Moir v. Provident Savings Life Assurance Society

Plaintiff, suing on behalf of himself and all other stockholders of the Provident Savings Life Assurance Society of New York, alleges in his complaint: That the society is a corporation organized and existing under the laws of the state of New York for the purpose of conducting the business of life insurance. That under its charter its corporate powers are vested in a board of directors of 15 persons, divided into four classes, 4 directors retiring each year, with the exception only that 3 directors retire every fourth year. That the plaintiff is the owner and holder of 10 shares of capital stock, and is a member of its board of directors. That the total capital stock consists of 1,250 shares of the par value of $80 each. That prior to October 7, 1907, the defendants Orlando E. Thomas and Edward R. Thomas owned and were the holders of record of a large majority of the capital stock of said corporation, and through their representatives and parties in interest in its board of directors were in complete control of its affairs. That on October 5, 1907, the said Thomases entered into a contract in writing with the defendant Coyle, wherein, among other things, they agreed to sell to him 1,056 shares of the capital stock of said corporation in consideration of the payment to them by said. Coyle of $100,000 in cash, and the delivery to them by said Coyle of an aggregate of $1,000,000 of his promissory notes, payable at different times, and it was provided that said Thomases should retain said 1,056 shares as collateral for the payment of said promissory notes, with the exception of 8 shares thereof, which should be transferred into the name of said Coyle or his nominees for the purpose of qualifying them to act as directors of said corporation. Said contract contained the following provision:

“Ninth. On the signing and delivery of this agreement, the parties of the first part (the said Thomases) shall cause to be elected as directors of the Provident Savings Life Assurance Society of New York, at least eight nominees, and deliver the resignations of the remaining seven directors and also the resignations of all the officers of the said company unto the party of the second part (the said Coyle), or his assigns, but the parties of the first part, or two of their nominees shall be elected or appointed on the- finance committee, and both parties of the first part shall continue as directors and one a member of the finance committee until the whole consideration herein mentioned be fully paid.”

That, in pursuance of said contract, the Thomases caused eight shares of the capital-stock to be transferred into the names of defendants John J. Coyle, John C. Grady, Charles M. Brumm, John J. Moore, John B. Wurtz, George J.- Elliott, Henry Brooks, and John W. Phillips, and on October 7, 1907, the said persons were elected, did qualify and become members of the board of directors. That all of said persons were at the time of their said election merely dummies and tools of' the defendant.Coyle, and had no actual ownership of the one share of stock standing in their respective names, or interest in the Provident Society in any respect whatsoever. That since October 7, 1907, and before March 25, 1908, the defendant McSorley, a dummy and nominee of the defendant Coyle, has been elected a director in the place of said Elliott, resigned, and the defendant Sulger, another dummy and nominee of the defendant Coyle, has been elected a member, of said board in the place of said Brooks, deceased. That on March 7, 1908, the defendant Coyle was elected to fill a vacancy in said board created by the resignation on that date of said Phillips. That at all the times in this complaint mentioned the defendants Mc-Sorley, Brumm, O’Keefe, Moore, Wurtz, Sulger, and Grady have been and now are dummies for and nominees of said Coyle without any actual ownership of the one share of stock standing upon the books of the said corporation, and in their respective names, or any financial interest in the said society and subject entirely to the orders and directions of said Coyle, and without any capacity or desire to exercise, without the direction of said Coyle, the powers and perform the duties as directors of said society. That all of said directors of the said society have conspired and agreed, and are now conspiring and agreeing, with the said Coyle, unlawfully and wrongfully, to subvert the rights of the stockholders of said society and perpetuate the control of said Coyle over the said society, and the management of its affairs and funds, to the detriment and injury of the stockholders of said society and its policy holders. That, in pursuance of said conspiracy, the said defendants constituting a majority of the board of directors on March 6, 1908, at a special meeting of said board, and without notice of any kind to the stockholders of the corporation, passed a resolution of said board providing for the closing forthwith of the stock books of the society, although the by-laws contained no provision whatever authorizing the closing of its stock books, and against the advice of counsel for said company. That said stock books remained closed until March 27, 1908, at which time owners of stock demanding transfer thereof obtained an order requiring the said defendants to show cause why they should not be enjoined from

“About ten days ago, at the request of Mr. Coyle, present chairman of the finance committee of this company, I sent him my resignation as a director of this company. Since then conditions have so materially changed that I feel it my duty towards this company and its policy holders, for the time being at least, to withdraw such resignation. I therefore inform you that I do withdraw such resignation, and request that you return the same to me.”

That on October 25, 1907, the secretary of the defendant returned to Gilbert his original letter tendering his resignation, and stating:

“In this connection, I may state that your resignation has not been accepted .by the board of directors.”

That on and continuously subsequent to October 17, 1907, said Gilbert has attended regular and special meetings óf the board of directors, and has voted as a director, upon all questions coming before the said board, without any objection or protest coming- from any other member of said board, and has continued to be and act as such di

“Resolved, that James B. O’Keefe, of 254 Fulton Street, Brooklyn, New York, be elected a director, vice William T. Gilbert, resigned.”

That at the time of the defendant O’Keefe’s said alleged election defendant Gilbert remained, and still remains, a director. That there was no vacancy in the said board, and the alleged election of said O’Keefe was wholly illegal and void. That nevertheless the said O’Keefe pretended to act and is now acting as a director of said" society, and the defendant Gilbert is excluded by the said defendants from exercising his rights and privileges as a director. That the terms of office of the defendants Coyle, Grady, and Wurtz will expire on April 3, 1908, at which time, in accordance with the by-laws, an annual meeting of the stockholders thereof will be held for the purpose of electing three directors to take the places of said retiring di

Upon this complaint and voluminous affidavits, an order was entered restraining the defendants Coyle, Grady, McSorley, Brumm, Moore, Wurtz, Sulger, and Vrooman, and each of them, pending the trial of this action, from allowing or permitting any person to do any act or thing, or to assume to act as a director of the society, in the place of or as the successor of William T. Gilbert, and enjoining each of said individual defendants and the defendant society, and each and every of its directors and officers, pending the trial of this action, from refusing to permit and allow the defendant Gilbert to act in every way as, and to exercise all the rights and privileges as, a director of the said society. From said order, the society and the defendants Coyle, Grady, Brumm, Moore, Wurtz, Sulger, and McSorley appeal.

Section 603 of the Code of Civil Procedure provides that:

“Where it appears from the complaint that the plaintiff demands, and is entitled to, a judgment against the defendant restraining the commission or continuance of an act, the commission or continuance of which during the pendency of the action, would produce injury to the plaintiff, an injunction order may be granted to restrain it. The case provided for in this section is described in this act, as a case where the right to an injunction depends upon the nature of the action.”

“In either of the following cases, an injunction order may also be granted in an action: (1) Where it appears by affidavit, that the defendant, during the pendency of the action, is doing, or procuring, or suffering to be done, or threatens, or is about to do or to procure or suffer to be done, an act in violation of the plaintiff’s rights respecting the subject of the action, and tending to render the judgment ineffectual, an injunction order may be granted to restrain him therefrom."

It is under one or the other of these two provisions of the Code alone that the order appealed from can be justified. It is for that reason that it has been deemed necessary to make so voluminous a résumé of the complaint herein, in order -to determine whether the plaintiff has brought himself within the prescribed conditions. It is apparent from the papers in the case that there exists a desperate fight for the control of this insurance company, made possible by the fact that it is a domestic stock corporation, that its directors are elected by the stockholders, and that their terms of office expire at different periods. When Mr. Coyle entered into his contract for the purchase of sufficient shares of stock-to control the corporation, under the obligation upon his part to pay $100,000 in cash and $1,000,000 on notes secured by the shares of stock as collateral, he received eight shares for the purpose of qualifying eight -directors who would constitute a majority of the board. Having defaulted upon his obligations to pay, the holders of those shares, as collateral to his obligations, have caused the same to be sold, and the present holders of such shares would control the corporation and could elect directors representing them, were it not for the fact that only three regular vacancies fell in at the time of the annual meeting. If Mr. Coyle could succeed in holding eight directorships which did not expire at said meeting, he would still remain, at least for a year, in control of the corporation, although owning and controlling only eight shares out of a total capital stock of 1,250 shares. Thus, by reason of the peculiar situation, the interests of the policy holders represented by $80,000,000 of outstanding insurance would be in the hands of a majority of the board of directors, none of whom were policy holders and who represent but eight shares of stock as against 1,242 opposed to their management.

Realizing the possible results of such a situation, not only to the owners of the vast majority of the stock of the corporation, but to the holders of policies of insurance therein, appreciating that this struggle is one for the financial control of the corporation as a business proposition, regardless of its'character as an insurance company, and the rights of the policy holders and their proposed beneficiaries, we have examined this case with the gravest concern in the attempt to discover whether a case is presented for the interposition of a court of equity. Reduced to its ultimate analysis, the plaintiff, a stockholder, asks a court-of equity to determine that one man is a director of the corporation of which plaintiff is a stockholder, and that another man is not. He asks that the court enjoin one man from acting as a director, to enjoin the majority of the board from permitting him to act as a director, and to enjoin the majority of the board from refusing to permit and allow the other man to act as a director. The order ap

In People v. Albany & Susquehanna R. R. Co., 57 N. Y. 161 , the court said:

“Elections to office, whether public or corporate, were never in England nor in this state, up to the date of the Code, matters of equitable consideration. They depended only upon legal inquiries and legal principles, and no instance can be found in which title to office has been dealt with by the courts on any other basis. A few cases in which this rule has been recognized rather than expressly decided may be referred to: Tappan v. Gray, 9 Paige, 507, affirmed 7 Hill, 259 ; Mickles v. Rochester City Bank, 11 Paige, 124, 42 Am. Dec. 103 ; People v. Utica Insurance Company, 2 Johns. Ch. 371 ; Attorney General v. Bank of Niagara, Hopk. Ch. 354; Mott v. Connolly, 50 Barb. 516 ; Atty. Gen. v. Clarendon, 17 Ves. Jr. 491. The latter cases, indeed, go further, and deny the jurisdiction of the courts of equity in regard to the election or removal of any description of corporators or in aid óf proceedings by information in the nature of quo warranto in courts of law, thus showing that no form of equitable relief could be founded on a disputed title to corporate office. The Code has introduced no change in this rule.”

In People ex rel. Corscadden v. Howe, 177 N. Y. 499 , 69 N. E. 1114 , 66 L. R. A. 664 , Cullen, J., said:

“Having determined that the attempted removal of Mr. Corscadden from his office as superintendent of the penitentiary was illegal, the only question which remains to be decided in the injunction action is whether such an action can be maintained. We are of the opinion that it cannot. As early as the case of Tappan v. Gray, 9 Paige, 507, it was held by the chancellor that the court of chancery had no jurisdiction to enjoin at the suit of the incumbent of an office the intrusion of a hostile claimant illegally appointed to the office. This decision was unanimously affirmed by the Court of Errors. 7 Hill, 259 . * * * The doctrine declared in Tappan v. Gray has been almost invariably followed in this state; there being only one reported case "to the contrary. * * * The exception referred to is Palmer v. Foley, 45 How. Prac. 110. * * * "We are not impressed with the theory on which the superior court upheld the action. * * * Reis v. Rohde, 34 Hun, 161 , was an action between a church and certain persons claiming to be trustees who it was sought to enjoin from acting as such. The jurisdiction of the court to grant the injunction seems to have been upheld on the theory that the church itself had recognized the plaintiffs as trustees, and not the defendants. Indeed, the principle that a court of equity will not entertain jurisdiction over contests to public office has been so fully recognized in this state that there seems to be no direct authority in this court on the question, though several instructive cases may be found—citing People v. Albany & Susquehanna R. R. Co., supra, and other cases. * =•• * If ever public convenience would have authorized the intervention of equity in a controversy beyond its cognizance, that controversy was the one passed on by this court

in People v. Albany & Susquehanna R. R. Co., ‘where a war of injunction’ had caused in a part of the state no small degree of public disorder, yet the-court there held that no case-of equitable cognizance was presented.”

In Washington Lighting Company v. Dimmick, 41 App. Div. 596 , 58 N. Y. Supp. 682 , the action was to enjoin defendants from representing themselves to be the officers of the company or interfering with its business or property. The defendants concededly had been the president and treasurer of the company. The controversy was whether they were still. The court at Special Term held that section 1948 of the Code of Civil Procedure provides the form of remedy appropriate to such a case as this, where the corporation is a domestic one. A court of equity has no inherent power to try the disputed title to corporate office, and to enjoin one in possession from the exercise of its functions at the suit of a rival claimant; Such may be done and judgment of. ouster rendered only in an action of quo warranto instituted by the Attorney General in the name of the people. While this action purports in its title to be brought by the corporation, it is in reality a contest of rival claimants for its control, and it is consequently the kind of an action that it was there said could not be maintained. This court said:

“We think the court below was right in denying this motion upon the ground stated in the opinion of the learned judge who heard the application.”

The learned counsel for the respondent admits the ' general rule that a court of equity will not take jurisdiction of a case .for the sole purpose of determining title to office, but claims the benefit of another rule, which is that, where a court of equity has jurisdiction of a case upon some recognized equitable ground, then, as. incidental to said jurisdiction, it will not hesitate to determine the question as to who is the rightful owner of title to the office in question, either for the purpose of interlocutory or final relief.

If it be conceded that such rule has the support of authority, the complete answer is that in the case at bar there is no opportunity for its application. The complaint in this action, brought by a stockholder, sets forth no facts stating a cause of action cognizable in a ■ court of equity. Nothing is sought to be determined but the title to the office of one director. The order enjoins a person, a de facto director, under color of an election, from acting as such, and commands the recognition of another person whose resignation, under color of the action of the board, has been accepted, and this is all.

I do not think that the plaintiff is entitled to bring the'action at bar, nor do I think that the action is cognizable in equity. It is not an action in quo warranto, nor is it a summary proceeding to determine the election of directors, and therefore the order appealed from, not being authorized by either section 603 or section 604 of the Code of Civil Procedure, heretofore cited, must be reversed, with $10 costs and disbursements, and the application denied, with $10 costs and disbursements. All concur.