U.S. Supreme Court Wathen v. Jackson Oil & Refining Co., 235 U.S. 635 (1915)
Wathen v. Jackson Oil & Refining Company
Submitted November 9, 1914
Decided January 11, 1915
235 U.S. 635
APPEAL FROM THE DISTRICT COURT OF THE UNITED STATES
FOR THE SOUTHERN DISTRICT OF MISSISSIPPI
The right to restrain the enforcement of a statute as an unconstitutional deprivation of its property is a right existing in the corporation itself, and a stockholder is not entitled to maintain such an action without clearly showing that he has exhausted the means within his reach to obtain action by the corporation in conformity to his wishes. Under Equity Rule No. 27 (formerly No. 94), in order to confer jurisdiction upon a federal court of a suit by a stockholder to enforce a remedy belonging to the corporation, the bill must allege not only that the suit is not a collusive one for the purpose of conferring jurisdiction, but that unsuccessful efforts have been made to induce the corporation to bring the suit or the reasons for not making such efforts.
A bare assertion, by a stockholder in a suit to enjoin the officers of a corporation from complying with a statute alleged to be unconstitutional, that the officers and directors do not wish to comply with it, but intend to for fear of incurring penalties, without stating any ground for dispensing with efforts to procure action by the corporation, is not sufficient under Equity Rule No. 27.
The facts, which involve the constitutionality of certain provisions of the ten-hour labor law of Mississippi and
the right of a stockholder of a corporation to enjoin the corporation from complying with those provisions, are stated in the opinion.
MR. JUSTICE HUGHES delivered the opinion of the Court.
The appellant brought this suit in the district court to restrain the Jackson Oil & Refining Company, its manager and officers, from complying with a statute of Mississippi prohibiting employment in described occupations for more than ten hours a day except in cases of emergency or public necessity (Chapter 157, Laws of Mississippi, 1912, p. 165), and to enjoin the other defendants (certain public officers) from enforcing its provisions as against that company.
It was alleged in the bill, in substance, that the defendant corporation was engaged in operating a cotton-seed oil mill of the value of $100,000; that the complainant owned 502 shares of its stock of the par value of $100 each and of the actual value of $60,000; that the business required that the mill should be operated continuously, both day and night, two shifts of laborers being employed; that the employment was under wholesome conditions, without any detriment to the physical, mental, and moral wellbeing of those employed; that the statute, if enforced, would work a deprivation of liberty of contract and of property, and an arbitrary discrimination, contrary to the Fourteenth Amendment; that compliance with the statute would involve greatly increased cost of operation and render the corporation insolvent and its property valueless, to the
complainant's injury; that the statute had been sustained by the Supreme Court of Mississippi in a suit against another manufacturing company; that, although the officers of the defendant corporation desired to disobey the statute, they were complying therewith, being constrained to obedience through fear of the enormous penalties imposed, and that these penalties were so severe that no owner or operator in the position of the defendant corporation could invoke the jurisdiction of a court to test the validity of the statute, except at the risk of confiscation.
Those defendants, who were public officers, demurred to the bill upon the grounds (among others) that the complainant, as a stockholder of the corporation, had no right to sue, that the bill could not be maintained to restrain the enforcement of the criminal law of the state, and that the statute was constitutional.
An application for a preliminary injunction was heard on the bill and demurrer and was denied, and from the order entered to this effect, the complainant appeals to this Court. Judicial Code, § 266.
The objection urged below, and repeated here, that the complainant has failed to show any right to maintain this suit must be sustained. The right of action to restrain the enforcement of the statute as an unconstitutional deprivation of the liberty and property of the corporation was a right existing in the corporation itself, and a stockholder was not entitled to sue without showing to the satisfaction of the court that he had exhausted the means within his reach to obtain action by the corporation in conformity with his wishes. Hawes v. Oakland, 104 U. S. 450 , 104 U. S. 460 -461; Detroit v. Dean, 106 U. S. 537 , 106 U. S. 541 -542; Quincy v. Steel, 120 U. S. 241 , 120 U. S. 248 ; Doctor v. Harrington, 196 U. S. 579 , 196 U. S. 588 . The former equity rule (Rule 94) provided not only that the bill must allege that the suit was "not a collusive one to confer upon a
court of the United States jurisdiction of a case of which it would not otherwise have cognizance," but that the bill
"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 cause of his failure to obtain such action."
The present rule (Rule 27) adds to this provision the words, "or the reasons for not making such effort," and these reasons, of course, must be adequate. The rule embraces those cases where the wrong to the corporation arises from unconstitutional legislation. Corbus v. Alaska Gold Mining Co., 187 U. S. 455 ; Davis & Farnum Mfg. Co. v. Los Angeles, 189 U. S. 207 , 189 U. S. 220 ; Ex Parte Young, 209 U. S. 123 , 209 U. S. 143 . Here, while it is averred that the suit is not a collusive one in order to confer a jurisdiction which would not otherwise exist, there is no allegation that the complainant has made any request that the corporation should bring the suit to prevent the alleged invasion of its rights, nor does it appear that, by reason of antagonistic control of the corporation, such a request would be futile. Although apparently the holder of a majority of its stock, the complainant does not show any effort whatever to induce the corporation to sue. He contents himself with asserting in effect that, though the directors and officers do not wish to comply with the statute, they will do so through fear of its penalties. But this reason is palpably inadequate, inasmuch as the corporation itself would be entitled to protection against the imposition of such penalties as would virtually deny access to the courts for the protection of rights guaranteed by the federal Constitution. Ex Parte Young, p. 209 U. S. 147 ; Willcox v. Consolidated Gas Co., 212 U. S. 53 , 212 U. S. 54 ; Missouri Pacific Ry. v. Tucker, 230 U. S. 340 , 230 U. S. 351 ; Ohio Tax Cases, 232 U. S. 576 , 232 U. S. 587 ; Wadley Southern Ry. v. Georgia, decided this day, post, p. 235 U. S. 651 . The allegations of the bill show no
ground for dispensing with efforts to procure action by the corporation, and in this view, without discussing the merits of the case, we are of the opinion that the complainant was not entitled to the injunction sought.