The opinion of the court was delivered by: ROBINSON
This is a class action brought by two owners of shares of the preferred stock of a foreign corporation seeking an order compelling the declaration and payment of dividends thereon for four past years, and directing a good faith determination of dividend policy for future years.
One of the plaintiffs is a citizen of the District of Columbia, and the other a citizen of New Jersey. Defendant Central of Georgia Railway Company (Central) is a Georgia corporation maintaining an office in the District, and the remaining defendants are the members of its board of directors.
Preferred stockholders, under Central's charter, are entitled to receive annual fixed percentage dividends out of and to the extent of available net income, and unpaid dividends are cumulative to a specified maximum.
In 1963, Southern Railway Company
(Southern) became the owner of nearly all
of Central's combined common and preferred stock in consequence of activities for its acquisition extending from 1960. Subsequently, Central and Southern, though remaining separate corporations, combined substantial portions of their operations with a view to improvements in their services and the realization of economies for both companies.
The defendants moved to dismiss the action, after which the plaintiff asked leave to join Southern as an additional party defendant. It is to these motions, and the grounds respectively asserted in their support, that the Court now addresses itself, altering the chronological order of the motions and the grounds somewhat to facilitate discussion.
Although the plaintiffs seek to compel the declaration of corporate dividends, only one of Central's 21 directors resides and has been served within the District of Columbia. From aught that appears, it is improbable that personal jurisdiction can be acquired over any of the rest. Deeming a quorum of the directors
to be parties indispensable to this action, the defendants urge that the Court cannot proceed.
The question is one of first impression here, and divergent results have been reached elsewhere. In Schuckman v. Rubenstein,
judicial authority was considered to be "limited to a judgment in personam
against the members of the board,"
and it was accordingly held that "[jurisdiction] over only two of the nine directors in this case made it impossible for the court to render an effective decree. At least three other directors were indispensible parties to the suit."
Similarly, in Tower Hill Connellsville Coke Co. v. Piedmont Coal Co.,
it was concluded that "any effort on the part of the court below to direct the payment of any specific dividends * * * would be an effort to control the management of that company, and could not be done without making its officers and directors parties."
On the other hand, in Kroese v. General Steel Castings Corp.,
where the suit involved only three of twelve corporate directors, the Court, disputing that "the case is as easily settled as the mechanical application of this well-settled rule about jurisdiction in personam would settle it,"
pointed out that "when a court steps in and orders the payment of a dividend, the corporate affairs have reached the point where the judgment of the directors is no longer controlling. The set of facts presented is such that the court substitutes its judgment, based on a rule of law, for the ordinary business judgment of those in charge of the business enterprise."
Consequently, said the Court, "[in] such a case, even though individual directors are joined as parties, they are not called upon to exercise any business discretion. The case has passed that point. * * * The duty of a corporation to pay dividends then and there has been imposed by the judgment of the court, not by the ayes and nays of the members of the board,"
and since the corporation had assets within the Court's jurisdiction, it perceived no difficulty in making its decree effective. In similar fashion, it was held in Doherty v. Mutual Warehouse Co.,
that since "[the] corporation is the party from whom any dividends that may be declared must be recovered,"
"the district court has jurisdiction to compel the declaration of dividends even in the absence of a majority of the board of directors."
The views last expressed find additional support in other decisions,
and in commentaries on the question,
and they are adopted here. The corporation is already before the Court, and despite the fact that it owns no property in this jurisdiction, an effective and enforceable decree can yet be made. "To doubt its effectiveness is to doubt the power of a court of equity when wielded by a chancellor with legal imagination. * * * Equity courts have known for a long time how to impose onerous alternatives at home to the performance of affirmative acts abroad as a means of getting those affirmative acts accomplished."
As ground for their motion for leave to add Southern as a party defendant, the plaintiffs point to the size of its stock ownership and from this argue that it "is in effective control of" Central and has caused Central "arbitrarily" not to pay dividends on its preferred shares.
The complaint is cast in terms of a classic stockholders' action against Central and its directors. Neither it, nor the plaintiffs' sole affidavit supporting the motion, charges Southern with any wrongdoing or impropriety, or indicates any action by it contributing to Central's failure to declare the dividends. Nor is any relief whatsoever sought against Southern in the complaint. Given maximum breadth, the plaintiffs' claim is no more than that Central's directors established dividend policy with the ...