Tilden v. Quaker Oats Co., 1 F.2d 160 (7th Cir. 1924)

*161 *162 *163 *164 Albert G. Welch, of Chicago, Ill., for plaintiffs in error.

John M. Zane, of Chicago, Ill., for defendants in error.

Before BAKER and EVANS, Circuit Judges, and GEIGER, District Judge.

GEIGER, District Judge (after stating the facts as above).

Although the declaration contains several counts, the foregoing statement presents the questions arising upon this writ of error. The matters comprehended may be grouped as follows:

(a) The general historical allegations respecting a confederation, combination, pool, monopoly, or attempted monopoly, in the business of oatmeal products, etc. They deal with a situation said to have existed many years prior to the advent of the Cereal Company.

(b) General allegations or charges that "the defendants" combined, confederated, conspired, etc., to restrain interstate commerce in oatmeal products and by-products or to create a monopoly.

(c) General allegations that the defendants entered into "certain agreements" to effectuate the purpose noted in (b) supra.

(d) Allegations of misconduct or misfeasance on the part of certain defendants, officers of the Cereal Company; e. g., the diversion of funds for "illegal salaries," "illegal" dividends, loans to the Cereal Company at high rates of interest, and upon which "extortionate commissions" were exacted.

(e) Allegations respecting the making of the contract of June 22, 1911, between the Cereal Company and the Quaker Oats Company.

Of these groups of allegations it may be observed that mere general charges of combination or conspiracy avail nothing, unless and until there is averred the commission of an act or acts denounced by the statute as conferring a right to ensuing damage. Conceding, therefore, that the declaration by mere general allegation shows the existence prior to the advent of the Cereal Company of some sort of a confederation or combination to monopolize or restrain interstate trade, the plaintiff is not helped thereby since, as shown by the declaration, the Cereal Company came into existence, acquired, and for a long period maintained, a position as a competitor. Hence the necessity of averring an act or acts, prohibited by statute, thereupon committed, which, upon commission, injured the business of the Cereal Company, and which then availed it, and now avails its successor or representative, as a basis for claiming the damage shown to have ensued. So, too, the allegations respecting the embarrassment of the Cereal Company, the payment of "illegal" salaries, the declaration of "illegal" dividends, the making of loans at high rates of interest, the exaction of "commissions" by an official of such company for "procuring such loans," are of no relevancy, in point *165 of pleading, to support a right of action under the statute. If true, they disclose acts of official delinquency occurring within the corporation not germane to the statutory bases and cannot be made more relevant or germane, nor given other color, by introducing them under averments that the acts were committed "in furtherance of the said conspiracy," or that the defendants "taking advantage" thereof, or the consequences thereof, committed other acts. So the case is reduced to the allegations dealing with the contract of June 22, 1911 (e supra); and this necessitates consideration of such contract (1) standing alone, or (2) as a consequence or step in an alleged conspiracy, or (3) in the light of its own alleged consequences.

If, in a competitive business, one agrees to sell out the whole, or part thereof, and its incidentals, the law does not contemplate that he bargains for such advantages only as are certain of actual receipt and fruition; that he does not bargain for consequences which may prove disadvantageous or disappointing in the future; that therefore he may accept and receive the benefits and endeavor to treat ensuing burdens, disadvantages, or disappointments as injury to his business, causing legal damage, simply because by reason of his own participation the act has resulted in restricting the status hitherto held by him as a competitor. Section 7 of the Anti-Trust Act (Comp. St. § 8829) does not intend that one competitor may conspire with another, to the end that each if disaster overtake one or all may insist that the others did him an injury and should stand for damage. The section does not and cannot serve as a means of disavowing, yet holding benefits arising upon, agreements formally and deliberately entered into.

The drafter of the pleading before us appears to have appreciated these elementals, and seeks to avoid their application thus: The agreement was entered into as a formal corporate act; the officers sanctioned and signed upon authorization or ratification by shareholders. But so it is said the latter did not know that, at the stockholders' meetings, the votes cast by proxy were to be cast favorably to the transaction now complained of; and all this when, as averred, the corporation had become "incapable (by `reason of the various unlawful agreements and acts * * * in this count mentioned') of further carrying on its aforesaid interstate trade and commerce," and also when defendants "as directors of said Cereal Company" had resolved that in "the judgment of its [Cereal Company's] board of directors" the property described "was no longer useful or necessary to said Cereal Company, and could not be advantageously used in its business, or in the proper and judicious operation, management and maintenance thereof." So at the threshold plaintiff appreciates that the contract executed and carried out with the conceded formality and express assent detailed evidences corporate assent to and participation in an act, admitted to be the sole act, or the culminating one of a series, without which no claim of injury or damage is assertable. Therefore the declaration is made to disclose a conception of means of evading this assent to avoid what, under familiar principles, bars recovery; and it is averred that defendant directors "concealed" from the shareholders "their intention" to "abandon the aforesaid business," to make the contract, and to convey the property, etc. This, so it is urged, is adequate to show the absence of knowledge on the part of shareholders, therefore want of assent on their part, and therefore also want of corporate assent to the act. The corporation, as an entity, is asserted to have been a victim, not a voluntary participant, and the act is broadly characterized as "unlawful," "illegal," and ultra vires.

The contract, judged as well by what it does not as by what it does, contain, prima facie is neither illegal nor ultra vires. It contemplates transfers of properties, with incidentals, for considerations, which we must presume were met, which transfers are not only within the ordinary power of a corporation, but may be clearly within the duty of its administrative officers to exert, when, as here alleged, the corporation had become incapable of continuing its business, and was on the verge of self-extinction, necessitating liquidation (or its equivalent) of its affairs. Here, again, the pleading is not helped by a mere general allegation that the Cereal Company had been reduced to this situation by various "unlawful acts," none of which, as noted, were or are anything other than acts of delinquency within the corporation itself. Therefore, viewing the contract as within the Cereal Company's corporate power to make, and under which it accepted and retained, and the plaintiff as its successor now retains, large benefits, its avoidance and the plaintiff seems to think some sort of avoidance necessary cannot be encompassed except through recognized processes available in equity for *166 rescission, cancellation, or the like. The alleged want of knowledge on the part of a majority of shareholders that their proxies were to act as they did act certainly does not lay the transaction open to be ignored as void in contravention of public policy, and not merely voidable at the election of the corporation. If the corporation as an impersonal entity was caused affirmatively to act upon such alleged want of knowledge of the shareholders in the same manner as it might have acted upon their majority or unanimous vote with full knowledge, the act, as a corporate act, none the less stands, and even in equity must stand, so long as, by silence or by acquiescence, the corporation allows it to stand. Thus it would seem that the mere allegation that shareholders gave their proxies, having "concealed" from them the intention of the directors or the proxy holders, to vote in favor of the contract which was in fact entered into, is not at all germane or relevant to establish the commission of an act denounced by the statute and which injured the business of the corporation. The corporation itself would be remanded to equity before it could be heard to say that the contract was improvident or the like; in no event nowhere could be heard to assert that it made an illegal contract as a "victim," but desired to stand thereon and recover damages claimed to have been suffered in excess of benefits which it received and retains. We assume that it would not be contended that the corporation, merely because of its impersonal character, could insist if the act is shown to be illegal that it would not be binding, and hence as such impersonal entity, it could not and did not assent to it; or, putting it in another way, that it could always insist that the act of its officers and shareholders, whether the latter act by majorities or unanimously, was in violation or derogation of its legal obligation, and hence in the eyes of the law, it did not, because it could not, assent.

Therefore the declaration before us can be taken as disclosing a purpose to show that the corporation did not assent, merely because a majority of its shareholders did not in fact know that at the meeting referred to a resolution of ratification, therefore of authority, was to be passed. It may be noted that it is nowhere suggested that the shareholders, in granting proxies, did not intend fully to endow the proxy holders with authority to act in a meeting duly convened upon any matter competently brought before the meeting; much less does it intimate that the action, having been taken, was and is in contravention of the actual sentiment of the shareholders. Disregarding, therefore, the fact that plaintiff is pursuing a statutory remedy requiring a case to be brought clearly within statutory terms, the allegations of the declaration do not support the claim that the corporation, upon the promptings of what was done at a meeting duly convened, did not assent to the act complained of. The statement, as a fact, of "concealment" of an "intention" to transact certain business at a shareholders' meeting, is not a violation of any right of a shareholder who gives a proxy broad enough to transact the particular business complained of. And this requires no other or further assumption, except that it be business competently coming before the meeting. Again, if the rights of the shareholders or of the corporation were violated because the contract was illegal, wherefore the act of ratification is illegal, then the alleged concealment of the "intention" to vote shares favorable to ratification becomes immaterial. The "ratification" and the "contract" would have remained just as illegal, had the vote been cast upon full disclosure of the "intention," and likewise, in legal aspect, the "assent" of the corporation, in either case, would be the resultant. There may be a question whether such assent might be more easily avoidable in the one than in the other case, but in either the fact of assent is present.

Upon these considerations, the case as shown by the declaration is reduced to these alternative hypotheses:

(1) That the act conceded to be the culminating act of entering into the contract affirmatively appears from the declaration to have been within the power of the corporation, upon lawful considerations, to do, and therefore is not and cannot be made an act or "instrumentality" within the statute which produced legal damage. Geddes v. Anaconda Copper Co., 254 U.S. 590, 41 Sup. Ct. 209, 65 L. Ed. 425; Keogh v. Chicago, etc., Ry. Co. (C. C. A.) 271 Fed. 444, affirmed 260 U.S. 156, 43 Sup. Ct. 47, 67 L. Ed. 183.

(2) That the act of entering into the contract, if it was unlawful and produced damage, is shown by the complaint to have been a voluntary wrongful participating act of the corporation Cereal Company, and, being such, bars recovery Eastman Kodak Co. v. Blackmore, 277 Fed. 694, 698, 699 (C. C. A. 2d); The Florida, 101 U.S. 37, 43, 25 L. Ed. 898; Sage v. Hampe, 235 *167 U. S. 99, 105, 35 Sup. Ct. 94, 59 L. Ed. 147; Harriman v. Northern Sec. Co., 197 U.S. 244, 295, 296, 298, 299, 25 Sup. Ct. 493, 49 L. Ed. 739; Gibbs v. Baltimore Gas Co., 130 U.S. 396, 405, 406, 9 Sup. Ct. 553, 32 L. Ed. 979; Victor Talking Mach. Co. v. Kemeny, 271 Fed. 810, 816 (C. C. A. 3d); Bluefields S. S. Co. v. United Fruit Co., 243 Fed. 1, 18, 155 C. C. A. 531 (C. C. A. 3d); Bishop v. American Preservers Co. (C. C.) 105 Fed. 845, 846.

We need but add, in connection with the second hypothesis, that if the alleged cause of action has the infirmity noted, and assuming that a cause of action under section 7 might be assertable by a receiver, his status does not free the alleged cause of action, which the corporation may have attempted to assert, of its fatal infirmities.

The judgment is affirmed.

Judge BAKER approved of this opinion, but died before it was announced.

Judge EVANS approves of the conclusion reached.