Wathen v. Jackson Oil & Refining Co.
1915 U.S. LEXIS 1821 · 235 U.S. 635 · 35 S. Ct. 225 · 59 L. Ed. 395
January 11, 1915 · Docket 79
Headnotes
Generated summaries- Headnote 1
The district court denied the shareholder’s injunction because the complaint omitted any demand on the corporation and offered no explanation of futility, violating the Judicial Code’s demand requirement now embodied in 28 U.S.C. App. § 27.
- Headnote 2
The Court held that the shareholder’s suit was barred because the right to enforce constitutional protections resides in the corporation, not in its stockholders, absent proof of corporate inaction.
- Headnote 321.12.6 Corporate Law > Corporate Litigation and Derivative Actions Law > Demand Futility Law21.12.8 Corporate Law > Corporate Litigation and Derivative Actions Law > Derivative Actions Law
The opinion found no allegation that the corporation’s directors would refuse to sue, nor any showing that the shareholder’s request would be ineffective, so the futility prong of the demand requirement was not satisfied.
- Headnote 4
The Court stressed that criminal statutes may not be enjoined by private parties lacking standing, citing prior authority that bars such relief absent corporate demand and futility proof.
- Headnote 5
The opinion held that the right to restrain enforcement of a statute as an unconstitutional deprivation belongs to the corporation, and a shareholder lacks standing absent proof that the corporation will not sue on its own behalf.
- Headnote 6
The Court noted that the plaintiff offered no evidence that his request to the corporation would be futile, and emphasized that futility must be shown by adequate proof of antagonistic control before a shareholder may proceed.
- Headnote 7
The Court affirmed the denial of a preliminary injunction, emphasizing that a stockholder lacks a right to enjoin a criminal statute’s enforcement without meeting the standing requirements of Rule 27 and demonstrating corporate inability to act.
- Headnote 8
The opinion held that the right to restrain enforcement of the statute as an unconstitutional deprivation of the corporation’s liberty and property resides in the corporation itself, and a stockholder lacks standing without showing he exhausted corporate avenues.
- Headnote 9
The Court observed that the plaintiff offered no request for corporate action and failed to demonstrate that such a request would be futile, emphasizing that futility must be shown with adequate facts, citing Corbus and Ex parte Young.
- Headnote 10
The Court affirmed that the stockholder lacked a right to sue to enjoin the criminal statute’s enforcement because he did not satisfy the standing requirements of Rule 27, referencing prior cases that barred private actions against criminal statutes.
- Headnote 11
The opinion explained that the right to restrain enforcement of the Mississippi ten‑hour workday statute rested in the corporation, and the stockholder could not maintain the suit without demonstrating corporate inaction.
- Headnote 12
The Court found no allegation that the plaintiff had asked the corporation to sue or that such a request would be futile, rendering his claim insufficient for standing.
- Headnote 13
The Court affirmed the denial of injunction because the plaintiff, a stockholder, had no right to restrain the criminal enforcement of Mississippi’s ten‑hour law without meeting the statutory pleading and futility standards.
- Headnote 14
The Court held that without those particular allegations the plaintiff lacks standing to obtain an injunction, and the district court was correct in denying the preliminary injunction.
- Headnote 15
The shareholder’s suit was dismissed because the right to enforce the Fourteenth‑Amendment claim belonged to Jackson Oil & Refining Co., not to the stockholder, absent proof of corporate unwillingness.
- Headnote 16
The plaintiff offered no evidence that a request for the corporation to sue would be futile; thus the Court found no standing under the futility requirement.
- Headnote 17
The Court affirmed that a stockholder lacks standing to enjoin the Mississippi ten‑hour work‑day statute without meeting the statutory pleading requirements and proving corporate inability to sue.
- Headnote 18
The Court held that the right to restrain enforcement of the Mississippi ten‑hour work statute rested in the corporation, and the stockholder could not maintain the suit without proof of corporate inaction.
- Headnote 19
The petitioner's allegation that the directors would comply only out of fear of penalties was insufficient; the Court required proof that corporate action was impossible due to control by those opposed to the suit.
- Headnote 20
The Court affirmed that the stockholder lacked standing to enjoin the Mississippi ten‑hour work law because he provided no effort to procure corporate action and the statute was a criminal provision of the state.
- Headnote 21
The district court denied the plaintiff’s request for a preliminary injunction because the complaint did not detail any attempt to get the corporation itself to sue or explain why such an attempt would be futile, violating the procedural requirements for standing under the Judicial Code.
- Headnote 22
The plaintiff, a shareholder, attempted to enjoin enforcement of a Mississippi ten‑hour work‑day law on Fourteenth‑Amendment grounds, but the Court held that such constitutional challenges belong to the corporation, not to individual shareholders, absent proof that the corporation will not act.
- Headnote 23
The complaint alleged that the corporation’s directors opposed compliance with the statute, yet the shareholder offered no evidence that a request for the corporation to sue would be futile; the Court required such futility showing before allowing a private shareholder to proceed.
- Headnote 24
Because the shareholder failed to allege corporate effort and futility, the Court held that he could not enjoin the state’s ten‑hour work‑day statute, which is a criminal provision, without meeting the standing requirements articulated in Rule 27.
- Headnote 25
The district court’s denial of the injunction was affirmed because the plaintiff’s bill did not set forth the particular efforts made to have the corporation sue nor explain why those efforts were ineffective, a procedural deficiency required by Rule 27 for standing.
Opinion
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 five hundred and two shares of its stock of the par value of one hundred dollars 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 well-being 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, 460, 461; Detroit v. Dean, 106 U. S. 537, 541, 542; Quincy v. Steel, 120 U. S. 241, 248; Doctor v. Harrington, 196 U. S. 579, 588. The former equity rule (Rule 94, 210 U. S. 541) 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, 226 U. S. Appx., p. 8) 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, 220; Ex parte Young, 209 U. S. 123, 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, 209 U. S., p. 147; Willcox v. Consolidated Gas Co., 212 U. S. 19, 53, 54; Missouri Pacific Rwy. v. Tucker, 230 U. S. 340, 351; Ohio Tax Cases, 232 U. S. 576, 587; Wadley Southern Rwy. v. Georgia, decided this day, post, p. 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.
Order affirmed.