McCloskey v. Snowden

Opinion by

Mb. Chief Justice Mitchell,

■ This bill is clearly one of interference in the internal management of a foreign corporation, and as such is not distinguishable from Madden v. Electric Light Co., 181 Pa. 617.

The bill sets up a case of fraud against the company which affects the plaintiffs solely in their capacity as stockholders in common with the others. Prima facie the proper party to seek redress for such a wrong is the corporation itself through its governing body, the board of directors. “ The right of an individual stockholder to act for the corporation is exceptional, and only arises on a clear showing of special circumstances, among which inability or unwillingness of the corporation itself, demand upon the regular corporate management, and refusal to act are imperative requisites. And the refusal by the corporate management must appear affirmatively to be a disregard of duty and not an error of judgment; a nonperformance of a manifest official obligation amounting to a breach of trust: ” Wolf v. Penna. R. R. Co., 195 Pa. 91.

The present bill charges that “your orators did make demand upon the present officers and board of directors of the said Danville Bessemer Company, who are, to wit: .... to cause an action to be brought in the name of the said Danville Bessemer Company against the defendants hereinbefore named to compel an accounting by said defendants of the profits made by them in the transaction hereinbefore recited or to authorize your orators to bring such action in the name and on behalf of the said Danville Bessemer Company, but notwithstanding the demand thus made by your orators said board of directors have declined so to do.” But there is nothing in the bill to show breach of trust by the directors, or any acquiescence in fraud on their part. For all that appears it is merely a difference of views and judgment between the complainants as individual or minority stockholders and the constituted board of management of the corporate affairs. Of the nine officials named as the board of directors at the present time, only one is a defendant in the bill, charged as having taken part in the transaction complained of, and the charge against the others is sought to be inferred from the fact that three of them are related or in business connection with some of the promoters; the averment that the first officers who made the purchase complained of were “ none of them persons of independent or substantial interest in the business of the corporation,” but were placed there “simply to do the bidding of said promoters without the exercise of any independent judgment in the matters which should be presented for official and corporate action ; ” and finally that both the first and the present were mere “ dummy boards ” under the control of the promoters defendant. Such averments are wholly insufficient. What is said in Wolf v. Penna. P. R. Co., 195 Pa. 91, is very applicable here. “ Passing by the subordinate questions .... the bill has no substantial foundation of fact to rest upon. It is filled with charges of fraud and collusion but they are charges as inferences from very insufficient averments of facts. If we take out what Chief Justice Gibson called the vituperative epithets there is nothing left but the inference of fraud drawn from the general averment that the officers of the lessor company being elected by the vote of the stock held by tbe lessee are under the latter’s influence.” And again in the same case, “ The defect of this charge is that it does not rest on any acts averred, but on an inference that by reason of the circumstances of their election, the directors will violate their duty and commit a breach of trust. There is no presumption that officers will commit a breach of trust; the charge should rest on some act, affirmative or permissive, manifestly in violation of duty, and manifestly the result of fraud and not of erroneous judgment.”

In Madden v. Electric Light Co., 181 Pa. 617, it was held that “ where the act complained of in a stockholder’s bill against a corporation affects the complainant solely in his capacity as a member of the corporation, whether it be as a stockholder, director, president or other officer, and is the act of the corporation, whether acting in stockholders’ meeting or through its agents, the board of directors, such action is the management of- the internal affairs of the corporation ; and in case of a foreign corporation the courts of Pennsylvania will not take jurisdiction; and it is immaterial that the visible, tangible property of the foreign corporation is situate within the state.” The present bill comes fully within this description.

Decree affirmed.