O'Brien v. Lashar

HOUGH, Circuit Judge

(after stating the facts as above). What plaintiff conceived to be the substance of his appeal, as shown by as

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signments of error and argument, we have disposed of by the decision filed herein March 24, 1921, upon his motion to “strike out” most of the appeal record. It remains to consider whether his bills in equity, or either of them, shows a present cause of action properly pleaded.

Observing that plaintiff is not a creditor, but shareholder only, that he avers both corporations to be insolvent, and endeavors to allege fraudulent acts on the part of the individual defendants, we have much difficulty in assigning these bills to any recognized category of equitable remedies. As plaintiff has conducted his own cause, and as we think exhausted effort upon a mistaken point of practice, we are not advised, except by the language of the bills, under what head of jurisdiction the court is asked to entertain them.

It seems to us that they are: (1) If taken literally, merely efforts to obtain a receiver, in order to sue in one case for some thousands of dollars of unpaid stock subscriptions, and in the other for either $700 or $1,200 embezzled or converted by P. P. Anderson; (2) they m&y be intended as stockholders’ bills, within the authority of Hawes v. Oakland, 104 U. S. 450, 26 L. Ed. 827, and summarized in Cook on Corporations, § 646; or (3) the endeavor may be to wind up the corporation — this interpretation being consistent with the allegation of insolvency and prayer for receiver.

[1] To take, the bills literally, and appoint receivers with powers’ limited to plaintiff’s prayers, would introduce a new and wholly undesirable jurisdiction in equity. The effort has sometimes been made to obtain a receiver for the purpose of doing what a solvent corporation has refused to do, but no reason has been or can be adduced why any such proceeding should be taken with an insolvent concern. Cf. Bartlett v. New York, etc., R. R. Co., 221 Mass. 530, 109 N. E. 452. In this view of the matter there is also a plain lack in the jurisdictional amount as pleaded in respect of the Building Company bill.

[2] Regarded as bills to remedy the- frauds of directors, under Flawes v. Oakland, supra, it is plain that in the Building Company Case the bill does not show compliance with equity rule 27 (33 Sup. Ct. xxv) as that regulation (which is old rule 94 [29 Sup. Ct. xxxviij, with slight amendment) is well expounded in Smith v. Chase, etc., Co. (D. C.) 197 Fed. 466.

[3, 4] Pursuing this aspect of the case, the Rand Company bill, if supportable as one to redress directors’ frauds, quite fails in alleging facts constituting fraud; it being elementary that to merely cry fraud is not to allege it.

There is nothing unlawful in not collecting stock subscriptions at once, and nothing wrong in correcting erroneous or mistaken minutes and certificates, and no facts are alleged which, if true, show that the two Andersons and Rashar have necessarily done anything wrong; furthermore, of course, there would be no reason for entertaining a bill for fraud merely, if such fraud had produced insolvency. Equity should then proceed to wind up the company.

[5] We conclude that these bills must be viewed as an effort by a stockholder as distinct from a creditor to put his corporation into an equitable insolvency proceeding. We held in Maguire v. Mortgage

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Co., 203 Fed. 858, 122 C. C. A. 83, that the courts of the United States as courts of equity had no power to entertain a stockholders’ winding-up suit by means of a receiver of the corporate affairs, unless there were a statute of the state of incorporation authorizing such action. Cf. Taylor v. Decatur, etc., Co. (C. C.) 112 Fed. 449; Conklin v. United States, etc., Co. (C. C.) 140 Fed. 219; Jacobs v. Mexican, etc., Co. (C. C.) 130 Fed. 589.

[6] Such statute exists in Connecticut. G. S. § 3443 et seq. This act provides (inter alia) that, when there has been any fraud or gross mismanagement in the conduct of a corporation, or whenever its assets are in danger of waste, or whenever any good and sufficient reason exists for the dissolution of such corporation, any stockholder or stockholders owning not less than one-tenth of the capital stock may apply for dissolution and the appointment of a receiver to wind up its affairs.

There is no doubt that the collection of unpaid stock subscriptions is a corporate function, and G. S. § 3432, specifically provides that such subscriptions may be called by the directors “in such proportion and at- such times and places as they think proper.” Yet this provision, like almost every other matter of law, may be so abused or evad'ed as to constitute fraud. Wherefore, if directors refuse their statutory duty in the premises, a court of equity may in insolvency, through its receiver, itself order such payments to be made (Kroegher v. Calivada, etc., Co., 119 Fed. 641, 56 C. C. A. 257); and in like manner we perceive no reason under such a statute why the District Court in Connecticut could not appoint a receiver for a corporation rendered, insolvent by the thefts of one director and condoned by the others, if the amount involved were sufficient.

We conclude, therefore, that this plaintiff could have sued in the •court below, had he shown the jurisdictional amount and pleaded a case within G. S. § 3443. This he has not done, and has refused to do after ample opportunity granted for amendments.

Decrees affirmed, with costs.

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