Dillaway v. Boston Gas Light Co.

Knowlton, J. The demurrers and the motion to dismiss in this case raise numerous questions, some of which it will not be necessary to consider. If we pass over, for the present, the contention that there is a want of jurisdiction because the trustee is a foreign corporation which cannot be brought into this Commonwealth, that there is a non-joinder of necessary parties, and that the bill is multifarious, we come to the contention of the defendants that in its substantial allegations the bill does not state a case for equitable relief. All the rights of the plaintiffs and all the rights of the Mercantile Trust Company grow out of the contract creating the trust. The plaintiffs are not stockholders in any of the corporations mentioned in the bill. They are holders of certain United Gas bonds signed by the Bay State Gas Company of New Jer — 93 — sey, payment of which is secured by an assignment to the Mercantile Trust Company of New York of nearly all the capital stock of the Boston Gas Light Company, the South Boston Gas Light Company, the Roxbury Gas Light Company, and the Bay State Gas Company of Massachusetts, by two persons who had become the owners of this stock. The trust company holds the title created by the assignment as security for the payment of interest on the bonds, and ultimately of the principal. By another instrument all of this stock, subject to the title of the trust company, was conveyed to the Bay State Gas Company of New Jersey. The assignment to the trust company secured to the owners the right to have the trust company vote at elections for such persons for officers of the respective corporations as the owners should designate, so long as there was no default on the part of the Bay State Gas Company of New Jersey in making payments, and on the part of the owners in performing the covenants by them to be performed under the instrument. In view of the transfer of the equity of redemption in the stock from the owners to the Bay State Gas Company of New Jersey, this right of designation of persons to be voted for at elections of officers was transferred also, and the Bay State Gas Company of New Jersey assumed the obligation to perform all covenants to be performed by the owners, and the owners were relieved from all personal liability for future default or non-performance. The owners, with money obtained or to be obtained from the proceeds of the bonds, acquired the ownership of all of the capital stock of the Bay State Gas Company of New Jersey. Soon afterwards a special act of the Legislature of Delaware created a corporation under the name of the Peninsula Investment Company, and immediately upon its organization its name was changed to the Bay State Gas Company. The owners then transferred and assigned to this company the capital stock of the Bay State Gas Company of New Jersey, with all their rights in the agreement previously made between them and the last mentioned company, and the said Delaware Company thereupon delivered to one of these owners in payment therefor $5,000 in cash and its own fully paid capital stock to the amount of $1,995,000, and assumed and undertook to perform all the agreements binding upon the assignors in the instrument of assign — 94 — ment of the equity of redemption in the stock of the Massachusetts corporations to the Bay State Gas Company of New Jersey. The officers of the Massachusetts corporations have been elected from time to time by votes cast in accordance with the assignment to the trust company, and the interest on the bonds has been paid as it became due. The bill states a series of transactions whereby Albert C. Bur-rage, Henry H. Rogers, and John G. Moore obtained control and ownership of the Brookline Gas Light Company, a company occupying a part of the same territory occupied by the companies first referred to, and whereby they also, through the Bay State Gas Company of Delaware, obtained the right to control the vote of the trust company in the election of officers in the companies whose stock was assigned as security for the bonds. It also states that by November 1, 1896, they caused themselves and their associates to be elected directors of . these companies, and have ever since acted as such directors. It is alleged that these persons are interested as stockholders and bondholders in a voluntary association called the New England Gas and Coke Company, and that this companj' is the owner of all the stock in the Massachusetts Pipe Line Gas Company, one of the defendants. The plaintiffs allege the failure to perform the covenants contained in the assignment to the trustee in various particulars, as follows, namely : that there was an increase of the floating debt of the Boston Gas Light Company and of the floating debt of the Bay State Gas Company of Massachusetts; that a payment of $67,000 was made during the year ending June 30, 1897, from the Boston Gas Light Company to the Brookline Gas Light Company for a quantity of gas under a contract between the two companies, when in fact the Boston Gas Light Company did not receive so much gas under the contract; that only a portion of the proceeds of a sale of real estate of the Boston Gas Light Company was applied to the payment of dividends or the cost of improvements or the creation of a sinking fund for the payment of the bonds, as the whole should have been; that on or about November 1,1897, an agreement was made between the four Boston companies whose stock was assigned and the Massachusetts Pipe Line Gas Company, to — 95 — continue for fifty years, for the sale of gas to these companies, which the Pipe Line Company purposes to obtain from the New England Gas and Coke Company, and that this contract is injudicious and detrimental to the interests of these companies, and that the directors who made it were financially interested in the Massachusetts Pipe Line Company and in the New England Gas and Coke Company. The plaintiffs contend that the objectionable acts of the directors were done by them as agents of the trust company, and that these constitute mismanagement of the trust, for which the trustee should be removed. It seems very clear that the directors are not agents of the trustee, except in the same sense as they are agents of all the stockholders in the corporations. The trust company has had and now has no control over them. So long as the payments were properly made, and there was no default in keeping the covenants contained in the writing it could do nothing in regard to the selection of officers. It was bound to vote for persons designated by the owner of the equity in the stock, which was the Bay State Gas Company of New Jersey, which soon afterwards was controlled by the Bay State Gas Company of Delaware. Later this right of designation was in Rogers, Moore, and Burrage, and their associates. By the terms of the agreement for the trust, the entire control of the four corporations was retained by the owners of the equity in the stock, subject to certain covenants intended for the security of the bondholders. The bill was filed on March 4, 1898. The allegation of the bill is that the power to control the voting for directors was obtained by Rogers, Moore, and Burrage, under an agreement made in the latter part of October, 1896. It does not expressly appear, but it is probable, that there had been either one or two elections of officers between the making of this agreement and the filing of the bill. The only grounds that appear on which complaint can be made against the trust company are either that prior to the last election of officers it should have discovered that there had been a default in the performance of the covenants of the instrument, and should have voted for directors of its own selection unless a designation was made by a request in writing, signed by holders of one third in amount of the bonds; or that, having discovered such default, it should have — 96 — attempted by proceedings in equity to set aside the objectionable acts of the directors and to change the management of the corporation. The bill does not show such culpable negligence on the part of the trustee as to justify a removal of it. In the first place it does not state that the trustee had knowledge of any of the acts complained of. So long as the interest on the bonds was paid when due it was not charged with the duty of investigating the management of the corporations, in the absence of information of mismanagement from any of the numerous persons interested in them. The payment from the Boston Gas Light Company to the Brookline Gas Light Company for gas is alleged to have been made during the year ending June 30, 1897, and the agreement between the Massachusetts Pipe Line Gas Company and the four companies for the sale and delivery of gas is alleged to have been made on or about November 1, 1897. The increase of the floating indebtedness of the Boston Gas Light Company is stated as having been shown at some time in 1897, and the increase of the floating indebtedness of the Bay State Gas Company is stated as having been shown at the time of the filing of the bill. In the absence of an averment of knowledge on the part of the trustee, we cannot assume that it was informed, or knew, of these facts before the filing of the bill. The sale of the real estate to the Boston Terminal Company is alleged to have been made at some time in- the year 1897. When the full payment was received does not appear. It may not have been until just before the commencement of this suit. It is alleged that of $700,000 received, $300,000 was used for the payment of dividends and for improvements and betterments, and $400,000 was kept and retained by the officers and directors of the company, in its treasury, as we suppose. It does not appear that this neglect on the part of the officers had continued for any considerable time prior to the bringing of this bill, and we cannot say that the trustee, in the absence of a request by anybody, or of any complaint about it, was culpable in not seeking a remedy in the courts before the bringing of this suit. The only remedy expressly given by the trust agreement is a right to refuse to vote for officers designated by the owners, and to select officers for itself, unless the designation is made by — 97 — the bondholders, and to bring a suit upon the covenants against the corporation liable thereon. It does not appear that the time had come after this default for action in the election of officers, even if the trustee knew of the default, and it does not appear that the other remedy would have been of value. Whether it could have proceeded on general grounds to change the management of the corporation by an application to a court of equity depends on facts not sufficiently stated. It is a sufficient answer to this bill to say that in the absence of an averment of knowledge on the part of the trustee, or of a request by anybody for action by the trustee, we cannot hold the trustee guilty of such gross misconduct or neglect as to call for its removal. The averment in the bill that such a request would have been useless, without the averment of any facts to indicate it, cannot avail the plaintiffs. This seems to be only a statement of an opinion which very likely is unfounded. The plaintiffs as holders of bonds secured by a conveyance of stock in the four Boston companies stand no better than stockholders. In that capacity they cannot maintain a bill in equity to set aside the contract with the Brookline Gas Light Company or the several contracts with the Massachusetts Pipe Line Gas - Company without first seeking relief from the directors of the several corporations in which they are interested, or from the corporations themselves, either by a personal application or by an application through the Mercantile Trust Company, or without stating good reasons for their failure so to do. The bill contains no sufficient allegations to give them a standing in this particular. Brewer v. Boston Theatre, 104 Mass. 378. Dunphy v. Traveller Newspaper Association, 146 Mass. 495. Hawes v. Oakland, 104 U. S. 450. Himpfell v. Ohio Mississippi Railway, 110 U. S. 209. Although the Mercantile Trust Company is made a party, it is not in court, except as it has appeared specially and filed a motion to dismiss. Ordinarily a proceeding to remove a trustee is in personam, and requires the presence of the trustee as a party. We do not decide that the interests of cestuis que trust of stock in the hands of a non-resident trustee, in a corporation organized under our laws, might not be so imperilled that this court properly might take jurisdiction in some form of proceed — 98 — ing, on the ground that the stock has a local quality as property in the home of the corporation, notwithstanding that the certificates are held in another State. However that may be, we are of opinion that the bill does not state a case which gives this court jurisdiction to take the stock out of the hands of the trustee and to appoint a new trustee, in disregard of the provisions of the trust agreement, which expressly authorize such a removal by a vote in writing of one third in interest of the bondholders at a meeting called for that purpose. This agreement also authorizes an appointment of a trustee by the bondholders in case of a vacancy, and in default of an appointment by them within one year it provides for an appointment to be made by the Circuit Court of the United States for the Southern District of New York. It is conceded by all parties that this agreement is valid, and is to be carried out. The methods which it provides for the removal of a trustee and the appointment of a new trustee must be pursued unless good reasons are shown for proceeding otherwise. The bill states no sufficient reason for disregarding these provisions of the agreement, much less any reason which would justify this court in attempting to accomplish the removal of the trustee by virtue of the location of the corporations in this Commonwealth, and by proceedings to which the present trustee is not a party. As the demurrers must be sustained on other grounds, we do not deem it necessary to consider the contention that the bill is multifarious, or the contention that it is fatally defective for want of parties. Demurrers sustained ; motion to dismiss granted.