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Statement of the Case.
full amount of the assessment on such sale, Watson and Demmon, the bill charged, either fraudulently sold the stock upon that sale to themselves individually or to their fellow conspirators for a mere pittance, without realizing the assessment thereon, or they realized the money and squandered it and allowed the indebtedness of the Company to be put in judgment in Houghton County, Michigan, with the fraudulent intent through and by that means to buy in and absorb the property and render valueless the stock of the plaintiffs.
In carrying out this scheme, it was alleged that the Directors permitted judgments to be taken against the Company for $180,230.08, of which amount $106,251.84 was a judgment by the defendant Demmon to himself, growing out of illegal transactions with himself as a Director and officer. All the judgments were obtained on the same day, December 30, 1891, by consent between the attorneys appearing for the Company and those for the judgment creditors, Demmon's judgment having been fraudulently procured by using his power and influence to prevent any investigation as to the honesty and legality of his claim.
All of the judgments, except the one procured by Demmon, were assigned to J. B. Sturgis, trustee, of Houghton, Michigan, and on May 7, 1892, the mining property of the Company was sold under the judgments so assigned to Sturgis and a certificate of sale given him by the sheriff of Houghton County. On August 21, 1893, the sheriff of that county, in pursuance of the certificate of sale, executed a sheriff's deed of the property to Sturgis. This deed was duly recorded August 24, 1893, and so far as the records showed, no transfer of title to the property had since been made by Sturgis.
It was alleged that the purpose of making the fraudulent assessment and pretended sale of stock was to exclude the plaintiffs and other stockholders from any right of inquiry into the affairs of the Company; that the purpose of the Directors and officers in causing the property of the Company to be seized and sold by legal process for spurious and fraudulent debts was to extinguish the title of the corporation and of its stockholders to the mining property and to vest the same in
Statement of the Case.
the Directors and their confederates; and that the pretended sale of stock was made in defiance of the protest of the plaintiffs and other stockholders of the Company and upon notice given to the Directors, at the time and place of the sale of the stock, of the fraudulent character of the assessment and of the proposed sale, like notice being given to all purchasers before the making of the sale.
It was stated in the bill that on September 15, 1892, the plaintiffs filed in the court below a bill similar to the one herein. A plea and demurrer were interposed by Watson and upon a hearing had thereon by consent the court held that the bill was defective in its jurisdictional allegations, and declined to proceed further until one was filed having proper allegations and giving it jurisdiction to act.
The present bill contained this paragraph:
"Your orators allege that the shares of stock in the said defendant Company are personal property, and its location is where the Company is incorporated and nowhere else, and that the locus in quo of the stock of the defendant Company has been since its incorporation at Houghton County, Michigan, that being its principal office for business and place of incorporation, and this bill is filed to remove any incumbrances, lien or cloud upon the title of your orators in said personal property thus located caused by the fraudulent acts of the defendants, as herein alleged, and for such other and further relief as the nature of the case shall require."
The plaintiffs also averred that they filed their bill in their own behalf because the Company, acting fraudulently through its Board of Directors and controlled particularly by the defendants Watson and Demmon, refused them any information with regard to its affairs or to allow them to see the books or to procure a statement therefrom, and because there was no other mode of relief, as there were no agents of the Company authorized to act for the relief of stockholders except the defendants thus fraudulently conspiring to break down and ruin its stock.
The relief asked was that a receiver be appointed to take possession of all the property and assets of the Company, wind
Statement of the Case.
up its business and make sale of its property; that the Directors and officers, their agents, servants, attorneys and representatives, be restrained and enjoined from in any manner intermeddling with the property and business of the Company, from levying upon, attaching, seizing by execution or selling, or causing to be levied upon, attached, seized by execution or sold, any of the property of the Company, and from prosecuting by any mesne or final process any claim or claims whatever against the Company, and also from cancelling any of the stock of the plaintiffs as set forth and described in the bill, and issuing new stock therefor to the pretended purchaser thereof under the pretended sales for delinquent assessment, and if such cancellation had been attempted by the defendants or any of them and new certificates issued therefor to the defendants or any of them or their confederates, that they be restrained from further transferring the same upon the books of the Company until the final order of the court; that an account might be taken under the direction of the court of the loss occasioned to the Company and its stockholders by means of the covin, breach of trust, mismanagement and neglect of duty and embezzlement of the Directors and their confederates, and of the profits made by the Directors and officers or any of them, and of their confederates or any of them, by means of such covin, deceit, fraud, unlawful confederacy, conspiracy and misappropriation of assets, and that the Directors and officers and every of them be ordered and decreed to pay over to such receiver or the court the entire sum or sums so ascertained; that the court might adjudge and decree that the pretended sale made on the 9th day of February, 1892, was a nullity and passed no title to any of the stock, that Watson and Demmon and their co-Directors and confederates be adjudged to hold the stock which they pretended to acquire at such sale in trust for the plaintiffs and other stockholders of the Company, and that the latter then held respectively in the Company the respective shares of stock which they held prior to the date of the sale, and that by the decree of the court any cloud upon the title of such stock of the plaintiffs might be removed therefrom; and that such other and further relief be granted as the
Opinion of the Court.
exigencies of the case might require and to the court should seem meet in the premises.
Such was the case made by the averments in the bill.
Mr. F. O. Clark for appellants.
Mr. T. L. Chadbourne for appellees.
MR. JUSTICE HARLAN, after stating the facts, delivered the opinion of the court.
Process was served upon the Huron Copper Mining Company and the other defendants residing in Michigan. Watson, Demmon and Smith, being non-residents, were proceeded against by publication, but they failed to appear. The Company appeared and pleaded to the jurisdiction of the court: 1. That Watson, Demmon and Smith were indispensable parties to the suit, but not inhabitants of the Western District of Michigan, and that no subpoena or process of any kind had been served upon them in the district, nor had they voluntarily appeared and submitted themselves to the jurisdiction of the court. 2. That the stock of the Huron Copper Mining Company belonging to the complainants was not personal property within the district.
The plea was sustained and the bill was dismissed without prejudice to the bringing of such further suit by the complainants as they might be advised.
The Circuit Court correctly held that the defendants Watson, Demmon and Smith were necessary parties to the controversy made by the bill. 82 Fed. Rep. 778. But could they not have been brought before the court in the mode and for the limited purposes indicated in the eighth section of the act of March 3, 1875, entitled "An act to determine the jurisdiction of Circuit Courts of the United States, and to regulate the removal of cause from State courts and for other purposes," which section provides:
"§ 8. That when in any suit, commenced in any Circuit Court of the United States, to enforce any legal or equitable
Opinion of the Court.
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, one or more of the defendants therein shall not be an inhabitant of or found within the said district, or shall not voluntarily appear thereto, it shall be lawful for the court to make an order directing such absent defendant or defendants to appear, plead, answer or demur, by a day certain to be designated, which order shall be served on such absent defendant or defendants, if practicable, wherever found, and also upon the person or persons in possession or charge of said property, if any there be; or where such personal service upon such absent defendant or defendants is not practicable, such order shall be published in such manner as the court may direct, not less than once a week for six consecutive weeks; and in case such absent defendant shall not appear, plead, answer or demur within the time so limited, or within some further time, to be allowed by the court, in its discretion, and upon proof of the service or publication of said order, and of the performance of the directions contained in the same, it shall be lawful for the court to entertain jurisdiction, and proceed to the hearing and adjudication of such suit in the same manner as if such absent defendant had been served with process within the said district; but said adjudication shall, as regards said absent defendant or defendants, without appearance, affect only the property which shall have been the subject of the suit and under the jurisdiction of the court therein, within such district. And when a part of the said real or personal property against which such proceeding shall be taken shall be within another district, but within the same State, said suit may be brought in either district in said State; Provided, however, That any defendant or defendants not actually personally notified as above provided may, at any time within one year after final judgment in any suit mentioned in this section, enter his appearance in said suit in said Circuit Court, and thereupon the said court shall make an order setting aside the judgment therein, and permitting said defendant or defendants to plead therein on payment by him or them of such costs as the court shall deem just; and thereupon said suit shall be proceeded