Belk v. BELK'S DEPARTMENT STORE OF COLUMBIA, SC, INC.

108 S.E.2d 131 (1959)

250 N.C. 99

William Henry BELK v. BELK'S DEPARTMENT STORE OF COLUMBIA, S. C., INC., a corporation, John M. Belk, Irwin Belk and Thomas M. Belk.

No. 239.

Supreme Court of North Carolina.

April 15, 1959.

*134 Weinstein & Muilenburg, Charlotte, for plaintiff appellee.

Helms, Mulliss, McMillan & Johnston and David M. McConnell, Charlotte, for defendant appellant.

RODMAN, Justice.

The validity of an in personam judgment is of course dependent on jurisdiction over the person of the defendant. Pennoyer v. Neff, 5 Otto 714, 95 U.S. 714, 24 L. Ed. 565; Rutherford v. Ray, 147 N.C. 253, 61 S.E. 57; Doyle v. Brown, 72 N.C. 393. It follows that a judgment in personam can only be rendered against a foreign corporation when it has exercised its corporate functions within the State. Lambert v. Schell, 235 N.C. 21, 69 S.E.2d 11; Goldey v. Morning News, 156 U.S. 518, 15 S. Ct. 559, 39 L. Ed. 517.

"Whether a foreign corporation is doing business in North Carolina, so as to subject it to the jurisdiction of the State's Courts, is essentially a question of due process of law under the U. S. Constitution, Amendment 14 § 1, which must be decided in accord with the decisions of the U. S. Supreme Court." Putnam v. Triangle Publications, Inc., 245 N.C. 432, 96 S.E.2d 445, 450.

In International Shoe Co. v. State of Washington, 326 U.S. 310, 66 S. Ct. 154, 158, 90 L. Ed. 95, 161 A.L.R. 1057, the Supreme Court decided that "due process requires only that in order to subject a defendant to a judgment in personam, if he be not present within the territory of the forum, he have certain minimum contacts with it such that the maintenance of the suit does not offend `traditional notions of fair play and substantial justice.'"

Based on the findings made by the court, it is manifest that "traditional notions of fair play and substantial justice" do not immunize Department Store from service of process and in personam judgments by the courts of this State. Shepard v. Rheem Manufacturing Co., 249 N.C. 454, 106 S.E.2d 704; Painter v. Home Finance Co., 245 N.C. 576, 96 S.E.2d 731; Harrington v. Craft Steel Products, Inc., 244 N.C. 675, 94 S.E.2d 803; Lambert v. Schell, supra; Lightner v. Pilgrim Paper Corp., D.C., 152 F. Supp. 504; Perkins v. Benguet Consol. Min. Co., 158 Ohio St. 145, 107 N.E.2d 203; Moe v. Stearns, D.C., 288 F. 992; Johnson v. Atlantic & Pacific Fisheries Co., 128 Wash. 578, 224 P. 13; Sterling Novelty Corporation v. Frank & Hirsch Distributing Co., 299 N.Y. 208, 86 N.E.2d 564, 12 A.L.R.2d 1435; Hartstein v. Seidenbach's Inc., 129 Misc. 687, 222 N.Y.S. 404; Fleischmann Const. Co. v. Blauner's, 190 App.Div. 95, 179 N.Y.S. 193.

Admittedly, the court had jurisdiction of the individual defendants, who are officers of and constitute the majority of the board of directors of Department Store.

Did the court have jurisdiction of the asserted cause of action?

Normally private corporations are created to permit the use of funds contributed by a designated minimum number of shareholders for the operation of a commercial enterprise of the kind specified in the charter. The funds are provided by the shareholder upon the assumption they will be profitably used, and he will benefit thereby. The statutes of South Carolina recognize the motives which prompt the creation and continued operation of business corporations. Code of Laws of S. C., §§ 12-201 and 12-651.

Stock ownership in this country has reached such proportions that many corporations list more than 50,000 shareholders, *135 and some have in excess of 500,000 shareholders.

Actual management of corporate affairs is entrusted by the shareholders to a board of directors. Shareholders elect as directors those in whom they have confidence because of known or reputed integrity or ability. Given, as they are by the shareholders, the power to manage, it necessarily follows that no external authority should interfere with the exercise of the power so entrusted when honestly exercised for the benefit of the corporation and all of its shareholders.

One of the important duties imposed on directors is the ascertainment of a fiscal policy best adapted to the needs of the corporation. An incident to this policy is a determination of the course to pursue with respect to the declaration of dividends. What part of the profits should be disbursed to the shareholders and when the disbursements should be made are of utmost importance to the corporation and its shareholders. Courts will not interfere with the discretionary power vested in the directors with respect to dividends when honestly exercised; but when it is made to appear that the directors are acting in bad faith and clearly abusing their discretion for some ulterior and improper purpose, a court of equity will intervene and require the declaration and payment of a dividend to prevent what is in effect a fraud on shareholders. Gaines v. Long Mfg. Co., 234 N.C. 331, 67 S.E.2d 355; Gaines v. Long Mfg. Co., 234 N.C. 340; 67 S.E.2d 350, 38 A. L.R.2d 1359; Johnson v. Brandon Corp., 221 S.C. 160, 69 S.E.2d 594; Thompson v. Thompson, 214 S.C. 61, 51 S.E.2d 169; Kroese v. General Steel Castings Corp., 3 Cir., 179 F.2d 760, 15 A.L.R.2d 1117; Fletcher, Cyc. Corporations (Perm.Ed.) sec. 5325; 13 Am.Jur. 678; 18 C.J.S. Corporations § 466, P. 1112.

Some courts have stated that they did not have jurisdiction of a suit against a foreign corporation which involved questions of management and fiscal policies. Condon v. Mutual Reserve Fund Life, Ass'n, 89 Md. 99, 42 A. 944, 44 L.R.A. 149, 73 Am.St.Rep. 169; Fuller v. Ostruske, 48 Wash. 2d 802, 296 P.2d 996; Relief Ass'n of the Union Works, Carnegie Steel Co. v. Equitable Assur. Soc., 140 Ohio St. 68, 42 N.E.2d 653; Boyette v. Preston Motors Corp., 206 Ala. 240, 89 So. 746, 18 A.L.R. 1376.

It is not, we think, a question of the power to judge but the ability to secure the evidence to properly judge or power to enforce the judgment which controls. There is a distinction between the power to exercise and the wisdom of exercising jurisdiction. The distinction is, we think, aptly phrased by the Supreme Court of Illinois in Babcock v. Farwell, 245 Ill. 14, 91 N.E. 683, 690, 19 Ann.Cas. 74: "The reasons which influence courts of chancery to refuse to interfere in the management of the internal affairs of a foreign corporation are that the rights arising between a corporation and its members out of such management depend on the laws of the state under which the corporation is organized; that the courts of that state afford the most appropriate forum for adjudication upon the relation between the stockholders and the corporation, and that frequently such courts alone possess power adequate to the enforcement of all decrees that justice may require. It is the inability of the court to do complete justice by its decree, and not its incompetency to decide the question involved, that determines the exercise of its power. The general statement that courts will not interfere with the management of the internal affairs of foreign corporations must be construed in connection with the particular facts. The rule rests more on grounds of policy and expediency than on jurisdictional grounds; more on want of power to enforce a decree than on jurisdiction to make it."

This is, we think, the basis on which the majority of the courts have acted in refusing to exercise jurisdiction. Rogers v. Guaranty Trust Co., 288 U.S. 123, 53 *136 S. Ct. 295, 77 L. Ed. 652, 89 A.L.R. 720; 23 Am.Jur. 425, 426; 20 C.J.S. Corporations § 1879 P. 99; Fletcher, Cyc. Corporations (Perm.Ed.) sec. 8427. In Brenizer v. Supreme Council, Royal Arcanum, 141 N.C. 409, 53 S.E. 835, 6 L.R.A.,N.S., 235, and Howard v. Mutual Reserve Fund Life Ass'n, 125 N.C. 49, 34 S.E. 199, 45 L.R.A. 853, this Court recognized the inability of the courts of this State, on the facts established in those cases, to enforce any decree which might be entered with respect to the management of the foreign corporation, and because of such want of authority, jurisdiction was denied.

In 1955 the Legislature declared the policy of this State. It enacted: "No action in the courts of this State shall be dismissed solely on the ground that it involves the internal affairs of a foreign corporation but the court may in its discretion dismiss such an action if it appears that more adequate relief can be granted or that the convenience of the parties would be better served by an action brought in the jurisdiction of its incorporation or in the jurisdiction where the corporation has its executive or managerial headquarters or, because of the circumstances, in some other jurisdiction." G.S. § 55-133(a).

The authors of the bill which contained this provision directed this comment to the Legislature: "While the doctrine of nonintervention in the internal affairs of a foreign corporation is still frequently asserted, the courts have increasingly taken jurisdiction in cases which that doctrine would seem to deny. At this date it is beleived that a test more nearly approaching `forum non-conviens' should govern the court's decision and that a statute making that apparent would represent a sound innovation."

The individual defendants demurred to the complaint for the same reasons assigned by Department Store in its motion to dismiss, i. e., lack of jurisdiction over the asserted cause of action. Their demurrer was overruled.

Defendants have not asserted that the facts alleged, if established, are insufficient to justify a proper court of competent jurisdiction in awarding plaintiff appropriate relief. For that reason we have not stated the facts on which plaintiff bases his right to the relief demanded. The law in South Carolina with respect to the facts to be established before a court will interfere and direct the payment of a cash dividend is stated in Thompson v. Thompson, supra, and Johnson v. Brandon Corp., supra.

Based on the findings, specifically including the finding that the question of declaring dividends had heretofore been determined in Charlotte and not in South Carolina, coupled with the fact that the court has power to enforce such decree as it may render by orders directed to the directors who are present before it constituting the majority of the board, and the conclusion which the court drew that the convenience of the parties would not be better served by an action in the State of its incorporation, we are of the opinion and hence hold that the motion to dismiss was properly denied.

Affirmed.