Llewellyn v. Queen City Dairy, Inc.

Grason, J., delivered the opinion of the Court. On February 23,1946, the Queen City Dairy, Inc., filed its amended bill of complaint against Clarence U. Llewellyn and Harvey E. England, in the Circuit Court for Allegany County, in Equity, to which the defendants interposed a combined demurrer and answer. Thereafter James E. Miltenberger and J. William Loar, respectively, .petitioned the court to be made parties plaintiff in the case, and the court passed orders permitting them to be made parties plaintiff, and each of them adopted, in its entirety, the allegations of the amended bill of complaint. There was objection to the court’s action in this regard, but we do not think it necessary to discuss this objection.

On March 20, 1946, the court ordered that “the demurrer to the amended Bill of Complaint be and it is hereby overruled, except as to paragraph five of said amended bill, as to which paragraph Five it is sustained.” The court further ordered “that James E. Miltenberger and J. William Loar be and they are hereby admitted as parties plaintiff to this proceeding.” Whereupon, on the same day the defendants interposed a combined demurrer and answer to the amended bill of complaint “now filed herein after the Court has by its order made J. William Loar and James E. Miltenberger each party plaintiff, which parties were added after the filing of the original demurrer and answer to the amended bill of complaint.” On March 22, 1946, the court passed its final order in the ⁵² case, overruling the demurrer of defendants to the amended bill of complaint, “except as to Paragraph 5 of said amended bill, as to which Paragraph 5 it is sustained.” It further ordered “that the restraining order of this Court heretofore passed in this case on the 30th day of January, 1946, be and the same is hereby revoked by the Court with consent of all parties.” From this order the case comes here on appeal. The appellees filed a motion to dismiss the appeal, and assert as reasons therefor: 1. “As the record in this case now stands, the appeal is only from so much of the original and amended Bills of Complaint as prayed for a declaratory decree. 2 “The original and amended Bills of Complaint also asked for the writ of injunction (which was granted) but this was dissolved by mutual agreement at the time of the signing of the Order of Court dated March 22, 1946, from which Order this appeal is taken. 3. “That the appeal is, therefore, from an interlocutory order which does not dispose of the case on its merits, or decide finally any matter now before the Circuit Court.” The appeal in this case was taken from the order overruling the demurrer to the amended bill of complaint. The amended bill contained two prayers. The writ of injunction referred to in the motion, which was granted and subsequently dissolved by mutual agreement, was based on the second prayer of the amended bill of complaint, which is as follows: “That pending a determination of the questions presented by this Bill of Complaint, the said defendants may be enjoined from assigning the said options, or be restrained from transferring the said options, or be restrained from transferring the said options to any third person or from transferring any stock purchased thereunder to any third person.” The first prayer is: “That a decree may be passed declaring the rights, status and other legal relations between the said defendants and the corporation.” ⁵³ The demurrer challenges the right of appellants under the allegations of the amended bill of complaint to relief under either prayer of the bill and this appeal cannot be considered simply as an appeal from an order passed on the original bill, and subsequently dissolved by mutual agreement, before the defendants filed their combined demurrer and answer.

The demurrer challenges the allegations contained in the amended bill of complaint as legally insufficient to pass a final decree upon either of the prayers of the bill. In the arguments before this court appellees contended that the order appealed from is an interlocutory order. The argument is made that because the court only sustained the demurrer to paragraph five of the bill, this action renders its order on the demurrer an interlocutory order from which no appeal can be taken. This paragraph of the amended bill refers to a by-law of the corporation, which is as follows: “A stockholder desiring to dispose of his shares of stock must first offer them to the company through the Board of Directors, at market value.” In this paragraph it is stated that this by-law is of doubtful validity, but even so it “imposed a moral obligation upon the defendants to observe it; and they accepted the office of director with this by-law as one of the conditions to be observed by stockholders, among whom were the defendants, in the performance of their duties as such directors.” The lower court held this by-law to be null and void under the corporation law of Maryland.

The view of the lower court regarding this by-law is conceded by appellees. This being so, the allegations of paragraph five of the amended bill of complaint may be regarded as surplusage. It would not in any way give rise to, or tend to raise, a right of appellees to the relief prayed for in the amended bill of complaint. This being so, this case falls in that class of cases where this court has recognized an appeal from an order overruling a demurrer to a bill of complaint.

The matter was fully discussed by Judge Bailey in Miller v. Massachusetts Mut. Life Ins. Co., 183 Md. ⁵⁴ 19, at pages 27 and 28, 36 A. 2d 517 at pages 521 and 522. In that case the defendant demurred to the amended bill, which was overruled, when she filed a full and complete answer to the amended bill, and thereafter appealed from the order overruling her demurrer.

It was there said: “the action of the appellant in appealing from the order overruling the demurrer must be regarded as a nugatory act.” The Miller case goes on to say: “The decision of the court in Harlan v. Gleason, 180 Md. 24 , 22 A. 2d 579 , is not inconsistent with our ruling in this case, as the court was there considering a combined demurrer and answer filed under the authority of General Equity Rule No. 20.” The appellees in this case filed in the lower court a combined demurrer and answer, and as its demurrer was overruled, under authority of Harlan v. Gleason, supra, the order overruling the demurrer was appealable. The motion to dismiss the appeal will be overruled. The amended bill of complaint, set out in narrative form, is as follows. The corporation plaintiff was chartered in 1904, and has since engaged in selling milk in the City of Cumberland and its environs: Its authorized capital stock is $100,000, divided into one thousand shares of the par value of $100 each, and it has issued three hundred and seventy-six shares, held by forty stockholders, and at the time of the matters complained of the defendants were two of the five directors of the corporation.

That they, together with the plant manager of the corporation and its counsel, without disclosing the matter to the other directors and stockholders, entered into an illegal agreement to secure control of a majority of the stock of the corporation for their benefit “or for the benefit of such three and certain outsiders acting through said manager”. That said agreement amounted to a conspiracy against the corporation; that the defendants solicited a majority of the stockholders of the corporation, offering $300 per share, and took options from many of them; that in securing these options the defendants made either misstatements or misrepresentations ⁵⁵ regarding the financial condition of the corporation and charged a plot on the part of certain other directors to cause the corporation to be mismanaged for the purpose of bringing about the sale of stock or assets for their own benefit. That they also represented that they had an arrangement whereby they were to sell not less than a majority of the outstanding shares to James Laher for a higher price than $800 per share and that they falsely represented to various stockholders that they were to receive $300 per share for the stock. It is further asserted that the difference between $300 and $335 per share, which plaintiffs believe the defendants were to receive for the stock purchased by them was to be used to pay certain expenses and then to be divided between the defendants and the plant manager.

It is also charged that the defendants represented that unless a stockholder signed the option he would find himself in the position of a minority stockholder, and that the majority of the stock would be owned by outside interests, not disclosed by defendants, possibly inimical to the welfare and best interests of the corporation, or of the minority stockholders, and by such representation a stockholder was intimidated and thereby sold his stock, or gave an option thereon, even though he did not want to do so. It is charged that the defendants, as directors of the corporation, were acting in a fiduciary capacity for the benefit of all the stockholders and that they have violated their duties as directors and that the stock they purchased should be held for the benefit of the corporation and all of its stockholders and used to further its corporate purposes; that the loyal directors and holders of more than two-thirds of the outstanding and issued stock have agreed that if these proceedings are successful the corporation will cancel the options of all who do not desire to sell and will endeavor to buy at $300 per share or to sell to local producers of milk the stock of those few stockholders who wish to sell. It is further charged that the defendants admitted that they intend to transfer the stock for which they ⁵⁶ have secured options to buy to certain outside interests, whom they refused to disclose, and that unless such transfer of said stock is restrained and enjoined the corporation and the minority stockholders will suffer irreparable damage and that they have no adequate relief at law. It is further asserted that this suit was brought at the request of the owners and holders of the majority of the stock of the corporation and is for the equal pro rata benefit of all stockholders.

We have heretofore set out the prayers of the bill. This bill asserts that the defendants entered into an “illegal agreement or arrangement” with the plant manager and the counsel to the corporation to secure control of a majority of the stock; that said agreement amounts to a “conspiracy” and that in pursuance of “such agreement or plan” options were secured. What this agreement was, that is characterized as illegal and as a conspiracy and as a result of which options were obtained, is not set out in the bill. The bill further charges the defendants with making “misstatements or misrepresentations regarding the financial condition of the company, or charging a plot on the part of certain other directors to purposely cause the company to be mismanaged” so that a sale of “its stock or assets” would be brought about to the benefit of the defendants.

What these misstatements or misrepresentations or plot were is not set out in the bill. It thus appears that the main grounds upon which relief in this case is predicated is based upon the mere assertion of an “illegal agreement or arrangement”, that said “agreement or arrangement” amounted to “a conspiracy against the plaintiff corporation”,