McQuillen v. National Cash Register Co.

• Decision Date: 14 December 1935
• Docket Number: No. 2274.,2274.
• Citation: 13 F. Supp. 53
• Parties: McQUILLEN et al. v. NATIONAL CASH REGISTER CO. et al.
• Court: U.S. District Court — District of Maryland

13 F. Supp. 53

McQUILLEN et al. v. NATIONAL CASH REGISTER CO. et al.

No. 2274.

District Court, D. Maryland.

December 14, 1935.

James Morfit Mullen and R. Contee Rose, both of Baltimore, Md., and Arthur Berenson and Samuel Gottlieb, both of Boston, Mass., for plaintiffs.

James Piper and R. Dorsey Watkins, of Piper, Carey & Hall, both of Baltimore, Md., for National Cash Register Co.

WILLIAM C. COLEMAN, District Judge.

The objects of the present suit as set forth in the amended bill of complaint, briefly summarized, may be described as: (1) To cause the cancellation of certain stock on the books of the National Cash Register Company, a Maryland corporation, one of the defendants, alleged by the plaintiffs to have been illegally issued to the other defendants, individuals; (2) to enjoin such of the defendants as are officers and directors of the defendant corporation from paying further dividends on such stock, and to cause restitution to be made to the corporation for such bonuses and dividends as may have been paid thereon to any of the defendants; and, also, restitution of salaries, bonuses, and commissions alleged to have been excessive and illegally paid to certain named defendants; (3) to cause the cancellation of an option given to a certain named defendant in connection with the alleged illegal issue of such stock; (4) to require a general accounting by the defendants for their alleged wrongful acts in connection with the aforegoing; (5) to recover damages from the defendants for the profits realized from, or the injury caused to the company by the aforesaid acts of defendant; and (6) to recover, as general alternative relief, damages from the defendants for such transactions as cannot be enjoined or may not be advantageously or equitably rescinded and canceled, and declared null and void in the defendant company's interests. It is thus seen that all of the causes of action alleged in the bill may be grouped under two general types; first, personal actions against the various individual defendants; and, second, actions in rem against the stock itself alleged to have been illegally issued by and to certain of the defendants.

The National Cash Register Company has filed motions to dismiss the amended bill of complaint in its entirety on various grounds which may be summarized very briefly as follows: (1) Because it fails to state facts sufficient to entitle the plaintiffs to any equitable relief; (2) because the plaintiffs are guilty of laches; (3) because of a misjoinder of parties defendant, contrary to Federal Equity Rule No. 26 (28 U.S.C.A. following section 723); (4) because of plaintiffs' noncompliance with Federal Equity Rule No. 27 (28 U.S.C.A. following section 723), in that the amended bill of complaint expressly alleges that plaintiffs have made no effort to secure action on the part of the stockholders of the company, before bringing the present suit as a derivative action; (5) because no relief is sought against the defendant corporation as such, and none of the other named defendants has been summoned or has appeared or is within the jurisdiction of this court. In addition, the defendant company has moved to dismiss certain specified portions of the amended bill of complaint on various grounds; some being the same as those which form the basis for the motion to dismiss the amended bill of complaint in its entirety, and for other reasons which it is unnecessary to detail here. The defendant company has also moved, invoking Equity Rule No. 20 (28 U.S.C.A. following section 723), that the plaintiffs be required to furnish a further and better statement of certain parts of the bill of complaint.

The amended bill of complaint is voluminous, contains many redundant statements, and is otherwise open to serious criticism as to form. However, we are not at this time called upon to pass upon this question, nor are we now concerned with whether there is merit in any of plaintiffs' contentions. From a consideration of the entire amended bill of complaint, while relief may be sought against the defendant corporation alone, it would appear that if plaintiffs are entitled to any part of the relief in rem sought, the firm of Dillon Read & Co. and the following individual defendants are indispensable parties defendant to the suit because alleged either to own or to have an interest in some of the stock which plaintiffs assert is a cloud upon the title to their own stock; namely, Frederick B. Patterson, Edward A. Deeds, S. C. Allyn, Ezra M. Kuhns, William Hartman, J. H. Barringer, C. E. Steffey, and Lee Warren James. But the same is not true with respect to the other individual defendants. All the defendants being outside of the Maryland district, and none of them having voluntarily appeared, plaintiffs moved that they, the plaintiffs, are entitled to have all the defendants made subject to the jurisdiction of this court by substituted service pursuant to the provisions of section 57 of the Judicial Code (28 U.S.C. § 118 28 U.S.C.A. § 118), which, briefly summarized, makes suits to remove any encumbrance, lien, or cloud, upon title to real or personal property cognizable by the District Court of the district in which the property is situated, regardless of the residence of the parties, and provides process for service of the nonresident defendants by notification outside of the district or by publication. Plaintiffs assert that this statute is directly applicable because the object of the present suit is, among other things, to remove an encumbrance, lien, or cloud upon the title to certain shares of common stock which they hold of the defendant corporation, by causing the cancellation on the books of that corporation of certain other shares of its common stock which are alleged to have been illegally issued; and that once this court has obtained jurisdiction by substituted service upon the absent individual defendants, it may retain and assert that jurisdiction for the purpose of affording to the plaintiffs the various other forms of relief sought by the amended bill of complaint against the various individual defendants.

It thus becomes necessary at the outset to dispose of the question as to whether plaintiff is entitled to have the various individual defendants brought into the suit by substituted service, pursuant to the provisions of section 57 of the Judicial Code (28 U.S.C. § 118 28 U.S.C.A. § 118). Hearing of the other motions of the defendant company has been suspended, pending a determination of this question, which is the only question covered by this opinion.

The part of section 57 of the Judicial Code that is material to the question in suit is as follows: "When in any suit commenced in any district court of the United States to enforce any legal or equitable lien upon or claim to, or to remove any incumbrance or lien or cloud upon the title to real or personal property within the district where such suit is brought, one or more of the defendants therein shall not be an inhabitant of or found within the said district, or shall not voluntarily appear thereto, it shall be lawful for the court to make an order directing such absent defendant or defendants to appear, plead, answer, or demur by a day certain to be designated, which order shall be served on such absent defendant or defendants, if practicable, wherever found, and also upon the person or persons in possession or charge of said property, if any there be; or where such personal service upon such absent defendant or defendants is not practicable, such order shall be published in such manner as the court may direct, not less than once a week for six consecutive weeks. In case such absent defendant shall not appear, plead, answer, or demur within the time so limited, or within some further time, to be allowed by the court, in its discretion, and upon proof of the service or publication of said order and of the performance of the directions contained in the same, it shall be lawful for the court to entertain jurisdiction, and proceed to the hearing and adjudication of such suit in the same manner as if such absent defendant had been served with process within the said district; but said adjudication shall, as regards said absent defendant or defendants without appearance, affect only the property which shall have been the subject of the suit and under the jurisdiction of the court therein, within such district."

Thus before section 57 may be invoked, there must exist, in addition to the non-residence of the defendant or defendants sought to be served, the following prerequisites: (1) The suit must be one in which it is sought either to enforce a legal or equitable lien upon, or claim to, the title to real or personal property, or to remove an encumbrance, lien, or cloud upon the title to such property; and (2) such property must actually be within the district where such suit is brought. The first prerequisite appears to exist, because if it be a fact, as alleged in the amended bill of complaint, that the stock of the defendant corporation, which plaintiffs seek to have canceled, has been illegally issued, its existence is a cloud or encumbrance upon the title to the stock which the plaintiffs themselves own. But the other prerequisite must also be found; namely, the existence within the Maryland district of the property, the encumbrance or cloud upon the title to which it is sought to remove. Nowhere in the amended bill of complaint is there to be found any allegation that there is any property, either of the plaintiffs or of the individual defendants or of the defendant corporation, within the Maryland district, except the allegation that the stock, the cancellation of which is sought, has its "situs" in Maryland. Plaintiffs in effect say that unless the stock alleged to have been illegally issued, in derogation of their rights as stockholders of legally issued shares of stock, are canceled, the title to their own stock will...