Goodwin v. von Cotzhausen

Owen, J. We have for consideration questions raised by the appeals of Alfred von Cotzhausen, Friedericke Bode, and FI. W. Goodwin. Separate briefs were filed by Alfred von Cotzhausen and Friedericke Bode. Neither brief contains any assignment of error, nor is any finding of fact challenged in either brief. While it is to be gathered from the brief of the appellant Alfred von Cotzhausen that he is dissatisfied with the findings and with the judgment in general, there is no efficient challenge of any particular finding, nor is there any reference in the brief to any evidence in the record, or in the printed case prepared upon the appeal of FI. W. Goodwin (which is the only case prepared by any of the appellants), to impeach the findings made by the referee and confirmed by the court. The record in the case is exceedingly voluminous, consisting of over 6,000 pages of typewritten matter and six large boxes of exhibits, and a general examination thereof for the purpose of verifying the findings of the referee cannot be undertaken. Under the circumstances, therefore, the findings of fact must be regarded as conclusive upon the appellants Alfred von Cotz-hausen and Friedericke Bode. We may, however, consider the question of whether the judgment or interlocutory decree from which the appeal is taken is warranted by the findings. The appellants Bode and von Cotzhausen assail that part of the interlocutory decree which provides for a sale of the assets of the corporation, a distribution of the proceeds among the creditors and stockholders, and a winding up of its affairs. This is the vital question in the casé as it is submitted. It is contended that a court of equity has no power or jurisdiction, at the suit of a minority stockholder, in the absence of statutory authority, to appoint a receiver for a corporation and wind up its affairs. That such was the well-nigh universal rule until a comparatively recent date cannot be doubted. This rule had its origin at a time when corporations were created by special charters the grants of — 359 — which conferred valuable and exclusive franchises upon their grantees, and it was considered that, as the franchises were granted by the state, they could be vacated or forfeited only in a proceeding by the state; that their lives depend upon the action of the state or the stockholders as a whole. The reason for this rule has entirely ceased in respect to the ordinary business corporation formed under general laws, the privileges cpnferred upon which are open to all who comply with statutory conditions, which conditions are simple and formal in character and may readily be complied with by any who desire to associate themselves for the prosecution of any business venture. The ordinary business corporations are not organized for the purpose of performing any public function and the state has no particular interest in them. It is only those who invest their money in them as stockholders or bondholders, and creditors thereof,. who have a substantial interest in their proper management and business success. True, statutory regulations exist, but such regulations are enacted for the benefit and protection of those financially interested in the corporation and not for the protection of the state. The passing interest of the state in their continuance is well illustrated by the fact that a dissolution of the corporation automatically follows upon-its failure to file certain reports in the office of the secretary of state. Sec. 1774a, Stats. If the corporation were an institution in which the state had a special interest, its life would not be so summarily snuffed out for its mere failure to report the names and addresses of its officers to a public official. The trend of modern decisions is in recognition of this growing distinction between the present and the original corporation, and there is now a respectable array of judicial authorit)'- to the- proposition that where a corporation has been plundered by its officers, or'they have so mismanaged its affairs as to bring it to the verge of bankruptcy, threatening the minority stockholders with loss of .their in — 360 — vestment, and it seems certain that the purposes for which the corporation was organized are no longer attainable, and there is no other adequate remedy, á court of equity, in the exercise of its inherent power, will appoint a receiver for the corporation, wind up its affairs, distribute its assets, and decree a dissolution thereof at the suit of a minority stockholder. Miner v. Belle Isle Ice Co. 93 Mich. 97, 53 N. W. 218; Red Bud R. Co. v. South, 96 Ark. 281, 131 S. W. 340; Gibbs v. Morgan, 9 Idaho, 100, 72 Pac. 733; Riley v. Callahan M. Co. 28 Idaho, 525, 155 Pac. 665; Thwing v. McDonald, 134 Minn. 148, 158 N. W. 820; Phinizy v. Anniston City L. Co. 195 Ala. 656, 71 South. 469; Brent v. B. E. Brister S. Co. 103 Miss. 876, 60 South. 1018; Exchange Bank v. Bailey, 29 Okla. 246, 116 Pac. 812; Metropolitan F. Ins. Co. v. Middendorf, 171 Ky. 771, 188 S. W. 790. In the above cited cases the principle, was either applied or recognized that where the officers and directors, or majority stockholders, exercising exclusive management and control over a corporation, have abused their power and proved recreant to their trust by fraudulently conducting the affairs of the company so as to appropriate to themselves the profits and property thereof, to the detriment of the minority stockholders, and the corporation is on the verge of bankruptcy, and the attainment of the purposes for which it was organized is no longer possible, and there is no other adequate remedy for the protection of the minority stockholders, a court of equity may, at the suit of a minority stockholder, appoint a receiver for the property of the corporation, decree a winding up of its affairs and a dissolution of the corporation itself. The fading analogy between the present business corporation and the corporation as originally conceived, was recognized by this court in Katz v. De Wolf, 151 Wis. 337, 138 N. W. 1013, where it was said: “The development of corporation law began with a strictness of analogy between municipal and stock corporations — 361 — which is no longer fully observed. The change from the ancient mode of creating corporations by special act to permit organizations by public declaration or contractual undertakings acknowledged and filed in a public office, and the great multiplication of corporations thereunder, caused some further change. There is unquestionably a broad power of equity applicable wherever wrong is shown of such a nature as to arouse the equitable jurisdiction.” While that case did not present a situation calling for tlje exercise of the power, the language quoted forecast the opinion of this court with reference to its existence as well as its disposition to the exercise thereof. We agree with the Idaho court that “The early doctrine that the affairs of a corporation could not be inquired into except, by permission of the attorney general, and that courts of equity should not interfere with the power and authority of the directors of a corporation because that would result in its dissolution, has been modified to meet existing conditions. A large part of the business of the world is done through corporations, and . . . courts of equity should adapt their practice as far as possible to the existing state of society, and apply their jurisdiction to all those new cases which, from the progress daily making in the affairs of men, must continually arise, and should not, from too strict an adherence to the forms and rules established under very different circumstances, decline to administer justice and to enforce rights for which there is no other remedy.” Gibbs v. Morgan, supra. The power, however, is one to be exercised with great caution. It is inherent i.n the nature of corporations that the affairs thereof are to be managed and directed as willed by the majority of the stockholders. Their decisions within the scope of legitimate discretion cannot be interfered with, and even though, in the opinion of the minority, the- policies adopted by the majority are not for the best interests of the corporation, nevertheless they must accept such decisions and acquiesce therein. They cannot complain thereof unless they be prompted by fraud and bad faith, resulting in — 362 — the spoliation of the minority stockholders and ruin to the corporation. % With this understanding of the power of the court in the premises, let us consider the record in this case with a view of determining whether the circumstances here disclosed present a proper situation for the exercise of this power. The tabulation set forth in the statement of facts showing the course of business of the company from the year 1913 down to the appointment of the receiver March 9, 1936, shows that up to the year 1913, the year during which the defendant von Cotzhausen acceded to the presidency and general management thereof, the company did a thriving business, earned handsome profits, and paid gratifying dividends. In the year 19Í2 the company made profits of .$45,465.50. In 1913 they dwindled to $11,617.64. In 1914 there were losses of $21,260.85. The losses during 1915, up to November 12th, were $29,592.08, and from November 12, 1915, to March 9, 1916, there were further losses of $22,772.92. The amount of sales in 1912 was $310,697.23. In 1914, the first full year of management by von Cotzhausen, the sales were $164,508.45,-a dropping off of nearly fifty per cent. The first six months of 1915 the sales were only $25,783.27, and from July 12th to November 12th of the same year the amount of sales was $15,086.94. This shows an amazing decrease in the business and indicates that in but a short time the business would be practically nil. One marvels at the possibility of such a slump in such a short, time, but the record furnishes ample evidence for the reason thereof. When von Cotzhausen assumed management of the company there was a well organized sales force. There was a general sales agent on the Pacific coast, one in New York, one in New Orleans, and two in Chicago. These sales agents were procuring the business for the company. Good business judgment would plainly require a continuance of — 363 — cordial relations between these sales agents and the company and a retention of their services. The evidence discloses, however, that von Cotzhausen immediately proceeded to get into a row with all these men and made it so disagreeable for them that they quit the service of the company. The services of one Frank W. Wentworth of Chicago appear to have been particularly valuable to the company. With reference to him the referee finds: “That Frank W. Wentworth became connected with the Milwaukee Lithographing Company in Í902, soon after the organization of said company, first as agent, and later as the agent, representative, and manager at Chicago of said company, and as such controlled the so-called Wrigley business; that he continued as such agent, representative, and manager until April 17, 1914, when said Wentworth severed his connection with said company; that during the year 1910 the said company shipped goods, the orders for which were obtained by Wentworth, in the amount of $103,171.30; in 1911, $186,121.35; in 1912, $151,470.81; in 1913, $132,531.63; or a total of $573,295.09; that the total business of said company during said four years aggregated $1,355,595.99; that after said April 17, 1914, the whole of said Wrigley business was withdrawn by said Wentworth from and lost to the said company; that as a result of such withdrawal and loss the successful operation of said company- as a profitable business enterprise was greatly impaired.” Instead of maintaining satisfactory arrangements with the said Frank W. Wentworth, von Cotzhausen started an action against him to recover for the company $36,000 which he claimed Wentworth owed to it for overcharges, which the referee finds to have been unfounded, resulting in the loss of Wentworth’s services and the business which he secured for the company. This furnishes but a glimpse of the real character, attitude, and diplomacy of the said von Cotzhausen and’is but a small part of the evidence which justifies the finding of the referee “that the defendant Alfred von Cotzhausen for — 364 — many years last past had and still has the reputation among the trade and business in which the Milzvaukee Lithographing Company is engaged, as being unreasonable, unreliable, dishonest, and litigious, and as being a dangerous man to deal with.” There are unpaid judgments against the company amounting to $12,557.11, together with accrued interest, and it owes the Marshall & Ilsley Bank $17,500. While this would not be a forbidding indebtedness for a going concern of the size of the Milwaukee Lithographing Company, it is nevertheless a serious matter in view of the fact that the company was running at a loss for more than two years preceding the appointment of the receiver. We cannot escape the conclusion that this company can be no longer operated under von Cotzhausen’s domination and control except to its own'ruin and the loss by the stockholders of their entire investment. The purposes for which the company was organized are no longer possible of accomplishment, and the only rational thing to do is to wind up its affairs and save the stockholders from further loss: from which it results that that feature of the interlocutory decree providing for a sale of the assets of the company and a winding up of its affairs should not be disturbed. The appellant Goodwin complains because the court reduced the amount of general damages, found by the referee to have been $60,000, to $30,000. In Huebner v. Huebner, 163 Wis. 166, 157 N. W. 765, it was said: “The rule is well established in this court that past profits of an established business constitute a legitimate basis upon which to estimate the future profits of the same business conducted in the same manner, and that in a proper case such future profits may be recovered when the plaintiff has been prevented from making them by the wrongful conduct of the defendant.” We know of no reason why that principle is not applicable, to the instant case. Jt is settled by the decisions of this — 365 — court that where there is ample evidence to support a referee’s findings of fact and no clear preponderance against them, the trial court is not justified in setting them aside. Erickson v. McGeehan C. Co. 107 Wis. 49, 82 N. W. 694; Ott v. Boring, 139 Wis. 403, 121 N. W. 126; Wojahn v. Nat. Union Bank, 144 Wis. 646, 129 N. W. 1068. The evidence to which our attention has been calléd clearly sustains the amount of damages as found by the referee. If there is any evidence whatever against this finding it has not been pointed out to us, and our conclusion is .that the trial court was not warranted in reducing the damages in this respect from $60,000, as found by the referee, 'to $30,000. The interlocutory decree should therefore be modified by substituting $60,000, the amount found by the referee for general damages, for $30,000, the amount thereof as fixed and determined by the trial court. By the interlocutory decree it is adjudged that the plaintiffs Brosius and Goets are entitled to just and reasonable compensation for their attorneys’ services and other' expenses paid or incurred in' this action and that the amount thereof should be determined by the court or referee after the sale of the property and effects of the company has been made and the affairs of the company liquidated before, the final decree shall have been entered herein, to be paid out of the corporate assets of the Milwaukee Lithographing Company. Of this provision the plaintiff and appellant Goodwin complains, his position being, as we understand it,- that, as he originally commenced the action, he is the only party who should be compensated out of the fund conserved for attorneys’ services and other expenses. The plaintiffs Bro-sius and Goetz were made parties plaintiff by order of the court. Up until such time plaintiff Goodwin no doubt had control of the action, but after that time he had no more control thereof than plaintiffs Brosius and Goetz. Cook, Corp. (7th ed.) 2738-2740. If the plaintiffs Brosius and Goetz rendered valuable services in the matter of conserving and saving the fund.for the benefit of all the stockholders — 366 — of the corporation, no reason is perceived why they should not be compensated as well as Goodwin. In this connection it should be observed that the amount of their reimbursement or compensation has not been fixed. That is left by the interlocutory decree to be determined by the court or referee after the sale of the property and effects of the company, and at the present time neither the plaintiff Goodzvin nor any other party interested has anything of which to complain. However, in view of the fact that the question is presented, we think it proper to say that if the court shall determine that the plaintiffs Brosius and Goetz did render valuable services in the prosecution of the action and that their efforts contributed to the conservation of the fund, it is within the power of the court to provide for their reimbursement in such behalf. No further questions call for consideration. By the Court. — The interlocutory decree is modified by substituting sixty thousand ($60,000), dollars, for general damages as found by the referee, in lieu of thirty thousand ($30,000) dollars as determined by the trial court, and as so modified is affirmed. W^Nslow, C. J., and Kerwin and Eschweiler, JJ., took no part.