Bartlett v. New York, New Haven, & Hartford Railroad , 226 Mass. 467 ( 1917 )

De Courcy, J.

1. Demurrers to the original bill of July 17, 1914, were sustained, first, on the ground that the bill did not allege reasonable application to the directors to institute proceedings for the recovery of the losses suffered by the corporation. Bartlett v. New York, New Haven, & Hartford Railroad, 221 Mass. 530. The plaintiffs contend that this objection has been met by the allegations of their amended bill of July 31, 1915, and the subsequent amendment of January 28, 1916. So far as these allegations relate to facts existing when the original bill was filed, they add nothing that removes this objection to the plaintiffs’ right to sue. The new allegations relied on by the plaintiffs are of facts which have occurred since the filing of the original bill. They are contained mainly in paragraphs 15, 16a, 16b, and 16c; and set out especially the vote of the directors in January, 1915, that no suits be brought against any directors of the company upon any of the grounds presented in the original bill of these plaintiffs; and the proceedings connected with the stockholders’ meeting of October, 1915, including the vote refusing to instruct the directors to bring suits for restitution against certain former directors.

The plaintiffs seek to avail themselves of these matters, which occurred since the original bill was filed, by means of an amendment under Equity Rule 25, in the nature of a supplemental bill. It is well settled that the function of such a supplement is to support a cause of suit existing when the original bill was filed. Matters subsequently occurring and relating to the right set up in the original bill can thus be availed of, and the relief adapted to the existing circumstances. For instance, where additional obligations accrue, or further instalments become payable from the defendant while the suit is pending. Bauer v. International Waste Co. 201 Mass. 197. Fordyce v. Dillaway, 212 Mass. 404. Collins v. Snow, 218 Mass. 542. Or, where, pending a suit to compel the discharge of a mortgage, the property is sold under a prior mortgage in circumstances entitling the plaintiff to further relief. Page v. Franklin, 214 Mass. 552, 556. But, as was said in McMurtrie v. Guiler, 183 Mass. 451, 454, “It is well settled that if a plaintiff at the time when he files his bill has no cause of action he cannot file a supplemental bill to maintain his suit upon a cause of action that accrued afterwards, even though it may have arisen out of the same transaction.” To quote the words of Tinner, L. J., in Attorney General v. Corporation of Avon, 3 De G., J. & S. 637, 650, “The principle would seem to be this, that there must be a right of suit when the suit is commenced, and a supplemental bill is not the commencement but the continuance of the suit.” Pinch v. Anthony, 10 Allen, 470. Nichols v. Rogers, 139 Mass. 146, 150. Bernard v. Toplitz, 160 Mass. 162. Birmingham v. Lesan, 77 Maine, 494. McCullough v. Colby, 4 Bosw. 603. Brownback v. Keister, 220 Ill. 544. Mellor v. Smither, 114 Fed. Rep. 116. In Hill v. Fuller, 188 Mass. 195, relied on by the plaintiffs, the plaintiff who sued for contribution had paid more than his share of the joint debt before suit, and had a cause of action (Ex parte Gifford, 6 Ves. 805, 808); and subsequent events, stated in the. amendment, showed that he had paid all that ever could be claimed, as the balance was barred by the statute of limitations while the suit was pending. And in First Baptist Church of Sharon v. Harper, 191 Mass. 196, cited by them, the plaintiff was in possession with an equitable title to the land, under a deed made by authorized trustees in their own name instead of in the name of the corporation; and was only allowed to allege in a supplemental amendment a confirmatory deed by the corporation.

As was pointed out in the earlier opinion (221 Mass. 530) and had been said in effect in numerous earlier decisions in this Commonwealth the plaintiff stockholders have no personal right of action against directors for the alleged wrongs suffered by the corporation. Their right to prosecute the case in the interest of the corporation, so far as it is based on the refusal of the directors to act after a reasonable demand upon them, did not come into existence until such refusal. They could have availed themselves of this cause of action by bringing a new bill after the right of action arose, but not by amending a bill that was filed when they had no cause of action. It is elementary that their right of action must exist before suit can be brought to enforce it.

2. While the bill was based mainly on the refusal of the directors to take action, the plaintiffs incidentally claimed the right to enforce the corporation’s alleged cause of action on the ground that it would have been useless for them to make application to the directors before beginning the suit. On this second point the court said in the leading case of Brewer v. Boston Theatre, 104 Mass. 378, 387: “A formal application and refusal need not be alleged, if enough appears to show that such an application would be unavailing. When the directors themselves are the parties charged with the wrong, or by whose fraud or wilful collusion the wrong has been accomplished, and the suit is to be brought again'st them, they are, by the very nature of the case, incapacitated for the service of representing the corporation in any action for the restoration of its rights, whether by suit or proceeding in pais. If the corporate action is under the control of such parties, it is a sufficient reason of necessity to warrant proceedings by suit in the name and behalf of the individual stockholders.” In the previous opinion the Brewer case was referred to at length, and the rule of law applicable to the present issue was stated as follows: “A bill may be maintained by a stockholder in behalf of the corporation to redress wrongs done to it without making any demand upon the directors or upon the stockholders to cause the corporation itself to institute proceedings, provided it appears by appropriate allegations that that would have been an idle ceremony. The law in this regard is settled. The allegations of the bill must be certain and unmistakable in setting forth facts which show that it would have been useless to ask the directors or the corporation to act. Generalities unaccompanied by specific and definite facts are not enough.” Bartlett v. New York, New Haven, & Hartford Railroad, 221 Mass. 530, 534. This also was but a restatement of previous adjudications.

The original bill when tested by this rule was held to be fatally defective. The new allegations in the amended bill addressed to this point fail to impeach the board of directors in office when the suit was brought, and of whom only ten of the twenty-three were directors at the time of any of the acts complained of. The allegations of paragraphs 14 and 16c so far as applicable to the directors who were in office in July, 1914, are not statements of definite facts, but conclusions and generalities. For instance, the averment “that at least for more than a year prior to the filing of said original bill they had knowledge concerning the rights of the defendant corporation as set forth herein,” and yet intentionally failed to enforce said rights, presumably refers to the manifold and complicated transactions to be found in the Validation Report, the Reports of the Interstate Commerce Commission, and other exhibits set forth or mentioned in the bill. And as it is alleged that, “The acts complained of in this bill occurred several years ago,” apparently most of the 1914 board were not directors at the time. The allegations of the final paragraph are of the most general nature, and to quote from the former opinion, are “not the equivalent of saying that the majority refuses to act in the interests of the corporation by reason of tainted subserviency, or that it endeavors intentionally and intelligently to screen the guilty directors from their just responsibility to the corporation or that otherwise it is faithless to the trust resting upon directors.” If in this connection we may consider facts which have occurred since the bill was filed, the fact that in January, 1915, the directors after consideration voted not to bring suits against the former directors, has little bearing on the alleged uselessness of applying to the board in July, 1914, when the original bill was filed. The twenty-three directors alleged to be then in office included ten of the fourteen individual defendants; but only two of these defendants were re-elected directors at the annual meeting in October, 1914. Nor can the plaintiffs’ right to prosecute this suit against former directors be based upon the deliberate and decisive vote of the stockholders, in October, 1915, refusing to authorize such action. It may be that such a vote would not validate the ultra vires acts complained of; but it falls far short of showing that in July, 1914, a majority of the directors were in collusion with wrongdoers, and that it would have been useless for the plaintiffs to make application to them to protect the interests of the corporation.

We are constrained to say that the allegations of the amended bill are not sufficient to entitle the plaintiff stockholders to enforce the corporation’s alleged cause of action; and for this reason the demurrers of the individual defendants must be sustained. There is no occasion at this time to consider the right of the corporation itself to sue the defendants, or to pass upon the other questions that have been argued.

Demurrers sustained.