Greenough v. Alabama G. S. R.

PARDEE, Circuit Judge (after stating the facts). This case has been presented to me for hearing at the request of the honorable circuit justice and the honorable district judge of the district, on a motion to dissolve the restraining order issued by the district [23] judge ex parte on the filing of (he bill; and I have given it such consideration as the limited lime at my disposal has permitted. The complainant’s standing under his bill, and his consequent right to invoke the jurisdiction of the court, is as a stockholder in the Alabama Great Southern Eailroad Company, the main defendant in the case. It is true that he alleges himself to be also a director in that company, and an owner of certain bonds issued by certain other railroad companies, and secured by a deed of trust, conveying a majority of the shares of the Alabama Great Southern Railway Company, Limited, which latter company is the actual owner of all the shares of common and voting stock of the Alabama Great Southern Eailroad Company, and thereupon seems to base all the material equities presented in Ms bill. As a director in the Alabama Great Southern Railroad Company, he can have no interest or standing to invoke the aid of a court of equity to hinder or control the election of other agents of the company in the manner and form prescribed by the charter and by-laws on any sort of a showing as to what the agents so elected may or may not do, or intend to do; particularly, until he has tried the usual methods of relief, and has invoked the action of the full board of directors. If the complain ant is an owner of bonds issued by other parties apparently secured by a trust; of shares of another company, but in equity really secured by the shares of the Alabama Great Southern Eailroad Company, his bill does not present any such showing of his title or the facts of his case as to make a case for relief. As the complainant’s equitable right to relief in the present case is to bn alone based on his standing as a stockholder in the Alabama Great Southern Railroad Company, it is very important to see what that standing is. In his bill of complaint there is this cautious averment: “Said duplicate, duly-certified list of stockholders is herewith filed, ami made part of this bill of complaint, as Exhibit A, and complainant avers that, all persons named thereon, including the complainant, are respectively registered stockholders of such corporation, and entitled to all rights appertaining to such relation, and have never assigned their stock, and there are no other holders of stock of such Great Southern Company than is shown and exhibited upon the official list prepared and certified by such secretary.” An examination of the exhibit referred to shows that the complainant is put down thereon for 1 share out of the total of 1Í5(>,000 shares, and of which total number of shares the Alabama Great Southern Eailway Company is the owner of all but 13. The complainant, then, by his averment, is a registered stockholder of one share, of §50, out of a total stock of $7,830,000. The showing made on this hearing is to the effect —and it is not disputed — (hat the complainant is not in equity the owner or holder of even one share of stock, but that, under an arrangement made to enable to complainant to comply with the law of Alabama requiring a director of a, railroad company to be the owner in good faith of stock in the company, the Alabama Great Southern Eailway Company transferred to the complainant, in Coptember, 185)3, one share of common stock of the Alabama Great Southern Railroad Company, not to own, but to hold in trust for the Alabama Great Houthern Railway Company, Limited. The complainant, then, is before the court as [24] the holder in trust — and a naked trust at that — of 1 share of stock out of a grand total of 156,600 shares; and from that vantage ground he seeks, through the bill in this case, to control and keep in possession, as against his cestui que trust and the actual, real, bona fide owner, as well of all the other shares, a great railroad property. If complainant’s bill had made a full and complete showing of complainant’s insignificant interest as a stockholder in the Alabama G-reat Southern Kailroad Company, it is hardly to be doubted that the judge to whom the bill was presented, on its filing, would have refused a rule nisi for an injunction based on such interest; and reasonably certain it is that no restraining order would have been issued. If, however, it 'Should be conceded — and the argument has taken such range — that the complainant, as a stockholder, possesses sufficient interest to give jurisdiction to the court respecting the amount in controversy, and, further, that the relief sought is equitable in nature, then the question arises whether it is true in fact, as averred in the bill, that: “In and by tbe statutes of tbe state of Alabama, wbieb constitute tbe charter of tbe said Great Southern Company, no person can be lawfully elected a director of such corporation who is not by law entitled to vote at such annual election; * * * and it is by law required that persons to be elected as directors must be holders and owners of stock, and nonstockhold-ers are wholly ineligible.” The statute of Alabama in relation to the subject is as follows: “The business of the corporation is under the management and control of a board of directors, consisting of not less than seven nor more than eleven members, holding and owning, in good faith, and in their own right, shares of the capital stock, who must be elected by the stockholders, at the regular annual meeting, and who hold office for a term of one year, and until their successors are elected and qualified. * * *” Code Ala., 1886, § 1593. The spirit and policy of the statute is undoubtedly that the affairs and business of the corporation shall be controlled and managed by principal agents, who shall have a pecuniary interest in the corporation. Under this statute, the qualifications of a director are that he shall be elected by the stockholders, and shall own and hold in good faith, in his own right, shares of the capital stock of the corporation. When these two — to wit, election as a director, and ownership of stock — combine in one person, that person is eligible as a director to participate in the management of the affairs of the corporation. In my view, neither the letter nor spirit of the statute requires that ownership of stock, much less registered ownership, shall precede the election. The law is satisfied if both election and ownership precede action as a director. I am aware that there are several decisions of respectable courts and judges that apparently conflict with this view, but I think the general run of reported cases under statutes as general as the Alabama statute are in accord therewith. The industry of counsel has furnished nearly all of the adjudged cases in the books, and I have considered them carefully in the light of the great interests1 said to be involved in this case. I give my conclusion, but do not undertake to review or harmonize the cases. The following well-considered cases are sufficient authority to support my action, particularly as common sense [25] and the course of business trend that way: Mozley v. Alston, 1 Phil. Ch. 790; State v. McDaniel, 22 Ohio St. 354-367; Wight v. Railroad Co., 117 Mass. 226; Despatch Line of Packets v. Bellamy Manuf'g Co., 12 N. H. 205; Brown’s Case, 9 Ch. App. 102; Parmelee v. Hambleton, 24 Ill. 609; State v. Murray, 28 Wis. 96; Privett v. Bickford, 26 Kan. 52. The case for equitable relief made by the complainant’s bill turns entirely upon the question whether, at the annual election of directors of the Alabama Great Southern Railroad Company, a person can he legally voted for as a director of the company who is not a registered shareholder in the company. I conclude that he may he voted for, and, if elected, may subsequently qualify by acquiring as owner, in good faith and in his own right, one or mo're shares of stock of the company. So that, conceding the jurisdiction of the court, both, in respect to the interest of the complainant to maintain the suit and in respect to the nature of the relief demanded, it seems clear the complainant’s case must fail upon the merits. Several other questions, important if the case shall come on here after for further hearing, have been very ably discussed by counsel; but as I am clear that, no matter what view I shall take of them, still, for the reasons given, the restraining order should be dissolved, it is unnecessary to state or consider them. An order dissolving the restraining order will be entered, to take effect immediately on being filed in the clerk’s office.