Merz Capsule Co. v. United States Capsule Co.

67 F. 414, 1895 U.S. App. LEXIS 3408

• Court: U.S. Circuit Court for the District of Western Michigan
• Decided: March 19, 1895
• Status: Published

Opinion

SEVERENS, District Judge.

In my opinion, tlie complainant in this case is entitled to tlie relief prayed. The case is one of much importance, and will doubtless undergo a. review in the appellate court. I shall therefore merely summarize the grounds upon which my conclusion is founded.

One of ilie grounds upon which the invalidity of the agreement between the parties of November 29, 1893, is asserted, viz. that the combination was a conspiracy in restraint of trade or commerce among the several states, and was illegal under the act of July 2, 1890, lias, since the argument of this case and while it has been under consideration, been declared to be untenable by the supreme court of the United States in the case of U. S. v. E. C. Knight Co., 15 Sup. Ct. 219, and may be laid out of further consideration. I am of opinion, however, that that agreement was in contravention of the laws and public policy of the state of Michigan, in that it was a dis posal of substantially the entire business plant of the Michigan corporation, as the consideration for its purchase of the shares of stock in the United States Capsule Company, a new Jersey corporation. The general rule may be stated to be that it is incompetent for a corporation to subscribe for stock in another corporation. It must be acknowledged that there are exceptions to this rule, founded upon a variety of peculiar circumstances, which it is not necessary here to enumerate. I am unable to discover any ground upon which this case.can he held within any of such exceptions. But, however this may be, if the corporation in which the stock is taken is a domestic one, and subject to the same laws and dominion as the one taking such stock, or where, if the corporations are organized in different states, they are subject to regulations of a substantially identical character, my opinion is that where, as in this case, the law of the corporation in which the stock is taken is of a substantially different character, and fails to impose the liabilities and create the obligations imposed by the law of the corporation subscribing for the stock, such subscription is ultra vires of the latter corporation, and is illegal and void. The laws of Michigan, under which the complainant is incorporated, impose restrictions, duties, and obligations upon it of a character which indicate the purpose and policy of the laws of the state of Michigan in providing for its incorporation. I shall not. go into details in respect to those provisions. They are sufficiently obvious upon an inspection of the statute. The general fact is sufficient for the present purpose. They are safeguards erected by the state, and constitute the bounds and conditions of corporate action. It is quite clear that the laws of New Jersey fail to make many of those conditions effectual or obligatory upon corporations organized thereunder, either in the original incorporation, or in corporate action; and it is clear that the statutory regulations, in that regard, of the state of New Jersey, do not respond to what, by the laws of Michigan, is deemed essential. By the agreement in question the Michigan corporation conveys substantially its entire assets to the New Jersey corporation, abandons its business as a proprietor thereof, and becomes practically a mere employé of the New. Jersey corporation, and subject to its dominion and control.

My opinion is, also, that the above-mentioned agreement is obnoxious to the provisions of Act 225 of the Laws of Michigan (1889), entitled “An act declaring certain contracts, agreements, undertakings and combinations unlawful, and to provide punishment for those who shall enter into the same or do any act in performance thereof.” 3 How. Ann. St. 9354j. It was strenuously argued before me by counsel for defendants that this statute is unconstitutional and void, in that it is class legislation. Whether or not this contention is well founded, I do not now undertake to decide. It may be admitted that there is fair ground for doubt of the validity of this statute; but its invalidity is not so clear and free from doubt as that a court of first instance would, in my opinion, be justified in declaring it void. For the reasons thus briefly stated, my conclusion is that the agreement upon which the defendants found their supposed rights was not authorized by the laws of Michigan, and is therefore void. It is unnecessary, therefore, to pass upon other grounds upon which the agreement is alleged to be invalid.

It remains to be considered what relief should be administered upon this state of things. The proof sufficiently shows—and, indeed, the nature of the transaction demonstrated this—that the complainant, on its own account, is not entitled to claim any relief founded upon the contract; but the contract itself being contrary to law furnishes no support for the aggressive attitude and conduct of the defendants. The complainant’s conduct has been disingenuous, but I think it has the law of the case. The result is, as it seems to me, that the parties stand, in respect of their property rights, upon the same footing as if the contract had never been made; and upon the restoration by the complainant of what it has received, upon the footing of the contract, it would seem that the complainant is entitled to preventive relief, and that the defendants, or such of them as threaten to invade the property of the complainant, should be restrained from interfering therewith. Counsel may prepare a decree in consonance with these views, and the same will be entered of record.