Monmouth Inv. Co. v. Means

151 F. 159, 80 C.C.A. 527, 1906 U.S. App. LEXIS 4566

• Court: Court of Appeals for the Eighth Circuit
• Decided: December 22, 1906
• Docket: No. 2,409
• Status: Published

Opinion

PHILIPS, District Judge,

after stating the case as above, delivered -the opinion of the court.

The first criticism made upon the bill is that, its main purpose being to protect the estate of George E. Ross-Lewin from spoliation or loss, any right of action therefor was vested in the joint executors, and this complaint cannot, therefore, he maintained in the name of only one executor. If the law were that a court of equity could not obstruct and restrain acts of a coexecutor which he is threatening to execute for his individual benefit without the complainant joining the wrongdoer in the bill, it would present the anomaly of a party in his official capacity suing himself in his individual capacity, charging himself with fraud or wrongful acts to the injury of the estate committed to his protection. As said in Pearson v. Nesbit, 12 N. C. 315, 17 Am. Dec. 569:

“A suit at iaw is a contest betw.eén two parties in the court of justice; the one seeking and the other withholding the thing in contest. The same individual cannot be at tbe same time both tbe person seeking and tbe person withholding, for it involves an absurdity that a person should seek from himself or withhold from himself. * * * Where the same person is both plaintiff and defendant in different rights, as for himself on the one side and as executor on the other, this absurdity is involved.”

See, also, McElhanon v. McElhanon, 63 Ill. 457; Perkins v. Se Ipsam, Administratrix, 11 R. I. 270.

It has been well said that whatever fraud creates equity will destroy. Its remedies and procedures for the circumvention of schemes and devices to cheat and defraud keep pace with the genius of the inventors of them.

In a case situated as this, if the presence in the suit of the wrongdoer, McIntyre, in his official capacity were necessarjq the court would allow the bill to be amended by so naming him as a party defendant; it sufficiently appearing from the allegations that he could not join as co-complairiant. Barry v. M., K. & T. Ry. Co. (C. C.) 27 Fed. 1. This amendment, however, is rendered unnecessary by the action of the probate court which has supervened in appointing Rice W. Means administrator with the will annexed.

The underlying purpose of the bill in its inception was to intercept the connivance of Henry A. McIntyre as an individual through and in the name of the Monmouth Investment Company, rendered subservient to his dictation through its board of directors, to prevent him from collecting the promissory note charged, to have been wrongfully and' without consideration obtained by him, and possibly through its use to destroy or injure the interests of the deceased, George E. Ross-Lewin, in said company. If the United States Circuit Court acquired jurisdiction to enjoin this threatened danger, no subsequent change in the personnel of the executors of the estate and the substitution of the administrator with the will annexed could oust that jurisdiction. Hardenbergh v. Ray, 151 U. S. 113, 14 Sup. Ct. 305, 38 L. Ed. 93; Sioux City Terminal Railway & Warehouse Company v. Trust Company of North America, 173 U. S. 99, 19 Sup. Ct. 341, 43 L. Ed. 628; Henderson v. Goode (C. C.) 49 Fed. 887; Belmont Nail Company v. Columbia Iron & Steel Company (C. C.) 46 Fed. 336. “Parties who are not named may intervene and make themselves actual parties, so long as the proceedings are in fieri and are not definitely closed by the. course and practice of the court.” Hotel Company v. Wade, 97 U. S. 21, 24 L. Ed. 917.

Nor can we assent to the contention of the learned counsel for the defendants that; although the complainant was a citizen of Illinois and the defendants to the bill were citizens of the state of Colorado, a proper arrangement of the parties, according to their real interests in the litigation, would place the Monmouth Investment Company, a citizen of Colorado, on the side of the complainant, and thereby destroy the diverse citizenship essential to the jurisdiction of the Circuit Court. Under the allegations of the bill the Monmouth Investment Company is but .a holding corporation for the partnership adventures of said George E. Ross-Eewin and Plenry A. McIntyre, and the State Investment Company, a Colorado corporation, is but a technical stockholder,; owned and controlled by Henry A. McIntyre, holdiiig the stock as collateral security. The Monmouth Investment Company, by reason of the manipulation and control of McIntyre, through the subservient directors, is wholly at his will, and as such is but an instrumentality to aid' in the accomplishment of the very mischief of which complaint is made. In this aspect of the actual situation it is wholly allied with McIntyre in antagonism to the interests sought to be protected by the bill of complaint. There is persuasive authority for the contention that such a holding company as the Monmouth Investment Company does but represent in reality the interests of two partners, so that the death of one of the partners has practically left the other in absolute control. See Miner v. Ice Company, 93 Mich. 113, 53 N. W. 218, 17 L. R. A. 412; Einstein v. Schnebly (C. C.) 89 Fed. 540, 552.

One executor may sue another under circumstances where questions arise between the estate and the derelict executor jeopardizing the rights of persons interested in the‘estate. McGregor v. McGregor, 35 N. Y. 218, 220; Matthews v. Hoagland, 48 N. J. Eq. 455, 21 Atl. 1054; Petty v. Young, 43 N. J. Eq. 654, 658, 12 Atl. 392. Resulting from this is the rule that, where an executor or administrator refuses to or cannot join properly in the complaint, he may be made a co-defendant. And the fact that another executor may have qualified in the state of the situs of the estate does not disqualify him to sue in the federal court where he is in fact a nonresident citizen. Rice v. Houston, Administrator, 13 Wall. 66, 67, 30 L. Ed. 484; Amory v. Amory, 95 U. S. 186, 24 L. Ed. 428; Wilson v. Smith (C. C.) 66 Fed. 81; Coal Company v. Blatchford, 11 Wall. 172, 20 L. Ed. 179.

Further contention is made that the bill should no longer be entertained because of the fact, which has supervened since the jurisdiction of the Circuit Court ‘ attached, that the probate court has intervened by displacing the offending executor with an administrator with the will annexed. This, we hold, is a misconception both as to the extent .of the interposition and the-office of the probate court. It is a court of limited jurisdiction. It has supervisory control over administrators and executors, and may remove them for cause and appoint another administrator or executor. It can exercise supervisory control over them to compel an accounting and settlements, and the like; and can direct them in the management of the property of the estate. But it has no jurisdiction in equity to enjoin the defendants from consummating and carrying out the wrongful scheme alleged in the bill of complaint to despoil the estate, and to get control of its interests represented by an outside corporation. In short, it has no jurisdiction to grant the preventive and preservative writ of injunction essential to obstruct the threatened injury in question to the estate.

It is further urged in this connection that an adequate remedy at law exists to rectify or restore any loss of the estate possible to result from the alleged acts of McIntyre. The adequate remedy at law which will deprive a federal court of equity jurisdiction must be one as certain, complete, prompt, and efficient to attain the ends of justice as that in equity. Boyce v. Grundy, 3 Pet. 210, 215, 7 L. Ed. 655; Oelrichs v. Spain, 15 Wall. 211, 225, 21 L. Ed. 43; Hayden v. Thompson, 71 Fed. 63, 17 C. C. A. 594; Williams v. Neely, 134 Fed. 10, 67 C. C. A. 171, 69 L. R. A. 232; Brun v. Mann, 151 Fed. 145, recently decided by this court. “Where equity can give relief, the plaintiff ought not to be compelled to speculate upon the chance of his obtaining relief at law.” Davis v. Wakalee, 156 U. S. 688, 15 Sup. Ct. 555, 39 L. Ed. 578.

No action at law would lie at the suit of the legal representative of the estate of George E. Ross-Lewin consequent upon the issue of the note for $15,000 until after it was paid. Ip the meantime the note might be negotiated to a claimed bona fide purchaser. A judgment thereon against the Mgnmouth Investment Company in the straitened condition of its affairs might work its ruin and destroy the interest of the estate therein. McIntyre, who may be solvent now, might then be wholly insolvent. Under such conditions the preventive remedj'' by injunction is ever to be commended as salutary and “efficient to the ends of justice.”

With much force counsel for appellants assails that feature of the bill which seeks to have a receiver appointed for the Monmouth Investment Company and for a dissolution of the corporation. It is to be conceded that the effect of placing a corporation in the hands of a receiver, displacing its governing board of directors, incidentally works its practical dissolution. Sidway v. Missouri Land & Live Stock Company (C. C.) 101 Fed. 481, 483; Republican Mountain Silver Mines v. Brown, 58 Fed. 644, 7 C. C. A. 412, 24 L. R. A. 776. The Supreme Court of Colorado, in People ex rel. Daniels v. District Court, 33 Colo. 293, 80 Pac. 908, has held that the only statute in the state authorizing courts of equity to dissolve corporations is limited to an action for the benefit of creditors, and does not lie at the suit of stockholders.

It is not necessary, however, on this appeal for the court io discuss or pass upon that feature of the bill. The Circuit Court only made a temporary order enjoining the defendant McIntyre from transferring or collecting the $15,000 note, and the Monmouth Investment Company from paying the same, or from borrowing money on the credit of the company. This is the only action of the Circuit Court here for review. And this brings us to the merits of this appeal.

In Hawes v. Oakland, 104 U. S. 450, 460, 26 L. Ed. 827, Mr. Justice Miller, in discussing the question as to the circumstances and conditions under which a stockholder may have a standing in a, court of equity for relief against an act done or threatened by ¿the governing board of the corporation, lays down the following:

“Some action or threatened action of the managing board of directors or trustees of the corporation which is beyond the authority conferred on them by their charter or other source of organization; or such a fraudulent transaction completed or contemplated by the acting managers, in connection with some other party, or among themselves, or with other shareholders, as will result in serious injury to the corporation, or to the interests of the other shareholders; or where the board of directors, or a majority of them, are acting for their own interest, in a manner destructive of the corporation itself, or of the rights of the other shareholders; or where the majority of shareholders themselves are oppressively and illegally pursuing a-course in the name of 'tne‘ corporation, which is in violation of the rights of -the other shareholders, and which can only be restrained by the aid of a court of equity.”

The facts alleged and shown prima facie bring the case under review within the operation of said rules.

George E. Ross-Lewin and Henry A. McIntyre were so related to each ether in said holding corporation as to impose upon McIntyre, on the decease of Ross-Lewin, the utmost frankness and fairness in his dealings with the affairs of the corporation. The correspondence between the parties presented in the affidavits in behalf of the appellants shows that the deceased had the utmost confidence in the friendship and integrity of McIntyre. He trusted him implicitly; and he expressed this reliant confidence in his last will and testament by making him a coexecutor with his brother. When his partner and friend died, he should have regarded and treated the property of the deceased and the coexecutor of his will as he would have treated his friend in his life time. It would have been remarkable conduct on his part if during the life of George E. Ross-Lewin, without notice to him, he had called a meeting of the board of directors of said company and elected, in lieu of George E. Ross-Lewin, his son—a young man without business experience, attending college in an eastern state. And it certainly would have shocked the confidence of his trusting friend if, without notice to him, on the substitution of his son as director, he had caused such a resolution as the one in question to be passed by the vote of his son and the other director Williams, voting himself $15,000 for past salary; the resolution itself reciting that no salary had ever been fixed by the board of directors. While the dead body of his friend was yet green, before the funeral, a meeting of the board of directors was called and his son elected director, and said resolution was afterwards put through without any notice whatever to Harry F. Ross-Lewin. The indecent haste with which this was done, and the instrumentality resorted to to accomplish it, create grave apprehension that the defendant Henry A. McIntyre was conscious of its irregularity, and gives color to the imputation that he was attempting to take from the estate that which in law did not rightfully belong to him.

In the absence of some direct authorization or employment by the governing board creating the obligation, the presumption is that McIntyre a.s director and president, just as his associates, rendered whatever services he performed without salary; and the voting of such back salary was without consideration and void. National Loan & Investment Company v. Rockland Company, 94 Fed. 335, 336, 337, 36 C. C. A. 370. The case of Doe v. Northwestern Coal & T. Co. (C. C.) 78 Fed. 62, furnishes an instance akin to this, of the president of a corporation putting his son in as director and having himself voted a back salaíy. The act was denounced as fraudulent. See, also Brown v. Republican Silver Mines Company, 17 Colo. 421, 425, 30 Pac. 66, 16 L. R. A. 426; Ruby Chief Company v. Prentice, 25 Colo. 4, 7, 52 Pac. 210; Clark & Marshall, Private Corporations, vol. 3, § 673. A chancellor should probe such a transaction to the very marrow. It is a fit subject for the scrutiny and investigation of a court of equity.

‘ It is urged that the complainant representing the stockholder had not brought himself within the provisions of equity rule 94 by laying the foundation of right to proceed by averring a previous demand upon the managing directors to take action. The rule has no application to a situation like this, where the directors are shown by the bill to be in league with the defendant Henry A. McIntyre, who, through them, is using the corporation itself to wrong the complaining party as executor of the interests of the estate in the corporation. Young v. Alhambra Min. Co. (C. C.) 71 Fed. 810; Excelsior Pebble Phosphate Co. v. Brown, 74 Fed. 321, 20 C. C. A. 428. In administering justice the law never demands an idle ceremony.

On the showing made we hold that the action of the Circuit Court, in granting the temporary restraining order against the negotiation, collection, or payment of the note in question was proper. • It appears, however, from the bill and affidavits, that the Monmouth Investment Company is largely indebted, much of its property subject to mortgage, and, as its operation might be seriously crippled without the means to meet accruing interest and its debts and to care for its properties, on the remand of the cause for further proceeding, the Circuit Court is directed to amend the temporary decree by adding after the words, “until the further order of this court,” the following: “With leave to either of the parties in interest, or the administrator with the will annexed, to apply to the court, on notice, for authority to borrow money on the credit of the Monmouth Investment Company for the proper protection of the property and credit of the company pendente lite.”

With this amendment the decree of the Circuit Court is affirmed; the costs of this appeal to be taxed against the appellants.