Putnam v. Sweet

Stow C. J.

The bill in this case was filed by the complainants (about twenty in number) for themselves, and all others alleged to be bona fide stockholders of the Milwaukee and Janesville Plank Eoad Company, claiming to hold one thousand shares of the stock, against the defendants, charging certain of them with a combined fraudulent subscription of seven thousand and seven hundred shares, and others of them with a combined fraudulent antagonistic subscription of seven thousand five hundred shares; a fraudulent suing out and abuse of an injunction from the Milwaukee circuit court, (in which the bill was originally filed), by Blossom, in confederacy with the defendants, Sweet, Davis, Hibbard, Webb and Williams, by which the commissioners appointed by the act of incorporation were restrained from distributing the stock and organizing the company; and that through the instrumentality of that fraudulent process and proceeding, the defendants, Sweet, Webb, Gh'eeves, Davis, Taylor, Hibbard and Chandler, have possessed themselves of the books and papers of the commissioners (who, until after the election of directors, were, by the act, to be officers of the corporation), and assume to act as the directors and officers of the company.The bill states that the commissioners, obeying the mandate of Blossom’s fraudulent injunction, have ceased the exercise of their office, and that the complainants and their fellows are the only bona fide stockholders of the company; and prays that the alleged fraudulent subscriptions be set aside and declared void; that the pretended organization of the company, by means of the fraudulent use of Blossom’s injunction, be declared void ; that the defendants, assuming to act in the name of the corporation, be restrained from prosecuting certain suits for the collection of the subscriptions, etc.; and that the commissioners be declared, for the time being, the officers of the company, and be reinstated in the possession of its boobs and effects; and for general relief The defendants, Sweet, Davis, Webb, Hibbard, Blossom, Williams, Ciarle, Green and Taylor, demurred, and assigned as causes of demurrer : 1. That the bill is multifarious. 2. Want of jurisdiction in the circuit court. 3. That the corporation should have been made a party. 4. That the complainants have not a right to prosecute for themselves and fellows.

The circuit court overruled the demurrer as to multifariousness, and sustained it as to the other causes, and dismissed the bill. To reverse this decree the complainants have appealed to this court.

I shall consider the questions arising in the case in the order in which they are presented by the demurrer. Rut, before doing so, I will dispose of an objection which has been made ore terms, which is, that there is no equity in the bill.

It has been contended on the part of the defendants, that the bill discloses a corrupt agreement between the complainants and the commissioners, to get control of the company by means of a trifling subscription, and to use it for the purpose of private speculation to the injury of the public. I can by no means say tibat the bill shows the complainants to have acted from public spirit, or in a manner particularly commendable. But, on the other hand, I do not think it shows any such fraudulent agreement or purpose, as to exclude them from a cornt of equity. Private speculation was, doubtless, with most of them the leading motive ; and the direction of the company was probably regarded as an important element of success. But there was not anything necessarily, or by fair implication, illegal in this, and to close the doors of equity against the complainants for this reason would be in effect to shut out from the court of chancery most stockholders of incorporated companies.

The first cause of demurrer is multifariousness. The bill sets up a general right on the part of the complainants and them fellows against all the defendants, and charges that all the defendants, except the commisioners, claim on fraudulent subscriptions, or by means of Blossom1 s fraudulent injunction ; and that the commissioners have abandoned their duty to the bona, fide subscribers, in obedience to that injunction. Though the transactions of the several defendants are various, and some, of them not necessarily connected, they are all charged (with the exception of the subscriptions of WeeJes, Wells, Lud-ington and Kneetcind) to be the work of one concerted confederacy, and the result of one common scheme to defraud the complainants. The subscription of Weeks and Ms associates, is alleged to be fraudulent, and to have been made in antagonism to the fraudulent subscriptions of Bbssom and his confederates, and as it respects the complainants, for the same purpose as theirs — the defrauding the bona fide stockholders. The objection now under consideration has been mainly urged on the grounds that the subscription of Wells and Ms associates, so far from having been made in concert, with those of Blossom and his associates, is shown by the bill to have been made in hostility to it, and that, therefore, no common liar bility on the part of the two adverse sets of fraudulent subscribers exists. That there was no community between these different and adverse defendants, as it regards themselves, is very clear; but it by no means follows that there is not such a privity in relation to the complainants, that the wrong which they have perpetrated for the same purpose, at the same time, and by the same means, in connection with, though in hostility to one another, may not be redressed by the same proceeding. If two are engaged in the same felony, though they may be hostile to each other, each seeking for himself the sole advantage, they are privies as it regards the crime, and may be prosecuted jointly. Looking at the whole of these transactions, as stated in the bill, and admitted by the demurrer, I am of opinion that there was such a connected, though not confederated fraud, on the part of the defendants as subscribers, that they are properly joined as defendants. It is further contended, that the defendants Greves and Taylor, not being parties to the original confederacy, and having no connection therewith, ought not to be made defendants, and cannot be required to answer. The bill shows these parties to have come in by means of the operation of the fraudulent injunction, and if so, they are answerable with the original confederates thereto; and besides, the bill specially charges them with combining with Blossom and his associates ; and as these have not denied, by answer, this charge, they cannot ■ avail themselves of this ground of demurrer.

2. "Want of jurisdiction.

in support of this objection, the defendants contend that the bill shows a corporation in existence, and that certain of the defendants are its officers defacto; and that being so, they cannot be removed at the suit of private individuals, but must be proceeded against by the government. In the view 1 take of this branch of the case, it is entirely immaterial whether the corporation is now in actual existence or not. The bill states that, for the purpose .of defrauding the complainants and preventing the commissioners from distributing the stock and organizing the company by an election of directors, Blossom, in confederacy with his associates, Sweet, Davis, Hib-bard, Webb and. Williams, filed a bill, which was false in all its material allegations, against the commissioners, and thereon obtained an injunction restraining them from distributing the stock and holding the election of directors; that the service of the injunction was delayed until the confederates had, by a trick, possessed themselves of then’ certificates, when, in pursuance of a preconcerted signal, it was served; that the commissioners thereupon abandoned their trust; and that, thereupon, the defendants, Blossom avid his associates, possessed themselves of the books, etc., and claim to act as the directors and officers of the company; that the confederates having effected their purpose, Blossom discontinued his suit; and that the filing of Blossom's bill, the procuring the injunction, the fraudulent use made of it, and the discontinuance of the suit, were all parts of the conspiracy to defraud the complainants and deprive them of their rights; and that the injunction was the instrument by which this was effected. In this state of things, the complainants, as the parties in interest in Blossom's suit, claim that they have a right to the aid of that same court, by the abuse of whose process they are suffering, to relieve them. A claim, in my judgment, so obviously just — so well founded both in legal equity and natural justice — that it needs only to be asserted to be conceded.

The parties complain, not that the defendants have invaded the sovereignty by usurping a franchise, but that they, the complainants, have suffered a private injury, which has been perpetrated by the abuse of the process of a court of equity ; and they ask the same court to correct the wrong it has unintentionally committed, by restoring them to the condition in which it found them. And can it be that such a prayer as this is not to be heard, because, forsooth, the attorney-general does not choose to prosecute for the incidental evasion of the rights of the public ? I think not. By the discontinuance of Blossom’s suit, all tilings were theoretically restored to the state in which they were at the time of the filing of his bill; and it was the duty of the circuit court to have so restored them in fact, either by an order in that suit or a decree in this. Had the commissioners disregarded the injunction, and held an election, at which the directors adverse to Blossom and his associates had been elected, and who thereby possessed themselves of the franchise, and had Blossom prosecuted his bill to a final decree in his favor, would not the circuit court, in vindication of its violated process, have summarily disjilaced the contumacious intruders ? and would it have listened to a claim on their part, that being in possession of a corporate franchise, they could be ousted only by a quo warranto % I take it that our circuit courts, made by the constitution superior courts of record, and vested by that instrument with greater powers than were probably ever before, in a free government, delegated to any one tribunal — -the united powers of the English King’s Bench, common pleas, exchequer and chancery — will never prove themselves so impotent and complacent.^* And if the court would have thus summarily dealt with one set of intruders, wbo bad defied its mandate, bas it not tbe same power, and ought it not to exercise it, over tbe adverse set, who have got possession by means of a fraud upon tbe court itself, and by tbe abuse of its process ? To disclaim this power, or to withhold its exercise, I regard as a flagrant denial of justice.

It is very certain that bad Blossom’s bill been prosecuted, tbe court would not have hesitated in that suit to rectify tbe injury it bad been made tbe instrument of inflicting; these complainants would have bad tbe right of filing an original bill, such as this, in tbe nature of a cross-bill (Jones v. Jones, 3 Atk. 110; Hoff. Ch. Pr. 319, 349); and the court would not have beard an objection to its jurisdiction to correct its own involuntary wrong.. It is equally certain to my mind, that tbe mere discontinuance by Blossom of bis suit could not operate to deprive tbe court of such jurisdiction. Parties cannot be tolerated in playing this fast and loose game with tbe authority and jurisdiction of courts. Tbe jurisdiction which Blossom and bis confederates conferred upon tbe circuit court by tbe filing of tbe bill, and tbe abuse of the injunction, caunot, when they have profited by it, be withdrawn at their pleasure. It must, of necessity, abide in tbe court until it bas placed tbe injured parties in as good a situation as it found them.

Again: by tbe fraudulently sumg out and abuse of tbe injunction, tbe dignity of tbe court itself was attacked; and tbe inherent power of self-preservation gave it jurisdiction to vindicate itself and its suitors, by its own process. This is not a question, exclusively, of individual rights ; it involves, to some extent, tbe character and good faith of tbe court. And it is necessary, for tbe maintenance of that public confidence in tbe impartial and equal administration of justice so vitally essential to tbe usefulness of all judicial tribunals, especially in a republic, that such abuses of tbe power and process of tbe court as are here disclosed should find a remedy as speedy and as simple as tbe abuse. I am, therefore, of opinion that tbe circuit court had jurisdiction in this case; and that the decision of the court, sustaining the demurrer for want of it, was erroneous, and should be reversed.

It will be observed, that in coming to the conclusion at which I have arrived, I have had no reference to the statute of 1841; nor do I undertake to decide the general question, whether persons acting as directors of a private corporation, like this Plank Road Company, can be displaced at the suit of the corporators, without the intervention of the government. I have formed my opinion on the peculiar and extraordinary facts disclosed in this case. I have not searched for authorities, because I have not deemed them necessaiy; nor is it probable that any could be found in point; for it is believed that the nefarious transactions presented on this record are as much without precedent, as it is to be hoped they will be without imitation.

The third cause of demurrer is, that the Milwaukee and Janesville Plank Road Company should have been made a party.

I think the objection a good one. It is somewhat difficult to say at what precise time, or in what- particular stage of its proceedings, this association had, or would have, a legal existence as a corporation; probably not until its formal organization by the legal election of directors. The bill, however, shows that it is acting as a corporation and exists de facto, and that certain of the defendants claim to be its officers. This is enough to entitle it to be made a party in this suit. It has been contended with some plausibility, by the counsel of the complainants, that the corporation, being a mere formal party, is sufficiently before the court in the persons of the commissioners, and of the defendants who claim to be directors. He says: “ The corporators, the complainants, are in court; the claimants to be corporators by the subscriptions we seek to impeach, are in court; the commissioners, whom we claim to be the officers, if the corporation is in esse, are in court; the assumed directors are in court; what else is there to bring into court ? Nothing but a name / ” Precisely so. But that name is everything to the corporation; by it alone, it exists and is known; it cannot be described by any synonym or circumlocution; its name is itself; and eo nomine, it must appear. The decision of the circuit court, on this point, I think was correct. But as the complainants should have been allowed to amend, by making the corporation a party, the dismissal of the bill for this cause, was erroneous.

The last cause of demurrer is, “ that the complainants have no right to sue in behalf of themselves and the other stockholders.” The bill alleges that the stockholders, for whose benefit it is filed, are very numerous, and are unknown to the complainants ; and shows a case of common right in the complainants and all others whom they represent. A more appropriate case “ for some of á large number having a common right to maintain a suit in behalf of themselves and fellows, in aid of that common right,” cannot well occur. I think the bill is properly filed by the complainants, for themselves and the other stockholders.

On the whole case my opinion therefore is, that the decree of the circuit court, dismissing the bill, should be reversed, and that the record be remitted to the circuit court with directions to allow the complainants to amend by making the Milwaukee and Janesville Plank Road Company a party defendant. I am further of opinion that the process for bringing in the company should be served on the commissioners as the legitimate officers,' and that they should represent the company in the suit.

I add, in conclusion, that I approve of the denial of the injunction by the circuit court. In a case involving such important interests, both public and private, and where delay and interruption must be attended with such serious consequences, an injunction ought not to be allowed until the defendants have an opportunity of being beard. Kipp v. Ogden, 6 Johns. Ch. 160.

WhitoN and JaoesoN, JJ., concurred.

* The circuit courts shall have original jurisdiction in all matters, civil and criminal, within this state, not excepted in the constitution, and not hereinafter prohibited by law, and appellate jurisdiction from all inferior courts and tribunals, and a supervisory control over the same. They shall also have'the power to issue •writs of habeas corpus, mandamus, injunction, quo warranto, certiorari, and all other writs necessary to carry into effect their orders, judgments and decrees, and give them a general control over inferior courts and jurisdictions. Constitution of Wisconsin, art. 7, § 8.