Robinson v. Holbrook

• Decision Date: 23 May 1906
• Citation: 148 F. 107
• Parties: ROBINSON v. HOLBROOK et al.
• Court: U.S. District Court — District of Rhode Island

148 F. 107

ROBINSON v. HOLBROOK et al.

United States Circuit Court, D. Rhode Island.

May 23, 1906

Guggenheimer Untermyer & Marshal (Samuel Untermyer and Walter B. Vincent of counsel), for complainant.

Richard B. Comstock, and Comstock & Canning, for defendants.

BROWN District Judge.

In disposing of this petition for a preliminary injunction, we may pass all questions as to the regularity of the call for the special meeting of the shareholders of the Gorham Manufacturing Company, and as to the breadth of the powers conferred upon the directors, and proceed at once to the substantial questions presented by the resolution of the board of directors of the Gorham Manufacturing Company passed May 1, 1906. This resolution instructed Mr. Holbrook the treasurer of the Gorham Company, to vote upon the shares of stock of the Silversmiths' Company held by the Gorham Company, in favor of an increase of the capital stock of the Silversmiths' Company from $100,000 to $10,000,000, divided into 100,000 shares at $100 each; for an issue of 70,000 shares at par, as follows: $1,750,000, or 17,500 shares, at par for cash to holders of preferred and common stock of the Gorham Company in proportion to their holdings, any portion of said 17,500 shares not taken by the Gorham Company shareholders to be sold to the public; $5,250,000, or 52,500 shares, or so much thereof as may be taken in exchange at par, to holders of the common stock of the Gorham Company, in exchange for their holdings in the Gorham Company at a valuation of $210 per share for the common stock of the Gorham Company. The treasurer was further instructed to sell to the Silversmiths' Company, the Gorham Company's holdings of shares of stock of the Whiting Manufacturing Company, of the William B. Durgin Company, of the Silversmiths' company of Neu Jersey, of the Silversmiths' Company of New York, and all the assets late of W. B. Kerr & Company, Inc., at a price not less than the cost thereof to the Gorham Company to the date of sale.

The complainant, a nonassenting shareholder of the Gorham Company, seeks to enjoin the carrying out of this plan, contending that it is beyond the corporate powers of the Gorham Company, is offensive to the principle that a person occupying a fiduciary relation, who is authorized to sell property for another, cannot himself become the purchaser, directly or indirectly, and is against the rights and financial interest of the complainant. It is also alleged that this plan is not in pursuance of any need or purpose of the Gorham Company, but is solely for the purposes of the majority of shareholders, and especially of Mr. Holbrook; and contemplates and will result in a control of the Gorham Company's affairs by the Silversmith' Company, as a holding company.

After a careful consideration of the complainant's bill, of the affidavits, and of the authorities cited, I am of the opinion that the controversy is of a substantial character, involving important questions of law as to the corporate powers of the Gorham Manufacturing Company, and as to the legal right of a majority of the shareholders of the Gorham Company to effect or to aid in this manner the transfer of important assets of the Gorham Company to the Silversmiths' Company, or to provide for the ownership by the Silversmith's Company of shares of Gorham Company stock. There is reason for thinking that the plan disclosed by the resolutions of the directors may comprehend purposes which hardly can be regarded as corporate purposes of the Gorham Company, or as properly incident thereto.

Assuming that it may be for the interest of the Gorham Company to dispose of its shareholdings in other corporations, though this is disputed by the complainant, there are serious doubts of the right to do this at a price fixed arbitrarily by persons who are to become shareholders in the Silversmiths' Company, which is to acquire these shares of stock; and it is questionable, at least, whether it is a corporate purpose of the Gorham Company to promote, to provide for, or to lend the sanction of its corporate vote to the acquisition by the Silversmiths' Company of a considerable proportion of the shares of stock in the Gorham Company, so that the Silversmiths' Company is to have a considerable voice in, if not control of, the management of the Gorham Company.

It is apparently the purpose of the majority of shareholders of the Gorham Company that the Silversmiths' Company shall be a holding company which shall hold not only the shares of stock in other companies now owned by the Gorham Company, but also shares of stock to the amount of 25,000 shares in the Gorham Company itself. A holding of this amount of shares by the Silversmiths' Company would give it an equal voice with all other shareholders of the Gorham Company in the management of the affairs of the ...