It is such a double derivative suit that the plaintiffs, stockholders of Tobacco Products, the owner of all the stock of New Jersey seek to have a receiver enforce for New Jersey. The uncontradicted allegations that the officers and directors of Tobacco Products and Stores were the same at the time Stores filed its bill in the Court of Chancery of Delaware, and the officers and directors of New Jersey and stores are identical
and the verified statement that Stores is the only one that will profit if New Jersey abandons its claim for tax refund
excuse the plaintiffs from applying to the governing body of New Jersey to refrain from abandoning the claim for refund and to prosecute said claim. The request for action would have been futile.
Assuming but not deciding that objections, if any, to the complaint because of indispensable parties could be answered or the objections met, the complaint would be allowed to stand and the motion of the defendant to dismiss it would be denied if the Court of Chancery of Delaware had not appointed a receiver for Tobacco Products, the corporation in which plaintiffs have the stock upon which they rely to bring a double derivative suit and if said court had not taken affirmative action by order directed specifically to the claim for the tax refund in question.
"It is the general rule that, where a corporation is in the hands of a receiver, a stockholder cannot sue without the sanction of the court appointing the receiver. And it is further the general rule that such stockholder cannot sue, even where the court has granted him permission to do so, where there is no order purporting to assign to him or to confer on him the right to enforce the claim vested in the receiver. The property of the corporation, which would include claims of action on behalf of the corporation is in the possession and custody of the court, held by the receiver as an officer of the court. In the suit by a stockholder in behalf of the corporation the real controversy is between the corporation and the person whose acts are complained of, and the suit is for the benefit, not of the individual, but of all the stockholders. Where the corporation is in the hands of a receiver, the right of action by the receiver to protect the interest of the corporation is exclusive."
The plaintiffs do not quarrel with the general rule. They contend the action of the receiver in obtaining the order hereinbefore referred to amounts to a refusal on his part to press the claim for refund and therefore they are aggrieved and may sue.
"The right of a stockholder to sue to enforce a cause of action in favor of the corporation arises only from failure of the managers of its affairs at the time to use their powers and to do their duty in respect thereto. If the ordinary powers and duties of directors have been suspended by a receivership, * * * the right of a stockholder to sue, as representing the corporation, depends, not upon the attitude of the managers of its affairs in the past, but upon the attitude of the managers at the time the right is asserted by the stockholder's bill * * *."
The attitude of the manager of Tobacco Products at the time the plaintiffs filed their complaint is evidenced by the record. He applied to the court that appointed him, the court administering the estate through him as its officer for the benefit of those whom the court shall ultimately adjudge to be entitled to it.
It was the court's duty to decide whether or not the assets of Tobacco Products or more particularly whether the stock of New Jersey as one of the assets could be increased in value to the benefit of the estate by pursuing the claim for refund or would the estate incur expense, shall we say, in an endeavor to enforce a claim which would be nonproductive in the event the Virginia dissolution was determined to be tax free,
and the assessment the obligation of New Jersey. The court decided the matter should be handled in the manner more particularly set forth in the order. The plaintiff think it is poor judgment to abandon the tax claim for refund, maybe they are right and they might have proved themselves so, if they had pursued their remedy in the State of Delaware. Instead they would have us say in effect to the managers of New Jersey, you are to ignore the court having possession of all the stock of New Jersey and the order of said court, and in the place and stead thereof we are substituting a receiver for New Jersey in order to take a course entirely different from the one taken by the chancellor of the State of Delaware. Is there any guarantee that the plaintiffs' course will be to the benefit of all the stockholders of Tobacco Products and the course set by the order will not? We do not have the case of a receiver who has refused to act or is himself involved. We have the case of a receiver who has instructions from the court appointing him on how he is to handle certain identified assets in the possession of the court.
This is not the court to test the fidelity of the receiver to the duties of his trust in the event he has misled the court in his petition, neither is the court to determine the soundness of the course taken.
The present manager of Tobacco Products is not Stores, the majority stockholder, it is not the directors and officers of Stores, who are said to have been identical with the officers and directors of Tobacco Products, it is the Court of Chancery of the State of Delaware, a tribunal, independent of and divorced from all of the influences which the plaintiffs say would jeopardize their stock to the advantage of Stores.
The United States Supreme Court has admonished us to avoid unseemingly and disastrous conflicts in the administration of our dual judicial system and to protect the judicial processes of the court first assuming jurisdiction
The motion of the defendant to strike the complaint should be granted, and it will be granted upon the presentation of the proper order.