Steiner v. Parsons , 103 Ala. 215 ( 1893 )

HARALSON, J.

1. The bill in this case makes averments of fraud and usurpation against the defendant Steiner, as the president and managing officer of the defendant corporation, the Birmingham, Powderly & Bessemer Street Railroad Company, joined as a defendant, which, if true, call loudly for redress. It is filed by a stockholder, in his own behalf, and in behalf of all other stockholders of said corporation who may choose to make themselves parties complainant and agree to contribute to the expenses of the litigation. All the authorities agree that to justify a suit in this form the bill must show that suitable redress is not attainable through the action of the corporation. The right of the stockholders to file a bill of this character in their own name was well stated in Hawes v. Oakland, 104 U. S. 400, where it is said: “But, in addition to the existence of grievances which call for this kind of relief, it is equally important that before the shareholder is permitted in his own -name to institute and conduct a litigation which usually belongs to the corporation, he should show to the satisfaction of the court that he has .exhausted all the means within his reach to obtain, within the corporation itself, the redress of his grievances, or action in conformity to his wishes. He must make an earnest, not a simulated, effort with the managing body of the corporation to induce remedial action on their part, and this must be made apparent to the court. If time permits, or has permitted, he must show, if he fails with the directors 5 that he has made an honest effort to obtain action by the stockholders as a body in the matter of which he complains ; and he must show .a case, if ¡this is not done, where it could not be done, or it was not^easonable to require it.” To the same effect are our own adjudications.- — Manufacturing Co. v. Cox, 68 Ala. 71; Nathan v. Tompkins, 82 Ala. 437; Railroad Co. v. Woods, 88 Ala. 631; Mack v. Iron Co., 90 Ala. 396 ; Samuel v. Holladay, 1 Woolw. 400; 2 Spel. Priv. Corp., § 623.

2. But it is equally well settled by tbe foregoing authorities, and is generally held, that a stockholder may bring suit in equity in his own name to enforce the right of a corporation, without first requesting the directors to sue, when it is made to appear that, if such request had been made, it would have been refused, or, if granted, that the litigation following would necessarily be subject to the control of the persons opposed to its success ; and that where the directors of a corporation are themselves the wrongdoers, or the partisans of the wrongdoer, they are incapacitated from acting as the representatives of the corporation in any litigation which may be instituted for the correction of the wrong which it is alleged they have committed and approved. — 2 Beach. Corp., § 886; Knoop v. Bohmrich, (N. J. Ch.), 23 Atl. Rep. 118; Dodge v. Woolsey, 18 How. 331; Cab Co. v. Yerkes, (Ill. Sup.) 30 N. E. Rep. 671; Miller v. Murray, (Cal.) 30 Pac. Rep. 46; City of Chicago v. Cameron, 120 Ill. 447, 11 N. E. Rep. 899.

3. It is not pretended that complainant made any request of or effort with the managing body of the defendant corporation to induce them to redress the wrongs complained of, or to institute suit for that purpose. But the complainant attempts to show by averments that he had a good excuse for not making such request or effort, in that, if made, it would have been refused, or, if granted, the litigation following would necessarily have been subject to the control of persons opposed to its success. The allegations to this end are, (1) “that the affairs of the corporation are now under the complete control of the said Steiner, and that it can not, by reason of such control, bring this suit;” (2) “that the present board of directors, or a large majority of them, are under the control of said B. Steiner, and a large majority of them are interested as guilty parties in one or another of the frauds and wrongs complained of, and on these accounts, and on account of all the litigation growing out of the management of the affairs of this corporation, of which there have been several suits in the chancery court of Jefferson county, the said board of directors have always acted and conspired together in defending against charges and wrongs and grievances similar to the present wrongs and grievances herein complained of, and it would have been utterly futile for complainant to have applied to said board of directors to institute this suit.” It will be observed that these averments are the statements of conclusions, and not averments of facts upon which they rest. The first averment is purely so,not a fact upon which the allegation that said Steiner has complete control of the corporation being stated; and the second is not far removed from it in this respect. It is not stated how or in what manner a large majority of the directors are interested in the fraudulent transactions mentioned in the bill of which said Steiner is specially accused, nor in which of them, nor is information given as to the character of the suits referred to in the chancery court of Jefferson county in which said board of directors are charged to have acted and conspired together. It is said the wrongs and grievances there sought to be remedied were similar to those complained of here, but of this we have only the conclusions of the pleader. The facts upon which such averments of conclusions rest should have been set out, so that the court might judge intelligently for itself — as it is its high duty to do in such cases — whether the plaintiff had the right to proceed to file the bill in his own name or not. The particularity of averment to be observed in such cases has received extended discussion in adjudged cases, leaving scarcely anything to be- added, on the subject. Brewer v. Boston Theater, 104 Mass. 378; Hawes v. Oakland, supra; Manufacturing Co. v. Cox, supra, and authorities there cited.

4. Fraud is a conclusion of law from facts stated, and the facts out of which it arises, when desired to be pleaded, whether at law or in equity, must be stated. Mere general averments of fraud or the fraudulent conduct of a party, without the facts, do not constitute a plea upon which the court can pronounce judgment. Insurance Co. v. Moog, 78 Ala. 284; Meadows v. Meadows, 73 Ala. 356; Pickett v. Pipkin, 64 Ala. 520; Flewellen v. Crane, 58 Ala. 627. Tested by this rule, section 8 of the bill falls short of that definiteness of averment of fraud necessary in good pleading, and the demurrer to it should have been sustained.

Reversed' and remanded.