Von Arnim v. American Tubeworks
| Decision Date | 23 June 1905 |
| Citation | 74 N.E. 680,188 Mass. 515 |
| Parties | VON ARNIM et al. v. AMERICAN TUBEWORKS et al. |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
Chas T. Gallagher and Walter B. Grant, for appellants.
Sherman L. Whipple, William R. Sears, and Edwin M. Brooks, for appellees.
All the material allegations of the amended bill that are well pleaded must be taken as admitted by the several demurrers. The demurrants, with one exception, which will be noticed later, rely upon the same grounds of defense; raising the general question whether a case is stated that entitles the complainant to equitable relief.
Under a bill of complaint brought by a minority stockholder against the officers of the corporation for official misconduct by which its assets have been wrongly appropriated, it is obligatory for him to allege and prove that they have failed to perform their duty, thus causing a breach of their trust; that, upon notice and reasonable request, the corporation has refused to take action, or that it is so under the control of the wrongdoers that any application for relief would be an idle ceremony; and that the complainant himself has been diligent in seeking and prosecuting his remedy. Hawes v. Contra Costa Water Co., 104 U.S. 450, 26 L.Ed. 827. In the present case the wrongful conduct of the individual defendants, who are respectively president, treasurer assistant treasurer, and directors of the company, is averred to have been the unlawful taking by them of its funds in excess of their several salaries or of the value of their services. See Putnam v. Gunning, 162 Mass. 552, 39 N.E. 347. It is also alleged that the treasurer and assistant treasurer were each receiving a regular salary as compensation for his services, though there is no similar allegation concerning the employment of the president, and that their misappropriation of corporate property, which continued for a number of years, was purposely concealed from all stockholders other than those implicated. Upon the face of the bill no reference is made to any by-law of the corporation or vote of the stockholders or of the directors sanctioning such use of the company's assets. However valuable the services of these officers may have been in advancing its business interests, they rightly could not take these funds for their services under the fiction that such an appropriation was in payment of salary or commissions on profits, unless in some proper form their action was authorized by the corporation. Sawyer v Pawners' Bank, 6 Allen, 207, 209; Pew v. First National Bank of Gloucester, 130 Mass. 391; Re Geo. Newman Co. (1895) 1 Ch. 674.
The defendants' argument that these payments to themselves have been sanctioned and ratified by the long continuance of the custom itself ought not to prevail. Neither the plaintiffs, as trustees, nor the testatrix, who appears to have been an original stockholder, are shown to have been cognizant at any time of the course being pursued, and they cannot be held to have ratified by their silence official misconduct of which they had no knowledge. Metropolitan Coal Co. v. Boutell Transportation & Towing Co., 185 Mass. 391, 397, 70 N.E. 421. Even if a majority of the stockholders consented to ratify an illegal use of its funds, their assent would not bind a protesting minority, or prevent them from obtaining appropriate equitable relief. Eaton v. Robinson, 19 R.I. 146, 31 A. 1058, 32 A. 339, 29 L. R. A. 100; Brown v. De. Young, 167 Ill. 549, 47 N.E. 208; Blair v. Telegram Newspaper Co., 172 Mass. 201, 51 N.E. 1080.
But if the plaintiffs have sufficiently alleged a breach of their trust by the defendant officers, it is insisted by all the defendants that the bill must be dismissed for want of a previous application to the corporation itself for redress. When the company was originally organized it apparently was designed to be, and has continued, a close corporation, whose stock almost exclusively has been owned by the family composed of the defendants, their deceased brother, and their aunt, the testatrix, under whose will the plaintiffs are trustees. These defendants, who, as directors, are stated to have combined with themselves, when acting as president, treasurer, and assistant treasurer, for the purpose of effecting the alleged wrong, are also represented as owning a large majority of the capital stock, and consequently have full control of the company's affairs. To require an application to be made to the wrongdoers for relief within the corporation, as a condition precedent to maintaining this bill, would be futile, for they could prevent any remedial action being taken. When, therefore, it appears that such an application must, in the nature of things, be unavailing, the law does not require it to be made. Brewer v. Boston Theatre Co., 104 Mass. 378; Dunphy v. Traveller Newspaper Association, 146 Mass. 495, 16 N.E. 426; Blair v. Telegram Newspaper Co., 172 Mass. 201, 51 N.E. 1080; Dimpfel v. Ohio & Mississippi Railroad Co., 110 U.S. 209, 3 S.Ct. 573, 28 L.Ed. 121.
It is well settled that equity aids the diligent, and refuses relief to those who slumber upon their rights, and that the defense of long and unexplainable delay, when accompanied by a full knowledge of the facts, or of information which should put a party upon his inquiry, if shown by the bill, may be raised by demurrer. Sawyer v. Cook, 74 N.E. 356. But where, as in this case, it is alleged that a minority stockholder, while relying on the business management of her nephews, has been by them deliberately kept in ignorance of the true state of affairs, followed by a refusal upon request of the trustees of her estate for access to the books of the corporation, and such access and the method of corporate administration shown by them were obtained only after a bill in equity for relief has been brought, it cannot reasonably be said that there has been a want of diligence in her lifetime, or since her death an unreasonable delay after the facts were known, sufficient to bar this suit. Dunphy v. Traveller Newspaper Association, 146 Mass. 495, 16 N.E. 426; Doane v. Preston, 183 Mass. 569, 67 N.E. 867; Loring v. Palmer, 118 U.S. 321, 344, 6 S.Ct. 1073, 30 L.Ed. 211.
The failure to join as parties those referred to under the allegation of 'other persons acting in concert and participating with them' affords no ground for dismissing the complaint, as the defendants are answerable for their own misconduct under the third prayer for relief, while they are not responsible for the independent illegal acts of unnamed parties. Todd v. Old Colony & Fall River Railroad Company, 3 Allen 18, 20, 80 Am. Dec. 49; Bay State Gas Co. of Delaware v. Lawson, 74 N.E. 921.
In addition to the general causes of de...
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