Paine v. Saulsbury

I do not agree with the conclusion reached by Mr. Justice BIRD in this case. As I conclude that the decree appealed from should be modified and affirmed it becomes necessary to notice the legal objections made to it. These objections are two and only two in number:

First. That a solvent corporation may not be dissolved under this statute.

Second. That these proceedings must fail because a majority of the Trimountain board of directors are also directors of the Copper Range.

I think it unnecessary that we decide the frequently mooted question of whether a court of equity has the inherent power, independent of the statute, to order the dissolution of a going concern. The courts are not in entire accord on this question, and many of the authorities cited by defendants are cases where individual stockholders have sought by bill in equity to take the management of solvent concerns out of the hands of the board of directors, place them in the hands of a receiver, dissolve the company, and wind up its affairs through the courts. With reasonable unanimity it has been held that only in exceptional cases may this be done. I think, in the consideration of these cases, we should constantly keep before us the manner in which the question has arisen, lest we are led to believe that the trend of decision is against the power of a court of equity to dissolve a solvent corporation, and overlook the fact that in these cases the court is dealing with its inherent power and not with a power conferred upon it by statute, and where the proceedings are instituted by the managing board of the corporation. Nor should we, on the other hand, follow that line of cases cited by the plaintiffs, where the courts have held that when the statute required a dissolution on the vote of a certain percentage of the stockholders, the right to dissolve is absolute on the requisite percentage of stockholders casting their votes for dissolution, irrespective of the motives of the stockholders. Neither of these two lines of cases is controlling here. Under this statute neither the stockholders in any percentage, nor the board of directors have the power to dissolve the corporation. The sole power of the managing board, as we shall presently see, is to initiate the proceedings. The power, and the only power, to dissolve rests in the court and it rests nowhere else. The court may decree dissolution if the corporation is insolvent, but this is not the limit of its power. It may also decree dissolution if "for any reason a dissolution thereof will be beneficial tothe stockholders and not injurious to the public interest." The court may dissolve in case of insolvency, and it may also dissolve when beneficial to the stockholders, whether insolvency exists or not.

"Beneficial to the stockholders." Does this contemplate that the court may not act and ought not to act where it is beneficial to over 99 per cent. of the stock? Where this per cent. of stock will be greatly benefited and the rights of the balance may be fully protected, simply for the reason that the small minority object, and object for no more substantial reasons than are given in the evidence offered by them, that they have held the stock a long time and do not want to exchange it for Copper Range and want the Trimountain to continue as a separate company? I think not. One who purchases stock in a corporation buys it knowing that it is subject to all the laws of the State, including the one under consideration. An examination of some of the authorities will be helpful. We naturally turn to the New York cases first, as our statute is taken from that State. In the case of In re Niagara Ins. Co., 1 Paige, 258, the owners of three-fourths of the stock favored the dissolution, one-ninth opposed it and the balance were indifferent. The chancellor ordered the dissolution and announced the rule which was to guide in such cases, in the following language:

"The court is not bound to decree a dissolution merely because a majority of the directors and stockholders request it to be done. But when the owners of a very large proportion of the stock find it for their interest to vest their capital in something more productive, it is strong evidence that the interest of the stockholders generally will be promoted by allowing them to withdraw their capital and discontinue the business of insurance. In such a case, the particular interest of the few must give way to the general interest of the many."

In Hitch v. Hawley, 132 N.Y. 212, the statute was under consideration and it was said by the court:

"Where, however, a majority of the trustees favor dissolution `for any reason,' whether relating to the management or not, and it appears that `for any reason' a dissolution `will be beneficial to the interests of the stockholders and not injurious to the public interests, the court must make a final order dissolving the corporation.' As it is not claimed that the public interests are here involved, the only question is whether the facts permitted the conclusion that a dissolution would benefit the stockholders. * * * The benefit meant is a pecuniary benefit, either direct or indirect."

This case is also authority to the point that the opinion of the owners of a majority of the stock is of prime importance.

A very interesting and recent case is Bowditch v. JacksonCo., 76 N.H. 351, where several of the questions here involved are discussed. Mr. Justice Peaslee, speaking for the court, there said:

"The plain common-sense of the matter is that this is a business venture, to be carried on as such so long as it appears to be good business judgment to do so. When the time comes that a majority in interest believe that their affairs should be wound up and the proceeds distributed, the rational rule is that this should be done. And since the question here is of a business nature, and the limitations of the power of the majority are fixed by the understanding of the business men who made the original compact, business considerations have more than ordinary weight in determining what the contract was."

Speaking on the question of the power to dissolve a solvent corporation, he said:

"If the majority may sell to prevent greater losses; why may they not also sell to make greater gains? Bearing in mind that this is purely a business proposition, with no public rights or duties involved, there seems to be no substantial difference between the two cases, as a matter of principle. In each case, the sale is made because it is of advantage to the stockholders."

In State v. Woolen Mills Co., 115 Tenn. 266, the court dissolved a solvent corporation, one just organized and before it had entered upon its business. I quote the syllabus:

"A majority of the stockholders in a private business corporation may voluntarily surrender the charter, and abandon, discontinue and dissolve the corporation upon terms of equality to all stockholders over the protest of the minority stockholders before the corporation had purchased any property, incurred any debts, or accomplished anything more than a temporary organization, and where it appears that the stockholders would not be materially prejudiced or financially injured by the dissolution and discontinuance, except as to prospective and speculative profits; and the dissolution will be decreed by the court in a proper suit for that purpose in order to avoid future complications and possible liabilities."

See, also, Treadwell v. Salisbury Manfg. Co., 7 Gray, 393;Trisconi v. Winship, 43 La. Ann. 45.

The case of White v. Kincaid, 149 N.C. 415 (23 L.R.A. [N.S.] 1177), cited by my Brother BIRD, was a bill filed by an individual stockholder to restrain dissolution of a solvent corporation by its board of directors. The court declined this relief. I quote the syllabus:

"The courts will not, save in rare and exceptional instances, interfere at the suit of minority stockholders of a corporation with proceedings of a majority to dissolve it as authorized by statute."

I think the case of Theis v. Gas Light Co., 34 Wash. 23, also cited by my Brother BIRD, is clearly distinguishable from the instant case. In that case, without any benefit to any one, the old corporation was dissolved and a new one created to get rid of plaintiff, the owner of 8 shares of stock, who was styled an uncongenial minority stockholder. In the instant case, as I shall presently discuss, the owner of 99.7 per cent. of the stock of the Trimountain will be benefited to the extent of many thousands of dollars. Indeed, the opinion of Mr. Justice BIRD concedes it to be "commendable as a business proposition," but thinks it does not measure defendants' rights. Reliance is had in the Theis Case on section 670, 3 Cook on Corporations (7th Ed.), and Kean v. Johnson, 9 N.J. Eq. 401. An examination of Mr. Cook's work shows that the section there relied upon is found in the chapter on "Ultra Vires Acts and Contracts," where the author was considering the power of the directors to sell all the corporate property, while in the chapter on "Dissolution," he says:

"There has been much doubt as to whether minority stockholders may prevent a dissolution under a statute, where the purpose is to sell the property to another company. The weight of authority seems to hold that such a dissolution is legal, if no actual fraud is shown and if a public sale of the property is provided for." 2 Cook on Corporations (7th Ed.), § 629.

The New Jersey case cited in the Theis Case was considerably weakened by what was said by the same court in Black v. CanalCo., 22 N.J. Eq. 130 (see p. 404). I do not think the TheisCase should be followed under the facts in the instant case.

It is fair to assume that upon a receiver's sale of the Trimountain property, in all human probability the Copper Range company will be the purchaser. This company, by reason of the situation, can afford to pay more for it than any other company or any individual. The Trimountain lies between two of its subsidiary companies, the Baltic and Champion. By doing this the overhead expense of maintaining duplicate organizations, a very large sum under existing conditions, may be avoided. It appears that the Baltic has a capacity at its stamp mill to accommodate the output of the Trimountain, and by a dissolution the expense of building a stamp mill on the Trimountain will be saved. It is admitted that this expense would be at least $500,000. Of this sum the majority stockholders would have to pay nine hundred and ninety-seven one-thousandths, or $498,500, while defendants would have to pay but $1,500. Are the rights of these minority contestants of such overweening and paramount importance as to justify a court of equity in laying upon the majority stockholder this enormous and wholly unnecessary expense in order that they may continue to hold the stock in the Trimountain instead of having the full value of such stock paid them in cash to be used for other investment? In other words, are the rights of these 3/10 of one per cent. of the stock of this corporation so sacred that the other 99 7/10 per cent. must expend nearly half a million dollars in order to keep the old company intact? Is a court of equity justified in requiring this useless expense of half a million of corporate funds? I think not. There are 100,000 shares of stock in the Trimountain company; the Copper Range owns 99,700 of them, defendants 300. If this entire stock was held equally in 100 share blocks there would be 1,000 shareholders. If such were the case would a court of equity turn a deaf ear to 997 of the shareholders if they were asking a dissolution in the interest of economy in management, economy in the expenditures I have noted and others which might be mentioned, and listen only to the three shareholders who might desire, as a matter of sentiment, to keep the old company going, to say nothing of the opportunity for holding up the majority stockholders, thus exacting a fancy price for their fraction of one per cent. of stock? What difference is there in the underlying principle, whether the majority of the stock is held by 997 shareholders or by one? None whatever. It appears beyond question, upon this record, that it is beneficial to the overwhelming majority of the stock that this dissolution take place.

I am persuaded that defendants would also be benefited by a dissolution of this company, and the sale of its property at the present time. It is a good time to sell property when there is an anxious purchaser ready to buy. This record discloses that the copper industry is now enjoying an unprecedented era of prosperity. How long this will continue no one can foretell. This property is now actually worth and will sell for more cash than ever before in its history. We are dealing with a business proposition, not with theories or speculation; with pecuniary interests, not with sentiment. I am clearly of the opinion from this record that the interests of all stockholders will be benefited by a sale, under such circumstances as will protect the interests of all.

The directors are the trustees for all the stockholders, minority as well as majority, and their actions must be scrutinized and examined with that relation in view. As defendants contend, they may not, as such trustees, sell to themselves all the corporate property, nor may they sell all the corporate property to any one else. If they were making a sale by themselves to themselves, or to a company in which they were interested, another question would be presented. Neither the company nor the board of directors are selling, or contracting to sell, this property. In this proceeding the court is in fact making the sale. Peirson v. Fisk, 99 Mich. 43. No sale becomes effective until reported to and confirmed by the court. All the board of directors have done, and all they are authorized to do under this statute, is to initiate the proceedings — to place the matter in the hands of the court. When the sale is finally made it is made by the court. I discover no reason which would prevent the board of directors, trustees for all the stockholders, from initiating these proceedings in a court of equity, and placing the question of a sale of the property in the hands of the chancellor; nor have I been able to discover any place where this board of directors has in any way disregarded their trusteeship, or in any manner neglected the interests of all the stockholders.

This property must be sold for cash. Defendants cannot be required to take stock in another company. Lauman v. Railroad Co., 30 Pa. St. 42;Francis v. Taylor, 65 N.Y. Supp. 28; Slattery v. Development Co., 128 La. 871. Upon such sale an upset price should be fixed. This case has been appealed to this court and we are hearing it de novo. I think there is sufficient upon this record from which we are able to fix such upset price. The Copper Range company some years ago offered what would amount to $6,000,000 for this this property. I think we may assume that it was then worth that amount. Since that time its surplus has increased until at the end of 1916 it amounted to $2,000,000. The case was tried during the year 1917, so that the figures for that year are not before us, but the record indicates and all seem to agree that it would be a prosperous year. I think that, taking all the facts in the record into consideration, we may fairly fix as an upset price the sum of $10,000,000.

I think the construction here given the statute carries out the legislative intent, protects the rights of all, and will prevent its oppressive use, either on the one hand to "freeze out," as it is called in the Theis Case, uncongenial minority stockholders, and on the other prevent hold-ups by owners of small amounts of stock.

I think the decree of the court below should be modified by fixing an upset price of $10,000,000, and in all other regards affirmed. Defendants should recover costs of this court.

STONE, J., did not sit.