Skinner v. Educational Pictures Securities Corporation

• Decision Date: 18 June 1925
• Citation: 14 Del.Ch. 417,129 A. 857
• Court: Court of Chancery of Delaware
• Parties: GEORGE A. SKINNER, v. EDUCATIONAL PICTURES SECURITIES CORPORATION, a corporation of the State of Delaware, EARLE W. HAMMONS, BRUNO WEYERS, A. S. KIRKPATRICK, M. PLANT and FREDERICK BLACKMORE

129 A. 857

14 Del.Ch. 417

GEORGE A. SKINNER, v. EDUCATIONAL PICTURES SECURITIES CORPORATION, a corporation of the State of Delaware, EARLE W. HAMMONS, BRUNO WEYERS, A. S. KIRKPATRICK, M. PLANT and FREDERICK BLACKMORE

Court of Chancery of Delaware, New Castle

June 18, 1925

BILL FOR AN ACCOUNTING in which the defendant Hammons, as an officer and general manager of Educational Pictures Securities Corporation, is charged with various misconducts whereby the corporation has been defrauded in certain large sums of money. The bill is brought by a stockholder of the corporation in right of the corporation, and its object is to secure an accounting from Hammons and a personal decree against him for payment of the sum found due thereon.

Hammons is the owner and holder of 2313 shares of the common stock of the defendant corporation. He is a non-resident of Delaware.

On the filing of the bill, the complainant obtained a rule for a preliminary injunction to show cause why Hammons should not be enjoined from transferring, and the corporation from permitting to be transferred, the shares of stock held by Hammons as aforesaid, and a restraining order to like affect was issued pending a hearing on the rule.

Since the argument on the rule, the complainant has moved in the alternative for a commission of sequestration, or writ of attachment, or a receiver, or such other process as may be deemed appropriate to hold the property of Hammons until he shall have appeared in this suit, or until the court shall make other order to the contrary.

Various motions have been made by the several defendants. They are as follows:

The defendant, corporation, which has appeared generally, moves to vacate so much of the order heretofore made as (a) restrains it from transferring on its books the shares of stock held by Hammons, (b) requires it to file affidavits on the rule for injunction, and (c) requires it through its secretary to answer interrogatories annexed to the bill of complaint. The motion is based on the ground that Hammons is the principal defendant and is beyond the jurisdiction of this court, that the relief against the corporation is only incidental or ancillary to the relief against Hammons, which is primary, and that inasmuch as the primary relief cannot be had against Hammons because of a lack of jurisdiction over him, the discovery from the corporation sought by the interrogatories cannot be had.

The defendants, Weyers, Kirkpatrick, Plant and Blackmore, who have appeared specially, move to vacate the order of service made as to them because no relief is prayed against them, the court has no jurisdiction over them, they being non-residents and no cause against them being set forth in the bill, and the statutes of this State do not warrant service upon them by publication.

The remaining defendant, Hammons, who has appeared specially moves to vacate so much of the order heretofore entered as (a) directs the issuance of a subpoena against him and a sending of the same to him by registered mail, (b) restrains him from assigning and transferring his shares of stock, (c) directs a rule upon him for preliminary injunction to like effect with the usual provision for affidavits, and (c) requires him to answer the interrogatories addressed to him and annexed to the bill. This motion is based on the ground that Hammons is a non-resident, beyond the jurisdiction of this court, that no cause is set forth in the bill giving this court jurisdiction and power to restrain or enjoin him from selling, etc., his shares of stock or any other property located in this State, and that the order for service of the subpoena by registered mail is in violation of the statute.

Orders disposing of the various motions entered in accordance with the foregoing.

James I. Boyce, for the complainant.

Caleb S. Layton, of the firm of Marvel, Marvel, Layton and Hughes for the defendants.

OPINION

THE CHANCELLOR

The order for subpoena was that the same should be issued to the defendants and that the Register should "also" send a copy of the process by registered mail to the non-resident defendants. The direction that copies of the subpoena should be sent by registered mail to the non-resident defendants does not mean that such mailing would constitute a valid service. The subpoena must be served in one of the ways prescribed by law. Supplementing lawful service by the use of the mails is of no injury to a defendant. If he is not otherwise served in lawful manner, the registered mail will avail nothing. The mailing of a copy of the subpoena is done ex gratia. How can an attempt to give the defendants more notice than the law exacts, raise a just complaint from those who are thus favored?

The individual defendants, other than Hammons, are directors of the defendant corporation. No relief is sought against them. They are not indispensable, nor perhaps necessary parties. Whether they are proper formal parties, was not debated at the argument. Consideration of Hammons and his situation crowded this question from any attention during the discussion. If the individual defendants, other than Hammons desire at this stage to press their contention that they are improperly joined, I prefer to hear further from the solicitors upon the point. In the absence of further argument, their contention will be rejected, with the right reserved to them to renew the point at a later stage. Assuming them to be proper formal parties, there is no reason why subpoenas may not be directed to them. Issuance of subpoenas does not preclude them from pleading to the jurisdiction, and there is therefore no reason why the order for subpoena should be vacated.

The corporate defendant objects to being restrained from transferring Hammons' stock, because the court has no jurisdiction over Hammons and being powerless to restrain him from selling and transferring it, the corporation ought not to be restrained from making a transfer on its books. This turns on the rights of Hammons and, for the reasons given in disposing of Hammons' motion, is a good objection. The restraining order directed to the corporation will therefore be vacated and the rule for preliminary injunction discharged.

The corporation also objects that it ought not to be required to answer the interrogatories because the primary relief against Hammons must fail for want of jurisdiction against him. It is too early to say that Hammons will never appear. His present attitude indicates that he will not. But it is too soon to say conclusively that service can never be had upon him, or that he will never voluntarily appear. The most, therefore, that the corporation, which is in court, can reasonably ask is that its answers to the interrogatories be postponed until after the principal defendant against whom the sole primary relief is sought has been brought into court. It may have an order to this effect.

The questions remaining to be disposed of concern Hammons. He is a non-resident. The bill is for an accounting and seeks a purely personal decree for the payment of money. It in no wise concerns or relates to the shares of stock which Hammons owns; it sets up no equity against those shares. The only possible interest that the complainant can have in those shares is that in case a decree is made against Hammons, the corporation might resort to them in satisfaction, so far as possible, of the sum found to be owing by their owner. The only purpose, therefore, which the injunction that is now sought can serve, is to hold the shares where they now are, in Hammons' name, so as to be available for satisfaction of a possible decree. In Cities Service Co. v. McDowell, et al., 13 Del. Ch. 109, 116 A. 4, it was observed that the writ of injunction could not be used for such a purpose. No authority has been cited which indicates the ruling in that case to be unsound. It determines the disposition which is to be made of the present rule, and an order will accordingly be entered discharging the rule for a preliminary injunction and vacating the restraining order.

The temporary injunction being denied, the complainant's motion for alternative temporary relief will be disposed of. He asks for a commission of sequestration, or a writ of attachment, or a receiver or some other appropriate process, whereby Hammons' stock shall be sequestered, attached, or taken and held until he shall have appeared in answer to the bill.

Our Revised Code of 1915, in Section 3850, provides, as follows:

"3850. Section 7. Order for Appearance, upon Failure of Service and Affidavit; Publication of upon Default, Decree pro Confesso; Enforcement by Sequestration or Delivery of Property Demanded; Payment upon Security for Restitution; Proceedings if Security Not Given.--If after subpoena, or other process, issued and delivered to the sheriff twenty days before the return thereof, any defendant named therein shall not appear according to the rules of the court, the court may, on affidavit that such defendant is out of the State or cannot be found to be served with process, and that there is just ground to believe that he intentionally avoids such service, make an order for his appearance on a certain day,...