Tucker v. New Orleans Laundries, Inc.

• Decision Date: 25 June 1959
• Docket Number: Nos. 41875 and 41876,s. 41875 and 41876
• Citation: 114 So.2d 866,238 La. 207
• Parties: Mrs. Odile V. Hubert TUCKER as a Stockholder of Crescent City Laundries, Inc., etc. v. NEW ORLEANS LAUNDRIES, INC., Crescent City Laundries, Inc., et al., two cases.
• Court: Louisiana Supreme Court

Page 866

114 So.2d 866

238 La. 207

Mrs. Odile V. Hubert TUCKER as a Stockholder of Crescent City Laundries, Inc., etc. v. NEW ORLEANS LAUNDRIES, INC., Crescent City Laundries, Inc et al., two cases.

Nos. 41875 and 41876.

Supreme Court of Louisiana.

June 25, 1959.

Rehearings Denied Nov. 9, 1959.

Richard A. Dowling, New Orleans, William G. McRae, Atlanta, Ga., for plaintiff-appellant.

Sidney A. Wolff, New York City, Dufour, St. Paul, Levy & Marx, Leonard B. Levy, New Orleans, for defendant-appellee.

HAWTHORNE, Justice.

These two cases were consolidated in the court below and were consolidated for argument in this court. The two cases are derivative actions brought by Mrs. Odile V. Hubert Tucker as a stockholder of Crescent City Laundries, Inc., for herself and for others similarly situated. Each suit is brought on behalf of Crescent City Laundries, Inc., by plaintiff as a stockholder, and Crescent is made a party defendant. Numerous other corporations and persons were named as defendants in each suit, among these being New Orleans Laundries, Inc.; officers and directors of Crescent City Laundries or their heirs; officers and directors of New Orleans Laundries; certain persons named as the voting trustees of National Linen Service Corporation; National Linen Service Corporation; surviving members of the bondholders' committee of Crescent; numerous persons as stockholders of National Linen Service Corporation and the legal representatives of those who are deceased; Succession of Charles Leftwich; W. Irving Moss; Succession of Byron C. McClellan; and others it is not necessary to name.

Numerous exceptions and pleas were filed to plaintiff's petitions, among these being no right and no cause of action, res judicata, prescription of one, two, five, and 10 years, vagueness, and laches. The cases were not tried on the merits. The trial judge sustained the pleas of res judicata and exceptions of no cause of action, and dismissed both of plaintiff's suits at her costs against all defendants. From these judgments plaintiff perfected appeals to this court.

The correctness of the trial judge's rulings is the sole question before us on these appeals.

As stated previously, these are stockholder's derivative actions filed by plaintiff as a stockholder in behalf of herself and others similarly situated, to enforce rights alleged to belong to the corporation, which has been named as a party defendant. According to 13 Am.Jur. 497, § 451, Corporations, 'Stockholders may obtain relief in equity against the officers of a corporation who wrongfully deal with its property to the injury of the stockholders'. In Pomeroy, Equity Jurisprudence, v. III, p. 2524, § 1095 (4th ed. 1918), it is said:

'* * * Whenever a cause of action exists primarily in behalf of the corporation against directors, officers, and others, for wrongful dealing with corporate property, or wrongful exercise of corporate franchise, so that the remedy should regularly be obtained through a suit by and in the name of the corporation, and the corporation, Either actually or virtually refuses to institute or prosecute such a suit, then, in order to prevent a failure of justice, an action may be brought and maintained by a stockholder or stockholders, * * * either individually or suing on behalf of themselves and all others similarly situated, against the wrong-doing directors, officers, and other persons; but it is absolutely indispensable that the corporation itself should be joined as a party,--usually as a co-defendant.'

See Watkins v. North American Land & Timber Co., 107 La. 107, 31 So. 683; Crichton v. Webb Press Co., 113 La. 167, 36 So. 926, 67 L.R.A. 76.

The petitions in these cases are exceptionally lengthy. For example, in Suit No. 41875 on our docket the petition and the amended petition together comprise approximately 60 pages in the transcript. The petition in Suit No. 41876 is likewise exceptionally long. Accordingly we will not in this opinion attempt to set out in detail all of the many allegations in these pleadings, but will state only such as we think material or necessary for the purpose of this decision.

Suit No. 41875, which was filed on November 30, 1951, alleges that petitioner is the owner of a designated number of shares of the perferred stock of Crescent City Laundries, Inc., and that she institutes this suit for herself and others similarly situated on behalf of Crescent City Laundries, Inc.; that in August of 1928 the stockholders of National Linen Service Corporation authorized the acceptance by National of deeds conveying certain property belonging to Southern Linen Supply Corporation, Atlanta Laundries, Inc., and Crescent City Laundries, Inc., in consideration of 20,629 shares of its preferred stock and 150,000 shares of its common stock without nominal or par value; that in due course National issued and delivered its Certificate No. 1 for 150,000 shares of its fully paid common stock to I. M. Weinstein, A. J. Weinberg, J. B. Jacobs, Sidney Souers, B. C. McClellan, Charles Leftwich, and W. Irving Moss who were designated as 'voting trustees'; that the voting trustees acquired these shares of stock pursuant to a trust agreement in writing establishing a voting trust for such stock; that under this trust agreement the voting trustees were to cause the issuance of a trust certificate to each owner of this common stock of National for the stock which each stockholder would be entitled to receive upon termination of the voting trust together with all additional shares to which each stockholder might be entitled because of any stock dividend or dividends that should be declared and paid; that Crescent City Laundries was the owner prior to November, 1928, of 77,735 shares of National common stock, and that under the terms of the trust agreement the voting trustees were obligated to cause to be issued and delivered to Crescent a stock trust certificate for these 77,735 shares of the common stock of National; that they caused to be issued to Crescent a stock trust certificate for only 23,548 shares but never issued to Crescent a stock trust certificate for the balance of 54,187 shares of the stock; that the voting trustees agreed among themselves and with certain officers and directors of Crescent and with other persons, all of whom knew the position of trust occupied by the voting trustees under the terms of the trust agreement, to defraud Crescent out of 54,187 shares of common stock of National and to conceal this fraud; that they executed the conspiracy by causing a stock certificate representing these shares of common stock of National to be issued in the name of a majority of Crescent's officers and directors and the names of certain persons who were parties to the conspiracy; that all of this was concealed from Crescent; that designated officers and directors of Crescent together with its assistant secretary, charged as directors with the duty of protecting the interest of Crescent, violated their duties and obligations by conspiring with certain other named persons and corporations to defraud Crescent out of its National common stock; that National Linen Service was represented in the conspiracy by the members of its board of directors named in the petition; that Banco Atlantida, a bank organized under the laws of Spanish Honduras, was represented in the conspiracy by its named president, its manager, and one of its directors, and that Atlanta Laundries, which was likewise a party to the conspiracy, was represented by B. C. McClellan, T. A. Martin, and others, constituting a majority of its board of directors, and its general counsel; that the voting trustees caused to be issued stock trust certificates for 54,187 shares of the common stock of National to numerous named persons, among whom were the directors and officers of Crescent, Atlanta Laundries, National Linen Service Corporation, and others, many of whom were directors of more than one of these corporations, and that these persons received and accepted the stock without paying anything for it, and that Crescent never received any consideration for the shares; that stock dividends and cash dividends were declared from time to time, but Crescent never received any dividends paid on the stock or any shares substituted for it; that Crescent City Laundries did not learn until December 3, 1941, of the alleged fraud perpetrated upon it by the voting trustees and its officers and board of directors, some of whom, as stated above, were likewise officers and directors in the other corporations; that the board of directors of Crescent after acquiring knowledge of the fraud took no steps to protect the rights of Crescent and to preserve the corporation as a going concern for the benefit of its stockholders, but instead of performing their duty as directors entered into a conspiracy with numerous others and among themselves to divert a large portion of Crescent's assets to the conspirators, to the end that the corporation could not longer engage in business.

The petition also alleges that pursuant to this conspiracy a bondholders' protective agreement with respect to Crescent's first mortgage bonds was entered into between certain persons constituting the committee and certain holders of the bonds who agreed to become parties to the conspiracy; that further pursuant to the conspiracy a suit was filed against Crescent City Laundries for judgment recognizing a special lien under a mortgage given to secure the payment of the bonds; that a judgment was rendered by default against Crescent, and in due course a fieri facias issued thereunder, and all of Crescent's physical assets, both immovable and movable, were seized and advertised for sale at public auction; that at the time of the seizure Crescent owned and was operating in the City of New Orleans seven laundry plants, one carpet, rug, and drapery cleaning service, one dry cleaning plant, a storage department, and...