(91 N. J. Eq. 52) (108 A.) FROST et al. v. CARSE. (No. 45/644.) cata against that class. It is suggested by the defendant that he will produce in this state, so that they may be served with pro (Court of Chancery of New Jersey. Feb. 7, cess, one Sutphen and one Dawson, who are 1919.) two of the voting trustees under Exhibit B, the voting trust of the Submarine Boat Cor 1. CORPORATIONS 198-CESTUI QUE TRUST NECESSARY PARTY AND TRUSTEES PROPER PAR-poration. Dawson is also a voting trustee TIES IN SUIT BY ONE TRUSTEE OF A VOTING TRUST FOR REMOVAL OF ANOTHER. In a trustee's suit for removal of another trustee of a voting trust in an electric company, a submarine boat corporation, as a cestui que trust of the voting trustees, should be made a party, and other trustees and certain interested parties as representatives of a class who could be served within the state should be made parties, and it would also be proper to make the remaining trustees under such trust parties, and, if one is dead, his death should be suggested of record. under the Electric Boat agreement. I think that both of these gentlemen may be made parties defendant as holders of the certificates issued under the voting trustee of the Submarine Boat Corporation, and the complainant, I think, might well find one or two others not trustees and not interested in any wise with the parties to this litigation, who are residents of this state, and also make them parties as representatives of a class. It would also be wiser, in my view, to make Sutphen and Dawson parties in their capacity as trustees under the voting trust agreement of the Submarine Boat Corporation as well as Spear if he can be induced to sub mit to the service of process. I am not now passing on the question as to whether the voting trustees are necessary parties, but they are certainly proper parties, and because of the nature of this suit they can be brought in by publication, so that the only result of Spear's declining to come here and be served would be delay. Nothing can be accomplished by staying out of the jurisdiction, nothing which will benefit him, and nothing which will keep him out of this litigation. I think also it would be wiser to make the remaining trustees under the voting trust of the Electric Boat Company parties. Frost is already in; Carse is in; the defendant offers to produce Dawson; Richmond is dead (his death, McCarter & English, of Newark, for com- of course, should be suggested on the recplainants. ord); and, if Spear will agree to submit to the Pitney, Hardin & Skinner, of Newark, for service of process, all of the trustees will defendant. be in. If the bill be amended to set out the respective rights of the parties and they are brought in, then there can be no question but that all of the parties are before the court that could possibly be interested in the litigation. LANE, V. C. (orally). [1] My present view is that the bill should be amended, striking out Stout and Frost as complainants, as executors, so that the suit will be by one cotrustee against another for his removal. I am quite certain also that the Submarine Boat Corporation, as the cestui que trust of the voting trustees of the Electric Company, should be made a party. It is urged by the defendant that there should also be parties representatives of the ultimate beneficiaries of the voting trust agreement of the Electric Boat Company; that is, the holders of the certificates under the voting trust of the Submarine Boat Corporation. I am inclined to think that, while not at this time passing upon the absolute necessity for bringing them in, it would be much wiser to bring a representative or sufficient number of representatives of that class in, in order that the determination of the cause may be res adjudi- [2] Now, the only remaining matter to be For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes 108 A.-41 I will give the complainant 10 days within which to make up his mind whether he desires to amend his bill in the particulars that I have set forth. I am not now determining that he must bring these parties in, but I am quite convinced it would be wiser for him to bring them in. I am rather of the impression (I may change my mind) that, if he amends his bill by striking out Frost in his representative capacity and makes it a case of one cotrustee against another and brings in the Submarine Boat Corporation, I will carry the motion to dismiss the bill for lack of parties over until the final hearing, but complainant would have to take his chance on any such ruling. NOT SHOWN TO HAVE SUBORDINATED INTER- In a suit by a trustee of voting trust to remove cotrustee, evidence that defendant refused to serve as director if plaintiff was chosen on the board and required the voting trustees cient to show that defendant had acted only with to choose between him and plaintiff held insuffia view to his own aggrandizement, or that his conduct militated against the interests of the stockholders or the company. 3. CORPORATIONS 198-EVIDENCE OF MIS APPLICATION OF TRUST FUNDS AND CORRUP- determined is whether the bill is sufficiently | 2. CORPORATIONS 198 - VOTING TRUSTEE precise. The defendant has brought specific objection to only one portion of the bill, as I listened to the argument, and that is part of the thirteenth clause in which it is charged that Carse, without the knowledge or consent of Frost and without the knowledge or consent of the board of directors of the said company, paid to one Ross McAdoo the sum of $40,000 in cash with the intent and for the purpose that at least $25,000 thereof should be used in attempting to approach and influence a certain high official in the United States government, etc. The complainant insists that the name of the certain high official should be set forth. The reply of the defendant is that it is not insinuated that the high official was ever approached or that any attempt was ever made to influence him. The gravamen of the charge is that Carse paid the money to McAdoo with the intent that McAdoo should use it for the purpose of approaching and influencing the high official. No charge is made that it was ever done, and it is said that therefore the name of the official is immaterial and can add nothing to any knowledge that the defendant is entitled to, because if, in fact, the defendant paid the money, as it is urged he did, he knows himself who the official was. I am going to reserve passing upon this question until I am notified as to what course complainant intends to take with respect to the parties. An expenditure by a trustee of corporate voting trust to an agent to secure contracts with the United States navy for the construction of submarines, paid by the trustee individually, held not a misapplication of trust funds, and the fact that such agent was blood relative of prominent official was not evidence of such a debasement or corruption of public officials as to warrant his removal at the suit of a cotrustee. 4. CORPORATIONS 198-TRUSTEE WILL NOT BE REMOVED FOR RECKLESS EXPENDITURE OF CORPORATE FUNDS WHERE PARTIES ARE IN PARI DELICTO. In one cotrustee's suit to remove another, where prodigality was charged and appropriations were made with complainant's assent of $50,000 annual salary to defendant with a bonus of $75,000, of a salary of $25,000 with a bonus of $130,000 to complainant and other equally extravagant salaries to others, the equitable doctrine of clean hands is not inapplicable, and in any event, the parties being in pari delicto, equity will leave them where it finds them. The seventeenth paragraph was brought to my attention, in which it is charged that Carse undertook to influence the solicitor of the navy by having Ross McAdoo offer him a check of $5,000 ostensibly to purchase a patent known to be of no value, and owned by a relative of said solicitor. The charge is 5. CORPORATIONS 198-POSITIVE CONVINCmade that this occurred in or about March, 1916. The man, I think, is sufficiently identified in the seventeenth paragraph. There is no doubt as to the name of the solicitor of the navy at that particular time. (91 N. J. Eq. 124) FROST V. CARSE et al. ING PROOF NECESSARY TO WARRANT REMOVAL A trustee may not be removed at the suit of a cotrustee where no reasonably positive and convincing proof has been adduced to substantiate allegations of extravagance or corruption. 6. CORPORATIONS 198-COURT HAS NO POW ER TO FILL VACANCY IN VOTING TRUSTEESHIP In the absence of a corporate request for such action, the corporate power to fill a va (Court of Errors and Appeals of New Jersey. cancy caused by the death of a trustee cannot Nov. 17, 1919.) 1. CORPORATIONS 198-VOTING TRUST TO PREVENT CONTROL OF SUBMARINE BOAT COMPANY BY GERMAN AGENTS NOT ILLEGAL. A voting trust of a submarine boat corporation formed from the aggregate stockholders to preserve the identity of those who formed and developed the company and to protect the stock from purchase by German government agents during the World War removes it from the category of illegality. be taken from the corporation and voluntarily assumed and exercised by the court. Parker, Black, White, Williams, Taylor and Gardner, JJ., dissenting. Appeal from Court of Chancery. Bill by Elihu B. Frost, as cotrustee, against Henry R. Carse and others. Decree dismissing the bill, and complainant appeals. Decree affirmed. See, also, 108 Atl. 641. (108 A.) McCarter & English, of Newark, and Mau- constituted of stockholders, the men who had rice Deiches, of New York City, for appellant. Pitney, Hardin & Skinner, of Newark, for respondents Carse, Sulphen, and Dawson. Stein, Stein & Hannoch, of Newark, for respondent Submarine Boat Corporation. nurtured the corporation from an era of uncertainty to a status of highly successful recognition in the business world. In that respect, and because of that fact, the voting trust is taken out of the category of illegality, which condemned the voting trusts in Warren v. Pim, 66 N. J. Eq. 353, 59 Atl. 773, and Cone v. Russell, 48 N. J. Eq. 208, 21 Atl. 847, upon which counsel for the appellant rely. MINTURN, J. The facts in this case are adequately contained in the report of the opinion of the learned Vice Chancellor in 108 Into this situation of assured prosperity Atl. 641. The bill was filed by complainant, Frost and Carse were injected. In the earlier the personal differences existing between a cotrustee, primarily against the defendant Carse, to procure his removal from a voting days of suspense and uncertainty Frost and trust of the Electric Boat Company and the kice, his financial coadjutor, dominated, but Submarine Boat Company upon the ground with the passing of the lean and hungry generally that in the direction of the com- years and the advent of prosperity Carse prepany's affairs he by his unscrupulous and un- sents himself in the record as the dominating conscientious dominance had been unfaithful factor of the enterprise. He had surrendered in the performance of his duties. Frost had a position as vice president of the Hanover acquired in the early '80's, with some friends, Bank, at a large salary, at the instance of acquired in the early '80's, with some friends, the complainant and his cotrustees, to accept the control of the original submarine, the dubious product of the fertile genius of John the presidency of the corporations. He had P. Holland. At nearly every stage of its rejected the offer of $50,000 annual salary development Frost was its mainstay and sup- of $30,000 and his share of a bonus, which and accepted the place at the reduced salary port, and has been in this litigation appro- in practical effect meant a liberal share of priately termed its deus ex machina. He nurtured it from infancy and introduced to the earnings of the company. When the perits membership men of wealth and standing sonal trouble between the two acutely dein the financial world and in naval circles, veloped, Frost in 1917 filed a suit in the Suand procured contracts in the face of an at- preme Court of New York for the removal of mosphere of jocularity and doubt which Carse upon grounds substantially similar to looked askance upon the practicability of the those here presented. That suit was allowed scheme. Among others in his dealings with to lie dormant, and this action was institutthe Hanover Bank he met the defendant ed. The Vice Chancellor decided to dismiss Carse, and confided in him to such an extent the bill, and from that decree this appeal has that when Carse was not a director in the company he was urged by Frost to become its adviser and consulter. Up to a period in 1916 Frost and Carse were upon intimate terms of friendship-a friendship which induced Frost to urge Carse for the presidency of the company, "because." as he wrote him, "I consider you the best man for the position, and hence my stock will be more valuable," and he therein advocated the payment to Carse of an annual salary of $50,000. Whatever happened between the two after that period is not sufficiently in evidence, but manifestly it was sufficiently acute to induce Carse in 1916 to decline to serve upon the board of trustees with Frost, so that the board retired Frost and his cotrustee, Johnson, and elected others in their places. The European war opened up a new and luminous vista to the trustees, and under its impetus submarines were constructed for Great Britain, the United States, and Chile, and the stock of the corporation, which went without purchasers upon the street at 10, now found willing investors at 440 and more. [1] The voting trust was formed from the aggregate stockholders, to preserve the identity of those who formed and developed the company, and to protect the stock from purchase by German government agents. It was been taken. It is insisted that the removal should be ordered because Carse participated in the distribution of the bonus in 1915 among the executive officers. To this Carse might properly reply, Tu quoque, and a court of conscience would leave the parties con cededly in pari delicto where it finds them. For over a year Frost, who was a party to the distribution, remained silent upon the subject, and he admits that he received "a bonus of $130,000, and states that he regrets he did not receive more. With the legality of that act we are not concerned in this proceeding. In an appropriate proceeding the stockholders may have their remedy. [2] It is insisted also that for purposes of his own Carse manipulated the affairs of the company and the actions of his cotrustees with a view only to his own aggrandizement. We agree with the Vice Chancellor that the testimony in the case fails to support this allegation. It is insisted that Carse manipulated the action of his cotrustees at the annual election in 1917, and to that end voted for himself as a director. Unless his presence upon the board was inimical to the best interests of the company, and there is no evidence of the fact, we know of no rule of law which imposed silence or inaction upon him as a director and trustee of the corporate affairs, when the question practically was His with Carse in 1916 and 1917 suggested the alleged illegality of this transaction. insistence now is that public policy abhors an expenditure which has as its basis the corruption of public officials. No evidence of such corruption is given, except a statement made by Carse to Frost which Carse denies making. In any event the record shows that it was Carse's money which was expended upon McAdoo's venture, from the receipt of a bountiful bonus which he received jointly with complainant and his cotrustees, and which he was free to expend ad libitum. whether he would continue to devote his abil-red so as to make his complaint a basis for ity and experience to the company's affairs; legal or equitable action until his differences and it must be recalled in that connection that his presence on the board after 1916 was due to no personal intrusion, but to the fact that he insisted upon a choice between himself and Frost. To this his cotrustees assented. They could have accepted the alternative of Frost, but they declined to part with Carse. Spear, one of the trustees, substantially declares that Carse had no ulterior purpose in his conduct of affairs, and that only the best service to the corporation actuated him. It nowhere appears that the conduct of Carse militated against the interests of the stockholders or the interests of the company, and the controversy therefore is practically reduced to the personal equation of argumentum ad hominum. [3] But the major allegation of the complaint is one based upon reasons of public policy, which seeks to attribute to Carse as a part of his modus operandi the debasement and corruption of public officials in an effort to obtain contracts at Washington for submarine boat construction. The company was experiencing trouble in the execution of contracts with the Navy Department at Washington. The officials of the company seemed unable to solve the difficulty, and at that juncture Ross McAdoo was injected into the situation. Carse had known McAdoo for some years, and was cognizant both of his ability and impecuniosity. In the eyes of Carse at that moment apparently McAdoo's greatest asset was centered in his name. He was the brother of a distinguished statesman, whose name and genius have been indelibly impressed upon one of the greatest engineering accomplishments in history, and whose record for public probity and integrity was never questioned. [4] Ross McAdoo, besides applying a large portion of it to the payment of judgments against himself, occupied a representative status in Washington life which in the modern business eye, as well as his own, necessitated a liberality of expenditure commensurate with the character and dignity of his undertaking. He lived at a high-class hotel, and there received his business callers in the modern business fashion of whetting their mentalities and dispositions to the friendly reception and discussion of the business in hand by the prelude of an inviting display of gastronomic liberality and hospitality. To do this adequately upon the contribution he received, and out of the same liquidate his judgment indebtedness, and maintain himself in a sphere comporting with the part he was to assume, as the representative of a corporation which numbered among its stockholders an Austrian count and a member of the British aristocracy, would require at least the princely sum he says was offered aim by Frost, rather than the sum he actually received as the private contribution of Carse. It may be safely assumed that the possession of that concession conferred upon Ross Ross McAdoo was in need of funds, and McAdoo neither the means nor the inclinathe submarine corporation in Carse's diplo- tion to assume a rôle of profligate and cormatic and business eye was in need of Ross tion to assume a rôle of profligate and corMcAdoo. A new modus operandi was there- rupt prodigality, made famous and infamous upon arranged by Carse, with the concur- by the iniquities of Warren Hastings in the rence of Frost, whereby Ross McAdoo should Carnatic. serve as an emissary of the company at If this situation constituted evidence of Washington. This experience cost Carse prodigality with corporate funds by Carse, over $40,000, for which he took Ross what shall be said of the appropriations McAdoo's notes. It cost the company nothing. The complainant presents it as one of the bases for his complaint, upon the ground that it was extravagantly lavish and a misapplication of trust funds for a corrupt purpose. Ross McAdoo has not been produced, but it is noticeable that in his suit against the corporation in New York state for compensation he predicates his claim upon a promise of Frost as a trustee to pay him $100,000 for his services. Frost has not denied this, and it indicates his estimate of McAdoo's ability and power of service at that period. made with complainant's assent of $50,000 annual salary to Carse with the bonus of $75,000, of a salary of $25,000 to himself and a bonus of about $130,000, $25,000 salary to Spear, $20,000 to Davison, $12,000 to Sutphen, $10,000 to Johnson, besides their shares of the bonus from an appropriation for that purpose amounting to $400,000 of the corporate earnings? In such a situation the equitable doctrine of clean hands is not inapplicable; and in any event the rule is familiar that, the parties being in pari delicto, equity will leave them where it finds them. Edgar v. Fowler, 3 East, 225; WheelThe record shows that Frost was cognizant er v. Sage, 1 Wall. 518, 17 L. Ed. 646; Man (108 A.) 2 Sup. Ct. 436, 27 L. Ed. 706; Craft v. McCon- | rights of access across the park to lands on the oughy, 79 Ill. 346, 22 Am. Rep. 171. water front have been reserved. SION NOT LIABLE FOR NEGLIGENCE BECAUSE •[5] In such a situation reasonably positive and convincing proof must be adduced to sub- 4. STATES 112-PALISADES PARK COMMISstantiate the allegation either of extravagance or corruption, as the basis for the removal of a trustee, and the case at bar presents no such evidence. At most, we perceive in the case a controversy between two conflicting individual interests, and not an inquiry originated by or intended to subserve the corporate or stockholding interests, and in that light we have dealt with the situation. In the absence of a corporate request for such action, we fail to perceive upon what legal principle the power to fill the vacancy can be taken from the corporation, and voluntarily assumed and exercised by the court. The decree appealed from will be affirmed. PARKER, BLACK, WHITE, WILLIAMS, TAYLOR, and GARDNER, JJ., dissenting. (93 N. J. Law, 500) STEPHENS v. COMMISSIONERS OF PALI- That the Palisades Park commission, created by 3 Comp. St. 1910, p. 3890, has been given express power to sue and be sued, does not make it subject to liability to an individual for negligence in the performance of a public duty. Appeal from Supreme Court. Action by Robert L. Stephens, administrator ad pros., etc., against the Commissioners of the Palisades Interstate Park, a corporation. Judgment for defendant on motion for determination of question of law before trial, and plaintiff appeals. Affirmed. Memorandum by Parker, J., in the court below: The action is for negligence. As I recollect the complaint,, which at this writing is not before me, plaintiff's intestate is claimed to have sustained fatal injuries by reason of the defective condition of a pathway in the Palisades ant corporation, and plaintiff alleges that such Interstate Park, under the control of the defendcondition was due to defendant's negligence. The answer set up, among other things, that conceding this, no legal liability therefor rested on the defendant; and, as this goes to the root of the case, the matter is properly brought up for determination in advance of trial pursuant to rule 40. At the argument I expressed the tentative view that the point was well taken; and a careful reading of plaintiff's brief, since (Court of Errors and Appeals of New Jersey. received, fails to impress me to the contrary. Nov. 17, 1919.) 1. STATES 112-PALISADES PARK COMMISSION NOT LIABLE FOR NEGLIGENCE IN PERFORMANCE OF PUBLIC DUTY. The Palisades Park commission, created by 3 Comp. St. 1910, p. 3890, being a state agency charged with a public duty of acquiring and developing land for a public park along the Palisades of New Jersey and New York, and performing no private functions, is not liable to an individual member of the public for negli gence by reason of the defective condition of a pathway under its control. 2. STATES 112-NONLIABILITY OF PALISADES PARK COMMISSION FOR NEGLIGENCE NOT AFFECTED BY SUBSEQUENT LEGISLATION. The nonliability of the Palisades Park commission, created by 3 Comp. St. 1910, p. 3890, to an individual for negligence in the performance of a public duty, is not affected by P. L. 1909, p. 177, and P. L. 1910, p. 208. - 3. STATES 112 NONLIABILITY OF PALISADES PARK COMMISSION FOR NEGLIGENCE NOT AFFECTED BY RESERVATION OF RIGHTS OF ACCESS. The nonliability of the Palisades Park commission, created by 3 Comp. St. 1910, p. 3890, for an injury to an individual member of the public on account of negligence in the performance of a public duty, is not affected because The Palisades Park commission, created by the act of 1900 (P. L. p. 163; C. S. p. 3890), is a state agency charged with a public duty, to wit, the acquisition and development and improvement of land for a great public park along the Palisades in the states of New Jersey and New York. It performs no private functions; the commissioners are not even compensated. It may be likened to the corporations called the "State Home for Girls" (C. S. p. 4888), the "State Home for Boys" (Id., p. 4880), and the "State Reformatory for Women" (Id., p. 4931). All these are incorporated. The State Reformatory commissioners, on a hasty glance at the act (C. S. p. 4929), seem to be unincorporated. But all are public bodies charged with public duties by direct mandate of the state, and never, so far as I know, has any been held liable for negligence. [1] The present defendant is, I think, undeniably within the same class, and plainly within the rule laid down in Freeholders v. Strader, 18 N. J. Law, 108, 35 Am. Dec. 530, and vigorously adhered to in all later decisions, that a public agency charged with a public duty is not liable to an individual member of the public for negligence in the performance of that duty. It is true that most of the decisions relate to municipal corporations (Bisbing v. Asbury Park, 80 N. J. Law, 416, 78 Atl. 196, 33 L. R. A. [N. S.] 523, and cases cited); but that, in my judgment, is incidental, and because as state agencies they are within the broader rule. For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes |