BA.RR
fl. PITTSBURGH PLATE GLASS 00.
33
BARB fl. PITTSBUBGH PLATE GLASS
Co. et al.
(C(rcuU Court, W. D. Penn81llivainia. May 9, 1892.)
No. 22. L Directors, who are also omcers, of a manufacturing corporation, If acting In posl. tlve good faith to the corporation and their costockholders, are not precluded from engaging in the building and operation of other distinct works in the same general business, (here the manufacture of plate glass,) and they do Dot stand, in respect to said works, in any trust relation to the corporation. A stockholder in a manufl¥'turing corporation with hiB own funds bought land, and began the erection of independent works. He was joined In the enterprise by a director of the company. Both were acting in good faith to the col'p9ration. A consolidation of the new works with those of the corporation was effected OD a .tock basis upon terms approved by the unanimous vote of a stockholders' meeting; the plaintiff himself voting in favor of the scheme. Two years later,dissatisfac. tion being expressed by sOme Itockholders, the former owners of the new works offered to rescind the transaction, but the stockholders, by a practically unanimoull Tote. 'declined. The plaintiff, by his subsequent bill, sought to exaot terms more to the corporation. Held, that neither the corporation nor the plaintiff had any Ilqutty to IUpport such a demand. ' The directors and one other stockholder of a manUfactUring corporation, owning among themselves a majority of tho stock, conceived that the demands of trade required the erection of additionai works. which they desired the corporation to build, but the project was defeated by minority stockholders. The projectors then proceeded w,iththoir own funds to build indePllDd,ent works. Bad faith to the corporation was not imputable to any of them. When the works were nearing completion the corporation bought them upon terms not unconscionable In themselves, ,and which had been approved by a stock vote of 16,706 to 1,174'Bha1'eB. The vendors, desiring to have the question decided by the minority stockholders, withheld their own votes until a large majority of the other stockholders had voted in favor of the purchase, and then cast their votes with the majority of the minority. The plaintiff, am,inority stockholder, by his bill Bought not a rescission of the contract, but to reduce the vendors' profit. HeW, that neither he nor the corporation was entitled to relief. BUIlINB88.
.. BAilE-EQUITY.
MIIB.
In Equity. Suit by Samuel F. Barr against the Pittsburgh Plate Glass Company and others. Bill dismissed. For former report, see 40 Fed. Rep. 412. S. Schoyer, for complainant; D. T. Watson, for defendants. ACHESON, Circuit Judge. This bill was filed on May 8, 1889, by Samuel F. Barr, who owns 198 shares out of a total capital of 20,000 shares of. the stock of the Pittsburgh Plate Glass Com pany, which company was incorporated to manufacture plate glass in Allegheny county, Pa., and erected its works at Creighton. It is a stockholders' bill seek. ing relief, on behalf of the corporation, against J. B. Ford, Edward Ford, Emory L. Ford, Artemus Pitcairn, and John Pitcairn, Jr., and was filed by said plaintiff oil the ground that the last-named defendants, as directors, officers, and majority stockholders, control the corporation" and prevent a suit by the corporation itself. The bill charges that these defendants-all of whom, except J. B. Ford, were directors of the company-,.entered into a combination and oonspiracy to erect atTarentum , in said oounty, about one half mile above the plate glass works at Creighton, eimilar works of greater capacity, and to compel said company to purv.5b.no.2-3
chase the Bame at such price as they should name, in order to prevent and destl'uctive compEltttiM,;therefirolll r and, that accordinga ,yonstitutingamaJoritY,ofthe stock,they did force ly, by their the company th the same atan excessive price, namely, 10,000 shares of the capital stock of thecoftl'IJany, of the par value of $1,000,in .. further that the same defelldants·have enteredmto a and conspuacy at Fordpit,Y" county, Pa.,and to compel the company t(),purchase,the same at such price as they may see fit, it to of the menace of !:,uinous competitwn which; would Tlla(they have proposed to sard fOf$JPP,OQO{)f its mortgage bonds and 8.750.000,\()f stock atpa.r..lJt}llch stockcommauc:iB a, large preminni1' cost,asthe plaintiff Ul irifoJ,'medjl.lld more tb!\Q81,OOQ;OOO. That said defendants filling the offices of presthathy their ubdue ,influence, 'haveprooureda' vote authorizing the acceptance of. theil', ,to to procure an amenclment:of its 'charter' to enable the company to carryon business in otliercogrities is the substance afthe complaints . ". : set forth in the bill.' The',p'r,@fsareunusnaUy>yolumiri'bq:s, 'and cappot be 4ererecited with any ty, without . this, opinion to anunreason.a.ble length;" I m'ust then' con'tent'mysel'hvith a'mereslaterilentof the.tnaterial facts as I find them from the evidence. with the conclusions I have reached. It appents thaittbe defentJtalll.tCapt. J. B.,Ford,acting for himself, purchaSEld land:l;l.t Tarentum. with: a view of erecting thereon plate glass works, and in 1885, after the Creighton works were in successful opera.tion, commenced clearing the land forbuildillg. ,This was done by him without consultation wiMl,!ot the knowledge of, anyone of the other defendants. When the defendants Edward and Emorv L. FdTd'his sons, learned'rif their father's''intention, they endeavored to dissuade him, mainly ibecause of his which was then 74 y,ears; but he: remainedfuted in his, purpose. John Pitcairn also remonstrated with:hiIn agaillsthis in vain. ,Capt. Ford took plate glass busineSs VI'llS a new and growing indu&the tryrin the 'United r States, and that the.. plate glass was largely in,excess of the honie' supply; that Creighton' could not fill its orders, aEJd.the Tarentum works 'would not come into unfriendly competition with :the Creigb,ton: worklll'j')hor 'at all 'injur.ethePittsburgh Plate Glass Company.Undoubtedlyl theseviewEi were, honestly entertained by Capt. Ford. He was a ,}arge"lIltookholder in 1;hePittsburgh Plate Glass Com;: His (twv' sons were also stockholeJers therein. It would then be unrea.sonable to.suppose that he intended to injure the company. Tam entirely from tlwevidence in good now in office. the last three
BARR
V.
PtTTSBURGH PLATE GLASS CO.
35'
faith to the company :tohis .. .1ohnrlteairn Having failed to turn Capt: Ford his.purpose,'with the approbation: of sever,al of the principal stockholders in said' company, in. order to pre-. vent the possibility of the Tarentum works falling into hands less to, the old companr, on October 6, 1885, entered in.to a w'ritten agreeme'n't with Capt·. Ford to take a half interest with hifil in the new enterprise.' I find that in so doing Mr. Pitcairn acted in entire good faith. towards his associates in the Pittsburgh Plate Glass Compariy'. When the Tarentum works were approaching cOlIlpletion, J.ohn $cott,R large stockholder and a director in said cdmpap,y, who had 'no other connection a movement for the acquisition byihe with thedeJEmdants, company of tbe new works, or the consolidation of the two concerns. As the result of Mr. Scott's interposition, and. at his after ).wgotiations betweeI). him and Capt. Ford and John Pitcairn, the t,wo latter submitted, an offer in writing to the board of directors of the c0nipany for the sale of the Tarentnmworks to the company. At a meeting of the board on July 2, 1886, on the motion of John Scott, the board recommended the acceptance of the offer, and called a meeting of the st9ckholders for September 6, 1886, to consider the matter, and act thereon. Pursuant to proper notice, a stockholders' meeting waS held on, September 6, 1886. During thediscllssion which took place, Capt. Ford and John Pitcairn were asked to state the cost of the Tarentum works, but this they publicly refused to do, upon the ground that the basis of the proposed consolidation was the capacity for production of the two works. They, however, made a modification, favorable to the company, of their otfer,which then was substantially this, namely: That Creighton should represent a capital stock of $800:000, subject to a mortgage of $134,000, and Tarentum should represent a capital stoGk of $1,000,000; that the. capital stock of the company should be increased from $600,000, which it then was, to that of this stock increase $200,000 should be distributed among the Creighton stockholders, to represent earnings which it was alleged had gone ihto that plant; that $1,000,,000 of the stock should be issued to and accepted by Capt. Ford and John Pitcairn as the price for the Tarentum works completed, the remaining $200,000 of the stock to be :used to supply working capital. This proposition was accepted by the meeting without dissent, and the issue of the stock to carry out the arrangement was authorized by the unanimous vote of all the stockholders present, including Barr, the plaintiff. The .stock vote in favor of tlie new issue was 5,515 shares out of a tota.1 of 5,950 shares outstanding. It does not appear that any holder of the 435 shares of stock not there represented has ever Qbjected to the action of that meeting. Soon after the meeting,the contract was carried into effect. On October 27, 1886, J. B. Ford and John Pitcairn conveyed the Tarentum works and property to the Pittsburgh Plate Glass Company, which took and has maintained possession thereot The new stock was. issued and disposed of as agreed upon, except that $200,000 thereofremained in the hands of the company as secprity for the faithful performance by Messrs. Ford and Pitcairn of their undertaking to finish the
86
FEDERAL REPORTER.
vol. 51.
works, at their own cost. Messrs. Ford and Pitcairn having asked for said,stbck at a board meeting held April 17 , 1888, the board the treasqrer to deliver it. But John Scott filed a protest this action,and the stock was not delivered. At a later board mlleting on joined in a to November 20, 1888. several protesting against the issue olthis stock to Messrs. Ford and the Pitcairn for the expresseu reason"that they, in violation of the duty they owed the company and its stockholders, exacted and voted to them,have already received the, company, a price for said works gros&ly in excess of the cost, an4, value thereof, and have no claim, law or conscience;' to the stock now demanded by them;" and either these protesting stockholders therefore ,insisted that the board should refuse to comply with the request ofFQrd and Pitcairn, "at least until sJtera fUll and fair investigation of these matters, and action thereon by the stockllolders of the company, at it meeting, to be held, called for that purposej" and it was added that, ift,his request was not complied with, recourse would be had to the courts.' Accordingly a stockholders' meeting was called for andconvened on December 5, 1888. At that meeting, the protest having beenread, Mr. Pitcairnpresenteda written communication signed by himself alld Capt. Ford, offering to rescind the contract befwe'en them and the Pittsburgh Plate Glass Company by which company acquired the Tarentum works. The result of the meeting was the adoption of a resolution "that a committee of five be appointed to thoroughly investigate all the circumstances connected with this complaint and this proposition of Mr. :pitcairn's, and also to recommend a courSe of action for the mJriority stockholders, and that their report be at the next regular ,annual meeting of the company to be held in January." The committee appointed under this resolution was composed altogether of minority stockholders, and two of them were signers of the. protest already referred to. The committee, after a complete investigation, made its unanimous report to the meeting of the stockholders held January 22, 1889, at which 19,369 shares of stock out of a total of 20,000 shares were represented. The report concluded thus: "But, in our judgment, tb.e acqUisition of the Tarentum works lIas been, on the whole. favorable to the general of the company. and the transactionshouJd not be disturbed. ' In regard to the proposition of J. B. Ford & Oompany for a reconveyance of the Tarentum works, we recommend that it be not entertained. " A motion was made, seconded, and carried that the recommendations of the report be adopted. Perhaps a single vote was cast against the motion, but no more. In pursuance of the action of this meeting, the $200,000 of stock was iSE\ued to Messrs. Ford and Pitcairn. The charge made in the bill, that the defendants against whom relief is sought entered into a combhlation and to erect the Tarentum works, and then coerce the Pittsburgh Plate Glass Company to purchase them, is not sustained hy the proofs.. ,Neither Edward Ford, Emory L. Ford,nor Artemus Pitcairn had any interest whatever in Tarentum; nOr did ahyof them promote that project. On the c.ontrary., they all opposed,
BARR V. PITTSBURGH PLATE GJ,ASS CO.
vi
,,'"
it. Actual fraud in this transaction is not justly imputable to any of the defendants. There was here no resulting trust, for the land was bough;t and improved exclusively with the moneys of Capt. Ford and John Pit; cairn. Neither was there any trust ex maleficio. Capt. l!'ord was neither a director nor an officer of the company. The fact that he was a stock; holder did not him, acting in good faith, from going into another and independent corporation or partnership organized to prosecute the great industry of making plate glass. He was not the agent of the Pittsburgh Plate Glass Company for any purpose, nor was he acting in any fiduciary capacity for that company. The company was not seeking to acquire, and did not need for its business, the land at which Ford bought. Pitcairn joined Ford in his enterprise, not in hos7 tility to, but really to subseive, as he believed, the interests of, the Pitts. burgh. Plate Glass Company. I do not understand how the new works were a menace to Creighton, which was not able to fill its orders. The demand for plate glass greatly exceeded the home supply from all quar, ters, and was on the increase. There was no intention on the part of Messrs. Ford and Pitcairn to run Tarentum as rival works, or to the ment of the old company. The proposition that the Pittsburgh Plate Glass Company should acquire Tarentum did not originate with Messrs. Ford and Pitcairn, but with John Scott, who therein was acting in the interest of the company. It is not pretended that Capt. Ford or John Pitcairn made any false representation as to the cost of tqe Tarentum works. The complaint is that they refused to disclose the cost. But this refusal, with the reason therefor, was openly declared in the stockholders' meeting of September 6,1886, and the stockholders waived such disclosure. It is difficult to see how the plaintiff, Barr, or any other stockholder who, like him, participated in the meeting of September 6, 1886, and voted for the acquisition of Tarentum, could afterwards impeach the transaction. But, if this was open to any stockholder, prompt action to that end was necessary. All the stockholders, however, acquiesced in the consummation of the consolidation agreed on, and reaped the fruits thereof in stock dividends and otherwise. Then, after the lapse of two years, when complaint was made hy minority stockholders, after an investigation conducted by a committee of their own class, the stockholders. in general meeting assembled, upon the recommendation of the whole committee, by a practically unanimous vote, refused to disturb the transaction, and declined the offer of Messrs. Ford and Pitcairn to rescind. The contract, indeed, had really proved to be a beneficial one to the Pittsburgh Plate Glass Company, and rescission was not desirable on the part of that company. It is not even now proposed to have the contract rescinded, but the proposition is that, while the compauy shall retain all the benefits resulting from the transaction, Messrs. Ford and Pitcairn shall be deprived of a part of the consideration they accepted for their conveyance of the Tarentum works. But neither the plaintiff' nor the Pittsburgh Plate Glass Company has any equity to support such a demand.
38 I ': :".
FEDERAl; il.EPoiriiER, vol. 51. i, ','
We,now'turn'klthatbranch of,the,case which.cOIlcerns the works at Ford prospects ()f the plateglass bilsinel$1VE(re such that J. B: ,FO,rd and John new, be and they fi,xed upon a sIte Ii:!: cqunt.)",;Pa., WhI,ch seemed to them to for that obJect, and they tqok options of purcqase'from the landowners to secure, the location. On September 8, 1887; !it a special amI'ful1 meeting of the board of directors of the Pittsburghf'late with reference to this project, on the of Johp' Scott it 'was,.t1nanimously to the stockholders that new works be erected, and a speCial meeting olthe stobl\:holders to cOIisider the matter was called by t4e board for SeptembE-r, 20, 1887. On tl1'at day the stockholders' meeting was beld. The was read, and John Pitcairn advocated the recorume,ndatioll erection 6fnew'works by the cOm pan>' . But the minoritystockholders, under of Mr. Barr, the plaintiff, opposed the prO,ject. The plaintiff ,was very earnest in his and finally raised the objection that the company. under its charter, had no power to carryon operations in, 'Armstrong county. The ",ftnesses differ, in some particulars, as to what occurred atthis meeting; but according to the preponderatweight ofthe evidence the the company should build new was submitted to votE1,and was defeated by the votes of the minority including the negative vote of the plaintiff himself. The defelldants refrained from on that occasion because, holding the majority of the stock, they did not wish to force their views upon the minority stockholders. Their good faith in that course of action has been questioned,btlt think without sufficient cause., It was openly stated at this meeting, and was generally understood by those present, that if the ,company refused to build new works these defendants would do so at the site proposed. Accordingly they 'subsequently formed a partnership under the name ot'.r. B. Ford & Co., and with their own moneys they purchased the lands for which options had been taken. and proceeded to erect what are now known as the "Ford City Pla.te Glass Works." At the general annual meeting held on January 22, 1889, a resolution, was adopted that a committee' of five stockholders be appointed 'to negotiate with J. B. Ford & Co. for a transfer of the Ford City works to the Pittsburgh Plate Glass Company, and report to a subsequent meeting. The same five minority, stockholders who had acted in the TarentuDl matter constituted that committee. They had a number of conferences with J. B.Ford & Co.· at one of which the latter confidentially communicated .to them the approximate cost of the works when coinpleted. Eventually, ,J. B. Ford & Co. submitted to the a proposition to sell the Ford City works for the price of '81,500,000, to be paid $750,000 1n the stock and $7,50,000 in the bonds Of the Pittsburgh Plate Glass Company, the bond,s, rmming three, four, a-nd five J'ears, with interest. A special stockholders' meeting was called
r
"
, · ': ', , : ', .
'-:; '"
.,.
; ."
BARR. V. PITTSBURGH PLATE GLASS CO.
39
for and held on April 9, 1889, to consider the committee'sreport. Two reports were submitted. All agreed in recommending the purchase at the price namedj and the. majority report, signed by four of the committee, recommended the accllptance of the offer made by J.. B. Ford & Co. The minority report, by one member of the committee, recommended that $1,000,000 of the purchase price be paid in the .1;Jonds of the· company, and the $500,000 be paid in qasp, to. be raised by the. issue and sale of stock. After free and extended discussion, the meeting adjourned until April 16, 1889, and then reconvened. The plaintiff, Barr, participated in the proceedings of both these meetings. He advocated the payment of the purchase money in long time bonds, but this proposition was not received with favor. At the second he moved the adoption of the minority report, put or adjourned this motion was lost. Finally, a vote was taken on a motion for the adoption of the majority report. Before the vote was taken on this motion, J. B.Ford & Co. announced that they desired to have. the question, they decided by the votes of tQa minority stockholders; and to that authorized the tellers to cast their votes-14,362 shares-with the jority of the minority. The minority stockholders then cast 2,34:4 votes in favor of and 1,174 votes against the motion, andthereupon, the votes of J. B.Ford & Co. being cast in favor of the motion, the report of the majority of the committee was adopted by a stock vote of 16,700 to 1,174.. The meeting then adopted a resolution to take steps to amend the charter 80 as to authorize the company to manufacture in Armstrong county. On the next day-April 17, 1889-the hoard of directors called a meeting of the stockholders for June 18, 1989, to pass upon the proposedincrease of stock and indebtedness to carry out the purchase. Snch meeting was accordingly held, and the increase of stock and bonded indebtedness .was authorized by a stock vote of 17,205 shares, no share :voting to the contrary. Possession of the Ford City works was delivered to the Pittsburgh Plate Glass Company on July I, 1889, and subsequently the contract between the cumpany ltnd J. B. Ford.& Co. was carried into full execution. The proofs do not sustain the averment of the bill that the defendants here sought to be charged entered into a combination and conspiracy to erect the .Ford City works, and then force them upon the Pittsburgh Plate Glass Company; and, upon the whole evidence, bad faith is not attributable to any of these delEmdants. Nor do I disco\"er any basis for the plaintiff's theory that, with respect to the Ford City enterprise, a trust relation existed between the Pittsburgh Plate Glass Company and the other defendants. Capt. Ford owned the one third of the Ford City works, and all that has been said respecting him in connection with his purchase at Tarentum and the erection of those works applies here. Then, as to the other defendants, so long as they acted with good faith to their associates in the Pittsburgh Plate Glass Company, I am not prepared to say that the fact that they were directors and officers in that company debarred them from engaging in the independent manufacture of plate glass, especially in a place where that company was not
1
FEDE:RAL REPORTER,
authorized by its charter to operate. The Pittsburgh Plate Glass Company'did not have, and could not expect to maintain, a monopoly of this growing industry. That the building of the Ford City works was in itself a" menace" to that company is an unwarrantable assumption. Moreover, those works were in friendly hands. It is incredible that the de. fendants wonld have rUn them to the prejudice of a company in which they had interests so large. In fact, John Pitcairn's -interest in the old company was greater than his interest in the Ford City works. I am entirely satisfied that none of these defendants entertained any. hostile or improper design against the Pittsburgh Plate Glass Company. The proofs are quite convincing that their original purpose was to have the company itself build the works, but this purpose was defeated in the manner already stated. The contract here in question seems to have been freely and fairly entered into. The defendants, holding the controlling interest in the stock oHhe company, in the first instance, permitted the minority stockholderS t<r determine by their votes whether the offer of sale should be accepted. The bargain does not appear to be unconscionable. The Ford City works cost very nearly $1,200,000, and the proofs show that $300,oan would not be an excessive profit for a contractor who had incurred the risks involved in such an undertaking. The works are first-class, probably could have been disposed of to others upon terms as favorable to J. B. Ford & Co. as those here agreed on. The suggestion that J. B. Ford & Co. realized an undue gain by reason of the market tate of the stock they received does not strike me as having any special force. 'The new assets they brought into the concern had very great value, !l:nd not only kept up the market value of the stock, but, without any doubt, contributed largely to the further advance which soon followed. The truth is, the acquisition of those works has been highly advantageous to the Pittsburgh Plate Glass Company. Hence no one is now seeking to set aside the transaction. The relief prayed for is not rescission, but a reduction of the profits which accrued to J. B. Ford & Co. Virtually the court is asked to make a new contract between these parties. Upon the most patient investigation of all the facts, I am unable to Bee that there is here presented a case which rightfully calls for any equitable reo tief. Let a decree be drawn dismissing the bill. with costs.