Gray v. South & North Alabama Railway Co.

43 So. 259, 151 Ala. 215, 1906 Ala. LEXIS 37

• Court: Supreme Court of Alabama
• Decided: June 4, 1906
• Status: Published

Opinion

ANDERSON, J.

The original bill in the case at bar was filed primarily for an accounting between the two companies, by the complainant Gray, a minority stockholder, in the South & North Company, and who also prays for a receiver, and for an injunction restraining the directors from proceeding with the prosecution of a bill heretofore filed by them for the South & North Company in the Jefferson chancery court, seeking an accounting between the two companies, as well as a sale of the South & North Railroad. Company to the Louisville & Nashville Railroad Company. The South & North Company moved to .dissolve the injunction against its “officers, directors,” etc., which seeks to restrain them from further prosecuting the case in the Jefferson chancery court, “because there is no equity in the bill, in so far as it prays such injunction,” and seeks by this appeal to review the action of the judge of the city court in refusing its motion.

If the allegations of the bill are not sufficient to warrant the interference by injunction, the injunction may be dissolved for want of equity in that respect, although the bill may be retained for other relief.- — Norris v. Norris, 27 Ala. 519; Harrison v. McCrary, 37 Ala. 688. The original bill in the case at bar shows upon its face the Jefferson county bill and the filing thereof, and that it was filed in response to a demand made upon the directors of the South & North Company by Henry B. Gray. It is to be observed that the chancery court of Jefferson county had acquired jurisdiction of the subject-matter of the present suit and of all prima facie proper parties necessary to an accounting. It is true the complainant Gray was not a party to the Jefferson county case, as the suit was properly instituted by the directors in the name of the South & North Railroad Company, which is the proper party complainant. It could not be maintained by a stockholder, except under certain conditions, Avhich will be hereafter discussed and considered.

It must be further observed that the Jefferson county chancery court has co-ordinate jurisdiction with the Montgomery city court, and is competent to grant all equitable relief obtainable in said city court. When the jurisdiction of the chancery court has once attached, its jurisdiction will not be disturbed by that of another court of equal powers. — Troy Co. v. Prestwood, 116 Ala. 119, 22 S. W. 262. “It is an admitted principle that, Avhere Iayo courts have an equal and concurrent jurisdiction, the one that commences-the exercise of its jurisdiction first has the preference, and is not to be obstructed in the legitimate exercise of its poAvers by the court that, on the subject-matter, would be only coordinate.” — Eaton v. Patterson, 2 Sew. & P. 15. “The Avell-established rule is that, in cases where íavo courts have concurrent jurisdiction, the court Avhich first takes cognizance of the cause retains it to the exclusion of the other.” — King v. Smith, 15 Ala. 269. “It may be conceded as a general rule that, Avhére tAVO courts have concurrent jurisdiction over the same thing, the one which first possesses the cause has a right to proceed with it,; and cannot be prohibited or restrained by any other.”— Nelson v. Dunn, 15 Ala. 514. “The laAV is too Avell settled to be questioned, that where íavo courts have concurrent jurisdiction, that which first takes cognizance of the cause has the right to retain it to the exclusion of the other.” — Gould v. Hayes, 19 Ala. 438; Gay v. Brierfield, 94 Ala. 308. “When different courts have concurrent jurisdiction, the one before whom proceedings may be first had, and whose jurisdiction first attaches, must necessarily Imve authority paramount to the other courts, or, rather, the action first commenced shall not be abated by an action commenced -between the same parties, in relation to the same subject, in the same or any other court.” — Stearns v. Stearns, 16 Mass. 171, “It is the adoption of laAV too long established to require a citation of authorities that, Avhere a court has jurisdiction, it has a right to decide every question AAdiich occurs in the cause, * * and that, Avhere the inrisdiction of the court and the right of a plaintiff to prosecute his suit in it have once attached, that right cannot be arrested or taken away by proceedings in another court. These rules have their foundation, not merely in comity, but on necessity; for if one may enjoin, the other may retort by injunction, and thus the parties be without remedy, being liable for a process for contempt in one if they dare to proceed in the other. * * * The fact therefore, that an injunction issues only to the parties before the court, and not to the court, is no evasion of the difficulties that are the necessary result of an attempt to exercise that power over a party who is a litigant in another and independent forum.”— Peck v. Jenness, 7 How. (U. S.) 624; 12 L. Ed. 846. “Where one of two courts of co-ordinate jurisdiction and powers has obtained jurisdiction of a cause; it should retain it until finally disposed of; and, although both courts may have authority to grant injunctions, yet if one tribunal, properly having cognizance of the case, has exercised its jurisdiction ,the other could refuse to interfere. * * * Nor will the prosecution of a suit in one court be enjoined by a court of co-ordinate jurisdiction, when the former tribunal may afford adequate relief.” — High on Injunctions (3d Ed.) § 15. “While courts of equity, as is thus shown, are averse to permitting their jurisdiction, when it has once attached, to be usurped by other tribunals, they will not, upon the'other hand, interfere with proceedings in other courts of competent jurisdiction which have first acquired control over the subject-matter of the controversy.” — High on Injunctions (3d Ed.) § 50. “It is the settled law of this state that the prosecution of a suit in one court cannot be enjoined by another court of co-ordinate jurisdiction. Exceptions to this rule have been suggested, in case the court in which the proceedings sought to be enjoined are pending cannot afford adequate relief.” — Wilson v. Baker, 64 Cal. 476, 2 Pac. 253. “The principle * * * is properly stated * * * that the court which first takes cognizance of the controversy is entitled to retain jurisdiction to the end of the litigation, and incidentally to take the possession or control of the res, the subject-matter of the controversy, to the exclusion of all interference from other courts of concurrent jurisdiction, and that the proper application of this principle does not require that the court which first takes jurisdiction of the controversy shall also first take the actual possession of the thing in controversy. * * * We think * * * that the only safe rule to follow *' * * is that the court which first takes control of the controversy (even though it may be by an imperfect bill, so it gives jurisdiction of the controversy and thereby of the res) is entitled to maintain it to the end, without being disturbed by any other court of concurrent jurisdiction.” — Gaylor v. R. R. Co., 6 Biss. (U. S.) 286, Fed. Cas. No. 5, 284

In discussing the rights of minority stockholders to sue to redress wrongs of the corporation, Mr. Pomeroy, in volume 3, § 1095, of his excellent work on Equity Jurisprudence, says: “Although the corporation holds all the title, legal or equitable, to the corporate property, and is the immediate, cestui que trust under the directors with respect to such property, and is theoretically the only proper party to sue for wrongful dealings with the property, yet courts of equity recognize the truth that the stockholders are ultimately the only beneficiaries ; that their rights are really, though indirectly, protected by remedies given to the corporation; and that the final object of suits by the corporation is to maintain the interests of the stockholders. While, in general, actions to obtain relief against wrongful dealings with the corporate property, by directors and officers must be brought bv and in the name of the oornoration, yet, if in any such case the ooroomtiou «houiq .pofuse to bring a suit, the courts have seen that the stockholders would be without any immediate and certain remedy, unless a modification of the general rule were admitted. To that end the following modification of the general rule stated in the last preceding paragraph has been established as firmly and surely as the rule itself. Wherever a cause of action exists primarily in behalf of the corporation against directors, officers, and others, for wrongful dealing with corporate property or wrongful exercise of corporate franchises, so that the remedy should regularly be obtained through a suit by and in the name of the corporation, and the corporation either actually or virtually refuses to institute or prosecute such a suit, then, in order .to prevent a failure of justice, an action may be brought and maintained by a stockholder or stockholders, either individually or suing on behalf of themselves and all others similarly situated, against the wrongdoing directors, officers, and other persons ; but it is absolutely indispensable that the corporation itself should be joined as a party, usually as a co-defendant. The rationale of this rule should not be misapprehended. The stockholder does not bring such a suit, because his rights have been directly violated, or because the cause of action is his, or because he is entitled to the relief sought. He is permitted to sue in this manner simply in order to set in motion the judicial machinery of this court. The stockholders, either individually or as the representative of the class, may commence the suit, and may prosecute it to judgment; but in every other respect the action is the ordinary one brought by the corporation, it is maintained directly for the benefit of the corporation, and the final relief, when obtained, belongs to the corporation, and not to the stockholder plaintiff. The corporation is, therefore, an indispensably necessary party, not simply on the general principles of equity pleading, in order that it may be bound by tlxe decree, but in order that the relief, when granted, may be awarded to it, as a party to the record, by the decree. This view completely answers the objections, which are sometimes raised in suits of this class, that the plaintiff has no interest in the subject-matter of the controversy, nor in the relief. In fact, the plaintiff has no such direct interest. The defendant corporation alone has any direct interest. The plaintiff is permitted, notwithstanding his want of interest, to maintain the action solely to prevent an otherwise complete failure of justice. When may such an action be brought? I have already stated the rule in its most general form: That a stockholder may thus sue whenever the corporation either actually or virtually refuses to permit a proceeding by itself. These are two distinct conditions of fact, and the circumstances must determine whether any particular case belongs to one or the other of the two conditions. In general, a case should come within the first condition; and it should appear that the board of directors or other managing body has actually refused to bring or permit an action in its own name. To this end the plaintiff should allege an application to the directors or managing body, a reasonable notice, request, or demand that they would institute proceedings on the part of the corporation against the wrongdoers, and their refusal to do so after such reasonable request or demand. These allegations are material and issuable. If controverted' by the defendant, they must be proved. If the proof of them fails, the whole foundation of the plaintiff’s action is gone. This condition of fact, however, is not indispensable. The action may be maintained without showing any notice, request, or demand to the managing body, or any actual refusal by them to prosecute; in other words, the refusal may be virtual. If the facts as alleged show that the defendants charged with the wrongdoing, or some of them, constitute a majority of the directors or managing body at the time of commencing the suit, or that the directors or a majority thereof are still under the control of the wrongdoing defendants, so that a refusal of the managing body, if requested to bring a suit in the name of the corporation, may be inferred with reasonable certainty, then an action by a stockholder may be maintained without alleging or proving any notice, request, demand, or express refusal. In like manner, if the plaintiff’s pleading discloses any other condition of fact which renders it reasonably certain that a suit by the corporation would be impossible, and that a demand therefor would be nugatory, the action may be maintained, without averring: a demand or any other similar proceeding on the part of the stockholder plaintiff.” It therefore appears that, when the suit is brought, whether by directors or a stockholder, “it is maintained directly for the benefit of the corporation, and simply to set in motion the judicial machinery of the court,” and, when that machinery has been set in motion, the court which acquires jurisdiction of the subject-matter and of the par-ties should be permitted to determine all questions involved. The corporation being the interested party, all parties interested are before the court by representative, whether the suit is instituted by the directors or a minority stockholder, and the fact that the stockholders were not named as actual parties to the Jefferson county chancery suit does not prevent said court from having jurisdiction of the subject-matter and' of the proper parties to a bill for an accounting between the two companies. The jurisdiction was invoked upon the demand of Gray, and he cannot .now be permitted to i-estrain the proceedings in the first court by an injunction from another court of co-ordinate jurisdiction.

The complainant seeks to avoid the effect of the institution of the suit by the directors by averring that they made, a “simulated” compliance with his demand and that they are unfit persons to conduct the litigation. The filing of the bill was an actual compliance with his demand in that respect, and was enough to set in motion the machinery of the chancery court of Jefferson county. The unfitness of the directors to manage and conduct the suit does not affect the jurisdiction invoked by them upon this complainant’s demand. If they were unfit to bring the Louisville & Nashville Railroad Company to a proper accounting, the complainant may have had a right to take action without having first made the demand on them to file the hill; but he made the demand, and in, compliance therewith they filed the bill for an accounting in the Jefferson chancery court, and their unfitness to- conduct the litigation is no- good ground for transfer-ring the controversy to another forum with no greater powers than the one first acquiring jurisdiction. If the directors will not prosecute the Jefferson county case in good faith, the complainant and other stockholders should be permitted to intervene upon making a proper showing to- the chancellor. As the chancery court of Jefferson county is locus in quo, they must seek protection, and not by another bill for an accounting in the city court of Montgomery. — 16 Cyc. 201; Foster’s Fed. Pro. p. 290, § 201; 2 Bates, Fed. Eq. Pro. § 632; 1 Beach on Modern Eq. Proced. 574; Gunderson v. Trust Co., 100 Ill. App. 461; Bayliss v. Railroad, 8 Biss. (U. S.) 193, Fed. Cas. No. 1, 141; Doke v. Williams, 34 South. 569, 45 Fla. 248. The complainant belongs to- the excepted class mentioned in Printup’s Case, 87 Ala. 148, 6 South. 418, and would have the right to intervene in the former suit upon making the proper showing.

Courts of co-ordinate jurisdiction can restrain the enforcement of decrees rendered in other courts upon certain conditions, and in some jurisdictions they have restrained proceedings in other courts of equal powers, hut the latter instances fall within the exception; and as is said by Mr. Pomeroy: “The reasons for attacking and setting aside a decree already obtained on .account of fraud do not necessarily apply to an interference with the litigation while pending in another court having full powers to deal with all equities which may arise. * * * We speak of it, not as a power usually to be exercised,, but as one beyond jurisdiction in, the court.” The cases cited by counsel for appellees are not a,t all in conflict with the foregoing views. The Colisam Case, 123 Ala. 512, 26 South. 122, is simply a short opinion reaffirming the case of Ala. Bank v. Mary Lee Co., 108 Ala. 288, 19 South. 404,, which said last case holds that a court of equity has the right to cancel a decree fraudulently and collusively procured in a court of equity. For aught we know the first decree may have been rendered by the city court, the-same court in which the bill was filed. But we do not mean to hold that one court of equity cannot cancel a judgment or decree, or restrain the enforcement thereof, which was fraudulently rendered by another court of co-ordinate jurisdiction. Indeed, Ave endeavored to clra-AV a distinction, in the foregoing opinion between the right of one court to restrain the enfrcement- of a judgment or decree of another court, and of restraining the proceeding in a court of co-ordinate jurisdiction. Nor is the case of Bell v. Montgomery Light Co., 103 Ala. 275, 15 South. 569, in conflict in the slightest Avith this opinion. That case simply holds that a stockholder can, upon certain, conditions, dispense with making a demand upon the governing board to sue, which point has frequently been enunciated by this and other courts, but which has no application to the case at bar. The complainant does not go upon the theory after procuring the filing of the bill, now seeks to enjoin a prosecution of the same. The case of Vendall v. Harvey, Nelson, 19, is one of a collection of cases, decided during the .reign, of King Charles I, King Charles II, and King William III, and which were probably not considered worthy of being reported. At any rate they were not reported, until W. Nelson of the Middle Temple Exchequer, decided to do so- in the year 1872. This was simply an, opinion or decree of the Chancery Court, ignoring an injunction from the Exchequer; the court saying: “For as the court doth not hinder the proceedings in the Exchequer, so that court is not to obstruct the proceedings here by injunction.” The city court- of Montgomery should not hinder proceedings in the chancery court of Jefferson county. The case of Earl of Bandon v. Bacher, 3 Clark & F. 479, has no bearing on, the question. The case of Bechford v. Kemble, 1 Simmons & Stewart, 7, seems to hold that the Chancery Court of England had authority to enjoin proceedings in the colonial court of Jamaica., as the injunction was issued to restrain the parties from proceeding in a supplemental suit in Jamaica, because the English Chancery Court had acquired jurisdiction of the subject-matter and decreed a redemption Avhich involved an accounting, and which Avas sought by the Jamaica bill. If the foregoing-opinion is sound, the right to restrain should have been exercised by the chancery court which first acquired jurisdiction. The case of Clarke v. Earle of Orme, 1 Jacob, 546, Avas to the effect that C. P. Blick, an annuity creditor of the late marquis, be enjoined from further proceeding in a suit instituted by him, and the other creditors of the testator in the Court of Chancery in Ireland. The bill in Ireland was filed about the same time as those in the present suits (the English suits), but the subpoenas were not served until April, 1822. In the meantime Blick liad in. November, 1821, carried in a charge under the decree in these suits, claiming as a creditor the arrears due upon the annuties, and his claim was allowed by the master. Blick was enjoined upon proceeding with the Ireland case, because the English court had first acquired jurisdiction. The case of Erie R. R. Company v. Ramsey, 45 N. Y. 637, while containing a very full discussion as to the injunctive rights and powers of courts of co-ordinate jurisdiction, is purely dictum, except so' far as it holds that the court in which the second bill was filed had the power and jurisdiction to issue the injunction, and that Ramsey ivas in contempt for violating it before it. had been dissolved, but does not hold that it was properly granted.

The case of Mann v. Flower, 26 Minn. 479, 5, N. W. 365, cited by counsel, is rather in favor of, than opposed to, our conclusion in the case at bar, and we quote therefrom : “ ‘Injunctions may be obtained to stay proceedings in other courts of equity, whether such courts are courts of law or equity, or spiritual courts, or courts of admirality, or courts of a foreign country.’ This statement restricts the rule to staying proceedings in other courts. The power in one eqiutable action to restrain proceedings in another equitable action in the same court, is affirmed in Erie R. R. Co. v. Ramsey, 45 N. Y. 637. That case decides only on the power and jurisdiction to enjoin, hut does not determine when it is proper to exercise it. The same thing was decided in Prudential Assur. Co. v. Thomas, L. R. 3 Ch. App. 74, in which it was held that a bill of interpleader was a proper case in which to enjoin proceedings in another eqiutable suit in the same court. And inasmuch as the injunction operates only upon the parties to the action, and not upon the court in which it is pending, we can see no difference, so far as the power to restrain is concerned, between an action in the same and one in another court. In either case the power or jurisdiction exists. That it ought to he rarely used is true; hut there may he cases where its use is necessary to adequately protect the rights of parties. It has heen held in many cases that the court ought not, in one action, to restrain proceedings in another equitable action, to which the party applying for the injunction was a party. These cases have gone on the ground that an adequate remedy was open to the party in the original action. When such is the case, there can be no necessity for the injunction, and, of course, it ought not to issue. This action, however, is brought by a stranger to the action in which the proceedings are sought to be enjoined. The reason which would generally prevent a party to the original action prosecuting this, and in its restraining the proceeding in the former, does not exist. It was decided, indeed, in Smith v. American Life Ins. Co., 1 Clark, Ch. (N. Y.) 307, in a case where the plaintiff seeking the injunction was a stranger to the original suit, that ‘as a general rule an injunction is not the proper mode of obtaining a stay of proceeding under a bill or decree in this court, where the application is made by parties or privies or by a stranger who has filed a new bill.’ The rule was repeated in Lane p. Clark, Id. 309, where a party to the original suit had filed a new bill. And it is approved in Platto v. Deuster, 22 Wis, 482, the decision in which was followed in Endter v. Lennon, 46 Wis. 299, 50 N. W. 194.” Indeed, this case restricts the right, even when the jurisdiction exists, to enjoin the proceedings in the former action only so far as such stay may be necessary to preserve the rights put in issue by him in the subsequent action. If the second action put in issue matters covered by the first action, he would have no right to enjoin. It is also intimated in the opinion in said case that the demand was useless, but made the demand, and. that the plaintiff could have intervened after the action between Flower and Cornish, and before the assignment to other parties, .but that as he did not then do so, he could not have brought the assignee into the original suit.

On the other hand, there are authorities, not only questioning the right and propriety, but denying the jurisdiction of one court to enjoin proceedings in another court of co-ordinate jurisdiction. — Endter v. Lennon, 46 Wis. 299, 50 N. W. 194; Platto v. Deuster, 22 Wis. 482; Waymire v. S. F. R. R. Co., 112 Cal. 646, 44 Pac. 1068; Wolfe v. Titus, 124 Cal. 264, 56 Pac. 1042. See, also, High on Injunctions (4th Ed.) §§ 48 to 52, inclusive. The bill, showing upon its face that the chancery court of Jefferson county had acquired jurisdiction of the subject-matter and of the proper and necessary parties, is without equity in so far as it seeks an accounting in the city court of Montgomery, and the motion to dissolve the injunction restraining the prosecution of the Jefferson county suit should have been sustained. The decree of the judge of the city court, overruling the motion to dissolve the injunction, is reversed, and a decree is here rendered sustaining the same and dissolving the injunction.

We need not determine whether or not the bili contains equity, independent of the accounting feature, as the equity of the bill in its entirety is not questioned by the motion to dissolve the injunction. It may be that the bill has equity so far as it seeks to enjoin a sale of the South & North Railroad; but, shorn of the accounting feature, no case is made out for the appointment of a receiver pendente lite. The judge of the city court properly denied the application for a receiver, and the decree in that respect is affirmed.

Affirmed upon the cross appeal of Gray and others, and reversed and rendered on the appeal of South & North Railroad Company.

All the Justices concur, except Weakley, C. J., disqualified and not sitting.