McHarg v. Commonwealth Finance Corp.

GATES, J.

This action was brought in Beadle county in' the Ninth Judicial circuit of. this state by a minority stockholder of the defendant corporation which was organized and exists under the laws of this state. It is alleged, in the complaint that he brings the action on behalf of himself and other stockholders similarly situated and “on behalf of the defendant corporation, the officers and directors thereof having neglected, failed'and refused to prosecute the same as hereinafter more fully set out." In addition to the defendant corporation, there are nam'ed' as defendants seven persons who are designated as officers or directors or both. The defendants, other than the corporation, are all non-residents of South Dakota. By its charter the principal place of business of the corporation is Pierre, Hughes county, S. D., but the business of the corporation is transacted at and from New York City. The record does not show that the corporation has any place of business in South Dakota other than at Pierre. The summons and complaint were filed in the Beadle county circuit court on August 13, 1920. The purpose of the action is in general for an accounting by the president and certain directors (a minority of the directorate) and the restoration to the corporation of misappropriated funds; for tire restraining- of further official acts by them; for their removal from offi'ce; and for the calling of an election to elect their successors. On the samfe day a complaint in intervention was filed 011 behalf of three stockholders. Amlong the demands for relief asked therein against both plaintiff and defendants is a demand for the appointment of a temporary receiver of the corporation. On the same day a temporary restraining order was obtained by plaintiff restraining the individual defendants from acting- as officers or directors of the corporation. A similar order was obtained by the interveners. Purported service of the summons and complaint was made upon the president as an individual and upon some of the other officers and directors in the month of August, 1920. No- service thereof was ever ma-de upon the corporation. On August 27th attorneys for the corporation secured from the Beadle county circuit court an order to show cause returnable August 31st requiring plaintiff and interveners to show cause why the restraining orders should not be vacated. This order was served on lAlugust 28th. On the same day a notice of demand by the corporation for a change of venue to Hughes county in the Sixth judicial circuit was served on plaintiff’s attorneys and on August 30th on the attornevs for the interveners. The demand was refused, and on August 31st the corporation obtained an order requiring plaintiff and interveners to show cause why the venue should not be changed pursuant to the foregoing- demand. Upon the hearing- thereof the court made an order denying the change. Therefrom the corporation appeals.

■ After the entry of such order an application was made to this court for a writ of prohibition to prevent the circuit court of Beadle county from exercising further jurisdiction over the case. This relief was denied upon the ground that the ruling of the trial court should only -be reviewed upon appeal and upon the record made before the trial court. State ex rel. Commonwealth Finance Corporation v. Circuit Court, 43 S. D. 421, 179 N. W. 691. The -correctness of the order denying a change of venue is the sole question before us, but its solution depends upon the answers to be given to two dependent questions, viz.: (a) Was the corporation aggrieved by the- ruling ? (¡b) D-id the corporation waive its right to a change?

[1] In the absence of any other place of business in this state, the residence of the corporation in this state was at the principal place of 'business named in its charter. 4 Fletcher, Corp. 4371. Therefore, aside from the answers to be given to the above two questions, the corporation was entitled to the change of venue as a matter of right. Rev. Code 1919, §§ 2327, 2328; Duche v. Buffalo G. S. Co., 2 N. Y. Civ. Proc. R. 268; Id., 63 How. Prac. (N. Y.) 516; Smail v. Gilruth, 8 S. D. 287, 66 N. W. 452; George v. Kotan, 18 S. D. 437, 101 N. W. 31; Ivanusch v. Great Northern Ry. Co., 26 S. D. 158, 128 N. W. 333; Mullen v. Northern Acc. Ins. Co., 26 S. D. 402, 128 N. W. 483; Gotthelf v. Merchants’ Bank, 33 S. D. 259, 145 N. W. 542; Fargo v. Schraudenbach, 40 S. D. 428, 167 N. W. 492; State ex rel. Commonwealth Finance Corporation v. Circuit Court, supra.

[2] Coming now to the .first question, it is the contention of respondent that under the allegations of the complaint the action was in reality brought on behalf of the corporation, and that the corporation was made defendant -because its officers and directors refused to -bring it (Rev. Code 1919, §2315) ; therefore that the corporation was not aggrieved by the ruling, and hence had no right of appeal from the order denying change of venue (R. C. 1919, § 3145O.

In support of its contention respondent cites Glover v. Manila G. M. Co., 19 S. D. 559, 104 N. W. 261; Holmes v. Jewett, 55 Colo. 187, 134 Pac. 665; Wilson v. American Palace Car Co., 65 N. J. Eq. 730, 55 Atl. 997; Goodbody v. Delaney, 80. N. J. Eq. 417, 83 Atl. 988; and 14 Corp. Jur. 938, 947. We have examlined these references with care, but find therein nothing which prevents the present corporation from asserting its right to a change of venue. Of course, this is a representative action, and the corporation is a necessary party to the action.; but because a minority stockholder charges a wrongdoing by directors of a corporation which, if he succeeds in the action, will inure to the benéfit of the corporation, he does not thereby become possessed of the right to dicate the defense or manner of defense that the corporation may undertake, nor may the plaintiff minority stockholder dictate in which county the cause shall be tried. As was well said in Willoughby v. Chicago Junction Railways, 50 N. J. Eq. 656, 25 Atl. 277, and quoted with approval in Goodbody v. Delaney, supra:

“From the very form and nature of these suits, each stockholder must be considered as represented, for if he is in sympathy with the complainant he may become a party complainant by application to the court; if he is in sympathy with the threatened action of the company, he is represented by and in the corporation which is a necessary party to the suit.”

For the purposes of procedure those stockholders “in sympathy with” the plaintiff are united in interest with him; those “in sympathy with” the corporation and its officers are united in interest with defendants. At the time of the demand for change of venue, the corporation was managed by officers and directors chosen, presumably, according to law. On behalf of the stockholders “in sympathy with” the alleged wrongful steps taken by the corporation, they had the right to dictate the defense which the corporation should make, the manner of its .defuse, and to cause the corporation to assert any right given it by the laws of this state. To offset these rights the lawi (section 2315, Rev. Code 1919) recognizes the right of the plaintiff to make the corporation a party defendant. At that stage of the case it cannot be foreseen that the plaintiff will prevail. If he does not, then the action will not eventuate to have been for the benefit of the corporation. The corporation will probably have been put to expense thereby. On the other hand, if the plaintiff is successful the corporation will probably be liable for the costs of the action. Again in the complaint in intervention a demand is made for the. appointment of a receiver. That demand ought, alone, to invest in the corporation the authority to assert in this action all of its statutory rights. It therefore certainly appears that the corporation had such an interest in the litigation as entitled it to demand a change of venue.

[3] Upon the second question it is the contention of respondent that, even if the corporation is to be treated as a party defendant instead of a party plaintiff, yet that the corporation waived its privilege of having the venue changed. As the basis therefor respondent asserts that the corporation, by voluntarily appearing in the action and asking affirmative relief prior to the date of serving its demand for change of venue, has waived its right thereto. In Irwin v. Taubman, 26 S. D. 450, 128 N. W. 617, this court held that a defendant had 30 days after service of the summons and complaint upon him' within which to make his demjand for a change of venue. Assuming, without conceding, that defendant might' within such 30-day period take some step that would amount to a waiver of his right to a change, yet we are convinced that the defendant corporation did not take such step in this case. Assuming that the service and filing of the order to show cause by the corporation on August 28th constituted a general appearance in the action, although there is good authority for the position that such appearance was a mere special appearance for the purposes of the motion (Regelmann v. South Shore Traction Co., 67 Misc. Rep. 590, 123 N. Y. Supp. 253), yet the voluntary appearance in the action by the corporation was, by statute, merely the equivalent of the service of the summons upon it. Rev. Code 1919, § 2343. Therefore such appearance, without more, did not waive the right the corporation had to make its demand for change of venue at any timie “before the time for answering expires.” Rev. 'Code 1919, § 2328. The appearance merely started running the time within which it would be required to plead or to apply for a change of venue.

[4] Assuming further, without deciding, that the corporation by the mere obtaining of the order to show cause dated August 27th appeared in the action on August 27th (although it may well be doubted whether such appearance became effective until the order was served or filed), yet did it on that day do anything inconsistent with its right to demand a change of venue ? Suppose the attorneys for the corporation had pocketed or destroyed the order dated August 27th and had never served nor filed it, could it be said that the corporation would then have done anything to waive such right of change? An order does not become complete or effective until it is filed. 'Rev. Code 1919, § 2561. It seems to us that the date of the service and filing of the order of August 27th, to wit, August 28th, was the date upon which the corporation asserted a right inconsistent with its right to a change of venue, if the .service and filing of such order was inconsistent therewith. The order to show cause was merely a substitute for the notice of motion provided for ■by section 2594, Rev. Code 1919. Its function was to shorten the time of notice. Lingenfelter v. Gehringer, 43 S. D. 275, 178 N. W. 946; 2 Wait’s Pr. 80. It is clear that if the corporation had, on August 27th, served a formal notice of appearance in the action and had, on August 28th, served a notice of motion dated August 27th for the same relief as was sought in the order, it could not successfully be contended that the corporation had done anything inconsistent with its right to a change of venue until, at 'least, August 28th. But upon the sam¡e day on which it served the order it served the notice of demand. Ganz v. Edison El. Ill. Co., 79 Hun, 409, 29 N. Y. Supp. 810. Therefore in our opinion there was no waiver of the right of the corporation to a change of venue. Barbour v. Fidler, 31 S. D. 351, 141 N. W. 88. AYherein our colleague bases waiver upon matters occurring after demand for change of venue we cannot agree. Under the provisions of Wait’s N. Y. Code Civ. Pro. 1874, § 126, which was to the same effect as our Rev. Code 1919, § 2328, the courts held that after demand was made and the plaintiff disregarded the demand the defendant might make his motion to enforce the demand at any time before trial. Hubbard v. National Pro. Ins. Co., 11 How. Prac. (N. Y.) 149; Conroe v. National Pro. Co., 10 How. Prac. (N. Y.) 403.

We therefore conclude that the trial court erred in refusing to allow a change of venue to the circuit court of Hughes county.

The order appealed from is reversed, and the cause remanded to the circuit court of Beadle county for further proceedings not inconsistent with this opinion.

McCOY, J., not sitting.