Wallace v. Motor Products Corporation

• Decision Date: 22 October 1926
• Docket Number: No. 1500.,1500.
• Citation: 15 F.2d 211
• Parties: WALLACE v. MOTOR PRODUCTS CORPORATION et al.
• Court: U.S. District Court — Western District of Michigan

15 F.2d 211 (1926)

WALLACE v. MOTOR PRODUCTS CORPORATION et al.

No. 1500.

District Court E. D. Michigan, S. D.

October 22, 1926.

Lucking, Hanlon, Lucking & Van Auken, of Detroit, Mich., for plaintiff.

Warren, Cady, Hill & Hamblen and Leo M. Butzel, all of Detroit, Mich., and Hoyt A. Moore, of New York City, for defendants.

SIMONS, District Judge.

This cause is now before the court on a motion to dismiss the bill of complaint, and also upon a rehearing of plaintiff's motion, heretofore considered, to remand the cause to the circuit court for the county of Wayne, whence it was removed to this court.

The suit was commenced in the circuit court for the county of Wayne, one of the courts of record of the state of Michigan, and removed to this court; a motion to remand being denied. The bill is filed by the plaintiff, a stockholder in the defendant, Motor Products Corporation, "on behalf of himself and all other holders of common stock of said defendant," against said defendant corporation and certain individuals therein alleged to be the owners of a majority of the stock of said corporation and in control thereof; some of said individual defendants being also directors, and others thereof officers of said corporation. The bill alleges "that defendant, Motor Products Corporation, is a corporation organized and existing under the laws of the state of New York"; that it was originally incorporated under the laws of said state in 1916, "was reorganized or reincorporated under the laws of said state of New York" in 1923; and that "said defendant, Motor Products Corporation, claims to have been reorganized and reincorporated again by the filing of a certificate of incorporation on January 28. 1926"; that the principal manufacturing plant and the greater portion of the assets of said corporation are located within the state of Michigan; that on or about January 12, 1926, plaintiff received from the defendant president of said corporation a notice of a proposed reorganization thereof at a special stockholders' meeting on January 27, 1926, for reasons and upon terms and conditions set forth at length in such notice, a copy of which is set out in said bill; that "shortly after" the receipt of said notice plaintiff "protested" to the officers of said corporation against such reorganization; that, "notwithstanding the protest of said plaintiff, the defendants herein, who owned or controlled more than two-thirds of the outstanding stock of said defendant Motor Products Corporation, voted in favor of the adoption of said plan of reorganization at the special stockholder's meeting mentioned in said letter of January 12, 1926, and caused a resolution approving said plan of reorganization to be apparently adopted by a vote of more than two-thirds of the outstanding stock of said corporation"; that "substantially all of the said individual defendants were personally and individually interested in increasing the value of the preferred stock and decreasing the value of the common stock of the said corporation, all in violation of and to serious damage to the rights of the holders of said common stock"; that said plan of reorganization is "a violation of the rights of holders of the common stock of said corporation, amounts to a discrimination against the holders of said common stock, unlawfully enriches the holders of the preferred stock of the corporation to the disadvantage of that portion of the holders of the common stock who own no preferred stock, and was and is unfair, illegal, and void"; that "within a few days after said proposed plan of reorganization was announced, and as a result thereof, the market value of the common stock of said corporation depreciated over $40 per share, so that plaintiff herein was damaged thereby in a sum exceeding $40,000"; that "because of the personal interest of the defendant directors, and because of their lack of good faith and their violation of the duty which they were under to treat all of the stockholders of said corporation fairly and without discrimination, all of the proceedings which may have been taken to effect said plan of reorganization were and are illegal and void, and constitute a fraud upon the holders of the common stock of said corporation." The bill prays that the defendants be restrained from taking any further steps to effect said reorganization and from taking any corporate action pursuant thereto; that "the court by its decree cancel, rescind, and set aside all steps and proceedings of whatsoever name and nature that may have been taken to effect and consummate said plan of reorganization"; that "the court by its decree place all of the stockholders of said corporation in the same relative position in which they were situated prior to the alleged adoption of said plan of reorganization"; and for an accounting of the profits and damages arising from said reorganization.

I have given full consideration to the additional arguments advanced orally and in briefs of counsel in further support of plaintiff's motion to remand, and find no reason for any other or different ruling upon that motion than is contained in the memorandum opinion previously filed thereon in this cause.

The motion to dismiss the bill is based on several grounds. The argument first presented is based upon the ground that the granting of the relief sought would constitute an interference with the internal affairs of a foreign corporation which this court, exercising in this case the jurisdiction and powers of the state court from which the case was removed, should not undertake. The question as to the circumstances under which, and the extent to which, the courts of one state should attempt to regulate the internal corporate affairs of a corporation organized under the laws of another state is a question of considerable difficulty, and one on which the decisions of the courts are not in entire harmony. The considerations and principles applicable to this subject are thus referred to in 12 Ruling Case Law, at page 29 et seq.:

"There are obvious difficulties that would be encountered if the courts of one state undertook to adjust the internal affairs of a foreign corporation formed under the laws of a different state, and having its habitat within the borders of another sovereignty. The absence of a visitorial power over such a corporation, and the absolute inability to enforce a forfeiture of its charter for a violation of the law, or to remove its officers for misconduct, or to punish them for malversations in the place of its domicile, are open and apparent obstacles in the court's pathway, should it assume to exercise an extraterritorial jurisdiction. Besides all this, there is a lack of the means to do full justice, and a want of the machinery to enforce against the corporation, in the place of its domicile, any decree the foreign court may render in such a proceeding. For these and similar reasons the doctrine is well settled that courts will not attempt to exercise visitorial powers over foreign corporations, nor will they ordinarily interfere with the management of their internal affairs, unless such power is expressly conferred by local statutes. Such express authorization is not, however, given by statutes which in general terms provide means for bringing foreign corporations into the courts of a state, or which provide that residents may bring actions in the courts for any cause of action. The courts of the domicile of the corporation should be resorted to when it is sought to regulate the internal affairs of a corporation. The difficulty, however, lies in drawing the line of demarcation between the matters which do, and those which do not, pertain to the management of the internal affairs of a corporation, and an examination of the decisions discloses considerable inharmony in this regard. To entertain an action to dissolve a corporation; to determine the...