Smith v. Biggs Boiler Works Co., 239

• Decision Date: 03 September 1952
• Docket Number: No. 239,239
• Citation: 33 Del.Ch. 183,91 A.2d 193
• Parties: , 34 A.L.R.2d 1125 SMITH v. BIGGS BOILER WORKS CO. et al. Civ. A.
• Court: Court of Chancery of Delaware

Page 193

91 A.2d 193

33 Del.Ch. 183, 34 A.L.R.2d 1125

SMITH v. BIGGS BOILER WORKS CO. et al.

Civ. A. No. 239.

Court of Chancery of Delaware.

Sept. 3, 1952.

David Snellenberg, II, and John Van Brunt, Jr., of the firm of Killoran & Van Brunt, Wilmington, for plaintiff.

William E. Taylor, Jr., Wilmington, for defendants.

BRAMHALL, Vice-Chancellor.

Plaintiff and defendant Krizanek were each the holder of 50% of the outstanding common stock of The Biggs Boiler Works Company, a Delaware corporation. Subsequently Krizanek transferred a one-sixth interest to a third party. Plaintiff is a resident of the State of Connecticut; the individual defendants are residents of the State of Ohio. On December 6, 1950, at Cleveland, Ohio, plaintiff and defendant Krizanek executed an agreement, purporting to be a voting trust agreement, and naming the plaintiff and the individual defendants as the voting trustees for this stock. The agreement provided that any two of the three named trustees would have the power to vote all the stock. At the time of the execution of the agreement the certificates for all of said stock were on deposit with The First National Bank of Akron, Ohio, under a refunding agreement between plaintiff and defendant Krizanek and the former owners of the stock. There was also outstanding an option agreement for the sale of one-third of all the common stock. The agreement provided that the certificates should not be deposited with the trustees, but should remain in escrow with the bank at Akron, Ohio, until September 30, 1951, the time on which the refunding agreement expired. Under certain conditions the stock would not be delivered to the trustees at all, in which event the agreement to create a voting trust would be terminated. Until the deposit with the said trustees of the certificates of stock which were the subject of the agreement the stock was not to be registered in the names of the voting trustees on the books of the corporation. The agreement also provided that the certificates should be considered for the purposes of the trust as if they had been actually deposited with the voting trustees and as if new certificates had actually been issued to them. The certificates of stock have never been deposited with the voting trustees, nor have they ever been registered in their names on the records of the corporation. The record does not disclose that a copy of the agreement was ever filed in the principal office of the corporation in this state, as provided by Section 18 of Chapter 65, § 2050, Revised Code 1935.

In the amended complaint, designated as an amended and supplemental complaint, filed on April 25, 1952, in addition to the facts set forth in the original complaint, plaintiff complained of certain actions of the defendants occurring after the filing of the original complaint and by reason thereof included in the amended and supplemental complaint a prayer for the removal of the defendant Steadman as a voting trustee.

The corporation was summoned by service on its resident agent and the defendant trustees were served by publication pursuant to paragraph 4374, Revised Code 1935. Counsel appeared specially for the individual defendants to move for the vacation of the order for service by publication and to dismiss for want of jurisdiction. Both motions were denied. The amended complaint was served on the attorney who had appeared for defendants to make the motions aforesaid.

The defendants have filed a number of motions relative to the amended and supplemental complaint, which, in effect, raise the following questions:

(1) Must the defendant Krizanek be joined as a party defendant in his capacity as a stockholder?

(2) Does this court have jurisdiction over the defendants upon the amended complaint?

(3) Is the voting trust agreement valid?

(4) Should the defendant Steadman be removed as a voting trustee?

(1) Must the defendant Krizanek be joined as a party defendant in his capacity as a stockholder?

Defendants contend that Krizanek as a stockholder in the company is a necessary and indispensable party and must be joined as a defendant.

I see no merit in this contention. The action against Krizanek is against him only in his capacity as a voting trustee and not as a stockholder. While a stockholder may be joined as a necessary party and if he is not he will not be bound in that capacity by any judgment which may be rendered in the suit, the motion to amend will not be denied on that ground. See West v. Sirian Lamp Co., 28 Del.Ch. 328, 42 A.2d 883. This court has jurisdiction of voting trustees involving shares of stock in Delaware corporations. Perrine v. Pennroad Corporation, 19 Del.Ch. 368, 168 A. 196. This authority includes the power of removal for cause. It is ancillary to the duty of the court to see that the trust is properly administered. Broeker v. Ware, 27 Del.Ch. 8, 29 A.2d 591; In re Catell's Estate, 28 Del.Ch. 115, 38 A.2d 466. In this action Krizanek as a stockholder is therefore not an indispensable party.

(2) Does this court have jurisdiction over the defendants upon the amended complaint?

Defendants have moved to strike the amended and supplemental complaint of the plaintiff on the grounds: (1) that the amended and supplemental complaint sets forth a new cause of action and that therefore service thereof must be made in the same manner as service of an original complaint; (2) that defendants are in court only by reason of a special appearance and that therefore proper service may be made only upon them and not upon counsel.

Generally a supplemental complaint may be filed for the purpose of setting forth facts which have occurred since the filing of the original bill. If these supplemental facts should warrant, additional relief may be prayed for. The practice in the federal courts with respect to supplemental complaints (the rule in this court is similar) is set forth in Moore's Federal Practice, Vol. 3, p. 859, (2 Ed.), as follows:

'While a matter stated in a supplemental complaint should have some relation to the cause of action set forth in the original pleading the fact that the supplemental pleading technically states a new cause of action should not be a bar to its allowance but only a factor can be considered by the court in the exercise of its discretion; and, of course, a broad definition of 'cause of action' should be applied here as elsewhere.'

See Miller v. Cook, 135 Ill. 190, 25 N.E. 756, 10 L.R.A. 292; Story's Equity Pleading (8th Ed.) Sec. 336.

In the original complaint plaintiff asserted the invalidity of the agreement as a voting trust agreement. According to plaintiff's allegations in the amended and supplemental complaint, the defendant trustees at a purported special meeting of the corporation stockholders on April 16, 1951, acting as voting trustees under said voting trust agreement, voted the stock purported to be assigned under said agreement to remove the plaintiff as a director of the corporation and a successor was elected in his place. On April 17, 1951, as alleged by plaintiff, at a purported special meeting of the directors of the corporation, plaintiff was removed as president and secretary, at which time, or shortly thereafter, every connection which plaintiff had with the corporation was severed. On May 7, 1951, concurrently with the filing of this action, plaintiff filed suit in this court, asking for a decree invalidating said special meeting of stockholders and the action taken thereat. This court declared the alleged voting trust agreement to be invalid, held said meeting illegal and ordered plaintiff reinstated as a director and officer of the corporation. The amended and supplemental complaint, in addition to the allegations above referred to, also included an additional prayer that Steadman be removed as a voting trustee.

The supplemental complaint is therefore an adjunct to the original complaint. It merely sets forth facts occurring subsequent to the filing of the original bill and, as a result of those facts, adds an additional prayer for relief.

Where there is a good cause of action stated in the original complaint, a supplemental complaint setting forth facts subsequently occurring which justify other and further relief is proper. City of Texarkana v. Arkansas, Louisiana Gas Co., 306 U.S. 188, 620, 59 S.Ct. 448, 455, 83 L.Ed. 598. See also Freeman v. Bee Machine Co., 319 U.S. 448, 63 S.Ct. 1146, 87 L.Ed. 1509; Bartlett v. New York, N. H. & H. R. Co., 226 Mass. 467, 471, 115 N.E. 976; Shaw v. Bill, 95 U.S. 10, 24 L.Ed. 333. Those defendants who are already in court are bound to take notice of the filing of a supplemental complaint to the same extent that they are bound to take notice of other proceedings in the cause. French v. Hay, 22 Wall. 238, 22 L.Ed. 854.

This court has already decided, and its opinion in this respect has been affirmed by the supreme court, that the present action is an action in rem and that an order for substituted service under the provisions of 4374 of the Revised Code of 1935 will lie against the individual defendants as trustees. They are therefore now in court and are bound to take notice of the filing of an amended complaint to the same extent that they are bound to take notice of any other proper proceeding in the cause. French v. Hay, supra. There is therefore no occasion for a subpoena. The fact that the defendants have not seen fit personally to accept copies of the amended and supplemental complaint does not affect the plaintiff's action. That defendants had actual notice of the filing of the supplemental bill is apparent from the motions which have been made on their behalf. Perrine v. Pennroad Corporation, supra. Further notice to the defendants of the amended and supplemental complaint was not necessary.

(3) Is the voting trust agreement valid?

In a companion action hereinbefore referred to, instituted at the time the present action was begun, plaintiff prayed that the...