Opinion · Supreme Court of the United States
Corbus v. Alaska Treadwell Gold Mining Co.
187 U.S. 455
- Type
- Opinion
- Court
- Supreme Court of the United States
- Jurisdiction
- Federal
- Date
- 1903-01-05
- Topic
- general
How later courts describe this case
- describing rules governing derivative suits as limiting situations in which “a court of equity may ... be called upon at the appeal of any single stockholder to compel the directors of the corporation to enforce every right which it may possess, irrespective of other considerations”
- "It is not a trifling thing for a stockholder to attempt to coerce the directors of a corporation to an act which their judgment does not approve, or to substitute his judgment for theirs."
Citator
Corbus v. Alaska Treadwell Gold Mining Co. has been questioned or limited by later authorities: relies on overruled authority: 15 S. Ct. 673 (overruled by South Carolina v. Baker). Read them before relying on it. 103 later decisions cite it.
- Authority status
- caution
- Cited by
- 103 opinions
Headnotes
- Remedies — Taxation — Injunctions Against Collection Before a court of equity will assist a party in thwarting the intent of Congress, as expressed in a statute, it must affirmatively and clearly appear that there is an absolute necessity for the court's interference in order to prevent irreparable injury; considerations of mere convenience are insufficient. 187 U.S. at 461
- Remedies — Taxpayer Standing — Stockholder Suits If the party primarily and directly charged with a tax cannot make a case for the interference of a court of equity, one subordinately and indirectly affected by the tax is entitled to relief only if he shows not merely irreparable injury to the tax debtor as well as to himself, but also that he has taken every essential preliminary step to justify his claim of a right to act on behalf of the tax debtor. 187 U.S. at 461
- Remedies — Stockholder Derivative Suits — Corporate Directors Corporate directors represent all stockholders and are presumed to act honestly and according to their best judgment for the interests of all; their judgment on matters lawfully confided to their discretion may not lightly be challenged by a single stockholder or submitted at his instance for review by a court of equity, and directors may properly waive a legal right of the corporation when they believe waiver will best promote the corporation's interests, weighing the expense of enforcing the right and the furtherance of the general business. 187 U.S. at 459
- Remedies — Stockholder Derivative Suits — Demand on Directors A stockholder seeking to maintain a suit founded on a right of action existing in the corporation itself must show to the satisfaction of the court that he has exhausted all means within his reach to obtain redress of his grievances or action in conformity with his wishes within the corporation; he must make an earnest, not simulated, effort with the managing directors, and if the directors fail him, make an honest effort to obtain action from the stockholders as a body, unless he shows a case where such efforts could not reasonably have been required. 187 U.S. at 458
- Remedies — Stockholder Derivative Suits — Pleading and Review Technical compliance with the equity rule requiring a stockholder's bill to allege his efforts to secure action by the directors does not preclude inquiry into the stockholder's right to maintain the suit; the court will examine the bill in its entirety and determine whether, under all the circumstances, the plaintiff has shown such wrong on the part of the corporation or its officers, and such injury to himself, as will justify the suit, and will dismiss the bill where the suit is collusive or the plaintiff has not done everything that ought to have been done to secure corporate action. 187 U.S. at 459
- Remedies — Stockholder Derivative Suits — Excuse for Failure to Demand A stockholder's failure to demand that the directors refrain from paying a tax is not excused merely by the directors' residence at a distance from the forum; the plaintiff must at least show some effort to secure action by the directors, and the bare assertion that they were too far away to be reached is insufficient. 187 U.S. at 462
- Remedies — Taxation — Payment Before Challenge Equity will not restrain the collection of a tax on the mere ground of its illegality, and Congress has evidenced its purpose that a tax must be paid before its validity is challenged; where the burden of the tax on the stockholder and the corporation is comparatively light, no case of irremediable injury or total failure of justice is presented warranting equitable interference on the corporation's behalf. 187 U.S. at 461
- Remedies — Stockholder Suits — Rights of Individual Taxpayers Where a stockholder could not maintain an injunction suit to restrain a similar tax upon himself individually, he will not be permitted to secure for the corporation relief that he could not secure for himself. 187 U.S. at 460
CORBUSv. GOLD MINING CO.,187 U.S. 455(1903)
23 S.Ct. 157
CORBUSv. ALASKA TREADWELL GOLD MINING COMPANY.
APPEAL FROM THE DISTRICT COURT OF THE UNITED STATES FOR THE DISTRICT OF
ALASKA.
No. 10.
Argued December 8, 1902.
Decided January 5, 1903.
THIS, like the preceding cases, was brought to prevent the
payment of an Alaskan license tax. The method pursued was,
however, different. It is a suit in equity brought by a
stockholder against a corporation — the stockholder and the
corporation being the sole parties plaintiff and defendant — to
restrain it from paying the tax. Notice was given to the United
States district attorney of the pendency of the suit, who
appeared asamicus curiae, and, disclaiming any intention of,
in any manner, representing or binding the United States, denied
the jurisdiction
Page 456
of the court, its right to enjoin the defendant from paying the
license, and argued in favor of the constitutionality of the law.
The bill alleged that the defendant was incorporated under the
laws of the State of Minnesota, and engaged in mining and milling
ore in the District of Alaska, with an office and manager in the
district; that "the general control of the affairs of said
company is entrusted to a board of directors who reside in San
Francisco, State of California, and are non-residents of the
District of Alaska; that the complete control and management of
the affairs of said company in Alaska is under the supervision
and control of its general superintendent and manager, J.P.
Corbus."
It is further averred that the company by its general
superintendent in Alaska is intending to pay the license tax
which, for the year beginning July 1, 1899, amounted, with the
clerk's fee, to the sum of $1875. After denying the legality of
the tax the bill proceeds:
"Your orator further shows that this suit is not a collusive
one, brought to confer jurisdiction of the case upon this court,
of which it would not otherwise have cognizance; that your orator
has not been able, because of the great distance at which the
directors of said company reside, to request them to refuse to
pay said tax and to apply for said license, but has made such
request of the officers or agents of said company controlling its
business in Alaska, but they have failed and refused not to make
such application and pay such tax, for the reason that, though
they doubt the constitutionality of said law, the pains and
penalties imposed by said act for the omission so to do are so
severe that said company and its said officers and agents fear,
and have reason to fear, the great loss and injury in defending
prosecution that might be brought against it for the failure to
comply with said law; that they deem it better to submit to the
illegal tax than to incur the consequences of the failure to
comply with it; that your orator is advised that there is no
procedure provided by law whereby said company could test the
validity of said law and the constitutionality of said tax
without incurring the pains and penalties therein provided for
Page 457
the violation thereof, inasmuch as the said act requires the
voluntary payment of the tax imposed under a penalty of heavy
forfeiture and fines for the failure to make such voluntary
payment; that the said company, in view of the foregoing, has
refused and still refuses and intends omitting to comply with
complainant's demand to refuse to pay said tax, and has resolved
and determined and intends to comply with all and singular the
provisions of said chapter 44 of said act of Congress, and to pay
said tax upon its stamps and upon its said mercantile
establishment, amounting to the said sum of eighteen hundred and
seventy-five dollars for the said year, and to continue the
payment of a like or greater sum for each year hereafter.
"Your orator further shows that if said company and its
officers, as they have proposed and declared their intention to
do, shall pay said tax the assets of the said company will be
thereby diminished and lessened, as well as the dividends to be
declared upon the stock thereof, and the value of the shares of
said company, including the shares owned by your orator and all
others in whose behalf this suit is brought; and your orator
further shows that this involves more than the sum of five
thousand dollars; that unless the company should comply with said
act or this court grant the relief herein prayed for the said
company would be exposed to a multiplicity of suits and
prosecutions for the violation of said act, and would be put to
great expense and suffer irreparable injury in defending said
suits and avoiding the fines and forfeitures provided by the said
act, and its assets and the value of its shares would be thereby
greatly lessened, to the great and irreparable injury and damage
to your orator and other shareholders in said company."
A demurrer to the bill was sustained and a decree entered
dismissing the suit. A single opinion was filed by the district
judge in disposing of all of these tax cases. In that opinion,
and with special reference to the present case, he said:
"In the cases at bar the district attorney, so far as he had
the right to do so, the government not being a party to the
suits, raised not only the question of the jurisdiction of the
court because the plaintiffs had a plain, speedy, and adequate
remedy
Page 458
at law, but insisted that the suits were of a friendly nature,
collusive in character, and brought for the sole purpose of
conferring jurisdiction upon the court, to the end that the
defendants might escape paying the license fee imposed by law;
and when all the facts are taken together, as disclosed by the
record, some color is lent to the latter contention. Take the
case ofCorbusv.The Treadwell Co.;the bill was filed July
17, the subpoena served July 19, commanding the defendant to
answer the bill within twenty days. No appearance was made by
defendant, however, and no pleading filed until November 15,
nearly four months after the filing of the bill, and not until
about the time the matter was called up for hearing, when a
demurrer was interposed. Counsel for defendant did not contend
for his demurrer, made no argument, and filed no brief in support
of the same, and in the very nature of the case the interests of
the plaintiff and defendant are identical. Then, if the object
and purpose of the suit is solely to test the constitutionality
of the law without first paying into the United States Treasury
the amount of the license tax, and there can be no other object,
and if the court will sustain the plaintiff and enjoin the
defendant as prayed, how is the private citizen to avail himself
of a similar remedy? Who shall enjoin him and save him from
paying his tax until the constitutionality of the law is
determined? And if he cannot avail himself of this manner of
suit, why should corporations or copartnerships be permitted to
do so? Why should not corporations and individuals have and be
permitted to exercise identically the same legal rights and
remedies under the law?"
From the decree of dismissal the plaintiff appealed to this
court.
"Since the decision of this court inDodgev.Woolsey, 18 How. 331, the principles of which have received more than once the approval of this court, the frequency with which the most ordinary and usual chancery remedies are sought in the Federal courts by a single stockholder of a corporation whoPage 460possesses the requisite citizenship, in cases where the corporation whose rights are to be enforced cannot sue in those courts, seems to justify a consideration of the grounds on which that case was decided, and of the just limitations of the exercise of those principles.
"This practice has grown until the corporations created by the laws of the States bring a large part of their controversies with their neighbors and fellow citizens into the courts of the United States for adjudication, instead of resorting to the state courts, which are their natural, their lawful, and their appropriate forum. It is not difficult to see how this has come to pass. A corporation having such a controversy, which it is foreseen must end in litigation, and preferring for any reason whatever that this litigation shall take place in a Federal court, in which it can neither sue its real antagonist nor be sued by it, has recourse to a holder of one of its shares, who is a citizen of another State. This stockholder is called into consultation and is told that his corporation has rights which the directors refuse to enforce or to protect. He instantly demands of them to do their duty in this regard, which of course they fail or refuse to do, and thereupon he discovers that he has two causes of action entitling him to equitable relief in a court of chancery; namely, one against his own company of which he is a corporator, for refusing to do what he has requested them to do; and the other against the party which contests the matter in controversy with that corporation. These two causes of action he combines in an equity suit in the Circuit Court of the United States, because he is a citizen of a different State, though the real parties to the controversy could have no standing in that court. If no non-resident stockholder exists, a transfer of a few shares is made to some citizen of another State, who then brings the suit. The real defendant in this action may be quite as willing to have the case tried in the Federal court as the corporation and its stockholder. If so, he makes no objection, and the case proceeds to a hearing. Or he may file his answer denying the special grounds set up in the bill as a reason for the stockholder's interference, at the same time that he answers to the merits. In either event the whole case is prepared for hearingPage 461on the merits, the right of the stockholder to a standing in equity receives but little attention, and the overburdened courts of the United States have this additional important litigation imposed upon them by a simulated and conventional arrangement, unauthorized by the facts of the case or by the sound principles of equity jurisdiction."
After a full discussion, with the citation of many authorities, the conclusion is summed up in these words (pp. 460, 461):
"We understand that doctrine to be that to enable a stockholder in a corporation to sustain in a court of equity in his own name, a suit founded on a right of action existing in the corporation itself, and in which the corporation itself is the appropriate plaintiff, there must exist as the foundation of the suit —
"Some action or threatened action of the managing board of directors or trustees of the corporation which is beyond the authority conferred on them by their charter or other source of organization;
"Or such a fraudulent transaction completed or contemplated by the acting managers, in connection with some other party, or among themselves, or with other shareholders as will result in serious injury to the corporation, or to the interests of the other shareholders;
"Or where the board of directors, or a majority of them, are acting for their own interest, in a manner destructive of the corporation itself, or of the rights of the other shareholders;
"Or where the majority of the shareholders themselves are oppressively and illegally pursuing a course in the name of the corporation, which is in violation of the rights of the other shareholders, and which can only be restrained by the aid of a court of equity.
"Possibly other cases may arise in which, to prevent irremediable injury, or a total failure of justice, the court would be justified in exercising its powers, but the foregoing may be regarded as an outline of the principles which govern this class of cases.
"But, in addition to the existence of grievances which call for this kind of relief, it is equally important that before thePage 462shareholder is permitted in his own name to institute and conduct a litigation which usually belongs to the corporation, he should show to the satisfaction of the court that he has exhausted all the means within his reach to obtain, within the corporation itself, the redress of his grievances, or action in conformity to his wishes. He must make an earnest, not a simulated effort, with the managing body of the corporation, to induce remedial action on their part, and this must be made apparent to the court. If time permits or has permitted, he must show, if he fails with the directors, that he has made an honest effort to obtain action by the stockholders as a body, in the matter of which he complains. And he must show a case, if this is not done, where it could not be done, or it was not reasonable to require it." See alsoDetroitv.Dean,106 U.S. 537-542;Quincyv.Steel,120 U.S. 241.
While this case is unlike that in that it does not attempt to transfer from a state to a Federal court a controversy which really belongs in the former — there being none other than Federal courts in the Territory — yet the principle is the same, for it is an effort to secure for the benefit of the corporation an injunction which it could not itself obtain and which no individual similarly situated can obtain.
Immediately after announcing the decision inHawesv.Oakland, supra, this court promulgated an additional equity rule (Rule 94):
"Every bill brought by one or more stockholders in a corporation, against the corporation and other parties, founded on rights which may properly be asserted by the corporation, must be verified by oath, and must contain an allegation that the plaintiff was a shareholder at the time of the transaction of which he complains, or that his share had devolved on him since by operation of law; and that the suit is not a collusive one to confer on a court of the United States jurisdiction of a case of which it would not otherwise have cognizance. It must also set forth with particularity the efforts of the plaintiff to secure such action as he desires on the part of the managing directors or trustees, and, if necessary, of the shareholders, and the causes of his failure to obtain such action."Page 463
It must not be understood that a mere technical compliance with the foregoing rule is sufficient and precludes all inquiry as to the right of the stockholder to maintain a bill against the corporation. This court will examine the bill in its entirety and determine whether, under all the circumstances, the plaintiff has made such a showing of wrong on the part of the corporation or its officers and injury to himself as will justify the suit. The directors represent all the stockholders and are presumed to act honestly and according to their best judgment for the interests of all. Their judgment as to any matter lawfully confided to their discretion may not lightly be challenged by any stockholder or at his instance submitted for review to a court of equity. The directors may sometimes properly waive a legal right vested in the corporation in the belief that its best interests will be promoted by not insisting on such right. They may regard the expense of enforcing the right or the furtherance of the general business of the corporation in determining whether to waive or insist upon the right. And a court of equity may not be called upon at the appeal of any single stockholder to compel the directors or the corporation to enforce every right which it may possess, irrespective of other considerations. It is not a trifling thing for a stockholder to attempt to coerce the directors of a corporation to an act which their judgment does not approve, or to substitute his judgment for theirs. As said inDodgev.Woolsey, 18 How. 344: "The circumstances of each case must determine the jurisdiction of a court of equity to give the relief sought."
It appears from the bill that the capital stock of the corporation is divided into 200,000 shares of the par value of $25 each, of which the plaintiff is the owner of 100 shares; that the total annual tax, including fees, amounts to $1875, which results in a charge upon the plaintiff's interest of less than one dollar a year. This would scarcely be a case of "irremediable injury or a total failure of justice," as indicated in next to the last paragraph of the quotation from the opinion of this court inHawesv.Oakland. Indeed, the tax upon the company of $3 a stamp for each of the 540 stamps used by it in the crushing and reduction of ore does not appear to be such as threatensPage 464ruin to the company. It does not appear from the bill that any other stockholder shares with the plaintiff his belief in the illegality of the tax or objects to its payment by the corporation, although of course it may be assumed that every person is willing to be relieved from the payment of a tax if other parties will bring about that relief without any trouble to himself.
Again, as suggested by the district judge in his opinion, the plaintiff could not maintain an injunction suit to restrain a similar tax upon himself and why should he be permitted to secure a relief to the corporation (of which he is a minor stockholder) which he could not secure for himself individually? Are corporations the favored parties in respect to the enforcement of taxes? And when the assistance of a court of equity is invoked the purpose of the suit and the object which is sought to be accomplished are frequently matters which may properly be considered. Not only is it the general rule that equity will not restrain the collection of a tax on the mere ground of its illegality, but also, as appears by its legislation, Congress has attempted to enforce that rule and to require payment of a tax by the party charged therewith before inquiry as to its validity will be permitted. SeePacific Steam Whaling Companyv.UnitedStates, ante, p. 447. Now before a court of equity will in any way help a party to thwart this intent of Congress, it should affirmatively and clearly appear that there is an absolute necessity for its interference in order to prevent irreparable injury. No considerations of mere convenience are sufficient. And if the party primarily and directly charged with a tax is unable to make a case for the interference of a court of equity, no one subordinately and indirectly affected by the tax should be given relief unless he shows not merely irreparable injury to the tax debtor as well as to himself, but also that he has taken every essential preliminary step to justify his claim of a right to act in behalf of such tax debtor. We have seen how small the burden of this tax is upon the plaintiff and how comparatively light it is upon the corporation — how far short it comes of anything like irretrievable ruin. It is clearly an attempt to thwart in behalf of this corporation the obvious purpose of Congress, that a tax must be paid before its validityPage 465is challenged. Under those circumstances a court of equity should scrutinize with the utmost care the conduct of the plaintiff and see that he has done everything which ought to have been done to secure action by the corporation and its directors, and justify under the assumption of a controversy between himself and the corporation his prosecution of a litigation for its benefit.
It appears affirmatively that no demand has been made on the directors to protect the corporation against this alleged illegal tax. The only demand shown is that upon the managing agent of the corporation in charge of the business in Alaska, and the excuse is that the directors (living in San Francisco) are too far away to be reached by notice. The act went into effect March 3, 1899, and this bill was filed July 17, 1899. The rule requires that the plaintiff must set forth with particularity the efforts made by him to secure action by the directors. It does not appear that he made any effort to secure such action, but he relies simply on the distance of the directors from the place where he resides and in which the court is held as an excuse for not applying to them. We are of opinion that the excuse is not sufficient. He should at least have shown some effort. If he had made an effort and obtained no satisfactory result either by reason of the distance of the directors or by their dilatoriness or unwillingness to act, a different case would have been presented, but to do nothing is not sufficient. For aught that the bill discloses he may have been in San Francisco from the time of the passage of the act until he left to come to Alaska for the purpose of bringing this suit. The district judge, in his opinion, said that the facts disclosed by the record lend color to the contention that the suit was collusive. In addition to the matters pointed out by him it may also be stated that since the case was brought to this court the company has not appeared by counsel in either brief or argument.
Putting all these things together we are of opinion that the action of the District Court in dismissing the suit was right, and it isAffirmed.
The CHIEF JUSTICE took no part in the decision of this case.Page 466