Opinion
10-05-1903
SCHOENFELD v. AMERICAN CAN CO. et al.
Jacob Erb, S. H. Richards, and Thomas E. French, for complainant. R. V. Lindabury, for defendants.
Suit by Frank Schoenfeld against the American Can Company and others for an injunctionto restrain the payment of a dividend on defendant's preferred stock, etc. Order to show cause dismissed.
Jacob Erb, S. H. Richards, and Thomas E. French, for complainant.
R. V. Lindabury, for defendants.
GREY, V. C. (orally). This matter can and ought to be settled without delay, and, as it is presented to me, may be disposed of upon the proofs and argument submitted on the part of the complainant. The bill of complaint is filed by the owner of 300 shares of the common stock of the American Can Company, and asks a reduction of the capital stock of the company on the ground that the company was fraudulently organized; that the property which was transferred to the company in exchange for the issue of its capital stock was fraudulently overvalued, and for an accounting incidental thereto; and that the individual defendants, who were promoters of the company, may be decreed to deliver up all such capital stock held by them as has been fraudulently received, without value paid to the company, and to pay for all such stock as they may have transferred; that the books of the company may be brought into this state, and the defendant afforded an opportunity to examine them; and, lastly, that a preliminary injunction be issued, restraining the company from the payment of a dividend on the preferred stock Which it has announced its purpose to pay on the 30th of September, 1903. The bill also contains a prayer for general relief. The bill was filed on September 25, 1903. It is supported by two affidavits—one made by the complainant, and the other by his counsel, Mr. Erb. An order was issued, returnable to-day, September 28th, calling upon the defendant company to show cause why a preliminary injunction should not issue to restrain the payment of the dividend announced to be paid on September 30, 1903, upon the preferred stock of the company. The company responds by filing counter affidavits. The single question here to be considered is whether such a preliminary injunction should be granted. It is entirely settled that, in order to be entitled to a preliminary injunction, the complainant must establish his equity by legal evidence, and must also show that he will suffer irreparable injury unless the defendant is restrained from doing the act regarding which the preliminary injunction is sought. In the present case the defendant company gave notice on September 1, 1903, that on September 30, 1903, it would pay a dividend upon its preferred stock. The pertinent allegations of the bill touching this matter are that the capital stock of the company was fraudulently overissued; that it has since been seriously impaired; that the money about to be used for the proposed dividend to the preferred stockholders is not in any proper sense profits earned in the company's business; that, if it is, it should be used to restore losses which have vitally lessened the company's capital. The proof submitted in support of this claim is the complainant's own affidavit in formal verification of the bill. Nothing in the bill of complaint itself, or in the complainant's affidavit annexed thereto, shows that he was a participant in, or actually acquainted with, any of the various incidents by which the alleged lessening of capital or failure to earn profits came to happen. Not a single circumstance is narrated which shows that he ever stood in any such relation to any of the alleged wrongdoings of the company's officers that he can speak touching those matters from his personal knowledge. The other affidavit is that of the complainant's counsel, and addresses itself to alleged admissions made by the president of the defendant company within the last few days in a conversation had in New York. None of these are of sufficient weight to justify the issuing of a preliminary injunction, and, so far as they attempt to show that the proposed dividend has not been earned, they are fully met and contradicted by the affidavits of the president and the accounting officers of the defendant company. The order to show cause is therefore not sufficiently sustained by the proofs submitted by the complainant, and I am quite satisfied upon this more careful examination that I ought not to have allowed it. The application should fail because the complainant has not supported it with sufficient evidence. When the defendant's affidavits in reply are read, they meet all the complainant's proofs, so far as they set up any matter which can be considered on this preliminary application, and refute them.
There is also an entire failure on the part of the complainant to show that he will suffer irreparable damage if the preliminary writ asked for is not allowed. The wrong alleged is that the directors of the defendant company are about to pay a dividend which has not been earned in net profits. If this be true, a full and adequate remedy is afforded by section 30 of the general corporation act (P. L. 1896, p. 287), which provides that in such case the directors shall be jointly and severally liable to the corporation and its creditors for the full amount of any dividend so paid. There is no showing that the directors of the defendant company are insolvent or financially irresponsible, nor is there in this bill of complaint any showing that the statutory remedy is inadequate to correct the alleged wrong.
It is argued that the statutory remedy is reserved to the corporation and to creditors, and that the complainant is neither the corporation nor a creditor, but only a stockholder. It is, however, the law that if those officers of a corporation who may control the use of its name in a litigation act in fraud of the company, so that it has a right of suit against them, their action in consenting toor directing the use of the corporation name is in such a case not necessary. Any stockholder may exhibit his claim for relief. Such a course of procedure, based on section 30 of the general corporation act, was sustained by the Court of Appeals in the case of Appleton v. Am. Malting Co. et al., 54 Atl. 454. This bill of complaint might be readily amended to invoke on final hearing the application of the remedies proffered in section 30 of the corporation act.
It should, I think, be noticed, that extended public notice was given on September 1, 1903, that the dividend on the preferred stock of the defendant company, the payment of which the complainant now asks to have enjoined, would be paid on September 30, 1903. It is hardly possible that the complainant, though a holder of common stock in the company, escaped notice of this publication. Yet his bill of complaint seeking to restrain payment of this dividend was not filed until September 25, 1903—a period so shortly before the day fixed for payment of the dividend that it would be very difficult for the defendant company, if called upon to respond to a bill properly supported by proof, to answer it in time to have a hearing and decision before the day of payment would have arrived. A preliminary restraint ought not to be allowed where the complainant delays application to a time when, if granted, it would be an unreasonable hardship to the defendant.
The order to show cause should be dismissed.