Shaw v. Davis
| Citation | 28 A. 619,78 Md. 308 |
| Parties | SHAW v. DAVIS ET AL. |
| Decision Date | 11 January 1894 |
| Court | Maryland Court of Appeals |
Appeal from circuit court of Baltimore city.
Bill by Alexander Shaw against Henry G. Davis and others for an accounting and an injunction. From a decree dissolving the temporary injunction and dismissing the bill, plaintiff appeals. Affirmed.
Argued before ROBINSON, C.J., and BRYAN, BRISCOE, PAGE, FOWLER, and McSHERRY, JJ.
Charles Marshall, John L. Thomas, and W. Irvine Cross, for appellant.
W Pinkney Whyte, Bernard Carter, and Frank Wood, for appellees.
We have given most patient and laborious study to the voluminous record now before us, as well as to the full and exhaustive briefs filed by the distinguished counsel who so ably argued the cause; and, after mature deliberation, we now proceed to state as concisely as possible the reasons upon which the conclusions we have reached are founded. The West Virginia Central & Pittsburg Railway Company was incorporated by the legislature of West Virginia with an authorized capital stock of 60,000 shares of the par value of $100 per share. Of these shares, when the pending bill of complaint was filed, 5,000 were held in trust for the company's treasury; 7,200 were owned by the appellant, Alexander Shaw; 2,600 by other members of his family; 30,194 by Henry G. Davis, Thomas R Davis, and Stephen B. Elkins, and their families; and the residue by Thomas F. Bayard, James G. Blaine, William Windom William Keyser, and quite a number of other persons. The road extends from West Virginia Junction, near Piedmont, on the line of the Baltimore & Ohio Railroad, in a southerly direction to Davis, in West Virginia, a distance of some 58 miles. The company owns large tracts of coal and timber land and is chiefly a coal and lumber carrying road. Its sole outlet was, originally, the Baltimore & Ohio Railroad at West Virginia Junction. Not long after it began operations. it encountered serious difficulties with the Baltimore & Ohio and, as described by Mr. William Keyser, it soon became apparent that the business of the West Virginia Central was largely diminished, and that it was greatly embarrassed by the lack of harmonious relations. In fact, the West Virginia Central property because almost sidetracked by the lack of facilities, the want of a cordial understanding, and its consequent inability to make contracts which it would be able to fulfill; and at last the necessity was forced upon this road to get another outlet, or accept the situation of being entirely bottled up. As a result of this condition, the Piedmont & Cumberland Railway Company was organized and incorporated, with a capital stock of 13,000 shares, for the construction of a road, parallel to the Baltimore & Ohio, from Piedmont to Cumberland. Of the capital stock Henry G. Davis, H. G. Davis & Bro., and Stephen B. Elkins hold 7,295 shares, the Pennsylvania Railroad Company holds 4,000 shares, and the residue is held in smaller lots by other persons,--Mr. Shaw owning none of it. On May 21, 1886, a tripartite agreement was entered into between the West Virginia Central, the Piedmont & Cumberland, and the Pennsylvania Railroad Companies, whereby the latter agreed to set apart 5 per cent. of its receipts from traffic coming to its road from the West Virginia Central and going from its road to the latter, as a fund to guaranty the payment of the interest on the bonds of the Piedmont & Cumberland road, which were to be issued to the extent of $650,000, that the money might be thereby raised for the construction of the new road. The West Virginia Central agreed to deliver to the Piedmont & Cumberland all traffic it could control, and the Piedmont & Cumberland agreed to deliver to the Pennsylvania Railroad one-half of all traffic hauled by it to Cumberland; and this agreement was ratified by the stockholders of the West Virginia Central, at a meeting in January, 1887, by a vote of 37,395 shares. With the money raised by the negotiations of these bonds, and by a call of a small installment of the stock subscribed, the Piedmont & Cumberland Railroad was built. When finished, in August, 1887, it was operated by the West Virginia Central under a verbal agreement for 60 per cent. of the gross earnings. Subsequently, and as will be stated more at large later on, the stockholders of the West Virginia Central appointed a committee to consider, and report at an adjourned meeting to be held on March 15, 1890, a permanent lease of the Piedmont & Cumberland road. On the 14th of March the appellant, Alexander Shaw, as a minority stockholder of the West Virginia Central, in behalf of himself and of other stockholders who might come in and be made parties, filed the bill of complaint which inaugurated the pending litigation. The averments of the bill relate to two distinct and disconnected subjects. From paragraph 1 to and including paragraph 7 the bill is confined to a statement of transactions between the West Virginia Central, on the one side, and Henry G. Davis, Thomas B. Davis, and Stephen B. Elkins, on the other, and these are introduced, apparently, for the purpose of showing the mode in which these majority stockholders dealt with the company in matters pertaining, not to this proceeding, but to something totally different. The remaining paragraphs of the bill have reference to transactions between the West Virginia Central and the Piedmont & Cumberland, and to the dealings of Henry G. Davis, Thomas B. Davis, and Stephen B. Elkins, as officers and directors of these corporations, with the corporations themselves, and they may be briefly stated as follows: That Messrs. Davis and Elkins, having subscribed for a majority of the stock of the Piedmont & Cumberland road, gave value to their shares by the following process: (1) With a view of constructing a road that could be cheaply built, they selected a location so low in the valley as to expose the road to heavy and destructive damages in times of floods in the Potomac; that the road was in other respects defectively constructed, and that it is ruinously expensive to operate; that it was designedly so constructed, with a view of having it operated by the West Virginia Central, and of throwing upon the latter company the heavy cost of operating it. (2) Before the Piedmont & Cumberland road was in a condition for the transportation of freight or passengers, the Messrs. Davis and Elkins used their official power in the West Virginia Central to make the latter company complete the construction of the Piedmont & Cumberland road, and, without authority from the stockholders of the West Virginia Central, they,--the Messrs. Davis and Elkins, --as officials of the two companies, made an arrangement by which the West Virginia Central Company began the operation of the Piedmont & Cumberland road in its incomplete condition, whereby the West Virginia Central was made to pay, not only the ordinary cost of operation, but to complete the Piedmont & Cumberland road, and to put upon it bettermerts and improvements for the benefit of themselves as the principal stockholders therein. (3) While the Piedmont & Cumberland road was still a most precarious property, and sure to entail immense expense in its operation, the Messrs. Davis and Elkins determined, at the annual meeting in January, 1890, to risk the attempt to make the stockholders of the West Virginia Central ratify a permanent lease of the Piedmont & Cumberland road, which had been prepared and presented to the meeting; and that the lease was most disadvantageous to the West Virginia Central, and most advantageous to the Piedmont & Cumberland Company; and that the rate of earnings proposed in said lease as a compensation to the West Virginia Central was inadequate, and would be a fraud on the stockholders of that company. (4) When the lease was proposed to the stockholders, the plaintiff made a violent protest against any lease being executed until the accounts between the two companies should be first adjusted, without which adjustment the earning capacity of the Piedmont & Cumberland road, the expense incident to maintaining it, or a fair rate of rental could not be ascertained; that the confused state of the accounts kept by the West Virginia Central renders any accurate statement impossible, and it would be a fraud on the stockholders of the West Virginia Central to have any lease made before a full settlement of these accounts between the two companies; that Messrs. Davis and Elkins consented to adjourn the stockholders' meeting until March 15, 1890, and that it is their design at that meeting to use the power which they have as the holders of the majority of the stock of the West Virginia Central to compel the ratification and acceptance of the lease, which they, as officers of the West Virginia Central, have agreed upon with themselves, as officers of the Piedmont & Cumberland Company. The prayers for relief are--First, for a discovery of the ownership of the stock of the Piedmont & Cumberland Railway; second, for a discovery of the holdings of the stock of the Piedmont & Cumberland Company by the West Virginia Central Company, and the moneys spent by the latter company on the road of the first-named company; third, for an account as to how much money is due to the West Virginia Central by the Piedmont & Cumberland Company for advances made by the West Virginia Central on any account, and, particularly, on account of the completion of the Piedmont & Cumberland, which was paid by the West Virginia Central out of the 60 per cent. operating expenses received under the verbal lease, and which ought to have been charged to the Piedmont & Cumberland and paid out of the 40 per cent. of the gross earnings received by it; and, fourth, for an injunction to...
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