On the authority of
Conley v. Mathieson Alkali Works,
ante, p.
190 U. S. 406, the
service of a summons in New York on a director of a foreign
corporation not transacting business in that state
held
insufficient.
In an action brought in a state court by citizens of one state
against two corporations, citizens of another state, and the
directors thereof, some of whom are citizens of the same state as
the plaintiff, for the purpose of setting aside a conveyance made
by one defendant corporation to the other, the action may be
severable as to the conveying corporation, and if it is so, and as
to the cause of action alleged against it, its directors are not
necessary parties, it may remove the action as to it into the
Circuit Court of the United States.
This is an appeal from an order dismissing appellants' bill for
want of due service of process.
The suit is in equity, and was commenced in the Supreme Court of
the State of New York to set aside the conveyance made by the
Mathieson Alkali Company to the Castner Electrolytic Alkali
Company, on the ground that the conveyance was fraudulent. The
directors of the former company were made defendants. On the
petition of the defendant companies, the case was removed to the
Circuit Court of the United States for the Southern District of New
York on the ground that the controversy was wholly between citizens
of different states, and separable as to them. The appellants made
the motion in the circuit court to remand the case to the state
court, but the motion was denied, the circuit court saying:
"Whatever relief the complainants may be entitled to against the
directors upon the facts alleged, they would, as to the two
corporations, be entitled to a decree for retransfer of the
property, and an accounting for damages sustained by the transfer.
This is a controversy separable from the one between complainants
and the officers and directors who effected the transfer,
Page 190 U. S. 429
and citizenship of the parties to that separable controversy
being such as the statute contemplates, the motion to remand is
denied."
The Mathieson Alkali Works (which we shall designate hereafter
as the Mathieson Company) then moved the court to set aside the
summons and the service thereof on the ground that it, the
Mathieson Company, was at the time of the service of the summons, a
foreign corporation, and at that time, and for some time before,
had no place of transacting business in the New York, and
transacted no business therein. Affidavits were presented on the
motion, and it was granted.
The appellants were plaintiffs in the court below, and we will
so call them. They are stockholders in the Mathieson Company. Some
of them are citizens of the State of New York, some citizens of
states other than Virginia, and some citizens of Great Britain and
Ireland. It is alleged that the defendant corporations are Virginia
corporations, and that each has an office and place of business in
the City of New York, and that all but two of the directors of the
Castner Electrolytic Alkali Company, hereafter called the Castner
Company, resided there, and that the property, to recover which the
suit is brought, is situated in the State of New York.
The purpose of the Mathieson Company was to manufacture salt,
soda, soda ash, bleaching powder, and other minerals, and to carry
on a general merchandise business and engage in agriculture and
stock raising.
The bill is very voluminous, and it is enough to explain the
contentions in the case to say that it recites the organization and
history of the Mathieson Company, the erection and operation by it
of a manufacturing plant at Saltville, Virginia, the leasing by it
from the Niagara Falls Power Company of land and power at Niagara
Falls, and the establishment of a plant there for the manufacture
of the commodities mentioned in the charter of the company, and the
carrying on of a profitable business. The bill alleges, on
information and belief, that the defendants Arnold and Wilson are,
respectively, the president and financial agent and manager of the
company; the defendants Agar and Ely, their attorneys; Gladding, an
employee of
Page 190 U. S. 430
some sort, and the directors other than Arnold and Wilson are
dummies, without substantial interest in the company. That Arnold
and Wilson have conducted the affairs of the company with great
secrecy, and for their own interests; that Arnold is a member of
the firm of Arnold, Hoffman & Co., dealers in chemicals, in the
City of New York, and by arrangements nominally between the firm
and the company, but really between Wilson and the firm, the latter
has had the exclusive sale and disposition of the products of the
company since the organization, the details of which the plaintiffs
are ignorant, because they have been kept secret from the
stockholders. That, though dividends have been earned, none has
been declared or paid, but have been appropriated by Arnold and
Wilson. That they, with the other directors, have confederated and
conspired to fraudulently dispose of and do away with substantially
all of the property of the company, and have attempted to do so by
means of the conveyance to the Castner Company, set out in the
bill, and, to better conceal their acts, have obtained no
certificate from the secretary of state or designated any person
upon whom process can be served. That the Castner Company was
promoted and organized by the defendants Arnold and Wilson, and is
controlled by them, and they are chiefly interested in its affairs.
That plaintiffs only obtained knowledge of the existence of that
company within the past few days, and of the conveyance to it, but
have no precise knowledge of its affairs, and believe that the
great body of the stockholders of the Mathieson Company are
ignorant of the existence of the Castner Company or of the
conveyance to it. That, by a communication from the secretary of
state, it appears that the Castner Company was incorporated April
30, 1901, under the laws of Virginia, and that its officers
consisted of a president, vice-president, and seven directors, and
a provision in the articles of incorporation show that the
defendants Wilson, Arnold, and Agar are directors, and that Richard
T. Wilson, Jr., a son of the defendant Wilson, is also a director.
It is alleged that the other officers and directors are mere
servants and instruments of the defendants Arnold and Wilson, and
they created and organized the Castner Company as a means and
contrivance to cheat and defraud the creditors
Page 190 U. S. 431
and stockholders of the Mathieson Company by means of the
conveyance to the Castner Company. The conveyance is set out in
full. It recites that it is executed for and in consideration of
one dollar, and other valuable considerations, and purports to
convey certain patent rights and all of the property of the
Mathieson Company in the State of New York. The bill also alleges
the property conveyed was delivered to the Castner Company, and it
is in the possession thereof; that the patents and property
conveyed are "essentially necessary" to enable the Mathieson
Company to carry on the business for which it was organized, and
their conveyance in effect wholly destroys the business of that
corporation and renders its capital stock utterly worthless, and
deprives the creditors of the corporation, of whom there then were
and are a large number, and for a large amount in the aggregate, of
all remedy for the collection of their debts. That the conveyance
is
ultra vires, and the defendant directors are trustees
and agents of and for the stockholders, and had no power to convey
away the property and patents of the company essential to the
carrying on of its business. And, by reason of the facts alleged,
the defendant directors are unfit persons to have the charge and
management of the affairs of the company, and that a receiver of
the corporation should be appointed, and the defendants enjoined.
That, for the reasons set forth, plaintiffs have not applied to the
defendant The Mathieson Company to bring this action, being advised
that its directors
"would not be proper persons to prosecute an action in the name
of the company, which was practically an action to redress frauds
they themselves had committed."
The specific relief asked is stated in the opinion.
MR. JUSTICE McKENNA, after stating the facts as above, delivered
the opinion of the Court.
The facts and arguments by which it is attempted to sustain the
service on the Mathieson Company are the same as
Page 190 U. S. 432
were presented in the case of
Conley v. Mathieson Alkali
Works, decided May 4 of this term,
ante, p.
190 U. S. 406. On
the authority of the case, the service in this must be held
insufficient to give jurisdiction of the Mathieson Company, and the
order of the circuit court setting aside the service of summons
must be affirmed if the case was properly removed to that court.
And this depends upon the question whether the complaint exhibits a
separable controversy between the plaintiffs and the companies.
A suit may, consistently with the rules of pleading, embrace
several distinct controversies.
Barney v. Latham,
103 U. S. 212.
It was said in
Hyde v. Ruble, 104
U. S. 409:
"To entitle a party to a removal under this clause [second
clause of section 2 of the act of 1875, same as second clause in
the act of 1887], there must exist in the suit a separate and
distinct cause of action in respect to which all the necessary
parties on one side are citizens of different states from those on
the other."
In other words, as expressed in
Fraser v. Jennison,
106 U. S.
194,
"the case must be one capable of separation into parts, so that,
in one of the parts, a controversy will be presented with citizens
of one or more states on one side, and citizens of other states on
the other, which can be fully determined without the presence of
any of the other parties to the suit as it has been begun."
And when two or more causes of action are united in one suit,
there can be a removal of the whole suit on the petition of one or
more of the plaintiffs or defendants (now only the defendants)
interested in the controversy which, if it had been sued on alone,
would be removable.
Hyde v. Ruble, 104
U. S. 409.
See also Ayers v. Wiswall,
112 U. S. 187. The
application of these principles to the case at bar will be seen by
the relief prayed for.
The relief prayed against the companies is as follows: against
the Mathieson Company, that the conveyance in its name be adjudged
fraudulent and void, and that the same be annulled; that a receiver
of its works be appointed; that its directors be enjoined from
making any further disposition of its property; that it be required
to make a full disclosure in respect to all of the premises set
forth and alleged, and that
Page 190 U. S. 433
the complainants have access to all books, records, and papers,
including the stock book. Against the Castner Company, that it may
be required to account for all acts and doings in the premises set
forth; to make good and pay all of the damages sustained by
complainants to the Mathieson Company by reason thereof; that it be
adjudged to reconvey the property so wrongfully conveyed to it in
the name of the Mathieson Company; that it account for and pay all
of the income, earnings, and revenue of the property since the date
of the conveyance.
To the relief asked against the companies, were the directors of
the Mathieson Company necessary parties? In
Winch v.
Birkenhead, Lancashire & Chesire Railway Co., 5 De G.
& Sm. 562, it was held, in a suit by a stockholder of the
corporation in behalf of himself and all other stockholders, to
restrain the performance of an
ultra vires agreement, that
it was not necessary that the directors should be made parties. It
was said by the Vice Chancellor:
"The act that is sought to be restrained is the act of the
company. It is quite sufficient if there is an order restraining
the company. The company itself cannot act except by means of its
officers. It appears to me that the suit is properly framed by the
relief being sought against the company alone."
Hatch v. Chicago, Rock Island & Pacific Railroad
Company and
Same v. Same, 6 Blatch. 105, were suits
brought by the plaintiff in each in behalf of himself and all other
stockholders of the defendant corporation, to restrain it from
executing a contract which was alleged to be in excess of its
powers. The plaintiff was a citizen of New York. The suits were
brought in the Supreme Court of the State of New York. The
individual defendants were directors of the corporation, and
resided in the State of New York, except one, who was a citizen of
the State of Illinois. In the second suit, one Denham was made a
party, who was the treasurer of the company, but not one of its
directors. His citizenship does not appear. The plaintiff in the
second suit alleged that the committee of directors had determined
to close the transfer office of the company in the City of New
York, and to remove all of its books, moneys, securities, and
property beyond the jurisdiction of the
Page 190 U. S. 434
court; that the defendants had refused to permit any transfer of
the shares of stock on the books of the company. Judgment was
prayed in the first suit for an injunction against the execution of
the illegal contract, and of the acts which were alleged to be
contemplated in the performance thereof. In the second suit,
judgment was prayed for the same injunction, and an injunction
against the other acts alleged. On the petition of Tracy and the
company, the cases were removed to the circuit court for the
Southern District of New York, and a motion was made to remand. The
motion was heard by Mr. Justice Blatchford, who was then United
States district judge, who said:
"These suits therefore are suits brought in the State of New
York, by Hatch, a citizen of New York, against the members of the
company, all of whom are citizens of the state which created the
company, and which is a state other than New York, and against
Tracy, a citizen of Illinois, and against other defendants, who are
citizens of New York."
And describing the suits, said further:
"All the relief that is prayed for in either suit is by
injunction, except the prayer in the first suit for a receiver. All
the relief by injunction is prayed for in respect to all of the
defendants. No such relief is prayed for in respect to any
defendant other than the company that is not prayed for in respect
to the company. The suits are really, both of them, wholly against
the company alone. The directors and the treasurer, who are its
codefendants, are merely its servants and agents, through whom
necessarily it acts. It was not necessary or proper to make them
parties to the suit at all. The injunctions prayed for and the
injunctions issued, if issued against the company alone and served
on any director, or on the treasurer, would bind the person so
served to obedience, and, even without such service, knowledge by
the officer of the existence of the injunction against the company,
would bind the officer to obedience.
People v. Sturtevant,
9 N.Y. 263, 277. The directors and the treasurer are therefore not
real parties to the suits, but merely nominal parties. No personal
demand is made against any one of them, nor is any personal
accounting
Page 190 U. S. 435
asked from any one of them, and it is only in his relation to
the company, and in the official position that he occupies toward
the company, that any one of them is made a party. The test of this
is that, if any one of the directors or the treasurer were to
resign his office, he would necessarily cease,
ipso facto,
to be a proper party to the suit, and the plaintiff would be
obliged to make his successor in office a party, and so on with
every change. The reason for this would be that, there being no
relief prayed against the individual in his individual capacity,
and the injunction asked being to restrain him merely from doing or
not doing what his official relation to the company alone enables
him to do, or to refrain from doing, when such official relation
ceases, the relief asked and the injunction issued become, as to
him, utterly futile. This would not be the case where he was made a
party defendant, jointly with the corporation of which he was an
officer, for the purpose of obtaining some specific relief against
him on a personal liability, or in order to obtain a discovery from
him in regard to matters peculiarly within his knowledge. There,
the dissolution of his official relation would not affect the
propriety of his being retained as a defendant. This view is
conclusive to show that the entire real controversy in both suits,
so far as it is shown by the prayer of the complainants, and which
is the only guide the court can have, is between the plaintiff on
the one side, and the company, as a corporate body, on the other.
The plaintiff cannot, by joining as nominal defendants with the
corporation, persons who are citizens of the same state with the
plaintiff, deprive the corporation of any right which it would
otherwise have in respect to removing the cause into this
Court."
Heath v. Erie Railway Company came up before the same
learned justice, and is reported in 8 Blatch. 347, 8 Blatch. 347,
413. It was a suit by stockholders against the railway company and
Jay Gould, James Fisk, Jr., and Frederick A. Lane, who were
directors of the company. The object of the suit was to restrain
ultra vires acts. The bill prayed for an injunction, for a
receiver, for an accounting by Gould, Fisk, and Lane of the profits
made by them, and that they
"make payment and compensation to the company, for the benefit
of the plaintiffs and the
Page 190 U. S. 436
other
bona fide shareholders, to the full extent of all
such profits, benefits, gains, and advantages, and of all such
damages, losses, and injuries."
The bill was demurred to on the ground, among others, that the
other directors, fourteen in number, were not made parties to the
bill. The court overruled the demurrer. The main part of the
opinion, which was very elaborate, is devoted to the consideration
of the right of the stockholders to maintain the suit, which right
was sustained on the authority of many cases. Of the ground of
demurrer that the other directors had not been made parties, the
court said:
"The objection that such fourteen persons ought to be made
parties, as appearing to have been directors when the bill was
filed, for the reason that the bill asks for an injunction against
the corporation, and for a receiver of the corporation, is not well
taken. The relief so asked is against the corporation. If such
fourteen persons were made parties, they would be merely nominal
parties, and not real parties, in respect to any relief that is
asked against the corporation, and no relief is asked as against
them, except in respect to the matter of the classification, which
has already been disposed of. This question was fully considered in
the case of
Hatch v. Chicago, Rock Island & Pacific R.
Co., 6 Blatch. 105, 114-116."
It was, however, said by Lord Cairns in
Ferguson v.
Wilson, L.R. 2 Ch. 77, 90, and it was held in
Clinch v.
Financial Corporation, L.R. 4 Ch. 117, that it was proper in a
suit by a stockholder to restrain
ultra vires acts of a
corporation to join as defendants the directors of the corporation.
This ruling is reconcilable with the other cases. The
reconciliation lies in the distinction between proper and
indispensable parties in view of the statute providing for the
removal of causes to the federal courts.
Barney v. Latham,
103 U. S.
212.
But relief is prayed against the individual defendants as
follows:
"That the individual defendants, directors of the said Mathieson
Alkali Works, may be compelled to account as agents and trustees of
the said company for all their acts and doings in the premises
above set forth, and that they may severally and respectively be
adjudged and required to make good and pay
Page 190 U. S. 437
to the said Mathieson Alkali Works and to the plaintiffs all
loss and damage caused by their wrongful conduct in the premises as
hereinabove set forth."
If it be conceded that, in a suit which seeks such relief, the
Mathieson Company is a necessary party, it is certain the Castner
Company is not. Besides, the relief is distinct from -- separable
from, to keep to the language of the cases -- that which is sought
as a result of the grounds of suit against the companies.
It follows from these views that the bill exhibits a controversy
between the plaintiffs and the defendant companies, to which the
individual defendants are not necessary parties, and the case was
rightfully removed to the circuit court.
The order of the latter court setting aside the service of
summons on the Mathieson Company, and dismissing the bill for want
of jurisdiction of that company, is
Affirmed.
