Summary
In Aldrich v. Union Bag and Paper Co., 81 N.J. Eq. 244, the chancellor felt that under the special circumstances of that case no injunction should go or receiver be appointed.
Summary of this case from Long v. Lambertville Rubber Co.Opinion
04-19-1913
ALDRICH et al. v. UNION BAG & PAPER CO. et al.
Richard V. Lindabury, Robert H. McCarter, and James Boyd Potter, all of Newark, for complainants. John J. Treacy and Gilbert Collins, both of Jersey City, and Thomas Thacher, of New York City, for defendants.
Action by Sarah S. Aldrich and others against the Union Bag & Paper Company and others. On an application for preliminary injunction and an appointment of a receiver pendente lite. Application denied.
Richard V. Lindabury, Robert H. McCarter, and James Boyd Potter, all of Newark, for complainants.
John J. Treacy and Gilbert Collins, both of Jersey City, and Thomas Thacher, of New York City, for defendants.
WALKER, Ch. The bill in this case was filed by certain stockholders of the defendant company owning and holding, in the aggregate, 1,562 shares of its preferred stock and 900 shares of its common stock, on behalf of themselves and such other stockholders as should come in and contribute to the expenses of the suit. On the hearing of the order to show cause hereinafter mentioned, a petition of certain other stockholders owning 3,809 shares of the preferred stock of the company and 346 shares of its common stock was preferred, praying that they might be admitted as parties complainant, and allowed to appear in aid of the prosecution of this suit, and an order was made accordingly. It thus appears that this suit is being prosecuted by the owners of 5,371 shares of the preferred stock and 1,246 shares of the common stock, in all 6,617 shares. The total amount of the authorized capital stock of the corporation is $27,000,000, divided into 270,000 shares, of which $11,000,000 is preferred stock and $16,000,000 is common stock. By the last annual report of the company (1912) it is shown that all of this stock is actually issued and outstanding. Thus it appears that a very small proportion of the stockholders of the defendant company are engaged in prosecuting this suit, and, while that, in and of itself, is, of course, no bar to relief, it is pertinent upon the question of balancing equities; that is, upon the question whether greater inconveniences and loss will come to the complainants or defendants in the granting or withholding of preliminary relief. It is but just to add that such of the defendants as are natural persons are themselves the holders of a comparatively small number of shares of the company's stock, but the corporation itself may be said, in a certain sense, to represent, on this application, the other stockholders who have not become personally involved in this controversy, and they are the vast majority. The company certainly represents them in the sense that their holdings represent proportionally the assets of the company. An injunction to preserve a status quo would be for their benefit, but one to disturb such status in the manner sought by the bill would apparently affect them and the company injuriously. There is a very great difference as to whether an application for an injunction is for a preliminary or a permanent one granted only after final hearing.
The company is engaged in the manufacture and sale of paper bags, paper, and pulp, and also in the sale of wood on a very extensive scale and over a wide area. It isalleged that the directors and officers of the company at the present time have practically no financial interest in the affairs of the company; the entire board, including office, s, owning about 4 per cent. of the capital stock, three of the directors owning no shares whatever, so far as the records disclose. The gravamen of the bill is that the affairs of the company have been so mismanaged that the dividends on the preferred stock have fallen from 7 per cent. cumulative provided for in the charter to 4 per cent; the last divdends having been passed and no dividend having ever been paid upon the common stock. A salient averment is that the directors have conducted the business for the benefit of themselves at the expense of the company by dividing up the country into selling districts and creating selling agencies who have the right to sell its products in those districts at exorbitant commissions; and in practically all, if not all, of the cases, the agency is a partnership or corporation, one of whose members is a director of the defendant company. The prayer of the bill is that the management of the corporation may be taken from its present board of directors and put in charge of a receiver until an honest and capable board can be selected and chosen, and that the agent-directors may be compelled to account and pay into the defendant company all moneys and commissions unlawfully and fraudulently received by them in the conduct of the company's business, and that the agency contracts may be set aside, and that an honest and indifferent board of directors may be selected and put in charge of the company's affairs, or else that it may be wound up and its assets distributed before they are entirely wiped out, and also for an injunction against the company and its officers and directors restraining them from acting as such until the further order of the court, and also directing them forthwith to hand over to a receiver to be appointed the management and conduct of the company's affairs, and for further or other relief.
On the filing of the bill and affidavits and exhibits annexed, an order was made on the defendants requiring them to show cause why an injunction should not issue and a receiver be appointed as prayed for in the bill of complaint. On the return of the order to show cause, the matter was heard upon quite voluminous affidavits and exhibits presented on both sides, followed by exhaustive arguments by able counsel. Since the hearing I have given the matter much consideration and have arrived at the conclusion that the application for a preliminary injunction and the appointment of a receiver pendente lite must be denied.
This is not an application for the appointment of a receiver for an insolvent corporation under section 65 of the corporation act (Comp. Stat. p. 1640; amended P. L. 1912, p. 535). It is, on the contrary, an application for the appointment of a receiver of a company whose directors are alleged to have been guilty of fraud and gross mismanagement. I decide nothing on this question, and it would be purposeless to review the evidence on either side. In any aspect of the case it does not appear that the complainants will suffer irreparable injury unless granted the preliminary relief they seek. The condition complained of is the culmination of acts extending over a period of years, and no harm, certainly no serious harm, can come to the complainants by waiting the few months which may elapse between this time and the time of final hearing.
It has been decided again and again that a preliminary injunction should not be awarded unless from the pressure of urgent necessity and unless also the injury to be prevented pendente lite will be irreparable. This court was recently admonished by the Court of Errors and Appeals in McMillan v. Kuehnle, 78 N. J. Eq. (S Buch.) 251, 78 Atl. 185, not to award preliminary injunctions except to prevent irreparable injury. This cause, in its present posture, does not call for extraordinary relief. For the same reason that a preliminary injunction will not issue in this case a receiver pendente lite ought not to be appointed.
Another thing: To grant a preliminary injunction and appoint a receiver pendente lite in this cause would practically amount to giving the complainants the full measure of relief to which they may be entitled on final hearing, and, as I understand it, courts do not grant such relief. See Nat. Docks Ry. Co. v. Penna. R. R. Co., 54 N. J. Eq. (9 Dick.) 10, 33 Atl. 219; Penna. R. R. Co. v. National Docks Ry. Co., 53 N. J. Eq. (8 Dick.) 178, 194, 32 Atl. 220.
The conclusion I have reached is that the interlocutory injunction and receiver pendente lite prayed for should be denied and the order to show cause discharged. The matter has been sharply litigated, and under the usual rule the defendants are entitled to costs.