BARR -V. PITTS;BURGHPLATE-GLASS CO.
Pittsburgh Phite-Glass Company mould be incJ!eased f1'om'600,000 to $1,920,000, to Mdividedas follows: To J. B. Ford & Co., for Tarentum, $1,120,000; to the'stockholders of the Pittsburgh Plate-Glass Company, $200,000; the Tarentum, 'Works to be finished by J. B. Ford & Co. A meeting of the board of directors of _ Pittsburgh the Plate-Glass Company WIllS held on July 2, 1886, at IWhl,Gh this proposed arrangement was submitted, and 'on :.:notion ,a stockholders' meeting was called for September 6, 1886, to cons-ider the proposal, and the board recommended its acceptance. At the directors' meeting held on July 2, 1886, John Pitcairn asked to be and was excused from voting on account of his personal interest in the transfer of the property. Notice of the stockholders' meeting to be held on September 6, 1886, and of its purpose, was given by public advertisement, and by a circular directed to each stockholder; and on the day appointed for the meeting 5,515 shares out of the whole issue of 5,950 shares were represented. Mr. Barr, the plaintiff, presided at that meeting, and announced to the stockholders present that they had the power to "amend, alter, reject, or affirm the proposition" recommended by the directors. Mter some discussion J. B. Ford & Co. were requested to state the cost of the Tarentum works, which they refused to do, for the reaMn that the basis of the proposed transfer was the relative capacity of the two works. Finally, J. B. Ford & Co. submitted the following terms of consolidation, namely: That the capital stock of the Pittsburgh PlateGlass Company should be increased from $600,000 to $2,000,000, of which Creighton should represent $800,000, subject to a mortgage of $134,000, and Tarentum should represent a capitalstock of $1,000,000; that of this stock increase $200,000 should be distributed among the Creighton stockholders at that date as dividend, and that $1,000" 000 in stock at par should be issued to J. B. Ford & Co., leaving $200" 000 to be issued and sold to the stockholders on September 6, 1886, at par, for a working capital. These terms were approved aDd accepted by the unanimous vote of the stockholders present, and there is no evidence to show that any shareholder who was not represented at the meeting has ever disapproVed of its action. On October 27, 1886, J. B. Ford & Co. ,conveyed the Tarentum works to the Pittsburgh Plate-Glass Company, and received from the latter the entire purchase consideration, $1,000,000 of its stock at par; but, as the Tarentum works were still incomplete, J. B. Ford & Co. pledged $200,000 of the stock at par with the treasurer of the Pittsburgh Plate-Glass Company as security for the completion of Tarentum. The Pittsburgh Plate-Glass Company took possession of Tarentum, and have operated the same ever since. The Tarentum works were completed by J. B. Ford & Co. in the spring or summer of 1887, but it was not until AJpril 17, 1888, that the firm made a formal demand on the Pittsburgh Plate-Glass Company for the return of the pledged stock, whereupon, at a meeting of the board of directors, a resolution was adopted instructing the treasurer to deliver the stock. This resolution was passed over the protest of Mr: John Scott, one of the directors, and the
treasurer refused W obey. the instructions of the board. At a subsequent meeting of the board of directors, held on November 20, 1888, a protest signed by several of the stockholders was presented, stating in substance thatJ. B.Ford & Co. had, in violation of they OiWed· to the company and its stockholders; voted to themselves and received a price for the works at Tarentum grossJ.y in excess of the · thereof, and have no claim either in law or con'SCience to the stock now demanded by them; and the pl'()testants requested that a meeting of the stockholders should be called, to have atull and fair investigation of the whole matter. Accordingly, a meeting of the stockholders was held on December 5, 1888, the proceedings of whioh disclosed much dissatisfaction on the part of several who were present with the alleged excess of. price received by J .. B. Ford & Co. for· Tarentum, whereupon Mr. John Pitcairn stated that, if the stockholders repented the acquisi· tion'6f Tarentum, his firm would agree to a rescission of the con· tract of sale, and he submitted a written proposition to that end. In that paper the whole transaction is reviewed, and it concludes with the· promise that J. B. Ford and John Pitcairn, who owned a majority of the stock, would refrain from voting on the question of reBiCission, and leave its settlement to the minority stockholders. At this stage of the proceedings, on motion of a minority stockholder, a cotllimitteeof five was appointed "to thoroughly investigate all the drcM.mstancesconnected. with this eomplaint, and this proposition ofM!'. Pitc'airn's, and also to recommend a course of 3ICtion for thee minority stockholderS, and that their report be made at the next! regular annual meeting of the company, to be holden in JanuarY." This committee consisted exclusively of minority stockholders, who at once entered on the discharge of their duties, and before them several witnesses, whose testimony is fully reported,inthe record. The investigation by the committee appears to have been conducted with considerable zeal and industry, and on January 22, 1889, at the annual stockholders' meeting, they presented a unanimous report, stating that by the delay of J. B. FO'I'd & Co. in completing the Tarentum works the company had suffered no estimruble damage; that the committee was unable to decide whether J.B. Ford & Co.'s profits were more than they were entitled to or not, as they could not ascertain the cost of the works. The report observes that the building of plate-glass works by the principal stockholders or officers of the Pittsburgh Plate-Glass Company that may hereafter be in competition with the company is, at least, questionable as to the good faith of such transactions; butin the judgment of the committee the acquisition of the Tarentum works has been on the whole favorable to the general interests of the company, and the transl;Lction should not be disturbed; and that the proposition for rescission should not be entertained. This report was adopted by a vote of 19,369 shares out of a total of 20,000 shares represented. J. B. Ford and John Pitcairn then held 12,012 shares, in the hands of the other stockholders 7,988 shares, of which last number 7,357 voted to adopt the report. With the adoption
BARR V. PITTSBURGH PLATE-GJ,ASS CO.
the sale of Tarentum had been ratified by the stockhoMers. The proofs show that the estimated value of Tarentum. at $1,000,000 was no greater, proportionately, than the estimated value of Creighton at $800,000, subject to a debt of about $134,000; that, after the consolidation of the two works, the dividends of the Pittsburgh Plate-Glass Company were largely increased, and that there was a marked advance in the price of its stock. These facts have not been controverted. The real ground of complaint against the defendants is that they made excessive profits on the sale of Tarentum.; otherwise t4ere would have been no charge of conspiracy andcomhination to compel the Pittsburgh Plate-Glass Company to buy a property which has proved to be so advantageous to the stockholders. But if Tarentum was estimated beyond its cost, so also was Creighton. If Creighton was worth $800,000, subject to a debt of $134,000, Tarentum, with its improved machinery and large carpadty for production, was equally worth $1,000,000. All this was known to the stockholders of the Pittsburgh Plate-Glass Company on September 6, 1886, 'When the manner and terms of the sale were agreed upon, and the stockholders subsequently received the very large profits arising therefrom in stock and cash dividends. 'Dwo years after the sale a protest was made by some of the minority stockholders against the delivery of the stock which had been pledged by J. B. Ford & Co. for the completion of Tarentum, because of the exorbitant price paid to that firm, and a thorough investigationof the whole matter was demanded by the protestants, under the threats of legal proceedings. Xhe result of that investigation was a reluctant admission, on the part of the committee who conducted it, that the acquisition of Tarentum had been advantageous to the Pittsburgh Plate-Glass Company, and a recommendation that the transaction should not be disturbed, which was approved by an almost unanimous vote at a general meeting of the stockholders. In the light of such evidence it is impossible to sustain the charge of conspiracy and fraudulent combination made against the defendants. Three of the defendants, indeed, had no direct interest in the affairs of J. B. Ford & Co., not being members of the firm. J. B. Ford was personally interested in the property and success of the Creighton works, which were doing a highly lucrative business, and could not fill' their orders. He desired to establish other works, for the purpose of extending the business which produced such profitable returns, to be operated in harmony with Creighton, and not to its injury; and being a stockholder of the Pittsburgh Plate-Glass Company did not deprive him of the right to do this. His two sons were also stockholders, and it would be unreasonable to suppose that he intended to defraUd or injure a company in which he and his sons were so largely interested. John Pitcairn formed a partnership with J. B. Ford for the Tarentum works, at the suggestion and with the knowledge and approval of some of the minority stockholders of the Pitts-
of this re<port it would seem that the manner and the terms of
FEDERAL REPORTER I
Company, f()r the purpose of protOOting of the there is no proof that the firm ofJ;B;,i;FoN-& Co. intended to, operate the TarentUin works in or to the prejudice of Creighton. Thepropos'al to tIre two works came from the Pittsburgh Plate-Glass Company, an4 from J. B. Ford' ,& Co. In fact the :firm did not at first appear to to entertain the propO'SaI, Mr. Pitcairn being on the eveofgoingrubroad for his health, and Mr. J. B. Ford preferring to have the Tarentum works operated independently of any other. However, an offer being in1jted from J. B. Ford & Co.,' negotiations were begun, terminated as IHready stated. There is no proof of fraud in the transaction, or of misrepresentation. J. B. Ford & Co. the cost of Tarentum, becauSe they might want to sell 'it, or organize another company. This refusal, and the it, were publicly made at the stockholders' meeting of September 6, 1886, and the request for a statement of the cost was not pressed. No faets are proved by whieh a resulting trust can be established in fayor of the Pittsburgh Plate-Glass Conipany. ,J. B. Ford & Co. built the Tarentum workS with their own money,andoQ. their own credit and risk; nor did they make them· selves by any wrongfUl aets of their OIWn. They did not use the property or the credit ()f the Pittsburgh Plate'Glass Company, nor were they under any obligation, legal or equitable, which prohibited' them from erecting the new works, and consolidating them with the CreightOn works, on terms which have proved to be equally beneflciail to all the parties concerned. The put'chase of Taren· tum appea.rs to have been ratified and settled,and no further o.bjectionwas made in reference to it until the negotiations were set on foot for the 8Jcquisition of what are knO'Wll as the Ford City works. 2. The purchase of the Ford City works. In the summer of 1887 the defendants, being then stockholders, and, With the exception of J. B. Ford, directors, of, the Pittsburgh Plate-Glass Company, in view of the existing and prospective condition of the plate-glassbuliliness, concluded that additional works for its manufacture were needed. Creighton and Tarentum were behind with their 'orders, and' co'll1d ,not supply the demand for 1Jheir products. The making of plate glass in the United States was a comparatively neW enterprise, and .home production did nQt equal one· half of the' home cOiDsumptiooi. J; B. FOIl'd had been a pioneer in the 'amd he and his codefendants, seeing the impossibility of the Pittsburgh Plate·Glass Company retaining a monopoly of the business, and the certainty, of an increased importation of the foreign arrlicle, were of the opinion that additional works should be erected. The profits which had been already realized by the company on a watered of, several hundred thousands of dollars would, the. defendanw thonght, be su['e to excite competition, and that it would be wise for the company to make provision for meet· ing such competition by adopting new machinery amd appliances for reducing the first cost of production. So strongly convinced
BARR 11·.PI'l)'rS;BURGHPLATE-GLA/iS CO.
were the defendants of· the. 'necessity of extending the company's works that they to look around for a B'Uitable location for the buildings, and had selected a place in Armstrong county, Pa., and'secured options the purchase of several hundred acres of land. It had already come to the knowledge of. John Pitcairn that certain parties in Philadelphia and Pittsburgh had contemplated the of glass works near the latter city, which would' come into direct competition with the Pittsburgh Plate-Glass works. Such being the condition of things, a special meeting of the board of directoi'S of the company was held on September 8, 1887, at which the following preamble and resolution were adopted, and a' special meeting of the stockholders was called for the 20th of September, 1887, to consider the same:
"Whereas, in the judgment of the board the present condition and prospects of th.e plate-glass business, and the position of this company in relation thereto, are such as to render it expedient that the company should as quickly as possible ereCt additional works at such point as shall be determined, and with this view inquiries have been made looking to the securing of an eligible location: "Resolved, that the board recommend to the stockholders the erection of additional works, of a capacity not less than 300,000 feet per month, at such point as shaH be selected by the stockbolde1'8 or direct01'8."
In pursuaJlce of the call a special meeting of the stockholders was held on September 20, 1887, at which the recommendation ·of the board was fully discussed 'and rejected, the plaintiff being most earnest in his opposition tUlereto, and pointing out that under its ch3Jrter the compruny had no power to manufacture plate glass outside of Allegheny county. At this meeting, arnd before the vote was taken, the defendants, being the owners of a majority of the stock, notified the stockholders present that they would not vote their stock, but leave the adoption or rejection of the recommendation of the board to the decision of the minority stockholders, as the defendants did not wish to compel a compliance with their own opinion against a majority of the minority. The proceedings of this meeting, and the good faith of the defendants in calling it, have been severely criticised by the counsel for the pIH'intiff, but the weight of the testimony satisfactorily proves that the question of building the new works by the company was fairly left to the minority stockholqers, and that the recommendation of the defendants was honestly made. The advice of the board having been refused, J. B. Ford and John Pitcairn determined to go on with the Ford City works, and took into partnership with them their three codefendrunts, Edward Ford, Emory L. FOlI'd, and Artemus Pitcairn, assigning to each of the last three a one-ninth interest, and taking for each of themselves three-ninths interest in the undertaking. The iuterests of the defendrunts in the Pittsburgh Plate-Glass Company were so large at this time as to exclude all idea of their intention to depreciate their value or to diminish their· profits. On the contrary, they had strongest motive to protect their interests, to make them still more profitable, and to ward off competition as long as possible. Having purchased the
required. 'land, they proceeded to bulld· the works with their' own capfta.rand on their own credit, with the knowledge of and without objection from the plaintiff or any other mfuority stockholder. At thEfstockholders' meeting onJ'8Jlluary 22, 1889, after the Taren., tum 'aiidother buSiness h'ad been disposed of, a com:mittee was ap,pomted, consisting of the same five members who had acted on Tarehtum committee, and who were adverse to the further extension of the company's works, "to negotiate with J. B. FoTd & Co. for a transfer of the plate-glass works located at Ford City," and to report the terms at a special meeting of the stockholders to be called by the, president of the company at the request of the committee. This committee held several sessions to consider the subject referred to them. The first offer of J. B. Ford & Co. was to sell the new works for $1,500,000 in the glass company's stock at par, with the condition that they would sell the one-half of this stock to the stockholders of the cOllllpa;ny at par. As they had done in the sale of Tarentum, J. B. Ford & Co. refused to give the committee a statement of the cost of the Ford City works, and for similar reasons, but they did finally impall't to the committee in confidence the best estimate of what the works would cost when finished. Subsequently this offer was modified to this effect: that the defendants would sell the works completed for $750,000 in stock of fue company at par, and $750,000 in bonds secured by a mortgage, and payable in three, four, and five years,. which effer was reported' favorably by the committee to a special meeting of the stockholders held on Apri19, 1889, which, after a prolonged discussion on the report, adjourned to meet on the 16th of April, 1889, when the report was accepted, and a resolution was adopted to have the charter of the amended, authorizfug it to manufacture Us products fu other places than Allegheny county. Before the vote was taken on the adoption of. the repoll't, iJhe announcement was made that J. B. Ford & Co. would refrain from voting their stock, which constituted a majority of the whole issue, until the result of the vote by the minority stockholders should be known, when, it would be cast with the majority of the minority, fu order to constitute a legal vote. The total vote cast was 17,880, of which number 16,706 were in favor of the resolution to adopt the report of the committee, and 1,174 opposed; 2,120 shares not voting; At this meeting J. B. Ford & Co. that $750,000, received by them in part payment of the Ford City works, should not participate in the profits of the Pittsburgih. Plate-Glass Company for the year 1889. On April 17, 1889, a stockholders' meeting was called by the board of directors to be held on June 18, 1889, for the purpose of voting on,. the increase of the capital stock of the company and the iSS'llfug of bonds for the purchase of the Ford City works. In the mean time-May 8, 1889-the plaintiff had filed his bill, and before the day appointed for the next meeting of the stockholders J. B. Ford & Co. addressed a letter to each stockholder, statfug, in sub,stance, that they were willing to rescind the cOJltract for the purchase of the Ford City works if a majority of the minority stockhold-
PITTSBURGH PLATE-GLASS CO.
ers sympathized with, or were in favor of, prosecuting the plaintiff's suit. At the stockholders' meeting, on June 18, 1889, the vote in favor of increasing the capital stock was 17,205, and no votes were cast in. the negative. The Pittsburgh Plate-Glass Company took possession of the Ford City works on July 1, 1889, and have rema'ined in possession since that date. The purchase of the Ford City works, up to the close of the evidence as· set out in the record, has been highly ,advantageous and remunerative to the Pittsburgh Plate-Glass Company. Notwithstanding the great increase in the number of shares issued to pay for Tarentum and Ford City works, their market price continued to advance until 'it had :reached the figure of $200 per share. The cost of the Ford City works was about $1,200,000, and when it is considered that, in addition to the outlay of money, the defendants also contributed their time, practical experience, and intelligent personal supervision from the beginning to the completion of the works, and were also subjected to the risks of failure, the price ultimately received by them does not appear to be excessive. It is true that the stock paid to them at par had been selling at a premium, but it does not follow that, if the new issue had been thrown on the market in bulk, the premium would have been main.. tained. The defendants assumed the risk and labor of the enterprise, and were entitled to a reasonably liberal profit. The proofs fail to sustain the charge of conspiracy and combination. '.Dhe defendants acted openly, and made no false representations. They afforded the company the opportunity of building the works, and advised them of the necessity of doing so, and gave notice that if the company did not butld they would. As rna· jority stockholders of the Pittsburgh Plate-Glass Company the defendants were more deeply concerned in the prosperity of that company than were the plaintiff and those who agreed with him. The defendants did not use any of the property of the company or employ its credit in the erection of the Ford City works, and here, as 'in the case of the Tarentum purchase, the proof does not establish a resulting trust, or a trust ex maleficio. There was no conspiracy or combination to compel the purchase of the defendlllllts' works, either at Tarentum or in Armstrong county; nor was the price paid for either one of the properties so large as to give the defendants an excessive or exorbitant profit on their actual outlay of money, time, and labor. There has been no proof of fraud 'in these transactions, nor of III misuse of the power and influence of the defendants, as majority stockholders, to deprive the minority stockholders of any right. It has been settled that a director of a joint-stock corporation may make a mlid contract with the corporation of which he is a member, provided that, in doing so, he deals fairly and honestly towards the stockholders who have appointed him their agent. Oil Co. v. Marbury, 91 U. S. 587; Leavenworth County Com'rs v. Chicago, R. I. & P. Ry. Co., 134 U. S. 688, 10 Sup. Ct. Rep. 708. The Tarentum and the Ford City works were the property of the dev.57F.no.1-7
Plate·GlassCompany of, ,all.the .circumstances under which they and it is evident that the company has not been been by their acquisition. It must not overlooked, too,that.in reference to the purchase of Tarentuin the proceedings to' it aside, or to alter the terms were not taken untUa,fter the lapse of more than two years from ·thee:xecu.tion of the contract,-a delay which, of itself and unexplained, be fatal to that portion of the plaintiff's com· plaint. Oil.Co.v. Marbury, supra. The plaintiff's solicitOT now asks that his client shall be relieved from the payment of costs in the event of the ,decree below being affirmed, on the assumption that he has made an honest e,ffort what he considers to be wrongs against his, comPiUlY, and to enforce a restitution of enOrlnOUS profits made by the def ndants, out ,of the authorities Cited in support of this are Trustee.s v: (}reenough, 105 U. S. 527; WalTell v:.Railroall CQ., }30 1;>,a., St. 18 At!. Rep. 1014. These were <;ases, ,however, m" which a, fund had been recovered, or property had been by the litigation, and the court allowed the expenses, as between or, attorney and clie;nt to be paid out of the fund. In each, case the statutory costs had ,been given to the prevailing paxty.'But i here the plaintiff has not succeeded in , proving his clharges, and therule appears to bj:! settled that, where a bill charges fraud, arid theb1ll is dismissed, the plaintiff must pay the costs. Fisher, y. Boody,' 1 Ourt. 206. The decree of the circuit court is affirmed.
SOUTHERN PAC. R. CO. v. ARAIZA. (Circuit Court, S. D. California. July 24, 1893.) No.181.
PUBLIC LANDS-SOUTHERN PACIFIC GRANT-INDEMNITY LANDS-HOMES'l'EAD ENTRY. .
Under Act July 27, 1866, (14 Stat. 292,) granting lands to the Southern public land without the primary limits, but Pacific Railway within the indemnity llxnits of the grant, was not open for homestead entry aftel.' an ordel.' was iSlilued from the general land office directing the withdrawal of such lands from entry. Buttz v. Railroad Co., 7 Sup. Ct. Rep. 100,119 U. S. 72, followed. Railroad e<.. v. Tilley, 41 Fed. Rep. 729, oveITUled.
SAME-REMEOY AGAINST HOMEsTi!:ADER.
A homesteader who has made such an entry and rec",ived a patent there.for against 1;11e oppositipn ot. ,the Souther.n Pacific Railway Company is subject to have his title decreed to be held in trust ,for said company, when it appears that the lands within the indemnity limits will not make up to the company the loss of lands within the primai'y limits.
In Equity. Bill by the Southern Pacific Railroad Oompany against Juana 0; Arll.iza to, recover lands wrongfully patented to respondent. Heard on demurrer to bill. Demurrer overruled.