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
Page 235 U. S. 636
the right of a stockholder of a corporation to enjoin the
corporation from complying with those provisions, are stated in the
opinion.
Page 235 U. S. 638
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
Page 235 U. S. 639
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,
ยง 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
Page 235 U. S. 640
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
Page 235 U. S. 641
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.