Metcalf v. American School Furniture Co.

• Decision Date: 07 March 1903
• Docket Number: 13.
• Citation: 122 F. 115
• Parties: METCALF v. AMERICAN SCHOOL FURNITURE CO. et al.
• Court: U.S. District Court — Western District of New York

122 F. 115

METCALF v. AMERICAN SCHOOL FURNITURE CO. et al.

No. 13.

United States Circuit Court, W.D. New York.

March 7, 1903

Seymour Seymour & Harmon, for complainant.

Davies Stone & Auerbach (Brainard Tolles, of counsel), for defendants American School Furniture Co., Oakman, and Turnbull.

Cox Kernan & Kimball (Maulsby Kimball, of counsel), for defendants Buffalo School Furniture Co. et al.

HAZEL District Judge.

This cause was heretofore considered by this court (108 F. 909) and the demurrers then interposed were sustained on the ground of multifariousness. In the former bill of complaint, relief was sought in equity by complainant as a minority stockholder, suing for herself and in behalf of other stockholders of defendant Buffalo School Furniture Company, and to recover treble damages, under the anti-trust act of July 2, 1890 (26 Stat. 209 (U.S. Comp. St. 1901, p. 3200)). It was held that such damages were only recoverable in an action at law by the complainant, and inured to her sole benefit, while the equitable relief sought by the bill was for the benefit of the corporation in whose behalf the suit was brought, and therefore inconsistent remedies were averred in the bill. The order sustaining the demurrers to the original bill recites that they are sustained solely and only upon the ground of multifariousness, although the precise questions here involved were also then considered. The opinion of the court, however, merely indicated an impression that the bill, with the inferences deduced therefrom, sufficiently averred a conspiracy in restraint of trade and commerce to enable the complainant to give evidence upon the trial in support of the charge. Subsequently the parties appeared before the court in settlement of the terms of the order, with the result that the restrictive order sustaining the demurrer because of multifariousness, only, was entered. On appeal the Circuit Court of Appeals affirmed the decree of the Circuit Court, with leave to amend the bill. 113 F. 1020. The precise questions now considered not having been determined on the former hearing, as appears by the order sustaining the demurrer because of multifariousness, the contention of the complainant that the defendants' demurrers were overruled upon every other ground therein stated cannot be maintained. The amended bill which is now before me has eliminated the demand for treble damages, but in all other respects the relief demanded is practically similar to that of the original bill. All the defendants, except Oakman and Turnbull, have demurred to part, answered to part, and all the defendants have filed pleas in bar to part of the bill now considered.

The grounds of demurrers may be subdivided and briefly summarized into four general grounds, as follows: (1) Want of equity; (2) complainant has no legal capacity to sue; (3) that the cause assigned for equitable relief does not entitle complainant to the character of the relief prayed for; (4) defect of parties plaintiff or defendant, in that there are interested stockholders, without whose presence relief ought not to be granted. The pleas are supported by the answers, which deny the existence of the conspiracy so alleged in the bill. This appears to be in compliance with equity rule 32. The plea of the American School Furniture Company, a New Jersey corporation, hereinafter referred to as the American Company, and of the Buffalo School Furniture Company, hereinafter referred to as the Buffalo Company, substantially allege that the deed of conveyance by the latter company to the former was made authoritatively and pursuant to a majority meeting of the stockholders held at Buffalo, N.Y., on January 17, 1900, at which meeting a resolution was adopted by holders of upwards of two-thirds of the capital stock, ratifying the transfer of property to the American Company. The plea of the individual defendants, hereinafter referred to as the directors, in addition to the matters stated in the plea of both corporations, alleges that at such meeting, ratifying the transfer of property by the Buffalo Company to the American Company, a resolution was adopted discontinuing the business of the corporation, and dividing the property and assets that should remain after paying the liabilities. The plea of the defendants Oakman and Turnbull alleges that they are trustees of a mortgage made by the defendant American Company subsequent to the transfer to it by the Buffalo Company, and covering that property, and that the bondholders whose interests are represented by them loaned their money in good faith and for value, without notice or knowledge of any of the matters charged in the bill.

The argument has proceeded on the theory that the entire case is sufficiently shown by the pleadings, and that nothing more definite would be disclosed on the hearing. The complainant having brought the plea on for argument, the facts therein stated must be considered as true. State of Rhode Island & Prov. Plantations v. State of Mass., 14 Pet. 210, 10 L.Ed. 423; 1 Dan.Ch.Pl.& Pr. (4th Ed.) 696; U.S. v. Dalles Military Rd. Co., 140 U.S. 599, 11 Sup.Ct. 988, 35 L.Ed. 560; Hatch v. Bancroft-Thompson Co. (C.C.) 67 F. 802; 1 Garland & Ralston, 272. It is indisputable that, if a right to equitable relief arises from the averments of the bill, a remedy for the alleged wrong may be invoked by the corporation in whose behalf the action is brought. If, therefore, complainant by her bill prima facie discloses the violation of a legal or equitable right, and hence a wrong done by the defendants, the American Company and the Buffalo directors, to the injury of the Buffalo Company, this court, sitting in equity, is empowered to redress such wrongful acts, provided no adequate remedy exists at law. Whenever a corporation, under such circumstances, refuses to avail itself of the machinery provided by law to enforce such right, a stockholder, in behalf of the recalcitrant corporation, may invoke legal redress. This is especially the case when the corporation is under the control of parties intrusted by its shareholders with the responsibility of righteous management. Hawes v. City of Oakland, 104 U.S. 450, 26 L.Ed. 827; Davenport v. Dows, 18 Wall. 626, 21 L.Ed. 938; U.S. Supreme Court Rule 94. Has such a wrong been committed against the Buffalo Company, of which complainant and her associates in whose behalf the suit is brought are minority stockholders? Can the complainant invoke an equitable remedy in this court?

At the outset, complainant's contention that the sale by the directors to the American Company pursuant to resolution adopted at a regular meeting of the stockholders is ultra vires must be held unsound. The question as to whether the majority stockholders possess the power to direct a transfer of the property of the corporation to the American Company will first be considered. The Code of West Virginia of 1899 (chapter 53, Sec. 56), under the laws of which state the Buffalo Company was organized, provides:

'The stockholders may at any time in general meeting resolve to discontinue the business of the corporation, the majority of the capital stock being present and voted in favor of such discontinuance; and may divide the property and assets that may remain after paying all debts and liabilities of the corporation. * * * As soon as practicable, after such resolution is passed, the stockholders shall cause ample funds and assets to be set apart, either in the hands of the trustees or otherwise, to secure the payment of all debts and liabilities of the corporation.'

By section 59 of the same chapter it is provided that:

'When a corporation shall expire or be dissolved its property and assets shall * * * be subject to the payment of the liabilities of the corporation, and the expenses of winding up its affairs; and the surplus, if any, then remaining, to distribution among the stockholders according to their respective interests.'

This court will take judicial notice of this statute. It substantially appears by the pleadings that, of the 3,500 shares of stock of the Buffalo Company, 2,870 shares excluding complainant's 560 shares, those of George P. Cary, 60 shares, and the single share of Melbert B. Cary, favored the transfer or subsequently ratified the acts of the board of directors in making a sale of the property to the American Company. I am quite well satisfied that the transfer is capable of ratification, provided the acts of the corporation in making the sale were intra vires, and provided the acts of the directors were free from actual fraud. Smith v. Ferries & C.H.R. Co. (Cal.) 51 P. 710; Leavenworth v. Chicago, etc., Ry. Co., 134 U.S. 688, 10 Sup.Ct. 708, 33 L.Ed. 1064; Cook on Corporations, Sec. 707; Nye v. Storer (Mass.) 46 N.E. 402; Ervin v. Oregon Ry. & Navigation Co. (C.C.) 27 F. 625. The trend of the decisions is to the effect that where the charter and by-laws of a corporation, and the statute under which it was created, vest in the stockholders a right of sale of the corporate properties and discontinuance of corporate existence, such power may be exercised by them pursuant to the laws of the state to which the corporation owes life. Republican Mountain Silver Mines v. Brown, 7 C.C.A. 412, 58 F. 644, 24 L.R.A. 746; Cook on Corporations, Sec. 669. The general rule under the common law undoubtedly prohibited a prosperous corporation from dissolving unless all the stockholders assented. A dissenting stockholder was enabled to prevent such a sale. Abbott v. Am. Hard Rubber Co., 33 Barb. 578. Where, however, the statute of the state under which the corporation may be dissolved, a minority stockholder must abide by the statutory provision and the corporate by-laws. Theoretically, the law appears to be founded...