Rathbone v. Parkersburg Gas Co.
| Decision Date | 01 December 1888 |
| Parties | RATHBONE et al. v. PARKERSBURG GAS CO. et al. |
| Court | West Virginia Supreme Court |
Submitted June 19, 1888.
Syllabus by the Court.
In order to entitle a stockholder to institute and maintain a suit in equity to redress a corporate injury committed infra vires, against a solvent corporation in the full exercise of its franchises, and carrying on its corporate business, it must appear not only that the directors are either disabled by their misconduct to sue, or that they have wrongfully refused to do so upon a proper demand; but where the matter will admit of the necessary delay, and it is practicable to call upon the stockholders to act, this must also be done. Until it is shown that every reasonable effort to obtain redress through the regularly constituted agents and controlling power of the corporation has proved unavailing, a stockholder cannot sue in his own name alone, nor on behalf of himself and other stockholders. [1]
A case in which a bill was filed by three stockholders of a solvent corporation, on behalf of themselves and the other stockholders, to enjoin the officers of the corporation, and to appoint a receiver to take charge of its business held, that the bill did not aver such facts as showed the plaintiffs were entitled to institute and maintain the suit. [1]
Appeal from circuit court, Wood county.
J. B Jackson and J. A. Hutchinson, for appellants.
Van Winkle & Ambler, for appellees.
Suit in equity instituted February 7, 1888, in the circuit court of Wood county, by John V. Rathbone, Charles H. Turner, and A G. Clark, suing on behalf of themselves and all other stockholders of the Parkersburg Gas Company against said gas company, C. S. Despard, B. M. Despard, N. Goff, and W. A MacCosh. The bill avers that said gas company is a domestic corporation, organized in 1865, for the purpose of supplying the city of Parkersburg and its inhabitants with gas; that it is the owner of a valuable plant, consisting of real estate and a system of pipes extending through the various portions of the city, and other valuable property representing an outlay of over $75,000, by the operation and use of which it has since 1865 manufactured and supplied said city and its inhabitants with gas, and is still doing so; that its capital stock is divided into 3,000 shares, of the par value of $50 each, of which the plaintiffs, Rathbone, Turner, and Clark, are the owners of 804 shares, and the defendants C. S. Despard, B. M. Despard, Goff, and MacCosh, 1,324 shares; that the other shares are owned by the following shareholders: D. H. Wallace, 100 shares; Gertrude Despard, 318 shares; E. Maxwell, as guardian and executor of the Despard estate, 236 shares; and D. M. Despard, 218 shares,--aggregating 872,--making the total of 3,000 shares; that the defendants C. S. and B. M. Despard are brothers, the defendant Goff a brother-in-law, and the said D. M. Despard is a near relative, of said C. S. Despard; that the said Maxwell, and the defendants B. M. Despard and Goff, reside at Clarksburg, 82 miles from Parkersburg, where the works and office of said gas company are situated, and have taken but a nominal and formal part in the affairs of the company; that at all the meetings of the stockholders of the company for the past 10 years or more the stock held by said C. S. Despard and his said kinsmen, and by said Maxwell, has been controlled and substantially voted by C. S. Despard, who has had the actual and exclusive control of the company and its affairs by reason of his control of the majority of the stock as aforesaid; that the plaintiffs have time and again, at the meetings of the stockholders, protested against the administration and management of the affairs of the company, and have used every means, through complaints in the meetings of the stockholders and to the directors, to secure and honest and just administration of the affairs of the corporation, and that all their efforts have been without avail; that the control has been in the hands of C. S. Despard, who has continued to have himself made president of the company at a salary of $1,500 per year, and has continually demonstrated his unfitness for the position by his reckless disregard of the rights and interests of the plaintiffs, and of the trusts assumed by him; that at a meeting of the stockholders held in February, 1873, said C. S. Despard was made superintendent of the company, to keep its books and to attend to all its business, and that by reason of the control of its stock the said C. S. Despard has ever since contrived to retain the presidency and management of the affairs of the company; that for the past few years the directors of the company have been C. S. Despard, B. M. Despard, N. Goff, W. A. MacCosh, and the plaintiff John V. Rathbone; that the said Goff did not attend any of the meetings of the directors after January, 1882, until November 17, 1887, at which latter date the plaintiff Rathbone met the said Goff and Despard, and stated that the affairs of the company were mismanaged, its funds misappropriated, and the trusts assumed by said C. S. Despard abused by him, and demanded a change of the management of the business of the company, and the resignation of the said Despard as president, but the said directors not only refused to take any action in the matter, but since then there has been no meeting of the board of directors, and nothing has been done to adjust the affairs of the company; that said Maxwell has never attended a meeting of the stockholders, but as a rule he and the other stockholders under the influence of C. S. Despard have been represented by proxies, given to persons selected by said Despard, who voted the same in the interest and at the dictation of said C. S. Despard; that the plaintiffs have repeatedly demanded, and have always been unable to ascertain, and cannot now lay before the court, a correct statement of the affairs of the company, but they charge that for years its books and accounts have been confused and inaccurate, that the finances have been badly mismanaged and incorrectly reported, improper entries have been made, and proper ones omitted, so that the plaintiffs are unable to ascertain the truth respecting the same; that at a meeting of the stockholders held in January, 1880, an attempt was made to have the books examined, and the affairs of the company investigated, by competent persons, but such investigation was prevented by those acting with said Despard, who had a committee, consisting of the plaintiffs Rathbone and Clark, and N. Goff and W. A. MacCosh, appointed to investigate the books, etc.; that said Goff never met with said committed, the plaintiffs Rathbone and Clark and said MacCosh were known to be and were in fact inexpert and not qualified to investigate said books, etc., and the stockholders, although applied to for the purpose, refused to authorize the committee to employ competent experts to assist the committee in such investigation, and that said committee was at the January meeting 1882, discharged on the motion of the defendant Goff, that the meetings of the stockholders held in January and November, 1887, the said C. S. Despard submitted statements showing that there was at each of those times a large amount of money on hand over and above all the liabilities of the company, when in fact both of said statements were false, and there was no money in the treasury of the company, the same having been used by said Despard without authority; that at the January meeting of 1888 no statement was presented, and, upon inquiry as to what had become of the money representing the profits of the preceding 12 months, the said Despard replied he did not know whether he owed the company or not, and could not tell until the books had been examined and corrected; that dividends had been declared to a large amount, which the said Despard neglected and refused to pay, he having used and misappropriated the funds provided for such payment; that he also devoted to his own use the money of the company which should have been applied to the payment of its debts, and thereby caused the company to be sued and harassed; that said Despard used the coal of the company for his private purposes, and rendered no account of it; that by reason of the incompetency and bad management of the business of the company the said Despard has made gas of an inferior quality, and thereby lessened the patronage of the company and sacrificed its interests; that at said meeting of the stockholders in January, 1888, the stock of Goff and Maxwell was placed in the hands of L. W. Hughes as proxy; that those then present were the plaintiffs, the said Hughes, and C. S. Despard, B. M. Despard, and W. A. MacCosh; that, the said Hughes being an officer of the company, it was ruled that he could not act as proxy, and thereupon a vote was taken for five directors, which resulted in the election of the plaintiffs Rathbone and Turner and said MacCosh as three directors, there being a tie vote as to the other two directors and when this result was announced the said MacCosh and the two Despards withdrew from the meeting, and thus, by leaving less than half the stock represented, broke up the meeting, and prevented the election of a full board of directors; that Rathbone and Turner, two of the directors so elected, attempted to confer with MacCosh, the other director, but he refused to act with them, stating that he was under such obligations to Goff and C. S. Despard that he would do nothing contrary to their wishes; that within the past few days a notice, signed by C. S. and B. M. Despard, had been served on the plaintiffs, calling a meeting of the stockholders for February 21, 1888, to...
To continue reading
Request your trial