Sidway v. Missouri Land & Live-Stock Co.

• Decision Date: 02 April 1900
• Citation: 101 F. 481
• Parties: SIDWAY v. MISSOURI LAND & LIVE-STOCK CO., Limited.
• Court: U.S. District Court — Western District of Missouri

101 F. 481

SIDWAY v. MISSOURI LAND & LIVE-STOCK CO., Limited.

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

April 2, 1900

W Cloud, for complainant.

Geo Hubbert, for respondent.

PHILIPS District Judge.

This is a bill in equity by a stockholder against a foreign corporation, the general purpose of which is to have a receiver appointed for the corporation, to conduct and manage its affairs for the protection of the complainant, who is a citizen of the state of Missouri. The defendant is an alien corporation, organized under the laws of the United Kingdom of Great Britain and Ireland, with its principal office located at Edinburgh, Scotland, where its directors and all its stockholders, except the complainant and perhaps one or two others, holders of about 2,500 shares,-- the complainant representing 1,000 shares,--reside. The company was organized principally for the purpose of acquiring and selling lands in the state of Missouri and adjacent states, with its local business office and manager located in Newton county, in this district. The original capital stock of the company was $500,000, which was increased to $750,000, of which $450,000 was paid in; and in addition to this it raised in cash upon its debentures the sum of $300,000, making a capital equal to the face value of its stock. With this capital the defendant purchased about 370,000 acres of land situate in counties lying in the southwestern part of the state of Missouri. The bill sets out with some particularity the history of the management of this business by the board of directors through its general manager, and claims that its affairs have been so managed and conducted as to show wasteful extravagance and unaccounted for expenditures, the lack of good business judgment and administration, so as to greatly depreciate the value of the stock, and that the course of management persisted in by the board of directors, with the approval of a majority of the alien stockholders, threatens to continue to depreciate the value of the complainant's stock, and that this course of conduct is actuated by a desire and purpose on the part of said nonresident majority stockholders to acquire the complete management and control of the complainant's interest, so as to destroy the value of his stock. The complainant specifies certain grievances as to the management of the corporation, some of which he admits theretofore had been corrected by the board, but that the most objectionable matters complained of were not remedied. The bill also sets out in detail the complaint formulated by the complainant and the other domestic stockholders, which was addressed to the alien majority stockholders, giving a summary of all the grievances of these minority stockholders respecting the bad business management of the properties of the company, in useless and wasteful expenditures, and the refusal of the directors to admit the complainant to an inspection of its books, and their failure to render to him any satisfactory account of an expenditure of about $300,000 claimed by the board to be covered under the general head of 'Expenses'; that, at the annual general meeting of the stockholders prior to the institution of this suit, he laid all these matters before the stockholders at Edinburgh Scotland, and that instead of said stockholders, thus assembled, heeding his complaints and rectifying the alleged wrongs, they approved of the course of management, and, in effect, authorized the continuance thereof, by the re-election of the same directors who are pursuing the same course of conduct in the management of the properties and business of the corporation. There are other averments and detailed statements contained in the bill, which it is not deemed essential to recite, as they do not affect the questions of law raised by the demurrer to the bill interposed by the defendant. The bill concludes by averring:

'That the corporation has wholly failed of the purpose of which it was organized, and the business should be wound up, and its assets distributed among the shareholders equitably; and, to that end, your orator prays that a receiver may be appointed to take charge of the property, books, accounts, and evidences of debt, all of which are within the jurisdiction of the court; that an account be taken of the assets of the company, and that the accounts and debts due to said company be collected and brought into court, and that its liabilities be paid off; and that its assets be equitably distributed among its shareholders in such manner as may to the court seem equitable and just,-- and such other and further relief as to the court may seem meet.'

This suit was instituted in the state circuit court of Newton county, where service was had upon the defendant corporation through its local managing officer; and upon the petition of the defendant, as an alien, the case was removed into this court, where the defendant appeared and demurred to the bill.

There is no allegation of the insolvency of the corporation. On the contrary, it is distinctly admitted, and stated in the brief of complainant's counsel, that the company is solvent, with ample assets and resources, if properly managed, to not only meet its outstanding obligations, but yield large dividends to the stockholders. The important question, therefore, to be decided, is, has this court the right to interpose, at the relation of a single resident minority stockholder, to take charge of the business and property of this foreign corporation, and run it, through a receiver, with a view to winding up its affairs, and distributing its assets among its creditors and stockholders? There is no disguising the fact that the practical effect of such interposition would be to put an end to the active life of the corporation. Anything short of this would be ineffectual to afford the complainant the relief he seeks. It does not meet this contention to say that the mere appointment of a receiver and the administration of the business of the corporation do not ipso facto dissolve the corporation, as it franchise would nevertheless be left intact, and it would continue to exist as a legal entity. If is a recognized principle of corporation law that an act which to all intents and purposes terminates the corporation, by taking from it the means to fulfil the purposes of its organization, is inconsistent with the purposes of its constitution, because such act would work a practical dissolution of the corporation. Abbot v. Rubber Co., 33 Barb. 578, 21 How.Prac. 193, 20 How. 199. High, in his work on Receivers (section 288), holds that courts of equity, in the form of a visitorial power over corporations, will not seize their assets and take take away the management of their affairs from the hands of its managing officers, through a receiver, on the application of a creditor or shareholder, 'since such interference would necessarily result in the dissolution of the corporation, and the court would thus accomplish indirectly what it has no power to do directly. ' Therefore the remedial power to be exercised by such courts should go no further than the granting of an injunction to restrain and prevent the misdeeds and misconduct of such managing officers, and the like. In Neall v. Hill, 16 Cal. 146, which was a bill against a corporation and its officers, etc., charging the officers with combining with the majority of the stockhold*** to have themselves elected as trustees, in violation of the by-laws, and that as such trustees they were guilty of fraud, collusion, and mismanagement, with a view to the depreciation of the value of the stock and to obtain the control thereof, the bill prayed for the removal of said officers, and for an accounting and winding up of the corporation. The corporation in that case was a domestic corporation, and the officers were made parties to the bill. It was held not only that the officers could not be removed by a court of equity, but that a receiver could not be appointed to seel all of said property and to settle up the affairs of the company. The court said:

'This decree, if permitted to stand, must necessarily result in the dissolution of the corporation, and in that event the court will have accomplished in an indirect mode that which in this proceeding it had no power to do directly. It is will settled that a court of equity, as such, has no jurisdiction over corporate bodies for the purpose of restraining their operations or winding up their concerns. We do not find that any such power has ever ben exercised in the absence of a statute conferring jurisdiction. There is not doubt that in the present case the court had jurisdiction to compel the officers of the corporation to account for any breach of trust, but the jurisdiction for that purpose was over the officers, and not over the corporation.'

The question, therefore, arises whether or not a court of equity in the jurisdiction where the foreign corporation has a situs for transacting its business, and where its property is situated, and without the presence of its nonresident directors, had jurisdiction, at the suit of a minority stockholder, who complains alone of the internal management of its affairs, whereby the value of his stock has been diminished and is threatened with further prospective injury to appoint a receiver for such corporation, and thereby assume the management of its business, with a view to winding up its affairs and distributing its assets. While there are persuasive reasons which appeal to a chancellor to exert to the utmost his powers to come to the relief of the resident stockholder, and save him the trouble, expense, and possible unequal chances of seeking redress in a distant foreign jurisdiction, it is sufficient...