NORTH AMERICAN LAND & TIMBER CO., Limited, v. WATKINS et al., 109 F. 101

SHELBY, Circuit Judge, after stating the case as above, delivered the opinion of the court. It is a general rule that courts of equity will not interfere in questions of corporate management or policy. They are reluctant to undertake the management of private corporations, and, in the absence of fraud, usurpation, or gross negligence and mismanagement equivalent to fraud, they generally refuse to interfere, and allow the majority of the stockholders to rule, leaving dissatisfied stockholders to redress their grievances by ordinary corporate methods. The complainant in this case is a minority stockholder.

He seeks to devest the directors, representing a majority of the stockholders, of the possession and control of the corporate business and property. He has obtained an ex parte order that has that effect. Ho ultra vires act is alleged in the bill, and there is no averment of fraudulent conduct on the part of the directors. It is not charged that either of the directors or the agent, Eastman, is acting fraudulently or in combination with the purchasers of the land. The real causé of the litigation is the sale by the directors, through their agent, Eastman, of 154,700 acres of land.

The purchase price was $3 an acre, amounting in the aggregate to $464,100. Of this the sum of $7,785 was paid in cash, and the remainder was to be paid in 12 months. It is not stated whether the deferred payment bears interest or not. It is hot alleged that P. Higgins, the purchaser, is insolvent. It is alleged, indirectly and not ■ positively, that the real estate sold is worth “many times the price” for which it has been sold. It is not averred, however, that any one has offered or is willing to pay more for it.

The bill shows that a high value is placed on the land by the complainant because of the discovery of oil 20 or 30 miles from it. t It is nqt averred that it has any value for farming purposes or for grazing, or on account of timber or otherwise, or that it has any rental value. Unless oil should be discovered on it, it is not apparent from the bill that it is worth more than the price at which it has been sold. Barring a general and indirect assertion of its value, no facts, are stated from which the court can determine its value, or that it is intrinsically worth more than the sum for which it has been sold.

What it cost the company is not averred, and it may be that the sale is for a Large profit on its cost. The company is organized to buy and sell lands. In addition to the land sold, it owns 545,300 acres in .Louisiana. If it be true that these lands are worth greatly over §3 an acre, it may be the honest opinion of the directors that it is to the company's interest to sell them for that price, no better price being' now offered, so that the development of the lands sold would increase the value of the lands retained by the company. This is a matter of corporate policy and management.

The price at which the company will sell its lands must necessarily he fixed by the directors, officers, or agents of the company selected by the stockholders. A minority stockholder should not, on the facts here alleged, be aided by the court to control the action of the directors, and himself be ’allowed to fix the price. The substantial controversy between the complainant and the defendant corporation, as presented by his bill, is as to the sale of these lands. But for that sale, and the probability of other sales, the bill would not have been filed.

The complainant thinks it greatly to the detriment of the company to sell the lands at ?3 an acre. The directors think that the sale at that price is to the company’s interest. In such controversy, in the absence of fraud and collusion, if the directors are acting within the power conferred on them by the charter, the courts cannot properly interfere. On such questions, under the circumstances presented, equity will not interfere with the legal corporate management.

While the courts in a proper case will protect the rights of a minority stockholder, they1 cannot interfere with the right of legitimate control by the officers representing a majority of the stockholders. This is certainly the course to be pursued when, on the ex parte statement of the complainant, it does not clearly appear that the action of the majority is now or will finally prove disadvantageous.

Even where the management of the majority appears to be unwise and injurious, equity will not interfere if such management be not dishonest or ultra vires, but ■will require the complaining stockholder to seek relief within the corporation. When the management is not shown to he fraudulent or dishonest, and when it is a matter of opinion whether it is wise; or unwise,, advantageous, or disadvantageous, if the acts complained of he infra vires, there is no authority for equity to interfere.

To do so would he to place the control indirectly in the hands of the minority whenever interference removes from control the officers selected by the majority. There is certainly no presumption that a minority stockholder is right, and a majority stockholder is wrong, in opinion as to the values and the management of the corporate property. On general principles of equity as administered in the courts, we do not think the bill makes a case which justifies the order appointing a receiver.

If facts existed which entitled the complainant, as a minority stockholder, to relief, so far as the land sales are concerned, he has sought and obtained a remedy which goes greatly beyond the necessities of the case. A receiver is appointed not- only for the lands, the subject of the controversy,' but f<>r 645,300 acres of other lands, and for the canal, pumping stations, steamboats, choses in action, and cash in bank, and all of the corporation’s property in Louisiana.

Equity would be greatly deficient in remedial procedure if there were no remedy less severe for the acts complained of, if they were of a character calling for the interference of an equity court.

To take a defendant’s property out of his possession and control after notice to him and after a hearing, in advance of a final trial, and place it in the hands of a receiver, is a jurisdiction that should be exercised wi-th great care, and with studious effort to avoid mistake and oppression; and to deprive him of the possession of his property without notice, on the motion of his adversary, is a jurisdiction and power that should be rarely used, and never except in a clear case of imperious necessity, when the right of the complainant, on the showing made by him, is undoubted, and when such relief and protection can be given in no' other way.

When notice can be given, it should be given, unless there is imminent danger of loss or great damage, or irreparable injury, or the greatest emergency, or when by the giving Of. notice the very purpose of the appointment of a receiver would be-rendered nugatory. And such instances are of rare occurrence in. the- federal courts, because of their power, when an injunction is asked for, to grant a temporary restraining order (Rev. St. U.

S. § 718), which may be served at the same time that the notice is served, to prevent action by the defendant o^ his agent, and to preserve the existing conditions until the application for an injunction and for-a'receiver can be heard.

But it is claiméd that, however this may be, as a question of general equity jurisprudence, the complainant is entitled to a, receiver under the laws of Louisiana; and our attention is called to the following statute authorizing the appointment of a receiver: “At the instance oí any stockholder or creditor, when the directors or other officers of the corporation are jeopardizing the rights of stockholders or creditors by grossly mismanaging the business or by committing- acts ultra vires, or by wasting, misusing or misapplying the property or funds of the corporation.” Acts La. 1898, p. 312 (Act No. 159, § 2).

It is true that the federal courts will administer any enlargement of,equitable remedies made by the legislatures of the states, with certain limitations,. not material to this case. Pine Co. v. Hall (C. C. A.) 105 Fed. 84. Without deciding whether this statute is really an enlargement of an equitable remedy, we may, briefly explain its provisions as applied to this case. It authorizes the appointment of a receiver at the suit, of a stockholder when the directors or other officers of the corporation are jeopardizing the rights of the stockholders in any one of three ways:

(1) By committing mitra vires acts. It does not appear that any act complained of here is ultra vires. On the contrary, the corporation is fully authorized to sell its real estate,

(2) By wasting, misusing, or misapplying the property or funds of the corporation. There are no specifications in the bill of waste, misuse, or misapplication of property or funds, within the fair meaning of the statute. (3)' By grossly mismanaging the business. The bill does allege the gross mismanagement of the business, but such general averment must be read in the light of the specifications which follow. The specifications are simply the sales, which do not meet the approval of the complainant, but which are approved and sanctioned by the directors.

The statute could not be intended to enable a minority stockholder to obtain a receivership, so as to enforce his view of the management and policy to be pursued, in opposition to the views of the representatives of the majority. The very terms of the statute indicate an adherence to the general equitable principles that the acts of the directors iritra vires would be upheld unless they amount to gross mismanagement, waste, or misuse of the property, thereby ■ jeopardizing the rights of the stockholders. The management and sales averred do not, we think, come within the meaning of the statute.

The averments show a difference of opinion as to the policy to be pursued, and it does not clearly appear that the action of the directors in making these sales will not finally be to the real interest of the stockholders. The laws of Louisiana permit a vendor to obtain a rescission of a contract of sale of real estate when it has been sold for less than one-balf of its just value. Merrick’s Rev. Civ. Code La. 1900, arts. 2589-2591.

It has been held that the right to rescind a sale for lesion beyond moiety is personal to the original purchaser, and cannot be maintained against a subsequent purchaser in good faith. Snoddy v. Brashear, 3 La. Ann. 569. It is therefore urged that the receiver was properly appointed to bring suit for the rescission of these sales, and properly appointed without notice, because the purchaser, if he had notice, might convey to a third person against whom the suits could not' prevail.

We will not consider the question of lis pendens, — whether or not a pending suit, without a receiver, would prevent a vendee of the original purchaser acquiring any better right than his vendor. Waiving that question, the complainant is met by the same difficulty that obtains in other views of the case. Should the court, at the instance of a minority stockholder, who does not allege fraud or dishonesty or ultra vires acts on the part of the directors, require suits to be brought which the directors do not approve?

Must the court assume the management and control of the sales and business of a corporation, which is managed without dishonesty or fraud, so as to enforce the views of a complaining stockholder in the rescission of sales approved by the majority? These statutes put no. new question in the case. The question remains whether the averments of the bill make a case for the interference with the control of the directors. It does not certainly appear that such suits for rescission would, if successful, inure to the benefit of the stockholders. No one has offered more for the land than it was sold for.

It is not averred to have a greater intrinsic value, as for farming, timber, grazing, or otherwise. It appears from the bill that, if it has a greater value, it is speculative, dependent on discoveries of oil in the land, which may or not be made. In the case of judicial sales it was not the practice to open the bidding on the mere sworn assertion that the land had not sold for enough. The court required facts to show that at a subsequent sale it would bring a larger sum.

It was the frequent practice, therefore, for the party seeking to open the bid-dings to make an increased .offer, and to make a deposit in court to show his good faith. 2 Daniell, Ch. Pl. & Prac. (4th Ed.) 1285. tíuch practice would, of course, not prevail in this case, but it showy that it was the experience of equity courts that sales should not be set aside merely because some party to the proceeding asserted the land had been sacrificed. The practice shows a variance of opinion as to values may be expected, and the courts could not safely vacate land sales on account of such differences of opinion.

In this case we have before us no statement that others' stand ready to give more for the land, nor have we any statement of fact showing that it is intrinsically worth more than the purchase price. As a court of equity would not, on such facts, so far as they relate to the purchase price, refuse to confirm a judicial sale, should the court, in opposition to the wishes of the directors representing the vendor, appoint a receiver to institute suits to rescind?

If it be conceded that the court by an interlocutory order can vest the right to bring such suit in a receiver of a solvent corporation, — a question not raised in argument, — we think the facts averred do not authorize such appointment. Our conclusion is that the bill contains no sufficient averments for dispensing with notice to the appellant of the application to appoint a receiver. High, Rec. (3d. Ed.) §§ 111, 112; Smith, Rec. § 5; State v. District Court of Silver Bow Co. (Mont.) 50 Pac. 852, 854; Gluck & B. Rec. § 16.

We also decide that the decree appointing a receiver of all of- the appellant’s property in Louisiana was not proper, on the averments of the bill. 4 Thomp. Corp. § 4487; Smith, Rec. § 5; Coal Co. v. Hooper, 105 Ala. 665, 17 South. 118; Edison v. Phonograph Co., 52 N. J. Eq. 620, 29 Atl. 195; United Electric Securities Co. v. Louisiana Electric Light Co. (C. C.) 68 Fed. 673, 676.

The order appointing a receiver and the restraining order herein are reversed and annulled, and the receiver appointed is discharged, and he shall forthwith turn over and deliver to the appellant, the North American Land & Timber Company, its authorized officers and agents, all property of every kind, including moneys, that may have come into his hands as said receiver; and this cause is remanded, with instructions to pass upon the receiver’s accounts and compensation; all costs and the expenses of the receivership to be paid by the complainant. Reversed.