GIt;EENOUGHv. ALABAMA G. S.,R. CO.etat. (CIrcuit Court, N.
S.D. November 8, 1894.)
'lTh.is was a bill by John Greenough against the Alabama Great Southern ;Railroad Company and others for an injunction restrain· ing the election by defendants of certairi persons as directors of such company, in which a temporary restraining order was issued. Defendants move to dissolve such order. Motion granted.
The stock of the defendant company consists of 156,600 Shares, of which 156,587 are owned by the Alaba.ma Great Southern Railway Company, Limited, of London, the other 18' shares standing in the names of different persOils, and known as "directors' ,shares," The annual meeting for the electionof aboard of directors in the Alabama company was held at Birmingham, on October 3d. The English company had sent on a proxy 'for its 156,587 ,shares, directing avpting of the stock in favor ot 11 specific directors, M. :p. Woodford, Alfred Sully, Henry among whom were Henry A. F. Shoemaker, Eugene and John Howard Taylor. The evening before the election, John Greenough, allegb1g himself to be a registered stockholder of one share, applied to the circuit court, Judge Bruce presiding, for an injunction restraining all proceedings at the meeting looking to the election of these siX directors, restraining the voting of this proxy and restraining the company from recogJ;lizing these men as direQtors. The alleged ground for his pra.yer was that these nominees were not registered stockholders in the company, as required by the laws of Alabama. No notice was given to the defeI1Qlj.D.ts, and Greenough obtained a temporary order ex parte. The election wll!lheld the next day, and all the ballots cast ·before the writ was served upon the parties; so that all that it accomplished was to prevent the judges of election from certifying the result: The company then moved to dissolve the. injunction.
Lawrence Maxwell, Sol. Gen., for the motion. Crawford and P. Humphrey, opposed. ,PARDEE, Circui.t Judge (after stating the facts). This case has been presented to me for hearing at the ,request of the honorable circuit justice and the honorable district judge of the district, on a motion to dissolve the restraining order issued by the district
GREENOUGHf'. ALABAMA G. B. B. CO.
judge ex parte on the filing of the bill; and I have given it such consideration as the limited time at my disposal has permitted. The complainant's standing under his bill, and his consequent right to invoke the jurisdiction of the court, is as a stockholder in the Alabama Great Southern Railroad Company, the main defendant in the case. It is true that he alleges himself to be also a director in that company, and an owner of certain bonds issued by certain other railroad companies, and secured by a deed of trust, conveying a majority of the shares of the Alabama Great Southern Railway Company, Limited, which latter company is the actual owner of all the shares of common and voting stock of the Alabama Great Southern Railroad Company, and thereupon seems to base all the material equities presented in his bill. As a director in the Alabama Great Southern Railroad Company, he can have no interest or standing to invoke the aid of a court of equity to hinder or control the election of other agents of the company in the manner and form prescribed by the charter and by-laws on any sort of a showing as to what the agents so elected mayor may not do, or intend to do; particularly, until he has tried the usual methods of relief, and has invoked the action of the full board of directors. If the complainant is an owner of bonds issued by other parties apparently secured by a trust of shares of another company, but in equity really secured by the shares of the Alabama Great Southern Railroad Company, his bill does not present any such showing of his title or the facts of his case as to make a case for relief. As the complainant's equitable right to relief in the present case is to be alone based on his standing as a stockholder in the Alabama Great Southern Railroad Company, it is very important to see what that standing is. In his bill of complaint there is this cautious averment:
"Said duplicate, duly-certified list of stockholders is herewith filed, a11(1 made part of this bill of complaint, as Exhibit A, and complainant ayers that all persons named thereon,' including the complainant, are respectively registered stockholders of such corpc'ration, and entitled to alI rights appertaining to such relation, and ha,ve never assigned their stock, and there are no other holders of stock of such Gre.at Southern Company than is shown and exhibited upon the official list prepared and certified by such secretary."
An examination of the exhibit referred to shows' that the complainant is put down thereon for 1 share out of the total of 156,600 shares, and of which total number of shares the Alabama Great Southern Railway Company is the owner of all but 13. The complainant, then, by his averment, is a registered stockholder of one share, of $50, out of a total stock of $7,830,000. The showing made on this hearing is to the effect-and it is not disputed-that the complainant is not in equity the owner or holder of even one share of stock, but that, under an arrangement made to enable to complainant to comply with the law of Alabama requiring a director of a railroad company to be the owner in good faith of stock in the company, the Alabama Great Southern Railway Company trans-, ferred to the complainant, in September, 1893, one share of common stock of the Alabama Great Southern Railroad Company, not to own, but to hold in trust for the Alabama Great Southern Railway Company, Limited. The complainant, then, is before the court as
vol. 64 ..
the hOlder 1n a- naked trust at that-of 1 share 01' stock out of a grand total of 156,600 shares; and from that vantage ground he seeks, through the bill in this case, to contro·l and keep in possession,as against his cestui que trust and the actual, real, bona fide owner, as well of all the other shares, a great railroad property. If complainant's bill had made a full and complete showing of complainant's insignificant interest as a stockholder in the Alabama . Great Southern Railroad Company, it is hardly to be doubted that the judge to whom the bill was presented, on its filing, would have refused a rule nisi for an injunction based on such interest; and reasonably certain it is that no restraining order would have been issued. If, however, it should be conceded-and the argument has taken such range--that the complainant, as a stockholder, possesses sufficient interest to give jurisdiction to the court respecting the amount in controversy, and, further, that the relief sought is equitable in nature, then the question arises whether it is true in fact, as averred in the bill, that:
"In and by the statutes of the state of Alabama, which constitute the cbarter of the s:tld Great Southern Company, no person can be lawfully elected a director of such cOrPoration who is not by law entitied to vote at such annual election; · · · and it is by law required that pp.rsons'to be elected as directors must be bolders and owners of stock, and nonstockbolders are wbolly in!!ligible."
The statute of Alabama in relation. to the subject is as follows:
"The business of tbe cOrPoration is under the management and control of a board of directors, consisting: of not less than seven nor more tban eleven members, bolding and owning, in good faitb, and in their own rigbt, shares of the capital stock, wbo must be elected by tbe stockholders, at the regular annual and who hold office for a term of one year, and until their successors are elected and qualified. · · ." Code Ala. 1886, § 1593.
The spirit and poUcy of the statute is undoubtedly that the affairs and business of the corporationshal} be controlled and managed by principal agents, who shall have a pecuniary interest in the corporation. Under this statute, the qualifications of a director are that he shall be elected by the stockholders, and shall own and hold in good faith, in his own right, shares of the capital stock of the corporation.. When these wit, election as a director, and ownership of stock-combine in one person, that person is eligible as a director to participate in the management of the affairs 00£ the corporation. In my view, neither the letter nor spirit of the statute requires that ownership of stock, much less registered ownership, shall precede the election. The law is satisfied if both election and ownership precede action as a director. I am aware that there are several decisiOOls of respectable courts and judges that apparently conflict with this view, but I think the general run of reported cases under statutes as general as the Alabama statute are in accord therewith. The industry of counsel has furnished nearly all of the adjudged cases in the books, and I have considered them carefully in the light of the great interests said to be involved in this case. I give my conclusion, but do not undertake to review or harmonize the cases. The following well-considered cases are sufficient authority to support my action, particularly as common sense
LAUGHLIN V. UNITED STATES ROLLING-STOCK CO.
and the course of business trend that way: Mozley v. Alston, 1 Phil. Ch. 790; State v. McDaniel, 22 Ohio St. 354---367; Wight v. Railroad Co., 117 Mass. 226; Despatch Line of Packets v. Bellamy Manuf'g Co., 12 N. H. 205; Brown's Case, 9 Ch. App. 102; Parmelee v. Hambleton, 24 TIl. 609; State v. Murray,28 Wis. 96; Privett v. Bickford, 26 Kan.52. The case for equitable relief made by the complainant's bill turns entirely upon the question whether, at the annual election of di· rectors of the Alabama Great Southern Railroad Company, a per· son can be legally voted for as a director of the company who is not a registered shareholder in the company. I conclude that he may be voted for, and, if elected, may subsequently qualify by acquiring as owner, in good faith and in his own right, one or more shares of stock of the company. So that, conceding the jurisdiction of the court, both in respect to the interest of the complainant to maintain the suit and in respect to the nature of the relief demanded, it seems clear the complainant's case must fail upon the merits. other questions, important if the case shall come on hereafter for further hearing, have been very ably discussed by counsel; but as I am clear that, no matter what view I shall take of them, still, for the reasons given, the restraining order should be dissolved,. it is unnecessary to state or consider them. An order dissolving the restraining order will be entered, to take effect immediately on being filed in the clerk's office.
LAUGHLIN et aI. v. UNITED STATES ROLLING·STOCK CO. (Circuit Court, S. D. New York. September 28, 1894.)
'Where the receiver of an insolvent manufacturing corporation, without notice to its bondholders or general creditors, secured an order authorizing the issue of receiver's certificates, and issued such certificates, not for debts of the receiver, as such, but to creditors of the corporation for claims arising in the ordinary course of business prior to the receivership, held, that holders of such certificates were entitled to no priority, in the distribution of the assets of the corporation, over its other creditors, either secured or unsecured. "Vhere a contract between a corporation and B. provided that if, after six months, B. still held certain stock, transferred on account of an indebtedness, and insisted on returning it, the corporation would accept it, and pay for it 90 per cent. in cash, and B., after rlJe expiration of the 8ix months, had collected dividends on the stock, and credited the stock to the corporation in statements of account, held, that these facts showed an election by B. to keep the stock in payment
This was a suit in equity by Henry D. Laughlin and others against the United States Rolling-Stock Company, and is now heard on exceptions to the master's report. Cravath'& Houston, for complainants. Seward, Guthrie, Morawetz & Steele, for defendant.