Allender v. Ghingher , 170 Md. 156 ( 1936 )

Ninety-five stockholders are made defendants to this first bill, sixty-five to the second, and nearly as many suits at law would be necessary to enforce in that jurisdiction the liability of all of them, suing jointly those who hold stock jointly. With the insolvency of their corporation, and the deficiency to be made up by these stockholders, determined in the receivership proceeding, there would be, as it seems to me, no material differences in questions remaining to be settled in the suits at law, if, indeed, there would be any questions. The books of the corporation determine who are stockholders. Kerr v. Urie,86 Md. 72, 78, 37 A. 789. It is suggested that some may have defenses on the ground of fraud in inducing their subscriptions to stock, but those possible cases must be rare, too rare to determine the general rule of jurisdiction. And there would be no difficulty in litigating such defenses in a single equity suit for enforcement. Such a single suit is the established statutory method for enforcing liabilities of stockholders in other corporations, whatever the questions may be, and was that established for collecting the amount of the additional, or double, liability from trust company stockholders from 1904 to 1910. Acts 1904, ch. 337; Acts 1910, ch. 219, sec. 68; Code, art. 23, secs. 147 and 148, art. 11, sec. 72. Under the present statute, no jurisdiction for suing the latter is specified. It is provided that the liability "shall be enforceable only by appropriate proceedings by a receiver," etc. But may it not reasonably be contended that proceedings in equity, which after long experience have been so made by statute the exclusive proceedings for enforcement of similar liabilities, must be appropriate proceedings for the enforcement of this one? It is conceded that if one additional matter of fact, such as the amount of a proportionate contribution by each stockholder, should need to be litigated, all that is sought to be litigated now could appropriately and justly be litigated in this single equity proceeding. On the other hand, the useless and vexatious waste involved in resort to the great number of suits necessary at law must so clog performance of the receiver's duties as to amount to a practical deterrent, and render the statute hardly workable. So long as the statute is on the books, it is the office of the courts to provide appropriate procedure to make it work. But if the law requires splitting the proceedings into so many suits, with so little to be accomplished by it, then, however logically the law may be functioning, it is not functioning well. I do not think the law requires it.

The question is finally one of taking sides in the unfinished debate on the sufficiency of avoidance of a multiplicity of lawsuits as a sole ground of equity jurisdiction. And it is a question of importance beyond the decision of this case.Pomeroy, Equity Jurisprudence (4th Ed.) secs. 255 to 271, and 2333; 45 Harvard Law Rev. 1297 etc.; 24 Yale Law Journ. 642.

In an equity case under a similar statute on liability directly to creditors for the amounts of unpaid subscriptions, Act of 1872, ch. 325, now embodied with amendments in section 77 of article 23 of the Code, a statute which specified no forum for enforcement, Judge Alvey, for the court, said: "It is well settled that a creditor may proceed in equity, upon an established or admitted claim, against a stockholder or stockholders, to enforce his or their liability to an insolvent corporation, for the amount remaining due upon his or their subscription to the stock, although no account is asked to be taken of the other indebtedness of the company."Crawford v. Rohrer, 59 Md. 599, 605. And in Hall v. Hughes,119 Md. 487, 492, 87 A. 387, 389, also in equity, Chief Judge Boyd said: "The statutes in force from time to time in this State making stockholders liable for unpaid stock were primarily intended to protect creditors, and before the passage of chapter 305 of the Acts of 1908 any creditor could sue at law or in equity any stockholder * * * and recover from him to the extent of the balance due on his stock subscription — not exceeding, of course, the amount of the debt due the creditor." In these expressions the court seems to have viewed such a suit as cognizable in equity without joinder of creditors and stockholders for equitable adjustments among them. Equity jurisdiction was not rested on the theory that the amounts required of the stockholders constituted trust funds for the benefit of creditors, and there would be no more trust in them than in the additional amounts required under the double liability statute. See Coulbourn Bros. v. Boulton, 100 Md. 350, 355, 59 A. 711. Authority was found in two earlier decisions on enforcement of the liability for unpaid subscriptions under the statute imposing it. The cases of Wright v. Lewis, 149 Md. 71,130 A. 911, and Id., 161 Md. 674, 158 A. 704, too, were brought in equity to enforce payment of unpaid amounts of stock subscriptions under the same statute (Code, art. 23, sec. 77), which, like the one now sought to be enforced, did not designate the jurisdiction. Finally, this court in Bartlett v. Smith,162 Md. 478, 485, 160 A. 440, 442, 161 A. 509, said that "A plaintiff may proceed in equity to avoid multiplicity of suits where equity would otherwise not have jurisdicton, but he is not obliged to."

In Matthews v. Albert, 24 Md. 527, in equity, the court remarked upon the advantages of equity procedure in adjusting relative rights among creditors and stockholders, and, as Judge Miller said in the next succeeding case on the subject, "was careful not to decide against the remedy at law." In the latter case, Norris v. Johnson, 34 Md. 485, the court decided that suit at law might be brought by a creditor, and Judge Miller, for the court, said further: "The sole question we are now called upon to decide is, can this liability be enforced by one creditor, where others are shown to exist, * * * or must the creditor resort to equity for relief? It is to be observed that this section [of the Act of 1852, chapter 338, imposing a double liability on stockholders in manufacturing companies], unlike in that respect similar laws in some of the States, is silent as to remedy, prescribing no form, and designating no tribunal where relief may be had. In such case, it is unanimously conceded the creditors may have relief in equity, but the controverted question is, have they not also the right to sue at law."

The unanimous concession was, presumably, found in decisions in other states, rendered from near the beginning of the last century, when provisions in general statutes or special charters were enacted to retain more or less of the liability for debts which incorporators would have had if in business as partners. Some of those decisions held that the alternative of numerous suits at law furnished in itself a ground for resorting to equity. Bank of Poughkeepsie v. Ibbotson, 24 Wend. (N.Y.) 473, 479, cited by this court in Norris v. Johnson, 34 Md. 485, 490;Penniman v. Briggs, 1 Hopk. Ch. (N.Y.) 300, 305; Adkins v.Thornton, 19 Ga. 325, 328; and see Angell Ames,Corporations, sec. 626. Other decisions are not clear on the point. But it seems to me it may fairly be concluded that the principle resulting from those decisions generally was that a creditors' bill, by or on behalf of all creditors, against all stockholders, was permitted and approved because it facilitated adjustments on each side, but that single creditors could pursue a stockholder at law.

If in the earlier Maryland decisions the court contemplated that equity would have jurisdiction only for the purpose of adjusting the relative rights, the fact appears to have been lost sight of in the later decisions quoted. And my understanding is that since 1910 suits on the double liability of trust company stockholders or bank stockholders have been brought in equity, and that, besides those in the two cases before the court at this term, others are now pending in the lower courts. And counsel have stated to the court here that the quoted expressions of the court appearing to sanction the course have been relied on.

These statements of the law, furnishing guides to trial courts and attorneys, should not be abandoned unless there should be some serious disadvantage in following them. There seems to me to be a serious disadvantage in following the alternative practice, especially since the numbers of stockholders in corporations have increased so greatly, as is evidenced here. This increase presents the problem as a modern one. If the expressions quoted from our earlier cases were departures from accepted principle, the fact would seem to be unimportant, for an improvement in procedure which has gained a footing in actual practice is one we may accept, even though originating in a departure. Nelson v.Chesapeake Const. Co., 159 Md. 20, 24, 149 A. 442. My view is that we should deny the principle supposed to have been departed from, and hold with the authorities that find the necessity of numerous suits for enforcement at law to be a sufficient ground in itself for resort to equity, in the absence of substantial differences in the issues which would make a suit in equity multifarious. Upon that theory, the present suit would be maintainable, and the decree should be affirmed.

In Gray v. Citizens' Gas Co., 206 Pa. 303, 55 A. 988, the Supreme Court of Pennsylvania said: "It may be conceded that the time is not very remote in our judicial history when a wronged party sought the intervention of equity, and he could be truthfully met by the reply, `You have a remedy at law in an action of damages,' such reply would have been the end of his bill; he would have been turned out of court for want of jurisdiction. But this answer is no longer conclusive as to the jurisdiction. Courts now go further, and inquire whether, under the facts, the remedy at law is not vexatiously inconvenient, and whether it is so proximately certain as to be adequate to right the wrong complained of." And in the same court, in a suit in equity on unpaid stock subscriptions by an assignee of a corporation for the benefit of its creditors, Mitchell, C.J., after repeating the extract just quoted, said: "Testing by this standard the numerous actions that would be required at law, and comparing that remedy with the superior certainty, uniformity, and convenience of the present bill, we have no hesitation in holding that it is a proper case for equitable jurisdiction." Cook v. Carpenter, 212 Pa. 165, 61 A. 799, 801. "The avoidance of multiplicity of suits by every device, which is jurisdictionally possible and practically convenient," said Wooley, J., in Munson Lines v. Insurance Co. (D.C.) 36 F.2d 269, 271, "should be encouraged, and should be one of the main objectives of procedural administration, and of decisions by courts in practice cases." And see, generally, 45Harvard Law Rev. 1297 etc.; 24 Yale Law Jour., 642; andPomeroy, Equity Jurispr. (4th Ed.) secs. 255 to 271, and 2333.