Sidway v. Missouri Land & Live Stock Co.

• Decision Date: 28 May 1902
• Citation: 116 F. 381
• Parties: SIDWAY v. MISSOURI LAND & LIVE STOCK CO., Limited, et al.
• Court: U.S. District Court — Western District of Missouri

116 F. 381

SIDWAY v. MISSOURI LAND & LIVE STOCK CO., Limited, et al.

United States Circuit Court, W.D. Missouri, Western Division.

May 28, 1902

Lathrop Morrow, Fox & Moore and W. Cloud, for complainant.

Frank Hagerman and George Hubbert, for defendants.

PHILIPS District Judge.

The motion to remand raises two principal questions: First, that the defendant J. M. Purdy is a citizen of the state of Missouri, and the cause of action is joint as to the alien corporation, on whose application the cause was removed from the state court into this court, and the resident defendant J. M. Purdy; and, second, because the alien defendant corporation had, prior to the application for a removal from the state circuit court, so far appeared to the merits of the case as to have waived and lost the right to remove. To a proper understanding and solution of the first objection a brief reference to the history of this controversy and the state statute on which this suit is based is important. In 1899 this complainant instituted a like suit against the defendant corporation in the state court, which was removed into this court by the defendant. A demurrer to the bill was sustained by this court. See 101 F. 481. Thereupon the complainant filed an amended bill, setting up substantially the same material facts, with some additional averments, but in all essential particulars containing the same facts alleged in the present bill respecting the defendant corporation. The defendant again demurred, and that demurrer was heard by Judge Adams, of the Eastern district of this state, which demurrer was sustained. The principal ground of the court's rulings was that, the defendant being an alien corporation of Scotland, Great Britain, neither at common law nor under the then existing statute of this state would an action lie in favor of an individual shareholder of the corporation, in the courts of this country for the appointment of a receiver, looking to the winding up of its corporate business and the distribution of its assets as if it were a domestic corporation, thereby working a practical dissolution of this alien corporation; such jurisdiction inhering alone in the methods of procedure in the foreign state where the corporation was chartered, and where its governing board of directors are domiciled. Acquiescing in the correctness of this ruling, the complainant was instrumental in procuring the passage, by the state legislature, of an amendment to the state statute (see Laws Mo. 1901, p. 89), the purpose of which was to enable a resident shareholder of this country to obtain a footing in the state courts to have a receiver appointed for all the property of the corporation situate in the state of Missouri, where its principal business was being conducted, and to wind up the corporation, administer and distribute its assets among the shareholders. The evident purpose of which was to obviate the ruling of this court in said first suits. The whole gravamen of all the bills of complaint is the alleged derelictions, mismanagement, and maladministration of the nonresident board of directors acting under the policy and dictation of the great majority of the alien stockholders. In the present bill of complaint, as in its antecedents, in order to lay a foundation for the footing of a single stockholder to go around the board of directors and ask the interposition of a court of equity, the complaint sets out the letter of grievance addressed to the stockholders in Scotland, demanding, when they met at the regular annual period for the election of directors, that they take a reckoning of the affairs of the corporation, and steps for the correction of the abuses resulting in wastefulness, and the ruinous policy of administration pursued by the governing board. The bill alleges their failure to heed all of his suggestions, and to rectify the course of management pursued by the board. While complaint was made of the incompetency of the defendant Purdy, of his unbusiness-like methods and wasteful management, as also the amount of compensations allowed him by the directors, there was neither in the letter of grievance nor in the former bills of complaint any allegation or pretense that Purdy was guilty of any malversation in the local agency of the corporation, or that he had misappropriated a cent of the corporate property. And when the present bill is correctly analyzed it is apparent from its repeated averments, that whatever course was pursued, action taken, or thing done by Purdy was under the constant surveillance, direction, and policy of the board of directors. The framer of the present bill for the first time joined Purdy as a party defendant, and it is quite apparent to the court's mind that the principal object in mind in thus joining him as a defendant was to prevent the submission of the cause to the judgment of the court which had ruled upon the former bills.

It is to be conceded that in determining the question of jurisdiction and removal the court has nothing to do with the underlying motive of the actor, except in so far as it may appear on the face of the bill or evidence aliunde. Does the bill on its face state a joint cause of action against the corporation and Purdy? The entire substance of the allegations in respect of the accountability of the defendant Purdy are as follows: First. That shortly after the organization of the company it established at Neosho, Mo., a general office and agency in about the year 1887; that the defendant Purdy was placed in charge as general manager, and has ever since so continued; and that he has failed to keep books of account, records of land sales, and contracts for the sale of lands, and other documents pertaining to the business of the corporation. Second, That the said Purdy, and the persons associated with him in said office as clerks, assistants, etc., have been conspiring and confederating with the directors and officers of the company in Edinburgh, Scotland, and are conducting the business of said company in accordance with said conspiracy; and that acting upon instructions received from said directors continue to refuse to allow the American shareholders permission to examine the books, contracts, and other papers of the corporation, or to have extracts, memoranda, and copies thereof, and have withheld from the complainant and other American shareholders information respecting the business of said corporation, and the results thereof, except as gathered from the annual reports made and issued by the directors and officers of said corporation at Edinburgh, Scotland, which have been incomplete and unsatisfactory; and that the object of this, on the part of the directors and officers, was to exclude from the complaint information respecting the affairs and transactions of the corporation, in order to conceal the ruinous policy and business methods adopted and pursued by the directors in the management aforesaid, 'with the approval of the majority of the shareholders, and to enable them to protect themselves against the consequences thereof by buying in the shares of said company at small valuations, based upon such reports of the affairs of said company as it may suit their interests to make public. ' Third. That the management of the property of the defendant company as trustee has been such as to substantially defeat the object and purposes of its shareholders in entering into such relation. It is then distinctly averred 'that the methods and policy pursued by the directory of said company, which, against the remonstrances and protests of plaintiff and other American shareholders, have been ratified and approved by the great majority of the shareholders, who are residents of Scotland, and under the immediate influence and control of said directory, have resulted in serious delays in the conversion of the property acquired by said company, entailing large and unnecessary payments for interest and expenses of operation, in addition to actual losses and misappropriations of money and assets as hereinbefore explained. ' The apprehended danger of further losses is then averred to result from the further pursuit of this policy by the directors. It is then finally averred that the defendant Purdy is, and has been, under the complete control and management of said directors, and obeys their instructions and wishes in all respects; and that he has conspired and confederated with the directors, and assisted them in the mismanagement of the business affairs of the defendant corporation as aforesaid; and that he has assisted them in the mismanagement, squandering, and concealing of the funds and assets of the defendant corporation, and has failed to account to the corporation therefor, and has failed to institute suits against the officers and agents of the corporation for the recovery of the funds and assets of the corporation squandered and concealed and unaccounted for. The bill then states that the complainant, being remediless under the rules of the common law, can only obtain relief in a court of equity, and says: 'To the end, therefore, that the said defendant company, the Missouri Land & Live Stock Company, Limited, may full, true, direct, and perfect answer make to all and singular the matters and things hereinbefore alleged and charged. ' It does not demand of the defendant Purdy that he make any answer at all; nor does it demand that he make discovery. From which it is apparent that whatever Purdy did was as manager, under the control and direction of the board of directors. The charge of conspiracy is a mere brutum fulmen, for the conspiracy with the directors was only 'in the management of the business and affairs of the defendant company as aforesaid. ' If he was acting, as the bill repeatedly...