Southern Pacific Co. v. Bogert, 250 U.S. 483 (1919)
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Southern Pacific Co. v. Bogert
No. 305
Argued April 17, 21, 1919
Decided June 9, 1919
250 U.S. 483
CERTIORARI TO THE CIRCUIT COURT OF APPEALS
FOR THE SECOND CIRCUIT
Syllabus
To constitute laches, it is essential that there be acquiescence in the alleged wrong or lack of diligence in seeking a remedy, in addition to lapse of time. P. 488.
So held where there was a delay of over 22 years upon the part of minority shareholders in seeking to affix a trust on shares in a new corporation held by the majority, but, in the interval, the plaintiffs, or others representing the minority as a class, had been diligent in attacking the foreclosure and reorganization proceedings through which such shares were acquired.
When the cause of action is such that suit may be brought on behalf of the plaintiff and all persons similarly situated, it is not essential that each such person should intervene in order to avoid the charge of having slept on his rights. P. 489.
Long failure to discover the appropriate remedy, though well known, does not establish laches if there has been due diligence and the delay has not prejudiced the defendant. P. 490.
Judgments against minority shareholders in suits to set aside a foreclosure and a reorganization agreement as fraudulent, and to compel a reduction of the assessment under the agreement and enjoin distribution of stock according to its terms, held not to estop them, by way either of res judicata or of election, from maintaining a further suit to declare the majority shareholder their trustee of new shares taken by it under the reorganization. Id.
The fact that the majority shareholder, as part of an unfair scheme of reorganization brought about through its control, guarantees the bonds of a new company, successor to the corporate property, and agrees to take the shares of the new company not taken by the minority, does not give it the status of a banker or underwriter in relation to the minority shareholders, and thus relieve it of its fiduciary duty to them in respect of the new shares so acquired, when its design was to secure the property for its own purposes and nothing has been paid under the guaranty. P. 491.
The doctrine under which majority shareholders exercising control are deemed trustees for the minority applies where the control is exercised by a corporation through a subsidiary over a third corporation of which the subsidiary is the majority shareholder. Id.
The duty of the majority shareholder to make pro rata distribution of the fruits of its control on equal terms among the minority is fiduciary, and not dependent on fraud or mismanagement. P. 492.
In a suit by the minority to hold the majority shareholder as trustee of shares in a new company acquired by the defendant through a reorganization, the old company is not a necessary party. P. 492.
In such a suit, the fact that the floating debts of the old company were not provided for in the reorganization does not bar relief to the minority, they not having been at fault. Id.
Where the majority shareholder of a corporation, through a reorganization, obtained all the shares of a new corporation, successor to the old, and, after years, during which the minority attacked only the reorganization proceedings, pledged them, with other securities as collateral, held that the minority’s later claim to such shares in specie should be so enforced as not to create undue pecuniary burdens on the majority in maintaining the collateral values under the loan agreement, and, to this end, that depreciation of the other collateral since the entry of the present decree should be taken into consideration upon remand of the case for other reasons. P. 493.
In such a suit, the majority shareholder should be allowed appropriate compensation for its contributions toward satisfaction of the floating debts of the old company insofar as the new shares to be received by the minority shareholders of that company are thereby increased in value. P. 494.
Held that the claim of such compensation was not too late in this case, it having been made before final decree and it not appearing that the delay in asserting it was prejudicial to plaintiffs. P. 496.
Such contributions may consist in payments by the majority shareholder directly, or in effect by it through its subsidiary corporation. P. 495.
In determining the amounts of such contributions and the extent to which they benefited such minority shareholders, judgments on floating debts against the old company held not to bar consideration of other relevant facts. Id.
In a class suit by minority shareholders, others in like case may be allowed to intervene in the district court after interlocutory decree. Id.
In a suit of that character, application of minority shareholders to intervene in this Court denied, without prejudice to their right to apply to the district court, the case being remanded. P. 498.
Decree modified. For the opinion below, see 244 F. 61.
The case is stated in the opinion.