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SUPREME COURT OF THE UNITED STATES,
OCTOBER TERM, 1899.
JELLENIK v. HURON COPPER MINING COMPANY.
APPEAL FROM THE CIRCUIT COURT OF THE UNITED STATES FOR THE WESTERN DISTRICT OF MICHIGAN.
No. 100. Argued and Submitted January 16, 1900.-Decided March 12, 1900.
A suit was brought in the Circuit Court of the United States for the Western District of Michigan by parties citizens of other States than Michigan against a Michigan mining corporation and certain individual defendants holding shares of stock in that corporation and being citizens residing in Massachusetts. The plaintiffs claimed that they were the real owners of certain shares of stock of the corporation the certificates of which were held by the Massachusetts defendants, and sought a decree removing the cloud upon their title to such shares and adjudging that they were entitled to them. Held,
1. That the defendants, citizens of Massachusetts, were necessary parties to the suit.
2. That they could be proceeded against in respect of the stock in question in the mode and for the limited purposes indicated in the eighth section of the act of Congress of March 3, 1875, 18 Stat. 470, c. 137, which authorized proceedings by publication against absent defendants in any suit commenced in any Circu Court of the United States to enforce any legal or equitable lien upon or claim to, or to remove any incumbrance or lien or cloud upon the title to real or personal property within the district where such suit is brought.
Statement of the Case.
3. That for the purposes of that act the stock held by the citizens of Massachusetts was to be deemed personal property "within the district" where the suit was brought. The certificates of stock were only evidence of the ownership of the shares, and the interest represented by the shares was held by the Company for the benefit of the true owner. As the habitation or domicil of the Company is and must be in the State that created it, the property represented by its certificates of stock may be deemed to be held by the Company within the State whose creature it is, whenever it is sought by suit to determine who is its real owner.
THIS is an appeal from a decree of the Circuit Court of the United States for the Western- District of Michigan dismissing the bill of the plaintiffs, appellants here, for want of jurisdiction over some of the defendants who were held to be indispensable parties to the suit.
The case made by the bill is as follows: The plaintiffs are stockholders of the Huron Copper Mining Company and citizens of other States than Michigan. The Company is a Michigan corporation, the mines operated by it, all its other property, and its principal offices for business being at Houghton, Michigan, with a branch office at Boston, Massachusetts.
During the transactions complained of in the bill, the Board of Directors of the Company, whose members are the other defendants in this suit, were J. C. Watson, D. L. Demmon, Samuel L. Smith, H. J. Stevens and Johnson Vivian. Watson, Demmon and Stevens (the last-named having since died) were residents of Boston, Watson being President and Dem mon Secretary and Treasurer of the Company. They had charge and control of the branch office in Boston. Smith resided at Detroit, Michigan, but was frequently in Boston. Vivian resided at Houghton, Michigan, and was for many years the general manager of the mining operations and the business of the Company at its mining location in Houghton County. Smith and Vivian disclaimed any connection with the alleged fraudulent transactions set forth in the bill, but were put upon their proof by the plaintiffs as to the matters stated therein.
In June, 1890, the Board of Directors made an assessment upon the capital stock of the Company of five dollars per share
Statement of the Case.
payable on July 7th of that year. Notice of the assessment was given to the stockholders, accompanied by the statement that it would be sufficient to pay off all the indebtedness of the Company and leave a cash balance in its treasury of over thirty thousand dollars in addition to the unsold copper and other personal property of the Company.
It was alleged that upon receiving the amount of the assessment, two hundred thousand dollars, the Board of Directors, for the purpose of defrauding the plaintiffs and other stockholders, applied a portion of it to the payment of spurious debts of the Company, and wasted and misapplied another large portion, diverting it from the Treasury of the Company and from the purpose for which it was made, and applying it to the personal uses of the Directors and officers of the Company and their confederates.
On October 25, 1891, the Board of Directors made another assessment upon the stock of the Company of three dollars per share which aggregated one hundred and twenty thousand dollars. This assessment was made without the knowledge of the stockholders and at a time when, as appeared from the statement of the Board, there were sufficient assets of the Company exclusive of its mines and mining property to pay all its legal debts.
The bill charged that the Board of Directors or their representatives had disposed of the stock held by them before the making of the above assessments, and were the holders of none or at least a very small portion, except as they held stock purchased at a sale to be presently referred to as trustees for the plaintiffs and other stockholders, so that they had but a nominal, if any, interest in the Company; that they had so manipulated the assessments as to enable them to speculate in the stock of the Company to the detriment of the stockholders; that they had contracted fraudulent debts by means of false and illegal salaries, allowances and commissions to themselves, by making fraudulent contracts for the Company at extravagant prices, and by borrowing large sums of money for the Company at usurious interest, in which contracts and usurious loans the Directors and their confederates were interested as
Statement of the Case.
contracting parties with the Company; that while acting as Directors and trustees for the stockholders they had betrayed their trust and mismanaged the affairs of the Company for their own profit and advantage; and that for many years they had continued the mining of copper at an apparent loss by reason of such fraudulent practices and mismanagement, and by false statements concealed the same from the stockholders.
On November 1, 1891, the plaintiff Jellenik, acting for himself and as attorney for several of the plaintiff stockholders, applied to Watson and Demmon for leave to examine the books of the Company for the purpose of determining the true state and condition of its affairs, but the demand was refused and for that reason Jellenik refused and advised his clients to refuse to pay the three dollar assessment.
On February 9, 1892, the assessment of three dollars not having been paid, a sale of the stock was made by order of the Directors at the office of the Company in Boston. The sale took place in the private office of the defendant Demmon, the Secretary and Treasurer of the Company. No one was present but the plaintiff Edwards and three other persons, besides the officers and Directors of the Company and their clerks. The Directors or their clerks did all the bidding on the stock, except the bids made for twenty shares, ten of which were purchased for each of the plaintiffs Dickey and Kennedy, trustees. One of the clerks in the office of the Company bid in 2725 shares, and Watson, the President of the Company, took 38,315 shares. The total number of shares sold was 41,060, or 1060 more than the Company possessed, its capital stock being 40,000 shares.
Notwithstanding the assessment of five dollars and the second assessment of three dollars, which were made upon notice to the plaintiffs and other stockholders that they would not only be ample to pay all the indebtedness of the Company but would leave its property free and clear with a large balance in the treasury, and notwithstanding the defendants Watson and Demmon in making the sale of the stock under the three dollar assessment required Dickey and Kennedy, trustees, and other stockholders not in conspiracy with the defendants, to pay the