Van Denburgh v. Tungsten Reef Mines Co., Civil 3713

• Decision Date: 21 December 1936
• Docket Number: Civil 3713
• Parties: HARRY G. VAN DENBURGH, as Administrator of the Estate of EMMA BEATRICE CLARK, Deceased, Appellant, v. TUNGSTEN REEF MINES COMPANY, a Corporation, GEORGE KRIEG, GRACE L. PARSONS and JESSIE B. PORTER, Personally and as Directors of Said Corporation, and JOHN J. SEEMAN, Appellees
• Court: Arizona Supreme Court

63 P.2d 647

48 Ariz. 540

HARRY G. VAN DENBURGH, as Administrator of the Estate of EMMA BEATRICE CLARK, Deceased, Appellant, v. TUNGSTEN REEF MINES COMPANY, a Corporation, GEORGE KRIEG, GRACE L. PARSONS and JESSIE B. PORTER, Personally and as Directors of Said Corporation, and JOHN J. SEEMAN, Appellees

Civil No. 3713

Supreme Court of Arizona

December 21, 1936

APPEAL from a judgment of the Superior Court of the County of Cochise. John Wilson Ross, Judge. Judgment affirmed.

Mr Robert Young, Mr. Oscar S. Elvrum, and Messrs. Chalmers Fennemore & Nairn, for Appellant.

Messrs Kelby, Lawson & Garroway and Messrs. Ellinwood & Ross, for Appellee Tungsten Reef Mines Co.

Mr Ernest C. Griffith, for Appellee John J. Seeman.

OPINION

LOCKWOOD, C.J.

This is an appeal from a judgment of the superior court of Cochise county dismissing an action, after general and special demurrers to the complaint had been sustained. Since the judgment dismissing was based upon the sustaining of the demurrers, we must consider whether the latter ruling was correct, and, in so doing, must assume that the material allegations of the complaint are true.

The complaint is voluminous and we, therefore, summarize its allegations in narrative form as follows: In the month of June, 1918, there was incorporated in the state of Nevada, and under the laws of that state, a corporation named Tungsten Reef Mines Company, hereinafter called the company, with an authorized capital stock of 400,000 shares of the value of $1 each. It was permitted by its articles to maintain offices in Nevada, California, and Arizona, and actually kept its books, records, etc., in its California office. Immediately after its incorporation, it purchased certain mining claims and water rights in Cochise county, Arizona, from one A. J. Clark, giving to Clark as payment therefor practically all of its capital stock. The only real property of any importance ever owned by the company consisted of the mines above described, together with the appurtenances. Up to the time of his death in 1927, A. J. Clark was the manager of the corporation and president of its board of directors, and directed the entire policy of the company. After his death, the widow, Emma Beatrice Clark, was chosen to fill the place left vacant by him, and continued as president and director up to the time of her death which occurred the 14th of June, 1934. The property was inactive during most of this time, but necessarily required the expenditure of some money for maintenance, and a considerable portion of this was advanced by Mrs. Clark. At the time of her death, there was outstanding some 364,000 shares of the corporate stock, of which she owned a little over one-third, the remainder being held by other persons in smaller amounts. The other members of the board of directors at that time were George Krieg and Mrs. Grace L. Parsons, Krieg being the secretary of the company.On the 5th of July, 1934, there was held a meeting of the survivors of the board of directors, consisting of Krieg and Parsons, at a private residence in Los Angeles, California, and at such meeting Jessie B. Porter was elected to fill the vacancy on the board caused by the death of Mrs. Clark, and was also elected president and treasurer. No notice had been given to the stockholders in general of the intended meeting of the board of directors, and particularly Harry G. Van Denburgh, plaintiff herein, who had just been appointed as administrator of the estate of Mrs. Clark, had no knowledge of it. After the election of Mrs. Porter, there was discussed and considered a contract for the sale of the mines of the corporation to John J. Seeman, one of the defendants herein, which was finally approved by the board. Immediately upon learning of the making of the contract, the plaintiff brought suit in the District Court of the United States, attempting to enjoin the directors of the company from selling the property, or defendant Seeman from working it. Said action, however, was dismissed on the ground there was no diversity of citizenship, whereupon the present suit was brought. It is further alleged in the complaint that the contract of sale was unjust and unfair to such an extent that it constituted a fraud as against the stockholders of the company, and the prayer for relief was that the contract be declared void and of no effect; that Seeman be enjoined from in any way interfering with the property; that the meeting electing Jessie B. Porter as director, president, and treasurer be declared void; and that the title of the property be quieted as against the defendant Seeman and in the corporation. Service on defendant Seeman was made personally in Cochise county, and on the company by serving its statutory agent there. The directors of the company were served personally in California by a deputy sheriff of that state.

A motion to strike and also one to make more definite and certain was filed by defendants Seeman and the company, covering almost the entire complaint in whole or in part, and then they filed general and special demurrers which were, however, substantially similar in their grounds. The directors never appeared nor answered. Apparently from the minutes of the trial court, the motions to strike and to make more definite and certain were never disposed of, the court determining the case on the demurrers, on the 14th day of May, 1935, when the following minute entry was made:

"The Court declines jurisdiction because the subject matter of the litigation and the judgment would relate to the internal affairs and management of a sister state. The questions involved concern local administration and should be relegated to the State where the corporation was organized. The Court sustains defendant's demurrers, both general and special and orders the plaintiff's complaint dismissed, and the same is hereby dismissed."

No request to amend the complaint was made, either before it was dismissed or in the motion for new trial, nor was any amended complaint tendered, and the motion for new trial was denied, whereupon this appeal was taken.

The demurrers to the complaint raise two points which we shall consider as seems advisable. The first was the jurisdiction of the court. It was urged by defendants in this behalf that the suit is, in effect, an attempt to interfere with the management of the internal affairs of a corporation organized under the laws of another state. The general rule in regard to such a situation is set forth in the case of Rogers v. Guaranty Trust Co., 288 U.S. 123, 53 S.Ct. 295, 297, 77 L.Ed. 652, 89 A.L.R. 720, as follows:

"It has long been settled doctrine that a court -- state or federal -- sitting in one state will, as a general rule, decline to interfere with, or control by injunction or otherwise, the management of the internal affairs of a corporation organized under the laws of another state but will leave controversies as to such matters to the courts of the state of the domicile. [Citing cases.] While the District Court had jurisdiction to adjudge the rights of the parties, it does not follow that it was bound to exert that power. [Citing cases.] It was free in the exercise of a sound discretion to decline to pass upon the merits of the controversy and to relegate plaintiff to an appropriate forum. [Citing cases.] Obviously no definite rule of general application can be formulated by which it may be determined under what circumstances a court will assume jurisdiction of stockholders' suits relating to the conduct of internal affairs of foreign corporations. But it safely may be said that jurisdiction will be declined whenever considerations of convenience, efficiency, and justice point to the courts of the stateof the domicile as appropriate tribunals for the determination of the particular case. [Citing cases.]"

And this rule is not seriously questioned by plaintiff. It is contended, however, that the present case does not fall within either part of the rule. Let us then examine the complaint to see which contention is correct. Reducing the allegations and the prayer of the complaint to its simplest form, it appears to us that it is an attempt to set aside a contract for the sale of real estate in Arizona, entered into by the board of directors of the company within the state of California. In order to set aside a contract made by a board of directors of a corporation, it is necessary to show either that the board was without authority to make the contract under the circumstances, or else...