Summary
Hearing on appeal by the plaintiffs from a decree of the Supreme Court of the District of Columbia dismissing a bill filéd to obtain possession of corporate stock held in trust by certain of the defendants.
The Court in the opinion stated the facts as follows:
This was a suit commenced by a bill filed by Willard D. Do-reams and Addison G. Du Bois against the National Cotton Improvement Company, John Hays Hammond, Daniel J. Sully,. Frank S. Bright, John P. Miller, and the United States Trust Company. It alleges that the National Cotton Improvement Company was incorporated under the laws of the State of Maine- and has offices in the District of Columbia. That the defendants Hammond, Sully, Bright, and Miller are residents of the-District of Columbia, and the United States Trust Company is-a corporation created under the laws of said District.
That in December, 1909, the National Cotton Improvement Company was the sole owner of certain United States patents relating to a new cotton gin, which is known as the “Doremuscotton gin,” of which the plaintiff Doremus was the inventor. That said patent and patent rights are of great value. That said corporation is capitalized at $1,500,000; the stock being divided $500,000 preferred, and $1,000,000 common. That there had been issued and was held by the defendant Miller, as trustee for plaintiffs and himself, about 96 per cent of all of the common and all of the preferred stock of said company, which was fully paid and nonassessable. The interest of said parties being plaintiff Doremus 50 per cent, plaintiff Du Bois 25 per cent, and defendant Miller 25 per cent.
That on December 29, 1909, an agreement was entered into-by Miller on behalf of himself and plaintiffs, with the defendants Hammond and Sully, who purported to be acting for a syndicate, by the terms of which agreement Miller agreed to deliver to said syndicate all of the stock of the National Cotton Improvement Company held by himself as aforesaid, upon the payment of the sum of $37,500, said stock to be held by Hammond, until a corporation known as the General Cotton Securities Company be organized, and the defendants Hammond and Sully agreeing to cause to be incorporated a corporation known by that- name, for the purposes of the promotion of the corporation and organization and the holding of stock and securities of other corporations engaged in the ginning, warehousing, and general development of the cotton business, which corporation should have a capitalization of $10,000,000 to be divided into $7,000,000 common and $3,000,000 preferred; the ■said defendants Hammond and Sully agreeing, upon the organisation of said company, to enter into a new contract with the new company, and to deliver to it the aforesaid stock of the National Ootton Improvement Company for $3,000,000 common and $3,000,000 preferred of the capital stock of the new company, fully paid and nonassessable, and to turn over to said Miller in behalf of himself and- these plaintiffs, $1,000,000 of the ■common and $1,000,000 of the preferred stock so received. It was further provided that there should be created a voting trust to be composed of the defendants Hammond, Sully, and Bright, to whom all of the common stock should be turned over for the purpose of voting for five years; and in the event that such trust be formed the said Miller agreed on behalf of himself and plaintiffs to accept from said voting trust certificates of beneficial interest in the amount of the said common stock therein ngreed upon; namely, $1,000,000. It was further provided that the preferred stock of the new corporation, which was to be delivered to defendant Miller, should be lodged with the syndicate for sale by the said syndicate, so as to net Miller and these plaintiffs the sum of $400,000 in cash; and that the defendants Hammond and Sully agreed to enter into an agreement with the new corporation to use their best endeavors to sell the $2,->000,000 preferred stock issued to them, and so much of the ■common stock which they received, so as to net the treasurer of the new corporation $1,600,000, the $2,000,000 preferred stock to be sold for the benefit of the corporation, and the $1,000,000 sold for the benefit of the defendant Miller and these plaintiffs, .should be considered as one block, and out of the proceeds of said ¡sale of each share of the preferred stock there should be paid to the said Miller the sum of $14.50 until the sum of $400,000 had been paid in full, and the balance should be paid into the treasury of the General Cotton Securities Company, until the $1,600,000 had been paid in full. It was provided that all deliveries of stock and payments of money may be made to Bright as Miller’s representative.
Thereafter, in conformity with their obligation under said agreement, Hammond and Sully caused to be organized under the laws of the State of Delaware the General Cotton Securities Company, with a capital stock of $10,000,000, divided into $3,000,000 common and $7,000,000 preferred. That the first meeting of said corporation was held on the 5th of January, 1910, in the City of Wilmington. Certain by-laws were adopted, and Ralph P. Buell, Chas. H. Stanton, and Warren N. Acres were elected directors. At said meeting there was presented to the stockholders a communication from Sully, acting in behalf of said syndicate, offering to enter into an agreement with said company to sell it the 96 per cent of the common and preferred stock of the National Cotton Improvement Company of Maine, and to pay into the treasury of the company, from time to time as the same is needed, the sum of $1,600,000, and accept in payment for the said stock and the said money $3,000,000 of the common and $3,000,000 of the preferred stock, to be issued as fully paid and nonassessable. This was accompanied by a copy of the agreement entered into by said defendants Sully and Hammond with the defendant Miller. Sully’s proposition was accepted by a resolution passed by the board of directors, who were authorized to enter into a contract with him to carry out said agreeement.
That thereafter, on the 7th day of January, 1910, the first meeting of the board of directors of the General Cotton Securities Company was held at 42 Broadway, New York City, at which time the following officers were elected: Ralph P. Buell, president, Chas. H. Stanton, secretary and treasurer. At said meeting the proposition of said Sully was duly considered by the board of directors, who by a proper resolution passed accepted the same. The president and treasurer were authorized and directed to issue, in the name of said corporation and under its corporate seal, certificates of preferred stock to the value of $3,000,000 and common stock to the value of $3,000,000 in the name of Daniel J. Sully, and deliver the same to him upon the receipt of a certificate for the aforesaid 96 per cent of the stock of the National Cotton Improvement Company and the execution of an agreement by the said Sully to pay into the treasury of the said Securities Company $1,600,000 when and as demanded; and a proposed instrument carrying out said agreement was then ordered spread upon the minutes of said corporation.
That on the 7th of January, 1910, the defendant Sully delivered to the treasurer of the General Cotton Securities Company the certificates of stock aforesaid, and received from the officers of the first-named company $3,000,000 of preferred and $3,000,000 of common stock of the General Cotton Securities-Company. There was filed with said company a contract under seal by said Sully, acting for said syndicate, to pay, upon the company’s demand, the sum of $1,600,000, without interest.
On the same date the actions of Sully were fully ratified by the members of the syndicate and there was entered into an agreement by and between the defendants Sully and Hammond and one Harris Hammond, Mont D. Rogers, and D. B. Atherton for the purpose of the sale of the preferred and common stock, and a division of the proceeds derived therefrom, and appointing-the said Sully syndicate manager for the purpose of signing-agreements for the sale of said stock and paying out the moneys received from such sale, etc.; and agreeing among themselves-that the said Sully shall transfer the $3,000,000 preferred stock to be handled by the syndicate under their contracts with the-defendant Miller, and in-addition thereto $750,000 of the common stock held by the syndicate, all of which was to be deposited by the defendant Sully with such trust company that he may deem advisable; said common stock, however, to be subject to-the voting trust agreement hereinbefore mentioned, all of the members of the said syndicate obligating themselves to use their best endeavors to market and sell said stock. On the following-day, the 8th of January, 1910, the defendants Hammond and Sully entered into a partnership agreement to divide equally all of the profits received by virtue of their agreement made with the defendant Miller heretofore referred to, or the- agreement-made in behalf of the syndicate by the defendant Sully herein-before referred to.
On the 7th day of January, by agreement. Hammond, Sully,, and Bright formed a voting trust and constituted themselves as trustees for said trust, and with the consent of the defendant Miller the $1,000,000 common stock of the General Cotton Securities Company, received by Sully for the benefit of the said Miller, was deposited by said Sully with said voting trust, under the terms and conditions as set forth in said trust agreement, and there was issued by said voting trust for said stock, trust certificates of beneficial interest of an equal amount to said John P. Miller, as trustee for the benefit of said Miller and these plaintiffs, in their respective interests as hereinbefore set forth. That, among other things, said voting trust agreement in substance provided that, upon the expiration of said trust, there should be delivered by the trustees to the holders of the trust certificates the stock represented thereby.
That after defendant Miller received the certificates of beneficial interest representing the said $1,000,000 of the common stock of the General Cotton Securities Company, he did not deliver to these plaintiffs their proportion of said certificates, but by mutual consent were allowed to remain in his possession as trustee, he at the time executing a declaration of trust, reciting that he had received from the voting trust certain trust certificates, which in the aggregate amounted to 10,000 shares, and that he had placed the same in escrow for a period of eighteen months in a safe-deposit box rented in ‘the name of the defendants Sully and Bright. That the only certificate of which he was the beneficial owner was No. 11 for 2,275 shares of common stock. That certificates Nos. 4 for 2,550 and 5 for 1,500, 6 for 100, 7 for 100, 8 for 100, 9 for 100, and 10 for 100 shares were the property of the plaintiff Willard D. Doremus, and certificates Nos. 12 for 1,500, 13 for 500, 14 for 100, and 17 for 165 shares belonged to the plaintiff Addison G. Du Bois, and that the voting trustees were authorized and directed to transfer said common-stock certificates to the individuals thereto entitled.
Thereafter defendant Sully in behalf of the syndicate entered into a certain arrangement with the United States Trust Company, whereby said trust company agreed to act as trustees for the syndicate in the disposition of the preferred stock of the General Cotton Securities Company, and in the carrying out of said defendants Hammond and Sully’s agreement with the defendant Miller.
And that there was turned over by Sully to the said Trust. Company the $1,000,000 preferred stock of the General Cotton. Securities Company, for the purpose of carrying out the agreement of December 29, 1909, and said defendant the United States Trust Company now has in its possession $750,000 of the-preferred stock of the General Cotton Securities Company,— $500,000, which belongs to plaintiff Doremus, and $250,000* which belongs to plaintiff Du Bois.
That at a special meeting of the stockholders of the General Cotton Securities Company held on the 7th of January, 1910,. by-laws of the company were amended by increasing the board of directors from three to nine, and a meeting of a board of directors held immediately thereafter and at the same place accepted the resignation of Mr. Stanton as secretary and treasurer, and Mr. Buell as president of the company, to take effect at the-close of the meeting, and filled the vacancies of the board of directors by the election of the following gentlemen: John Hays-Hammond, Daniel J. Sully, Harris Hammond, George S. Graham, John P. Miller, Mont D. Kogers, D. B. Atherton. John Hays Hammond was elected president, Daniel J. Sully, first vice-president,• Ralph P. Buell, secretary, and D. B. Atherton,, treasurer.
Some time thereafter the corporation removed its general offices from New York to the city of Washington. Thereafter the-said syndicate endeavored to get capital interested in the enterprise. Through the defendant Sully certain New York, Boston,, and English capitalists were interested. In consequence it became necessary to build a commercial gin for the purpose of demonstrating to the interested capitalists the great commercial value of the Doremus patent. That on the 18th of June, 1910,. the General Cotton Securities Company through its vice-president, defendant Sully, entered into a contract with the ThomasEordyce Manufacturing Company, of Little Rock, Arkansas, to.manufacture a gin according to the Doremus type as embodied in the patents hereinbefore referred to. The contract provided,, among other things, that any improvements made by the-Thomas-Fordyce Company, or any of its employees, during the-construction of the gin, should be the property of the General Cotton Securities Company, that company agreeing to pay to the manufacturing company $2,000, and to give it the preference of manufacturing at equal prices on all future orders for-gins.
Plaintiffs are informed that sometime in November, 1910,, friction arose between defendant Hammond- and other members, of the syndicate upon the one side, and defendant Sully on the-other: Hammond and those siding with him,—namely, his son, Harris Hammond, and D. B. Atherton,—desiring to rid themselves of the syndicate obligation to pay into the treasury of the-General Cotton Securities Company upon demand $1,600,000, which they had agreed to do, conceived the idea of making-fraudulent changes in the minutes of said corporation, and the-defendant Hammond, with the knowledge and consent of the-defendant Miller and the defendant Bright, caused to be called an alleged meeting of the board of directors of the General Cotton Securities Company for 16th day of November, 1910, to be held at the office of the company in the city of Washington; and certain alleged notices were sent out to certain members of' the board of directors and others, purporting to be signed by the secretary of the said corporation, namely, one Campbell, who was neither the secretary nor a stockholder of said corporation. In consequence of said notice a certain meeting was held in the office of the corporation in the Hnion Trust Building, city of Washington, on the 16th of November, 1910, at which time there were certain men present who purported to be acting and voting-as members of the board, who were neither directors nor stockholders of said corporation, all of which was being done over the protest of the defendant Sully; and at said meeting there-were cei’tain resolutions purporting to be made, voted upon, and adopted as legal acts of the said board of directors of the said corporation, which in effect authorized and directed that there-be made certain, physical changes in the minutes of the first meeting of' the board of directors held on the 7th of January, 1910, so that by said physical changes it would be made to appear that the contract made by the General Cotton Securities Company with the defendant Sully in behalf of the syndicate, •on the 7th of January, 1910, had never in fact been authorized "by either the then board of directors or the then stockholders. None of the parties who participated in this unlawful and ■fraudulent action were either a member of the board of directors •or a stockholder in said company on the 7th of January, 1910. These unlawful and fraudulent acts were done with the knowledge and consent of the defendant Bright, who, although not & director, was personally present at said meeting.
Immediately upon receipt of the foregoing information, these plaintiffs wrote a joint protest to the three voting trustees, demanding forthwith that they have called a special stockholders’ meeting for the purpose of removing the then board of directors ■for malfeasance in office, and the election of a board that would honestly protect the interest of the stockholders as they were in duty bound to do under the voting trust agreement. Plaintiffs .also wrote letters of protest to John Hays Hammond, president, and D. B. Atherton, treasurer of the General Cotton Securities Company, informing each of them of their beneficial interest in the voting-trust certificates issued to Miller, as voicing their protest against the unlawful and illegal action taken by the .alleged board, and demanding that their interest be protected, and that the affairs of the company remain in statu quo until the voting trustees elect a new board of directors. And on the same ■day plaintiffs wrote to the then president of the National Cotton Improvement Company that the stock standing on its books in •the name of John P. Miller was originally held by Miller for the joint interest of the three of them, and was no longer the property of the said Miller, but of the General Cotton Securities Company, demanding that no change would be made upon the books of said company of such stock until appropriate action had been taken by the General Cotton Securities Company, and inclosing copies of aforesaid letters to the voting trustees, and to the officers of the General Cotton Seenrities Company. No replies were ever received to any of the letters, and plaintiffs were never able to secure any information of what actually took place at said meeting, although they frequently endeavored to do so from the defendants Hammond, Miller, and Bright.
Immediately upon receiving the communication from plaintiff, the defendant Sully advised them and their counsel that he, as one of the voting trustees, was perfectly willing to vote with either or both of the other voting trustees in demanding a special meeting of the stockholders for the purpose of removing the then board of directors for malfeasance. And on the same date defendant Sully wrote a letter to the defendant Bright, informing him that he had received a communication from plaintiffs, addressed to the voting trustees, and that he was ready and willing to request the president and secretary of the General Cotton Securities Company to call a meeting as demanded in plaintiff’s letter. Said Sully prepared a request to be executed by the voting trustees and forwarded to the president and secretary, for the calling of a stockholders’ meeting, and executed the same, and suggested in his communication to the defendant Bright that he also execute it and forward it to the defendant Hammond. That a letter was written by Sully to Hammond on the same day, wherein the defendant Sully expressed to the defendant Hammond his desire to comply with the request of the plaintiffs, and that he had prepared such a paper as met with the requirements, and requested the defendant Hammond to execute same and turn it over to defendant Bright. That neither the defendant Bright nor Hammond ever executed said paper, and no request was ever made by Hammond or Buell that a special meeting of the stockholders should be held.
That on the 16th of November, 1910, plaintiffs were advised that John B. Fordyce, president of the John B. Fordyce Manufacturing ’Company, manufactured another commercial gin along the lines of the Doremus patents with additional improvements to those that were heretofore referred to as having been assigned to the General Cotton Securities Company; and at the request of said Fordyce the defendant Sully and the plaintiff Doremus on the 18th of November 1910, left the city for Little Bock, Arkansas, for the purpose of seeing the new gin in operation.
Defendants Hammond, Bright, and Miller were fully cognizant of the foregoing facts. Notwithstanding all of the above facts, the defendant Hammond, and those interested with him in the syndicate and allied with him in his endeavor to rid himself of his obligations to the General Cotton Securities Company, caused to be called a special meeting of the board of directors to be held at 71 Broadway, New York City, on the 23d day of November, 1910, at 10:30 a. m. And said defendant well knew at the time that there was no authority under the by-laws of the said company to hold such meeting of the board of directors, and each of the defendants Hammond, Miller, and Bright knew at the time that the call for said meeting was sent out that it would be impossible for defendant Sully to be present at said meeting at which they proposed to take steps, which, if legal, would jeopardize the interests of the plaintiffs. Further, that no notices were sent out to several of the other directors whom these defendants deemed were adverse to their interests. Notwithstanding the above facts a meeting was held according to plaintiff’s information. That the said defendants, with the fraudulent intention of injuring the rights of these plaintiffs as the owners of the beneficial interests in three fourths of the $1,000,000 preferred, and three fourths of the $1,000,000 common stock of said company, did conspire to take such action that would, if legal, absolutely wipe out of existence the interests of these plaintiffs; at said meeting said defendants did agree to the passage of certain resolutions; namely, that the contract of December 29, 1909, between Miller and defendants Sully and Hammond should be annulled, and the contract made by the said company with the defendant Sully should be abrogated, surrendered, and held for naught, and that the stock issued to the defendant Sully, including that delivered by said Sully to defendant, shall all be canceled, and that all the stock in fact that had been issued by said company shall be wiped out of existence and the 96 per cent of the common, and the 96 per cent of the preferred, stock of the National Cotton Improvement Company should be delivered to the defendant Miller, and that the patents for improvements to the gin assigned to the General Cotton Securities Company should be assigned to the defendant the National Cotton Improvement Company, or the defendant Miller on the payment of $169, and further did then vote the removal of the defendant Sully as vice-president. That at the time defendants Bright, Hammond, and Miller were proceeding in the manner hereinbefore stated to absolutely wreck the General Cotton Securities Company in violation of all their obligations to the stockholders, and particularly in regard to these plaintiffs, there was in the United States a representative of a British syndicate composed of London bankers, negotiating for the purchase of said patent rights and said patents from said company, all of which defendants knew. That previous to the unlawful conspiracy, the said Doremos patents and the said applications for improvements had, by demonstration, proved to be practical in every respect^ and in fact a revolution in the process of ginning cotton, and are now thought by all interested in the industry to be of infinite value.
By the by-laws of the General Cotton Securities Company it is provided that the annual stockholders’ meeting of said corporation should be held on the 2d Monday in January, and ten days’ previous notice thereof should be given to all the stockholders of record. That the proper officers of the company' wholly neglected to comply with the by-laws, and no request was-ever made by the voting trustees that such a meeting be held, and. up to the present time no meeting in fact has been held.
On information and belief, plaintiff avers that the 96 per* cent of the stock of the National Cotton Improvement Company has been taken from the treasury of the General Cotton Securities Company and delivered to the defendant Miller, and said stock stands at the present time on the books of the National Cotton Improvement Company in the name of Miller, or Miller as trustee.
Plaintiffs are advised that the placing of the common-stock certificates by the defendant Miller with the defendants Sully and Bright in escrow was without authority of law, and they are entitled to receive certificates of beneficial interest at this time from the defendants Sully and Bright. That they are entitled to have delivered to them by the voting trustees, the certificates of common stock represented by the trust certificates above mentioned, as said voting trust is not legally binding upon them in any way.
The prayers of the bill are that the court pass a decree directing defendants Sully and Bright to deliver to plaintiff the trust certificates of the numbers and ñames heretofore mentioned. That the defendants Hammond, Sully, and Bright, on the presentation of the said trust certificates of beneficial interest, deliver to said plaintiffs the common stock represented thereby. That the United States Trust Company be ordered to deliver to the plaintiff Doremus out of the stock in its possession 5,000 shares, and to the plaintiff Du Bois 2,500 shares.
That the National Cotton Improvement Company be enjoined from entering into any contract of any kind of description with anyone in relation to the Doremus patent, or any improvements thereon, or transferring upon its books any stock that now stands in the name of John P. Miller.
That the defendant Miller be enjoined from entering into any contract of any kind with anyone in relation to the stock now in his possession and standing on the books of the National Cotton Improvement Company in the name of John P. Miller, and that the court pass a mandatory order demanding that John P. Miller forthwith return to the lawful treasurer of the General Cotton Securities Company all the stock and certificates for shares of stock of the National Cotton Improvement Company received by him from the treasurer, and to assign or reassign any patents, or application for patents in relation to any improvements made upon the cotton gin conceived by the ThomasFordyce Manufacturing Company or John B. Fordyce.
March 17, 19Í1, the National Cotton Improvement Company appeared specially by its attorney and moved to quash the process served upon it, on the ground that at the time it was not doing business in the District of Columbia; that the suit does not. grow out of any contract made by said National Cotton Improvement Company entered into or to be performed in tbe District. This was accompanied by affidavit of Frank S. Bright, who stated that the company had surrendered its offices in the Union Trust Building on the 31st day of December, 1910, and he believes that the offices were rented to Sully on January 1, 1911, and that they have since been occupied by him. That said defendant company has had no office in the District of Columbia, and has done no business in said District, and is not now engaged in business here. Answering the motion to quash, plaintiffs allege that defendant maintains an office in the District at present, and it is in charge of its vice-president. The affidavit of Sully in support was to the effect that the company has continuously maintained, since 1909, offices in the Union Trust Building. That the National Cotton Improvement Company was incorporated under the laws of Maine for the purpose of acquiring what is known as the Doremus patents, 'and that it did subsequently acquire these patents from one John P. Miller, issuing to said Miller more than 90 per cent of its capital stock therefor. The only assets of the defendant company are the Doremus patents and certain office furniture.- That all of its expenses have been borne by your affiant, or the defendant Hammond, and that all its business of every kind and character has been conducted in the District of Columbia, and all contracts in relation to its business were made in the District of Columbia.
The motion to quash was overruled without prejudice to defendant renewing- the same after the coming in of its answer.
On March 23, 1911, the National Cotton Improvement Company filed a special answer and renewed its objection made to the jurisdiction in the former motion. On the same day an answer on behalf of the National Cotton Improvement Company was filed by D. J. Sully, first vice-president, in which all of the allegations of the bill were admitted. On March 24, Philip Walker, as attorney for said corporation, moved the court to strike said answer from the files on the ground that the said Sully was not vice-president of the corporation, and had no authority to represent the same. This was supported by an affidavit of Frank S. Bright. Sully answered the bill in his own behalf on March 27th, substantially admitting tire allegations therein. The United States Trust Company answered April 8, 1911, admitting the allegations of the bill relating to it. John P. Miller was not served with process and has made no appearance. John Hays Hammond answered May 29, 1911, and at great length. He substantially denied each and every allegation of the petition charging fraud and illegal action on his part.
Frank S. Bright answered May 24, 1911, also at great length, denying all allegations of the bill charging him with fraud, etc. Testimony was taken relating to the motion and exception of the National Cotton Improvement Company, to quash the subpoena and also to the allegations of the bill and denial thereof. November 27, 1911, a decree was entered dismissing the bill. No opinion was filed by the trial justice, though it appears from his brief oral statement taken down by a stenographer that in his opinion Sully was the instigator of the suit, and that he was made a party defendant to conceal the same, and to make use of whatever advantage the act afforded plaintiff by his position ■as defendant. That the answer filed by Sully for the National Cotton Improvement Company was made on an understanding with the plaintiffs that this answer should be filed, to subject to the court’s jurisdiction a foreign party, and that it was not filed in good faith towards the company or the court; and was with the consciousness that Sully had no authority, either express or implied, to enter the appearance of the company or to answer for it; that the statements in the answer were not made in bona fide belief that it was either the duty, the power, or the right of Sully to make them.
Syllabus and headnotes are prepared by the reporter or publisher, not the court, and are not part of the opinion.
