North American Land & Timber Co. v. Watkins

Citation109 F. 101
Decision Date31 May 1901
Docket Number1,059.
PartiesNORTH AMERICAN LAND & TIMBER CO., Limited, v. WATKINS et al.
CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)

This is an appeal from an interlocutory order, rendered ex parte and without notice, appointing a receiver of all the property of the appellant corporation situated in the state of Louisiana. It is alleged in the bill that the appellant is an English corporation, chartered with power to buy and sell lands in the United States, and with other powers not material to mention. The capital stock of the corporation is about $630,000, of which the complainant holds $178,000. The property of the corporation consists of about 800,000 acres of land situated in Louisiana, which it has owned since 1883. It also owns a canal for the purpose of irrigating its lands canal pumping stations, one or more steamboats, and large amounts of choses in action, due to the corporation as the price of land sold by it; and it also holds cash on deposit in a bank or banks at Lake Charles and elsewhere in Louisiana, and other property. In 1897 the directors of the company appointed A. V. Eastman as manager of the company in the state of Louisiana. He is compensated by a salary, the amount of which is not stated, and by commissions upon the sales of real estate made by him. The officers of the corporation do not exercise personal supervision in Louisiana over the affairs of the company in Louisiana. Walter S. B McLaren, chairman of the board of directors of the corporation, paid a visit in March, 1901, to the parish where part of the lands is situated, and remained there several days. He had frequent conversations and interviews while on that visit with the appellee Watkins. In one of these conversations he admitted that the contracts of sale, which will hereafter be stated, 'had not displayed good business judgment, and that he knew that great losses had been made in the premises. ' The sales referred to are described in the bill as follows: 'That your orator, whose business takes him to different places in the United States, but whose interests in the parishes of Calcasieu and Cameron, through his ownership of stock in the defendant corporation and otherwise, are very large, reached Lake Charles, in the parish of Calcasieu, on the forenoon of the 6th day of February, 1901, and during that day heard, as a matter of common rumor on the streets of Lake Charles, that the North American Land & Timber Company, Limited, had sold or contracted to sell about one hundred and three thousand (103,000) acres of its land to one P. Higgins at a price of only three dollars ($3) per acre. That your orator, although he held no official position in the management of the corporation, had a large proprietary interest in its stock as aforesaid, and did, therefore, after assuring himself of the probable truth of said rumors, and that the lands referred to consisted of the said very valuable tract of land lying in the parish of Cameron, along the east shore of Sabine Pass, and that the sale of the same at any such vile price as three dollars ($3) per acre would be most disastrous to him, as well as to the other stockholders in said corporation, at his own expense sent a cable dispatch to J. W. Chalkley, secretary of the North American Land & Timber Company, Limited, at London, England, in the following words, to wit: 'Sale one hundred thousand acres disastrous. Do not approve. Land worth many times price named. Timber Company. Answer quick.' That to this telegram the management of the company has up to this date vouchsafed no answer, either by telegram or by letter, to your orator. That your orator has since learned that said lands were not only contracted to be sold as aforesaid to said Higgins at the absurdly low price of three dollars ($3) per acre, but that said contract of sale was made on the remarkable terms of only five thousand one hundred and thirty-nine 45/100 dollars ($5,139.45) in cash, and the balance on a credit of twelve months. That said contract of sale to said Higgins therefore practically amounts to nothing more than the payment by said Higgins of less than five cents per acre in cash upon said lands as a consideration for an option to purchase the same in twelve months, and that this contract of sale was made at a time when lands far less advantageously situated than those so contracted to be sold to said Higgins were rising so rapidly in value in Calcasieu and Cameron parishes, as also throughout the territory supposed to be an oil territory in Southern Louisiana and Southeastern Texas, that property owners were absolutely declining to tie up their lands by granting options upon the same for periods of more than a few hours or a few days at most. That, notwithstanding the telegram so sent by your orator to said corporation, your orator was surprised and alarmed to further learn about two weeks later that on or about the 11th day of February, 1901, said corporation had contracted to sell about fifty-one thousand seven hundred (51,700) acres more of its land at the same price of three dollars ($3) per acre, and upon the same terms, to the same purchaser, the said Higgins. That in and by each of said contracts of sale it is also agreed that said Higgins may pay at any time for the lands in any particular township at the rate of three dollars ($3) per acre, and receive a warranty deed for the same, without waiting for the expiration of the time of credit above set forth, so that said agreements further allowed and empowered said Higgins to cull and select the best lands at said absurd price, leaving in the hands of the company any of said lands, if any exist, which are of value less than three dollars ($3) per acre. ' It is alleged that in January, 1901, a well was sunk near Beaumont, in the state of Texas, to a depth of about 1,000 feet, and struck a vein of petroleum or natural oil, and that this discovery created a great excitement, and tended to increase the value of real estate. It is alleged that the lands owned by the appellant are situated between 20 and 30 miles from Beaumont, 'and a theory and belief' is asserted that oil would be found generally in the direction of these lands. The bill contains many other averments, some of which may be referred to in the opinion. The object of the bill is to restrain any further sales of the real estate, and to stay the sales described if they are incomplete or unexecuted, and to secure their cancellation by suit to be brought by the receiver if they are found to be executed. The bill contains a prayer for an injunction and for the appointment of a receiver. The court below granted the prayer of the bill, and made an order appointing a receiver of all the property of the corporation situated in the state of Louisiana; conferring on such receiver the usual powers to prosecute and defend suits, and also to carry on the business of the corporation. The appeal is taken from this order. It is assigned here that the court erred in appointing the receiver without notice to the appellant, and that it erred in appointing a receiver because it appeared from the bill of complaint that the company was a solvent, going concern, and 'that the matters complained of were such as a majority of the stockholders, acting with the officers of the company, had authority to control and determine.'

Joseph Paxton Blair (Pujo & Moss and Denegre, Blair & Denegre, on the brief), for appellant.

E. B. Kruttschnitt (E. H. Farrar and B. F. Jonas, on the brief), for appellees.

Before PARDEE, McCORMICK, and SHELBY, Circuit Judges.

SHELBY Circui+9t Judge, after stating the case as above, .

It is a general rule that courts of equity will not interfere in questions of corporate management or policy. They are reluctant to undertake the management of private corporations, and, in the absence of fraud, usurpation, or gross negligence and mismanagement equivalent to fraud, they generally refuse to interfere, and allow the majority of the stockholders to rule, leaving dissatisfied stockholders to redress their grievances by ordinary corporate methods. The complainant in this case is a minority stockholder. He seeks to devest the directors, representing a majority of the stockholders, of the possession and control of the corporate business and property. He has obtained an ex parte order that has that effect. No ultra vires act is alleged in the bill and there is no averment of fraudulent conduct on the part of the directors. It is not charged that either of the directors or the agent, Eastman, is acting fraudulently or in combination with the purchasers of the land. The real cause of the litigation is the sale by the directors, through their agent, Eastman, of 154,700 acres of land. The purchase price was $3 an acre, amounting in the aggregate to $464,100. Of this the sum of $7,735 was paid in cash, and the remainder was to be paid in 12 months. It is not stated whether the deferred payment bears interest or not. It is not alleged that P....

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