McArdle v. Barney — 16 Abb. Pr. 228

Majority

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McARDLE against BARNEY.

Supreme Court ; Third Department, Third District,

Special Term,

April, 1874.

Headnote

Receives.—J urxsdictioh.

Where an action was brought in the supreme court, for the appointment of a receiver of the assets of a corporation, by a stockholder, in behalf of himself and all others in interest who might become parties, and subsequently another action, in the same form and for substantially the same purpose, was begun in a different department by another stockholder, and a decision therein had without the knowledge of the plaintiff in the first action,—that the court in the district in which the first action was pending were not concluded by such decision, especially where the circumstances were - such as to give rise to a suspicion of collusion between the parties to the second action.^[1]

If, however, the plaintiff in the first action had been heard in the second, and the court had pronounced judgment therein, with , a full knowledge of all the facts, well recognized principles of law and comity would forbid interference with it by the court in the other district.

The plaintiff was the owner, on November 1, 1866, of one hundred shares of stock in the joint stock company known by the name of Wells, Fargo & Company. The par value of the stock on that day was one hundred dollars per share, and its actual value in market was two hundred and eighty-five dollars per share. The business of the company was expressage and carrying in California, Oregon and the Western Territories, and also banking, &c. On the said day, November 1, 1866, the then trustees of the Wells, Fargo & Co. company, who are defendants in this action, by a unanimous vote of the trustees, dissolved the corporation. This they were empowered to do by the articles

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of association, unless two-thirds of the stockholders objected, such dissolution making the trustees holders of the assets of the late corporation for the benefit of its stockholders.

Immediately upon its dissolution, (such dissolution was effected to enable them so to do) the said trustees, the plaintiff objecting, transferred to a rival company, then known by the name of the Holladay Overland Mail and Express Company, and now known, and a party to this action, by the name of Wells, Fargo & Co., the name, good will and territorial rights and other personal property of the said dissolved association, and received in payment therefor four millions of dollars in stock (at its par value), of the defendant, Wells, Fargo & Go. The entire stock of the dissolved corporation, on the day of such dissolution, consisted of twenty thousand shares of the par value, and actual value hereinbefore stated. Besides the property transferred to Wells, Fargo & Co. (formerly Holladay Overland Mail and Express Company), the trustees of the dissolved corporation (Wells, Fargo & Co.) held certain other property of considerable value for the benefit of its former shareholders.

This action was commenced on February 16, 1870, in this court, against Ashbel H. Barney, Nathan H. Stockwell, Henry Wells, Edwin B. Morgan, Johnson Livingston, trustees of the old association of Wells, Fargo & Company, for the benefit of the plaintiff, and all other parties who were interested and might become parties to the action, for the purpose of obtaining relief on account of the alleged illegal sale to a rival corporation, and to obtain a receiver of the assets of the dissolved company, who should distribute the same to the stockholders.

In May, 1871, the cause was referred, and on March 29, 1873, the referee reported:

1. That the action of the trustees in dissolving the

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joint stock association of Wells, Fargo & Co., on November 1, 1886, was a legal exercise of their powers, and in all respects valid.

2. That it was the duty of the trustees of the assets of the said company to proceed on such dissolution with due diligence, and convert the assets of the company into money, and distribute ,the same among the stockholders, and to the plaintiff at the rate of 100-2000 thereof.

3. That the said trustees, by reason of having sold a portion of said assets to the defendants, Wells, Fargo & Co., at private sale, without having given any notice thereof, and having taken stock in payment therefor*, violated their duties as such trustees, and are liable to the plaintiff for the value thereof.

4. That the value of the assets of said joint stock association was two hundred and eighty-five dollars per share; and that plaintiff’s one hundred shares thereof and therein were worth twenty-eight thousand five hundred dollars.

5. That the portion of the assets of the said company so sold and transferred to the defendants, the now Wells, Fargo & Co., were worth two hundred dollars on each share of the old company so dissolved.

6. That the plaintiff is entitled to judgment against the defendants for twenty thousand dollars, with interest thereon from November 1, 1866, with costs ; and that a receiver of the assets of said old association of Wells, Fargo & Co., so dissolved for the benefit of the stockholders of said association, and all others interested, be appointed with the usual power and duties of a receiver in like cases.

A motion was made at a previous special term to appoint a receiver, in conformity with this report. That motion was resisted by the defendants, on the ground that in a suit begun in this court, in the city of New York, by one Ann E. Wilson, in behalf of the

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association of Wells, Fargo, & Company, against Dan-ford BT. Barney, and others, trustees of the dividend fund of the Wells, Fargo, & Company Joint Stock Association, such proceedings were had, that by the judgment of this court, in the first judicial district, Ashbel H. Barney, one of the defendants in this action, had been appointed receiver for the purpose of distributing the assets of the late association among its former shareholders. The court then ordered a reference to determine who was a proper person to be receiver, and whether said Barney should be removed, and another receiver appointed. The referee reports that said Barney should be removed, and Abraham Y. Dewitt appointed.

-ZV. O. Modk and W. Hrothingham, for the plaintiff.

Samuel Hand, for the defendants.

[after stating the facts at length].— The hearing before the referee was on notice to the receiver, and the evidence taken is returned for our guidance. From such evidence there taken, it appears that the Wilson case was commenced subsequent to this one. The plaintiff therein was one of the stockholders of the original company who gave consent to the sale of the property to the new, but claimed by the complaint that the trustees of the old association had been guilty of fraudulent and illegal conduct since the sale, and that a receiver should be appointed to distribute its assets. That cause being at issue, it was referred, by consent, to Albert Stickney, to hear and decide. The report of the referee in that action bears date February 5th, 1873, and judgment was entered thereon on February 7th, 1873, after this cause, which was older in its beginning, had been submitted to the referee for a decision, but before such decision was announced.

By the judgment of the Wilson case, the whole

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conduct of the defendants is approved, the trustees absolved from liability to any stockholder, large allowances made to Mr. Barney for services, and he (Barney) appointed receiver. To this suit Mr. McArdle was not made a party, nor was he cognizant in any way of the proceeding. The existence of this prior action was not communicated to the court which rendered the judgment in the Wilson case, and, what is more singular still, the plaintiff in that action, and her husband, who acted as her agent in regard to it, had no knowledge or notice of the reference, or of the judgment which had been obtained therein.

One of the attorneys of that plaintiff (Mrs. Wilson) was also examined, but threw very little light upon the transaction, he claiming that his partner, who was in Europe, had conducted it.

As already stated, of the existence of that suit of Mrs. Wilson, the plaintiff (McArdle) had no knowledge. If, on his being heard, and with a full knowledge of the facts, a competent court had pronounced the judgment, and made the appointment of Mr. Barney, well understood principles of law as well as judicial comity, would forbid any interference in this manner. The appointment in the Wilson case is, on its face, formal and regular, still the circumstances attending it are so suspicious, that I strongly think it was collusive and friendly, to avoid the judgment in this case.

Undoubtedly the learned and respected judge who granted the decree, acted rightly upon the light given to him, but I do not see how the same court, though held by another judge with a full and more perfect knowledge of ail the circumstances, and after a full hearing of all the parties, is guilty of any disrespect to him if it sees fit to appoint a new receiver. That proceeding was ex parte so far as this plaintiff is concerned, and as this suit was the older in point of time,

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and was proceeding in regular form to judgment when the other decree was rendered, no volunteered seeking to interfere with proceedings in another district can possibly be imputed. Indeed, I am well satisfied that if the attention of Judge Davis had been drawn to this prior suit then pending, actually submitted, and awaiting decision, that decree, without notice to this plaintiff, would not have been made.

Ho possible disrespect, then, or breach of judicial comity can be presumed, if this court fairly examines and considers the propriety of Mr. Barney’s being the receiver. It is true, the plaintiff has a personal judgment for part of the value of his stock in the old company, but he has also an interest in the remaining property to a considerable amount. With this controversy existing between him and these defendants (of whom this receiver is one), he is entitled to a receiver who shall, at least, be indifferent between the parties. It is neither fair nor just to the plaintiff that he, who is to collect and distribute the assets of the dissolved association, should be the very person whose feelings are embittered against him by a suit, and whose interests are directly antagonistic. Besides, the accounts, actions, and conduct of this very Mr. Barney, as trustee, are to be examined and passed upon, and they should be so examined and passed upon by an indifferent person, who can have access to every paper, voucher, and document which will shed light thereon. It may be necessary to institute suits against Mr. Barney for illegal or improper conduct, and surely he (Barney) ought not to be plaintiff therein. It is no answer to this argument to say that if Mr. Barney fails to fulfill his trust honestly, an action will lie against him and his surety.

Ho party should be subjected needlessly to litigation, and without a thorough insight into the business and transactions of the old association which a posses

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sion of its books, documents, and papers will give, it would be impossible to conduct a suit to a successful issue. Full possession of all the property of the late company will certainly enable Mr. Barney, if so disposed, to work wrong to the plaintiff, of the existence of which he will be wholly ignorant. Laying out of. view, however, all suspicions of collusion in the Wilson suit and judgment, can this appointment be proper? We need not impute any dishonest motives to Mr. Barney. It is only necessary to assume that he is human, with the feelings of our nature, and so assuming, it is but reasonable to suppose that he will prefer his own interests to those of another. Our statutes disqualifying certain persons from acting as judges, jurors, and in other capacities,' proceed upon this ground. His judgment, if he continues in office, will often be taxed to consider what should be done, and whether this thing or that thing will be best for him. His judgment and conscience should not be biassel by self-interest, nor tempted to wrong by feeling or passion. Mr. Dewitt,- the person recommended, is, on the other hand, every way qualified, indifferent between the parties, and will certainly do justice to all, having no motive to serve one party more than the other.

My conclusion is, that Mr. Barney should be removed, and Mr. Dewitt appointed, as recommended by the referee.