Anderson v. Derrick

WASTE, C. J. Plaintiffs instituted this action to recover damages alleged to have been suffered by them as the result of the fraudulent acts of the defendants who, as directors of the defendant Automatic Electrical Machine Company, a foreign corporation doing business in this state, are asserted to have conspired to cause, and actually did cause, the transfer of the entire corporate assets to one of their number, thereby depriving the corporation and its stockholders, among whom are plaintiffs, of everything of value. The complaint concludes with a prayer that plaintiffs be given judgment in the sum of $45,000, representing the par value of plaintiffs’ stock alleged to have been made valueless by the wrongful acts of the defendants.

Plaintiffs duly demanded a jury trial, contending that the action is one at law prosecuted in their individual capacities to directly recover such damages only as were suffered by them, as distinguished from the whole damage inflicted on the corporation or the stockholders as a group. The trial court concluded, in conformity with the contention of the defendants, that the primary wrong was done to the corporation and that the plaintiffs’ damage, in common with that done to other stockholders, was secondary in character and resulted solely and alone from their stock ownership. This being so, the court held that the action was representative or derivative in character and cognizable only in equity, and that plaintiffs were not therefore entitled to a jury as a matter of right. In the absence of a jury the plaintiffs declined to introduce any evidence, whereupon the court made findings in favor of the defendants and entered judgment accordingly. This appeal followed.

Throughout their briefs the plaintiffs repeately urge that they are prosecuting this action in their individual capacities and not as representatives of the corporation or of the remaining stockholders. They request that we treat as surplusage and ignore anything in the amended complaint [773]that savors of a representative suit. They insist that a stockholder, injured in common with all other stockholders by the wrongful acts of the corporate directors, may bring an individual action, as distinguished from a representative or derivative action, to recover any damage suffered by him as the result of such wrongful acts. In their opening brief they concede that a conclusion that the action is derivative in character will be fatal to their cause and appeal.

In the absence of statute, it is the generally accepted rule that misfeasance or negligence on the part of the managing officers of a corporation, resulting in loss of its assets, as alleged herein, is an injury to the corporation for which it must sue. A stockholder cannot sue for damages because his stock is thereby rendered worthless. (Smith v. Hurd, 12 Met. (Mass.) 371 [46 Am. Dec. 690]; Niles v. New York Cent. & H. R. R. Co., 176 N. Y. 119 [68 N. E. 142]; Ames v. American T. & T. Co., 166 Fed. 820; 6a Cal. Jur. 804, sec. 456; 14 C. J. 924, sec. 1444.) In the Niles case, supra, as here, the stockholder sought to recover damages at law for the depreciation in the value of his stock, which depreciation, in common with the loss to other stockholders, resulted from the acts of the corporate directors. In denying such relief it is therein declared: “True, the plaintiff has suffered a depreciation in the value of his stock as a result of the wrong, and in this respect the injury was personal to the holders of the stock. But every stockholder has suffered from the same wrong, and if the plaintiff can maintain an action for the recovery of the damages sustained by him, every stockholder must be accorded the same right. The injury, however, resulting from the wrong was, as we have seen, to the corporation. The depreciation in the value of the plaintiff’s stock, and that of the other stockholders, was in consequence of the waste and destruction of the property and franchise of the corporation.” In 13 Fletcher, Cyc. Corporations, page 227, section 5913, the principle is stated as follows: “individual stockholders cannot sue corporate officers for damages on the ground of mismanagement, on the theory that such mismanagement has rendered their stock of less value or worthless, since the injury is not to them individually, but to the corporation, i. e., the stockholders collectively. ... It is only where the injury sustained to one’s stock is peculiar to him alone, and