Moore v. Lewisburg & R.E. Ry. Co.
| Decision Date | 18 September 1917 |
| Docket Number | 3452. |
| Citation | 93 S.E. 762,80 W.Va. 653 |
| Parties | MOORE v. LEWISBURG & R. E. RY. CO. ET AL. |
| Court | West Virginia Supreme Court |
Submitted September 5, 1917.
Syllabus by the Court.
The majority of the stockholders of a corporation, in the absence of fraud, have the uncontrollable right to manage the corporate affairs within the powers possessed by such corporation, and a court of equity will not interfere at the suit of a minority to control such corporate action.
Ordinarily a stockholder of a corporation cannot maintain a suit to secure redress for alleged mismanagement or misappropriation of the corporate funds by the managing officers or directors until he has appealed without avail to the directors, and, in case of their refusal to act, to the stockholders, to correct the alleged wrongs.
Where the corporate management is entirely under the control of the parties charged with fraud and mismanagement, and a majority of the stock is likewise controlled by them, a minority stockholder complaining of alleged fraudulent acts and mismanagement may apply to a court of equity for relief without first applying to the directors or stockholders, as such an application in such case would be presumably unavailing, and a court of equity would not permit the alleged guilty parties to conduct a suit against themselves to obtain such redress.
A bill filed by a minority stockholder of a corporation seeking relief against the managing officers upon the ground of mismanagement and misappropriation must allege the particular things done by such managing officers constituting mismanagement and the particular acts of misappropriation. It is not sufficient to charge that such managing officers have been guilty of mismanagement and have misappropriated the corporate funds, but the facts justifying these conclusions must be stated.
A public service corporation is under no obligation to continue the service rendered by it to the public longer than the public interests demand suc h service, and whenever the returns received by the corporation for the service rendered by it are insufficient to pay the expenses of furnishing the service, there has ceased to be a public demand therefor.
The stockholders of a public service corporation may dissolve such corporation and surrender its corporate franchises under the provisions of section 56 of chapter 53 of the Code (sec 2888).
A stockholder of such public service corporation cannot question the acts of the stockholders in dissolving the corporation and surrendering its corporate franchises. The propriety of such action can be brought in question, if at all, only by the proper state authorities.
Appeal from Circuit Court, Greenbrier County.
Suit for injunction, appointment of a receiver, etc., by H. L Moore against the Lewisburg and Ronceverte Electric Railway Company and others, with cross-bill by a part of the defendants. Decree for plaintiff, and defendants appeal. Decree reversed, receiver discharged, injunction dissolved and cause remanded.
R. F. Dunlap, of Hinton, and Conley & Johnson, of Charleston, for appellants.
Price, Smith, Spilman & Clay, E. C. Harrison, and Wm. Gordon Mathews, all of Charleston, and J. S. McWhorter, of Lewisburg, for appellee.
This is an appeal from decrees of the circuit court of Greenbrier county enjoining the officers of the defendant company from making sale of its property and appointing a receiver to take charge of the same, and operate the defendant company's railway. The plaintiff claims to be the owner of 47 shares of the capital stock of said company out of a total of 500 shares thereof. In the month of March, 1917, a general meeting of the stockholders of the defendant company was held after proper notice, and a resolution was unanimously adopted, all of the stock of said company being present and represented at said meeting, providing for the dissolution of the defendant corporation, and for the surrender of its franchises and the sale of its assets, and appointing Henry Gilmer and R. B. Holt trustees for the purpose of administering said assets; the stockholders having determined to dismantle said railway line and sell the steel rails, copper wire, and other materials. The fact that this resolution was adopted by the stockholders was published, as required by law, and thereafter the same was certified to the secretary of state by the proper officers of the defendant corporation, and the operation of the defendant company's railway was discontinued, and preparation made to dismantle the same and dispose of the property. At the time of the meeting in March at which the resolution of dissolution was passed the plaintiff was not interested in said company. The 47 shares of stock now claimed by him were at that time held by a creditor of the company as collateral to secure the payment of a note of $1,000. This 47 shares of stock came into the hands of the company in satisfaction of a debt owing to it, and in accordance with a resolution of the board of directors of said company it was held by a trustee for the use and benefit of the company. The company, desiring to borrow some money to pay its operating expenses, pledged this stock to secure a loan of $1,000. The note evidencing this loan of $1,000 was long past due, and no effort had been made to collect the same until after the resolution of dissolution had been passed. The holder of the note then, without notice to the defendant company, or any of its officers, claims to have privately sold this stock to the plaintiff to satisfy his $1,000 note. The plaintiff, Moore, filed his bill, alleging that he is a stockholder of the defendant company; alleging that the defendants W. S. Coursey and H. L. Van Sickler procured the control of said company for the purpose of destroying it; charging that the resolution of dissolution passed by the stockholders was ultra vires, and that said stockholders had no power to dissolve said corporation, or to discontinue the operation of said railroad; also alleging that the defendants Coursey and Van Sickler had been guilty of mismanagement and of misappropriation of the funds of the said railway, and that a sale had been made of the steel rails and the copper wire belonging to the said railway, and that the same would be removed and said railway dismantled unless an injunction was granted against the same; alleging that the said H. L. Van Sickler and W. S. Coursey were the directors of said defendant company, and had absolute control of a majority of the stock thereof, that they were insolvent, and that, if they were allowed to make sale of said property and receive the proceeds therefor, they would misappropriate the same and deprive the stockholders and creditors thereof.
The Bank of Lewisburg and the Bank of Greenbrier were made defendants to this bill as the owners of a lien against the property of the defendant company secured by a deed of trust thereon. These defendants filed a cross-bill reiterating the allegations of the plaintiff's bill, and asking also for the appointment of a receiver and an injunction as prayed for in the bill of plaintiff. The defendant company and the defendants Van Sickler and Coursey answered the plaintiff's bill and the cross-bill of the defendant banks. Their answers show the history of this railroad. It is shown that from its beginning it was a losing venture; it had been constructed at a cost of more than $120,000, and four or five years thereafter it became so involved that it was sold under a decree of the federal District Court for the sum of $35,000. It was then reorganized on a basis of a capital of $50,000; additional money was spent; but the receipts arising from the operation of said railroad have never been sufficient to pay the expenses of operating and maintaining the same. The defendants show that by dismantling said railroad and selling the material in the same they will be enabled to pay all the debts of the defendant company and have a substantial surplus for distribution among the stockholders because of the extraordinary prices which they would now be able to obtain for these railroad materials. They deny all the allegations of fraud and embezzlement of the funds of the company, and they set up the dissolution of said company by its stockholders, and assert the same to be authorized by the law of the land. They also aver the appointment of Henry Gilmer and R. B. Holt as trustees to administer the assets of the company for the creditors and stockholders, and deny that there is any likelihood that these trustees will dissipate or misappropriate the fund arising from the sale of the assets of said company.
A large number of affidavits are filed, from which it conclusively appears that no one has ever been able to operate this railroad advantageously. During the ten years of its operation it has continuously lost money for its stockholders, and it is shown that it is now in a very unsatisfactory physical condition, notwithstanding no dividends have ever been paid out of its earnings to the holders of stock.
The plaintiff contends that the circuit court of Greenbrier county had jurisdiction to appoint the receiver herein, and to enjoin the sale of the property of said company upon two grounds: First, because the defendants H. L. Van Sickler and W. S. Coursey were grossly mismanaging the affairs of said company, and were misappropriating its assets; and, second because the defendant company, being a public service corporation, could not dissolve and surrender its franchises, but that the same must be sold as a going railroad company, including in such sale not only the physical property, but the franchises thereof, and that the attempt to dissolve the same,...
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