.E. 1; Stahn v. Catawba Mills, 53 S.C. 519, 31 S.E. 498; Matthews v Bank, 60 S.C. 183, 38 S.E. 437.

Does this complaint, then, allege such facts? The complaint alleges, among other things, that the defendant Percy Lumley has for the past three years been the president and manager of the said corporation; that the said mill has been run at a loss of from $2,500 to $3,000 in the past twelve months; that said loss was caused mainly by the gross neglect and mismanagement of the said Percy Lumley as president and manager of the same, in that he has not given it his time and attention, as he was in duty bound to do, but, on the contrary, has been absent almost the whole time for more than a year, having accepted a position in the service of the Southern Railway Company at Salisbury, N. C.; that he has not called the directors of the said corporation together in meeting since September, 1900; that he has failed to pay any attention to the suggestions and recommendations made by the directors, but, on the contrary, has carried on the business in his own way, without regard to the wishes of the directors and the interests of the stockholders; that, by his conduct in the ginning department of said corporation, he has driven off about one-half of its old customers. The complaint further alleges that the said Percy Lumley has shown partiality in the management of the affairs of the said corporation, in that at the close of the season of 1899 and 1900 he declared a dividend of fifteen per cent. on the capital stock of the same, which amount he paid to himself and other stockholders represented by him, and paid to the minority of the stockholders only ten per cent. on their stock. Paragraph 9 alleges that at the meeting of the stockholders held on the 22d day of July, 1902, the said Percy Lumley represented in person and by proxy a clear majority of the said stock, and, in spite of the earnest protests of the plaintiffs, who put the meeting in full possession of the facts above stated, the said Percy Lumley proceeded to re-elect himself as president and manager and director of the said corporation, and thereafter proceeded to elect a board of directors named by himself, of which board of directors two are nonresidents, and one is a brother-in-law and another the mother-in-law of the said Percy Lumley. It is further alleged that the plaintiffs have not applied to the board of directors, or the said majority of stockholders, who, from the allegations of the complaint, in person and by proxy, is none other than the said Percy Lumley himself, for a redress of their wrongs, because, as charged in the complaint, the said stockholders and directors are the wrongdoers, and have full control of the said corporation, and such an application would be useless and unavailing.

Now, if these allegations be true--and they must be so taken for the purposes of this motion, to say the least of it--they charged gross negligence on the part of the corporate directors, as well as a majority of the stockholders, in that they continue in office a man who had been giving no attention to the affairs of the concern, but, on the contrary, has accepted another position, outside of the state, and whose neglect and mismanagement are wrecking the affairs of the corporation, to the injury of the plaintiffs; a man, also, who has shown partiality, and a disposition to oppress the minority stockholders, in that he has paid to himself and a majority of the stockholders represented by him fifteen per cent. dividend at the close of the seasons 1899 and 1900, and has withheld from the plaintiffs and minority stockholders a part of what is justly due them. If the allegations of the complaint be true, it will be useless for the plaintiffs to apply to the board of directors or a majority of the stockholders,

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