SIGNAL OIL AND GAS COMPANY v. American Independent Oil Company, Defendant and Appellant.*

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District Court of Appeal, First District, Division 1, California.

SIGNAL OIL AND GAS COMPANY, a corporation, Hancock Oil Company, a corporation, Ralph K. Davies, Globe Oil and Refining Company, a corporation, and Lario Oil and Gas Company, a corporation, Plaintiffs and Respondents, v. ASHLAND OIL AND REFINING COMPANY, a corporation, R. S. Blazer, S. M. Burnam Defendants, and Appellants, American Independent Oil Company, Defendant and Appellant.*

No. 16844.

Decided: July 17, 1957

Crimmins, Kent, Draper & Bradley, John L. Bradley, Robert E. Burns, Park Chamberlain, San Francisco, for appellant Ashland Oil & Refining Co. Vaughan, Paul & Lyons, Reginald L. Vaughan, Varnum Paul, San Francisco, for appellant American Independent Oil Co. McCutchen, Thomas, Matthew, Griffiths & Greene, James D. Adams, Owen Jameson, Walker Lowry, San Francisco, Warner W. Gardner, Washington, D. C., for respondent.

Defendant American Independent Oil Company is a corporation formed in 1947 under the general corporation laws of Delaware for the exploration, extraction, processing and sale of oil and gas and products and by-products thereof. In the exercise of his cumulative voting right each stockholder elects one or more of the 15 members of the board of directors in the ratio approximately which the number of his shares bears to the total number of shares of stock issued and outstanding.1

The complaint alleges in its first count that American Independent Oil Company was organized for the purpose of making available to individual operators and independent oil companies opportunities to engage in the exploration and development of foreign oil deposits, particularly in the Kuwait-Saudi Arabia Neutral Zone; that each of the corporate stockholders of American is an independent oil company as that term is generally understood in the petroleum industry, except Phillips Petroleum, which is a major oil company; that the directors of American selected by Sunray and by Abercrombie invariably vote, on matters of basic policy, with those selected by Phillips; and that the stockholders of American have at all times taken special measures to insure that American would not come under the domination of any one major stockholder, one of those measures being the execution in March, 1950, of a stock pooling agreement (designated ‘Agents' Agreement’) by plaintiffs Signal Oil, Hancock Oil, Globe Oil, Lario Oil and Ralph K. Davies and by defendant Ashland Oil.2

Next, it is alleged that all parties to the Agents' Agreement abided by its terms from March, 1950, until November, 1954, when Ashland consulted with Phillips concerning certain proposed changes in American's corporate structure and basic policies; that in violation of the Agents' Agreement these proposals were kept secret from the plaintiffs until December 9, 1954, when, at a meeting of American's board of directors, the director-representatives of Ashland combined with those of Phillips, Sunray, Deep Rock and Abercrombie in calling a meeting of American's board for December 16, 1954, for the adoption of these proposals, in violation of the obligations of Ashland and its director-representatives under the Agents' Agreement.

This conduct of Ashland, it is alleged, is in furtherance of a plan to transfer control of American to a combination of its stockholders consisting of Phillips, Ashland, Abercrombie and Sunray ‘all in direct violation of the Agents' Agreement and the purposes pursuant to which American Independent was organized.’ An injunction is sought.

The second count of the complaint incorporates by reference the allegations of the first count and seeks a declaration that the Agents' Agreement is valid, binding and enforceable.

On December 15, 1954, a temporary restraining order issued. It was superseded on May 3, 1955, by a preliminary injunction. From the latter, defendants Ashland and American have appealed.

The principal issue pertains to the legality of the Agents' Agreement.

The significance of this agreement stems from the fact that the preliminary injunction is based upon the agreement and restrains action inconsistent with the provisions of the agreement.3

The Agents' Agreement is a stock-pooling agreement whereby the six signatory stockholders pooled their interests and sought to control and limit the exercise of the powers vested in them as stockholders, also to limit and control the exercise of the discretion vested in their representatives when acting as members of the board of directors of American. We need not detail its provisions here. They are set forth in a recent decision (now final) of the Supreme Court of Delaware. We refer to the case of Abercrombie v. Davies, 130 A.2d 338. The court found and declared ‘that the Agents' Agreement is void as an illegal voting trust’ (at page 347 of 130 A.2d) because of noncompliance with the applicable provisions of the Delaware statutes. Phillips and the other stockholders of American who are not parties to the Agents' Agreement were plaintiffs and all of the American stockholders who signed the Agents' Agreement and who are parties to the instant action were defendants in the Delaware suit.

The parties hereto agree and we hold that because American is a Delaware corporation the legality of the Agents' Agreement is governed by the laws of Delaware. (See Ringling v. Ringling Bros.-Barnum & Bailey Comb. Shows, 1946, 29 Del.Ch. 318, 49 A.2d 603, 607; Deibler v. Chas. H. Elliott Co., 1951, 368 P. 267, 81 A.2d 557, 561; Hodgman v. Atlantic Refining Co., D.C., 2 F.2d 893, 894; Southern Sierras P. Co. v. Railroad Comm., 205 Cal. 479, 271 P. 747; Sharp v. Big Jim Mines, 39 Cal.App.2d 435, 103 P.2d 430; Restatement of Conflict of Laws, §§ 182–184; 6a Cal.Jur., Corps. § 191; 13 Am.Jur., Corps., § 174. So, whether we treat this Delaware decision as res judicata or deem it binding upon us under the full faith and credit clause or simply view it as the latest interpretation of the applicable laws of Delaware by the highest court of appellate jurisdiction of that state (Code Civ.Proc. § 1875, subd. 3, and Corporations Code, § 6602), the result is the same. We hold that the Agents' Agreement is and from the day of its signing has been wholly void and without effect.

The invalidity of the agreement (a copy of which is annexed to and made a part of the complaint) appears upon the face of the complaint. It follows that the preliminary injunction, designed to enforce this void agreement, itself is void. The applicable statute declares that an injunction ‘may be granted at any time before judgment upon a verified complaint, or upon affidavits if the complaint in the one case, or the affidavits in the other, show satisfactorily that sufficient grounds exist therefor.’ Code Civ.Proc. § 527. Here, the complaint shows that grounds do not exist for the enforcement of this purported agreement. In Harlan v. Superior Court, 94 Cal.App.2d 902, 905, 211 P.2d 942, 945, the record disclosed ‘a complete absence of any factual showing by pleading or affidavit upon which the court could have based a finding of the existence or non-existence of grounds for granting the temporary injunction.’ Concerning that the court said: ‘It has been held that the provisions of section 527 are the measure of ‘the power of trial courts in the matter of provisional injunctions.’ United Railroads v. Superior Court, 170 Cal. 755, 759, 151 P. 129, 131, Ann.Cas.1916E 199. And for the purpose of determining the right to restraint by prohibition the procedural requirements of the section go to the jurisdiction of the trial court. A verified showing is indispensable to the exercise of injunctive power under the rule that ‘though the court has jurisdiction over the subject matter and the parties in the fundamental sense, it has no ‘jurisdiction’ (or power) to act except in a particular manner, or to give certain kinds of relief, or to act without the occurrence of certain procedural prerequisites.' (Emphasis added.) Abelleira v. District Court of Appeal, 17 Cal.2d 280, 288, 109 P.2d 942, 947, 132 A.L.R. 715. Accordingly, because of the failure to observe the procedural requirements of section 527, the court was without jurisdiction to render the order for the alleged violation of which petitioner was adjudged guilty of contempt. Cf. Green v. Superior Court, 65 Cal.App. 237, 223 P. 582; Northcutt v. Superior Court, 66 Cal.App. 350, 226 P. 25; Kelsey v. Superior Court, supra, 40 Cal.App. 229, 236, 180 P. 662. Disobedience of a void order, of course, does not constitute contempt. Kreling v. Superior Court, 18 Cal.2d 884, 118 P.2d 470; In re Carroll, 135 Cal.App. 672, 28 P.2d 84.' 94 Cal.App.2d at page 905, 211 P.2d at page 945. See also In re DeSilva, 33 Cal.2d 76, 79–80, 199 P.2d 6; Chaplin v. Superior Court, 81 Cal.App. 367, 378, 253 P. 954; People v. Seccombe, 103, Cal.App. 306, 284 P. 725; Svistunoff v. Svistunoff, 108 Cal.App.2d 638, 239 P.2d 650; 1 Witkin, California Procedure 421–422. The alternate ground of decision mentioned in United States v. United Mine Workers, 330 U.S. 258, 67 S.Ct. 677, 91 L.Ed. 884, that the trial court had the power to issue the restraining order to preserve the status quo pending determination of its own jurisdiction (p. 290), was explained and distinguished by our Supreme Court in the case of In re DeSilva, supra, 33 Cal.2d 768 79–80, 199 P.2d 6. A case not mentioned in the DeSilva opinion is Brookshire Oil Co. v. Casmalia, etc., Co., 151 Cal. 577, 91 P. 383. Apparently it is similar to In re Fortenbury, 38 Cal.App.2d 284, 101 P.2d 105, which was distinguished in the DeSilva opinion (at page 80 of 33 Cal.2d, 199 P.2d 6).

Plaintiffs point to one paragraph of the preliminary injunction that does not expressly mention the Agents' Agreement and argue that the portion does not depend upon the validity of the agreement. They refer to a paragraph which restrains American and all persons acting on its behalf ‘from recognizing or putting into effect any action taken at the meeting which certain directors of American Independent Oil Company purported to hold in Chicago, Illinois, on December 16, 1954.’ That was action taken in direct violation of the temporary restraining order of December 15, 1954, as distinguished from violating of the agreement, plaintiffs seem to contend.

The weakness of such an argument is that the temporary restraining order itself was based upon the Agents' Agreement and was designed to restrain violation of the agreement. The temporary order did enjoin the defendants from participating in the directors' meeting proposed to be held on December 16, 1954, and from taking any action pursuant to the calls or notices for that meeting, but the complaint herein characterized the proposals to be submitted at that meeting as made in violation of the Agents' Agreement. Moreover, the temporary order further expressly enjoined the defendants from participating in any meeting of the directors of American to accomplish any purpose described or indicated by the calls or notices for the December 16, 1954, meeting ‘except after full compliance with the provisions and procedures of the Agents' Agreement’ and ‘from taking any action which is in violation of the Agents' Agreement * * * and from failing or refusing to take any action which is required by that agreement.’ Accordingly, we interpret the temporary restraining order as predicated upon the Agents' Agreement, intended to prevent action other than in accordance with the terms of that agreement, and, therefore, dependent upon the validity of that agreement.

Plaintiffs further request that we revise the preliminary injunction in case we find the Agents' Agreement invalid and unenforceable, substituting for the provisions which refer to the Agreement ‘new provisions enjoining the defendants from taking any action which might directly or indirectly impair the independence of the [American] Company.’

For this court to respond to such a request would be tantamount to the assumption of original jurisdiction in injunction matters. We do not have any such power. See McCann v. Union Bank & Trust Co., 4 Cal.2d 24, 27, 47 P.2d 283; Seltzer v. Musicians' Union Local No. 6, 12 Cal.2d 718, 87 P.2d 699; Canavarro v. Theatre, etc., Union, 15 Cal.2d 495, 500–501, 101 P.2d 1081. Whatever grounds (other than the Agents' Agreement) plaintiffs may have for the issuance of a preliminary injunction, based upon the complaint on file or as it may have been or may yet be amended or supplemented, should be presented to the trial court.

The order appealed from is reversed.

FOOTNOTES

1.  Of the plaintiff stockholders, Signal Oil and Gas Company elects two directors; Hancock Oil Company, two; Ralph K. Davies, one; Globe Oil and Refining Company and Lario Oil and Gas Company together, one. Defendant Ashland Oil and Refining Company elects two directors. Of the remaining stockholders (neither parties to this action nor to the agreement mentioned later on in this opinion), Phillips Petroleum Company elects four directors; Deep Rock Oil Corporation, Sunray Oil Corporation, and James S. Abercrombie, one each.

2.  The parties to this agreement hold about 54.5% of the stock of American and elect eight of its 15 directors.

3.  Thus, the Ashland company, its directors, agents and employees are ‘enjoined * * * from taking any action which is in violation’ of the agreement; ‘all such persons are enjoined * * * from voting at any meeting of the stockholders or directors' of American Independent ‘except in accordance with and pursuant to the provisions of’ the agreement, ‘which is to say that in all instances in which the Agents' Agreement is invoked by any party thereto any such vote shall be cast only as determined by seven of the eight agents, or by arbitration, as the Agreement provides.’

FRED B. WOOD, Justice.