Singer v. Allied Factors, Inc.
| Decision Date | 18 February 1944 |
| Docket Number | No. 33407.,33407. |
| Citation | 216 Minn. 443,13 N.W.2d 378 |
| Court | Minnesota Supreme Court |
| Parties | SINGER v. ALLIED FACTORS, Inc., et al. |
Appeal from Judgment of District Court, Hennepin County; W. W. Bardwell, Minneapolis, Judge.
Action by E. H. Singer against Allied Factors, Inc., and others, brought by plaintiff as a stockholder of, and in behalf of Apex Dress Company, to impress a trust on certain of the corporation's assets transferred to defendant Fairchild Dress Company, or in lieu thereof for damages, for an accounting by individuals named as defendants, or in lieu thereof for such damages as Apex Dress Company sustained by reason of defendants' wrongful acts, and for general relief, in which a cross-bill was filed against plaintiff. Judgment for defendants, and plaintiff appeals. On defendants' motion to dismiss the appeal.
Appeal dismissed.
Louis Sachs, of Minneapolis, for appellant.
Best, Flanagan, Rogers, Lewis & Simonet, Stanley V. Shanedling, Leonard, Street & Deinard, and Smith & Callahan, all of Minneapolis (Irving Juster, of Minneapolis, of counsel), for respondents.
Don A. Jenkins, of Minneapolis, Minn., pro se.
E. H. Singer, the original plaintiff, brought this action as a stockholder of and in behalf of the Apex Dress Company, a corporation, to impress a trust upon certain of its assets transferred to the defendant Fairchild Dress Company or, in lieu thereof, to recover damages; for an accounting by the individuals named as defendants participating in the transfers or, in lieu thereof, such damages as Apex sustained by reason of their wrongful acts; and for such general relief as the facts might warrant. Plaintiff claims that he stands in the position of a stockholder of Apex in virtue of the fact that he is a stockholder of Allied Factors, Inc., which owns some preferred stock of Apex. He also claims to be a creditor of Apex.
Numerous defendants were joined. Of these, James M. Thompson and the Ambassador Garment Company are out of the case and will be passed without discussion. The other defendants include three corporations, viz., Allied, Apex, and Fairchild, certain named individuals who were officers and stockholders in control of these corporations, and Don A. Jenkins, who prior to the commencement of the action was appointed receiver for Apex by the district court of Hennepin county. In substance, the complaint alleges that the defendants, other than Jenkins, pursuant to a conspiracy, by wrongful, ultra vires, and illegal acts caused to be transferred to Fairchild certain assets, goodwill, and personnel of Apex.
The receiver, appearing pro se, by his separate answer in effect admitted the allegations of the complaint and joined in plaintiff's demand for relief. The answers of the other defendants controverted the complaint.
At the commencement of the trial, the parties stipulated that the cause of action sued upon belonged to Jenkins as receiver for Apex; that the receiver was the real party in interest; and that the action should be prosecuted by him. Prior to the trial, Singer's counsel had been appointed associate counsel for the receiver. During the trial, Singer's counsel resigned as such and thereafter appeared of record exclusively as counsel for the receiver. A cross-bill was then filed against Singer, who appeared pro se in opposition thereto. The record shows that it was stated in open court "by said Singer and his former attorney that the expenses of this litigation had been and were being borne by said Singer."
Upon conflicting evidence, the trial court made findings of fact and conclusions of law in favor of the defendants. Judgment was entered thereon on April 4, 1942. Subsequent thereto, on August 15, 1942, on the receiver's petition showing that he had abandoned any prospect of realizing anything further by reason of the receivership, the district court allowed his account, discharged him, and exonerated his sureties. In the judgment costs were awarded against Singer as nominal plaintiff.
Singer as plaintiff, without the receiver joining, appealed from the judgment. No assignment of error is made on the appeal relative to the judgment for costs against Singer. The only questions which he raises relate to the cause of action in favor of Apex sued upon below. Defendants moved to dismiss the appeal upon the ground, among numerous others, that plaintiff is not entitled to appeal for the reason that he is not a party aggrieved by the judgment.
1. The first question is whether plaintiff is entitled to appeal in behalf of Apex. We shall assume, but for the purposes of decision only, that Singer, as the original plaintiff, by reason of the facts that he owns stock in Allied and that Allied owns preferred stock in Apex, was entitled to maintain a representative action in behalf of Apex. See Schmid v. Ballard, 175 Minn. 138, 220 N.W. 423; Wachsman v. Tobacco Products Corp., D.C., 42 F.Supp. 174; 13 Fletcher Cyc. Corp. (Perm. Ed.) p. 350, § 5977.
An appeal may be taken only by "the aggrieved party." Minn.St.1941, § 605.09, Mason St.1927, § 9498. A corporation is a distinct entity from its stockholders. All corporate powers, franchises, and rights are vested in the corporation and not in the stockholders. Among such powers is that of suing and defending in its own name. Because a corporation and its stockholders are separate entities, the stockholders may not sue in its behalf. Mealey v. Nickerson, 44 Minn. 430, 46 N. W. 911; 2 Dunnell, Dig. & Supp. § 2069. Even in a representative action by a stock-holder in behalf of the corporation, the cause of action and any recovery belong to the corporation to the exclusion of the stockholder. Briggs v. Kennedy Mayonnaise Products, Inc., 209 Minn. 312, 297 N.W. 342; Seitz v. Michel, 148 Minn. 80, 181 N.W. 102, 12 A.L.R. 1060; Id., 148 Minn. 474, 181 N.W. 106. Nor can a corporation sue in behalf of its stockholders. Waseca Co. Bank v. McKenna, 32 Minn. 468, 21 N.W. 556. As a logical consequence, a stockholder ordinarily cannot appeal in behalf of a corporation. Ex parte Cutting, 94 U.S. 14, 24 L.Ed. 49; State of Florida v. Florida Cent. R. Co., 15 Fla. 690; White Brass Castings Co. v. Union Metal Mfg. Co., 232 Ill. 165, 83 N.E. 540, 122 Am.St.Rep. 63; McFarland v. Pierce, 151 Ind. 546, 45 N.E. 706, 47 N.E. 1; Preston v. Poe, 116 Md. 1, 81 A. 178. In the Cutting case the court held that, since stockholders do not represent a corporation, they are not entitled to appeal, and said (94 U.S. at page 22, 24 L.Ed. at page 51): "The stockholders do not represent the corporation, but for some purposes the corporation represents them."
A party aggrieved is one whose personal right is injuriously affected by the adjudication. One who has no interest in the subject of the litigation cannot be aggrieved by the adjudication and consequently has no right to appeal. Kellogg v. Chicago, R. I. & P. R. Co., 126 Minn. 31, 147 N.W. 667. The fact that the identity of a corporation is separate and distinct from that of its stockholders is determinative of who is the party aggrieved by a judgment against it. A corporation is a party aggrieved by a judgment against it, because its rights are injuriously affected thereby. A stockholder is not a party aggrieved by a judgment against a corporation, because he has no individual right injuriously affected thereby. In re Michigan-Ohio Bldg. Corp., 7 Cir., 117 F.2d 191; Difani v. Riverside County Oil Co., 201 Cal. 210, 256 P. 210; Levert v. Shirley Planting Co., 135 La. 929, 66 So. 301.
Accordingly, Singer, as the original plaintiff who instituted the action, was not an aggrieved party. His right to sue as the representative of the corporation and other stockholders depended upon the refusal of the receiver of Apex to bring the action. Porter v. Sabin, 149 U.S. 473, 13 S.Ct. 1008, 37 L.Ed. 815; Farwell v. Great Western Tel. Co., 161 Ill. 522, 44 N E. 891; Annotation, 29 A.L.R. 1505. There is analogy between the right of a stockholder to sue in behalf of a corporation where a receiver refuses to do so and the right of a stockholder to sue in behalf of the corporation where it does not do so. Both cases present a case of dual wrong— in each there must be a wrong to the corporation to be redressed, and in each there must be a wrong to the stockholders consisting of the failure of the party primarily charged with the duty of obtaining such redress (the corporation in the one case and the receiver in the other) to perform that duty. See Briggs v. Kennedy Mayonnaise Products, Inc., 209 Minn. 312, 297 N.W. 342. Singer was divested of whatever right he may have had to sue as the representative of the corporation by the stipulation at the commencement of the trial to the effect that the cause of action belonged to the receiver and that he was the real party in interest and the real plaintiff, under which stipulation the receiver took over the prosecution of the action. The effect thereof was to remedy the wrong claimed to have been done to the stockholders through the receiver's failure to sue to obtain redress for the wrongs to the corporation, upon which Singer's right to sue in a...
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