Geer v. Mathieson Alkali Works

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, 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 State of 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 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 have 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 orgaized 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 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 remeay 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.

Messrs. W. W. MacFarland, and MacFarland, Taylor, & Costello for appellants.

Messrs. Alfred Ely and Agar, Ely, & Fulton for appellees.

Mr. Justice McKenna, after stating the facts as above, delivered the opinion of the court: