Corporation, Rights of minority stockholder. Equity Jurisdiction, Suit by minority stockholder in corporation. Equity Pleading and Practice, Bill.
A demurrer to a bill in equity by a minority stockholder, who also is one of eight directors of a Massachusetts corporation, against the corporation and the other seven directors, who include all the officers of the corporation, to enjoin the defendants from carrying out votes, passed by the seven defendant directors against the objection and vote of the plaintiff, discharging without legal consideration a debt owed to the corporation by one of the defendants and voting to all of the directors and officers except the plaintiff salaries in amounts which differed as to the different defendants but which in each case were excessive and unreasonable, and to compel an accounting by the individual defendants and a repayment of such excessive sums received by them, will be overruled where, from the allegations of the bill, it appears that four of the seven individual defendants conspired with the other three to deprive and to defraud the plaintiff of her rights as a stockholder and adopted the votes in pursuance of that purpose.
The bill in equity above described was held not to be multifarious.
It was not necessary for the plaintiff, before commencing the suit above described, to apply to the corporation to bring suitable action against the individual defendants because it appears from the facts alleged in the bill and admitted by the demurrer that such application would have to be made to the defendants to take action against themselves and either would be futile and unavailing or would result in the authors of the wrong conducting litigation in the name of the corporation against themselves, which would be contrary to the established principles of justice.
From allegations in the bill in equity above described, it appeared that the plaintiff was present at the meeting when the objectionable votes were passed and that she protested and voted against them, and, within six months thereafter, brought the suit. Held, that the plaintiff showed proper diligence in asserting her rights.
The bill in equity above described was held under the circumstances not to contain matters which were immaterial and irrelevant and therefore in violation of R. L. c. 159, § 12, by reason of the inclusion therein of certain allegations relative to the history of the formation in 1899 of the defendant corporation from a partnership founded in 1858, to other business interests, activities and successes of the plaintiff, to a description of holdings of shares, preferred and common, of the individual defendants and the nature of their interests therein, to past activities of some of the defendants in common with the plaintiff which led to antipathy between them and furnished the motive for the defendants' alleged wrongful conduct, to the fact that one of the defendants was the president of a national bank where the corporation did a large business, and allegations to the effect that in the past the profits of the corporation had been paid, partly in dividends and partly in the form and under the guise of salaries to the large stockholders who owned and controlled substantially the entire issue of the common stock of the corporation.
PIERCE, J.
This is a suit in equity by the plaintiff and an intervenor, minority stockholders in Almy, Bigelow and Washburn, Inc., against that corporation and seven of the eight individuals who with the plaintiff Almy constituted the board of directors of the defendant corporation when the bill was brought as well as when the acts and votes of every member of that board, except the plaintiff Almy, caused the wrongs to the defendant corporation charged in the bill. In the Supreme Judicial Court the defendants demurred to the bill; that demurrer wag overruled, and without further proceedings the cause was reported to the full court.
For the purposes of this decision the demurrer admitted that the plaintiff, Emma S. Almy, is and was one of the eight directors who compose the board of directors of the defendant corporation; that the capital stock of the corporation is divided into two thousand shares of common stock, which shares are entitled to exclusive voting power, and fifteen hundred shares of preferred stock without voting power; that the plaintiff Almy and the intervenor are the holders of five hundred and thirty-six shares of the common stock, and the defendants are the holders of thirteen hundred and sixty-seven shares of common stock; that the defendants Warren H. Butler, Annable and Sanborn, conspired with the other individual defendants to deprive and defraud the plaintiff Almy of her rights as a stockholder; that in pursuance of that purpose, on June 23, 1919, a meeting of the board of directors was held at which the plaintiff and the individual defendants were all present, constituting the whole board of directors, whereat and against the protest of the plaintiff Almy, a salary was voted to each and every member of the board, except the plaintiff, Almy; that one of the board, Helen J. Butler, renders no service therefor; that three of the board are voted and given salaries largely in excess of a fair salary to them and to each of them; that the salaries of all of them and of each of them are largely in excess of salaries which they had received for like service previous to the vote of the board; and that the board of directors voted to discharge a debt of one of the members to the defendant corporation of $2,500, being the amount illegally drawn by him from the treasury of the corporation.
The first ground of the demurrer relied on by the defendants is that the bill is multifarious. The object of the bill primarily is to restrain the corporation from paying, and the individual defendants from receiving, under the vote of June 23, 1919, either excessive salaries or gifts and gratuities; and secondly, to require of the individual defendants the repayment to the corporation of all gifts, gratuities, and excessive salaries received by them or any of them under the aforesaid vote. Presumably an accounting if had would show different sums to be repaid by the individual defendants, but the several obligations to repay arise from the illegal united and joint action of the individual defendants against the right of the defendant corporation and that of the plaintiff. No relief is sought against any member of the board for the violation of any duty or obligation other than such as such members may owe to the corporation itself; and none is prayed for. "It is not indispensable that all the parties should have an interest in all the matters contained in the suit; it is sufficient if each party has an interest in some matters in the suit, and that they are connected with the others." Lenz v. Prescott, 144 Mass. 505, 513. Robinson v. Guild, 12 Met. 323, 328. Bliss v. Parks, 175 Mass. 539, 543. Ginn v. Almy, 212 Mass. 486, 493, 494.
The defendants next contend that "it does not appear from the allegations of the bill that upon notice and the reasonable request of the plaintiff the corporation has refused to take action with reference to the matters complained of in the bill, nor does it sufficiently appear from the allegations of the bill that the corporation is so far under the control of the alleged conspirators that any application for relief would be an idle ceremony." The individual defendants, who constitute seven of the eight members of the board and who hold a large majority of the voting stock of the corporation, admit by their demurrer the charges of wilful fraud and collusion, admit that they are all and each of them receiving salaries which are excessive, admit that some of them are receiving gifts or gratuities, and admit that they all voted that the corporation should pay such salaries and make such gifts, against the open protest of the eighth member of that board. In these circumstances it is plain an application to the wrongdoers to set in motion an action against themselves in the name of the corporation would be futile and unavailing; and it would be wholly contrary to established principles of justice to permit the authors of a wrong to conduct the litigation against themselves as agents of the injured corporation. Peabody v. Flint, 6 Allen, 52. Brewer v. Boston Theatre, 104 Mass. 378, 387.
The defendants next contend that the bill does not show that the plaintiff has been diligent. We are of opinion that the facts do show diligence: the plaintiff protested at the meeting, the votes were passed against her protest, and this suit was brought within six months after that meeting.
We find nothing in the allegations of the bill by way of inducement which exceed the limits of fair statement contemplated by R. L. c. 159, § 12.
We are of opinion the demurrer must be overruled and the cause remanded to the county court for further proceedings.
Ordered accordingly.