Southern Pac Co v. Bogert, No. 305

CourtUnited States Supreme Court
Writing for the CourtBRANDEIS
Citation250 U.S. 483,39 S.Ct. 533,63 L.Ed. 1099
Docket NumberNo. 305
Decision Date09 June 1919
PartiesSOUTHERN PAC. CO. v. BOGERT et al

250 U.S. 483
39 S.Ct. 533
63 L.Ed. 1099
SOUTHERN PAC. CO.

v.

BOGERT et al.

No. 305.
Argued April 17 and 21, 1919.
Decided June 9, 1919.

[Syllabus from pages 483-485 intentionally omitted]

Page 486

Messrs. Lewis H. Freedman, Gordon M. Buck, and Arthur H. Van Brunt, all of New York City, for petitioner.

Messrs. Charles E. Hughes and H. Snowden Marshall, both of New York City, for respondents.

Mr. Justice BRANDEIS delivered the opinion of the Court.

In 1888, and for some years prior thereto, the Southern Pacific Company dominated the Houston & Texas Central Railway Company, electing directors and officers through one of its subsidiaries, which owned a majority of the Houston Company stock. In 1888, pursuant to a reorganization agreement, mortgages upon the Houston Company properties were foreclosed, and these were acquired by the Houston & Texas Central Railroad Company; the old company's outstanding bonds were exchanged for bonds of the new; all the new company's stock was delivered to the Southern Pacific; its lines of railroad were incorporated in the transcontinental system of that corporation; and the minority stockholders of the old Houston Company received nothing. In 1913 the appellees, suing on behalf of themselves and other minority stockholders, brought this suit in the Supreme Court of New York to have the Southern Pacific declared trustee for them of stock in the new Houston Company and for an accounting. The plaintiffs below being citizens and residents of New York, and the Southern Pacific, a Kentucky corporation, it removed the case to the District Court of the United States for the

Page 487

Eastern District of New York; and that court, after a hearing on the evidence, entered a decree for the plaintiffs. Bogert v. Southern Pacific Co., 226 Fed. 500. See, also, Bogert v. Southern Pac. Co. (D. C.) 215 Fed. 218, and Id. (D. C.) 211 Fed. 776. There had been issued by the old Houston Company 77,269 shares of stock, and by the new 100,000 shares. The decree declared that the Southern Pacific held for plaintiffs and other stockholders who intervened 24,347.9 shares in the new Houston Company, directed that it should deliver to them these shares and also in cash the sum of $702,336.61 (being the aggregate of all dividends paid thereon) and interest thereon from the times the several dividends were received, upon receiving from them 18,816 shares in the old Houston Company and also with each share of old stock delivered $261 in cash and interest thereon from February 10, 1891. This decree was affirmed by the Circuit Court of Appeals (Bogert v. Southern Pac. Co., 244 Fed. 61, 156 C. C. A. 489); and the case comes here on certiorari (245 U. S. 668, 38 Sup. Ct. 190, 62 L. Ed. 539).

In considering the many objections urged against the decree, it is important to bear constantly in mind the exact nature of the equity invoked by the bill and recognized by the lower courts. The minority stockholders do not complain of a wrong done the corporation or of any wrong done by it to them. They complain of the wrong done them directly by the Southern Pacific and by it alone. The wrong consists in its failure to share with them, the minority, te proceeds of the common property of which it, through majority stockholdings, had rightfully taken control. In other words, the minority assert the right to a pro rata share of the common property; and equity enforces the right by declaring the trust on which the Southern Pacific holds it and ordering distribution or compensation. The rule of corporation law and of equity invoked is well settled and has been often applied. The majority has the right to control; but when it does so, it

Page 488

occupies a fiduciary relation toward the minority, as much so as the corporation itself or its officers and directors. If through that control a sale of the corporate property is made and the property acquired by the majority, the minority may not be excluded from a fair participation in the fruits of the sale.2

The facts on which the decree is based are carefully set forth in the bill of complaint; and the decree declares in terms that every allegation contained in its is true. No adequate reason is shown for challenging, in any respect material for the purposes of this opinion, the correctness of this concurrent finding of the two lower courts; and it is accepted as correct. Baker v. Schofield, 243 U. S. 114, 118, 37 Sup. Ct. 333, 61 L. Ed. 626. The detailed facts and the evidence upon which they rest are fully recited in the opinions delivered below or in the earlier litigation hereafter referred to; and the facts will be recited here only so far as necessary to an understanding of the several errors of law now insisted upon.

First. The Southern Pacific contends that plaintiffs are barred by laches. The reorganization agreement is dated December 20, 1887; the decree of foreclosure and sale was entered May 4, 1888; the sale was held September 8, 1888; and the stock in the new company was delivered to the Southern Pacific on February 10, 1891. This suit was not begun until July 26, 1913; and not until that time was there a proper attempt to assert the specific equity here enforced, namely, that the Southern Pacific received the stock in the new Houston Company as trustee for the stockholders of the old. More than 22 years had thus elapsed since the wrong complained of was committed. But the essence of laches is not merely lapse of time. It is essential that there be also acquiescence in the

Page 489

alleged wrong or lack of diligence in seeking a remedy. Here plaintiffs, or others representing them, protested as soon as the terms of the reorganization agreements were announced; and ever since they have with rare pertinacity and undaunted by failure persisted in the diligent pursuit of a remedy as the schedule of the earlier litigation referred to in the margin demonstrates.3 Where the cause of action is of such a nature that a suit to enforce it would be brought on behalf, not only of the plaintiff, but of

Page 490

all persons similarly situated, it is not essential that each such person should intervene in the suit brought in order that he be deemed thereafter free from the laches which bars those who sleep on their rights. Cox v. Stokes, 156 N. Y. 491, 511, 51 N. E. 316. Nor does failure, long continued, to discover the appropriate remedy, though well known, establish laches where there has been due diligence, and, as the lower courts have here found, the defendant was not prejudiced by the delay.

Second. The Southern Pacific contends that adverse decisions in the earlier litigation are a bar either as an estoppel or by way of election of remedies; since the prosecution of some, if not all, of the earlier suits also was actively supported by the minority stockholders' committee, and the plaintiffs are bound as privies to the full extent to which the decrees therein constitute res judicata. But in none of these suits was the question here in issue decided. Except in so far as those cases were disposed of on objections to jurisdiction, they decided merely that the foreclosure could not be set aside as fraudulent; that the minority stockholders could not have the reorganization agreement declared fraudulent; and that they could not compel a reduction of the assessment made under it or enjoin distribution of the stock according to its terms. The minority stockholders sought, when presenting the case in the Court of Appeals of New York (MacArdell v. Olcott, 189 N. Y. 368, 372, 373, 82 N. E. 161), to have declared the trust which was later decreed in this suit; but that court refused to consider the contention, for the reason that this claim to relief was based upon a theory 'widely at variance' with that upon which that action was commenced and tried. Because of such wide divergence the earlier decrees do not operate as res judicata. And there is no basis for the claim of estoppel by election; nor any reason why the minority, who failed in the attempt to recover on one theory because unsupported by the facts, should

Page 491

not be permitted to recover on another for which the facts afford ample basis. Wm. W. Bierce, Ltd., v. Hutchins, 205 U. S. 340, 347, 27 Sup. Ct. 524, 51 L. Ed. 828; Barnsdall v. Waltemeyer, 142 Fed. 415, 420, 73 C. C. A. 515; Standard Oil Co. v. Hawkins, 74 Fed. 395, 20 C. C. A. 468, 33 L. R. A. 739; Henry v. Herrington, 193 N. Y. 218, 86 N. E. 29, 20 L. R. A. (N. S.) 249.

Third. The Southern Pacific challenges the claim for relief on the ground that it took the new Houston Company stock, not as majority stockholder, but as underwriter or banker under the reorganizt ion agreement. The essential facts are these: While dominating the old company through control of a majority of its stock, the Southern Pacific entered into its reorganization, under an agreement by which the minority stockholders of the old company could obtain stock in the new only upon payment in cash of a prohibitive assessment of $71.40 per share (said to be required to satisfy the floating debt and reorganization expenses and charges), while the Southern Pacific was enabled to acquire all the stock in the new company upon paying an assessment of $26 per share (said to be the amount required to satisfy reorganization expenses and charges). The Southern Pacific asserts that, unlike the minority stockholders, it assumed an underwriter's obligation to take the new company's stock not subscribed for by the minority, and also guaranteed part of the principal and all the interest on the new company's bonds, which were given in exchange for those of the old company. But the purpose of the Southern Pacific in assuming these obligations was in no sense to perform the function of banker. It was to secure the incorporation of the Houston Railroad into its own transcontinental system. And it was never called upon to pay anything under its guaranty.

Fourth. The...

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291 practice notes
  • Southern Pacific Transp. Co. v. Comm'r of Internal Revenue, Docket No. 3493-69.
    • United States
    • U.S. Tax Court
    • December 31, 1980
    ...Well Equipment Co 155 F.2d 2d 344 (5th Cir. 1946); Gardner v Panama Railroad Co 342 U.S. 29 (1951). See also Southern Pacific Co v Bogert 250 U.S. 483 (1919), for a discussion and application of the doctrine of laches. However, the courts invariably look for (1) inexcusable delay (lack of d......
  • Russell v. Todd, No. 329
    • United States
    • United States Supreme Court
    • February 26, 1940
    ...948, 37 L.Ed. 799; Speidel v. Henrici, 120 U.S. 377, 386, 387, 7 S.Ct. 610, 611, 612, 30 L.Ed. 718; see Southern Pacific Co. v. Boegert, 250 U.S. 483, 39 S.Ct. 533, 63 L.Ed. 1099, where no statute of limitations was pleaded; Id., 2 Cir., 244 F. 61, 65. Page 290 The question remains whether ......
  • Elliott v. Federal Home Loan Bank Board, No. 63-1072
    • United States
    • United States District Courts. 9th Circuit. United States District Court (Southern District of California)
    • September 22, 1964
    ...Co. (7 Cir. 1942) 125 F.2d 369, Cert. den. 316 U.S. 675, 62 S.Ct. 1045, 86 L.Ed. 1749. See also: Southern Pac. Co. v. Bogert et al. (1919) 250 U.S. 483, 39 S.Ct. 533, 63 L.Ed. 1099; 233 F. Supp. 598 Pepper v. Litton (1939) 308 U.S. 295, 60 S.Ct. 238, 84 L.Ed. 281; Jackson v. Ludeling (1874)......
  • United States v. State of Washington, Civ. No. 9213—Phase I.
    • United States
    • United States District Courts. 9th Circuit. United States District Court (Western District of Washington)
    • June 30, 1978
    ...beneficiary and not exercise his duties in any manner other than in the best interests of the beneficiary. Southern Pacific Co. v. Bogert, 250 U.S. 483, 39 S.Ct. 533, 63 L.Ed. 1099 (1919); Garrett v. 1st Nat'l Bank, 153 F.2d 289 (5th Cir. 1946); Spilker v. Hankin, 88 U.S.App.D.C. 206, 188 F......
  • Request a trial to view additional results
291 cases
  • Southern Pacific Transp. Co. v. Comm'r of Internal Revenue, Docket No. 3493-69.
    • United States
    • U.S. Tax Court
    • December 31, 1980
    ...Well Equipment Co 155 F.2d 2d 344 (5th Cir. 1946); Gardner v Panama Railroad Co 342 U.S. 29 (1951). See also Southern Pacific Co v Bogert 250 U.S. 483 (1919), for a discussion and application of the doctrine of laches. However, the courts invariably look for (1) inexcusable delay (lack of d......
  • Russell v. Todd, No. 329
    • United States
    • United States Supreme Court
    • February 26, 1940
    ...948, 37 L.Ed. 799; Speidel v. Henrici, 120 U.S. 377, 386, 387, 7 S.Ct. 610, 611, 612, 30 L.Ed. 718; see Southern Pacific Co. v. Boegert, 250 U.S. 483, 39 S.Ct. 533, 63 L.Ed. 1099, where no statute of limitations was pleaded; Id., 2 Cir., 244 F. 61, 65. Page 290 The question remains whether ......
  • Elliott v. Federal Home Loan Bank Board, No. 63-1072
    • United States
    • United States District Courts. 9th Circuit. United States District Court (Southern District of California)
    • September 22, 1964
    ...Co. (7 Cir. 1942) 125 F.2d 369, Cert. den. 316 U.S. 675, 62 S.Ct. 1045, 86 L.Ed. 1749. See also: Southern Pac. Co. v. Bogert et al. (1919) 250 U.S. 483, 39 S.Ct. 533, 63 L.Ed. 1099; 233 F. Supp. 598 Pepper v. Litton (1939) 308 U.S. 295, 60 S.Ct. 238, 84 L.Ed. 281; Jackson v. Ludeling (1874)......
  • United States v. State of Washington, Civ. No. 9213—Phase I.
    • United States
    • United States District Courts. 9th Circuit. United States District Court (Western District of Washington)
    • June 30, 1978
    ...beneficiary and not exercise his duties in any manner other than in the best interests of the beneficiary. Southern Pacific Co. v. Bogert, 250 U.S. 483, 39 S.Ct. 533, 63 L.Ed. 1099 (1919); Garrett v. 1st Nat'l Bank, 153 F.2d 289 (5th Cir. 1946); Spilker v. Hankin, 88 U.S.App.D.C. 206, 188 F......
  • Request a trial to view additional results

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