Stevens v. Empire Casualty Co.

DAYTON, District Judge (after stating the facts as above). The motions to discharge the receiver and dismiss the bill must be considered as equivalent to a demurrer alleging in effect that no equity appears on the face of the bill. The affidavits and answer can properly be considered the answer in the nature of an affidavit upon plaintiffs’ motion for preliminary injunction. The defendant insists that the receiver be discharged and the bill dismissed: First. Because not complying with equity rule 94 in failing to allege “that the suit is not a collusive one to confer jurisdiction,” and omitting to allege with particularity the efforts of plaintiffs to secure such action as they desire on the part of managing directors, or “if necessary of the shareholders and the cause of failure to obtain such action.” Second. Because by equity rule 94 the bill is required to be verified by oath, which must be positive, and not upon information and belief. Third. Fraud, mismanagement, and misappropriation is stated upon information and belief with no [287] positive statement of any act or circumstance positively and specifically sworn to. It does not seem to me that this case is one coming within the scope of equity rule 94, which is restricted to suits “founded on rights which may properly be asserted by the corporation.” On the contrary, it seems to me the case is founded upon section 57 of chapter 53 of the Code of West Virginia (section 2285) 1906, providing that, at the instance of not less than one-third in interest of the stockholders of a corporation desiring to wind up its affairs, appeal may be made to a court of equity for the purpose, and, “if sufficient cause therefor be shown,” such court may decree such dissolution, make such orders and decrees and award such injunctions as justice and equity may require, and upon section 58, c. 53 (Code 1906, § 2286), which provides: “AVhen a corporation expires, or is dissolved or before its expiration or dissolution, upon sufficient cause being shown therefor, such court * ::: * may on application of a creditor or stockholder, appoint one or more persons to bo receivers to take charge of and administer its assets; and whether such receiver be appointed or not, may make such orders and decrees and award such injunctions in the cause as justice and equity may require.” Under the first section cited, it would seem that the power is vested in courts of equity at the instance of stockholders holding one-third of the stock “if sufficient cause therefor be shown” to wholly dissolve the corporation. Under the second section quoted, it would seem that such court of equity is vested with power at the instance of a single creditor or stockholder, before or after dissolution “upon sufficient cause being shown therefor,” to appoint “receivers to take charge of and administer its assets,” and “make such orders and decrees and award such injunctions as justice and equity may require.” Looking to the allegations of the bill alone and taking them to be true, as I must do upon the determination of these motions to dismiss it for want of equity apparent on its face and to discharge the receiver, I am constrained to hold its allegations to be sufficient to bring it within the scope of both of these statutory provisions. Construing the latter section, the Supreme Court of Appeals of West Virginia in Crumlish, Adm’r, v. Shen. Val. Railroad Co., 28 W. Va. 623, held: “It is ordinarily ‘necessary, before a court of equity can interfere with the management of a corporation at the suit of a stockholder, to show that the directors or managing officers having control of it have refused to act in its behalf. But, if it be made to appear in any manner that the corporation cannot safely be left to obtain relief through the action of its officers, equity will interfere at the suit of a stockholder without proof of a demand upon the managing agents and their wrongful refusal or neglect to proceed on its behalf. “When it is shown that the corporation has ceased to exist either in law or in 'fact, or that it has abandoned its corporate existence by the election of directors and the appointment of officers to manage its affairs, a stockholder may without showing more bring suit on behalf of himself and the other stockholders against the corporation or others having assets belonging to it for the protection of his rights.” In this bill it is alleged that plaintiffs in the aggregate hold $10,725 of the total of $106,000 capital stock actually subscribed for and [288] issued; that the corporation has suspended its corporate business for more than two years continuously, which, if true, would warrant its dissolution at the instance of the state; that it has not sufficient assets to meet the requirements of the laws of the state permitting it to do business; that it has practically abandoned, as hopeless, the effort to sell sufficient stock to enable it to do so; that in consequence it has sought to secure the turning over to another company by its stockholders of their stock in exchange for that of this other company; that it has invested a considerable portion of the money secured from stock subscriptions in securities with a market value admitted to be less than par and of doubtful value, contrary to the express law of' the state, governing insurance companies; that the capital of the company subscribed for' investment in what was presumed would be a going, dividend paying company is being dissipated in payment of large salaries and excessive expenditures for office rents, stationery, printing, furniture, and fixtures, aggregating approximately $7,000 annually, with no business done and no hope of doing business in the future wherefrom income would be derivable. All these facts may be wholly refuted by evidence hereafter taken m the cause, but so long as they are admitted to be true, as they must be upon this motion to discharge the receiver and dismiss the bill, I think they fully disclose the necessity for the intervention of this court of equity. These motions must therefore be overruled. The temporary injunction prayed for will be granted, restraining defendant, its officers and agents, from making any further disposition of the assets of the company until the further order of this court, upon execution of bond in the penalty of $20,000.