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This, like the preceding cases, was brought to prevent the payment of an Alaskan license tax. The method pursued was, however, different. It is a suit in equity brought by a stockholder against a corporation-the stockholder and the corporation being the sole parties plaintiff and defendant-to restrain it from paying the tax. Notice was given to the United States district attorney of the pendency of the suit, who appeared as amicus curioe, and, disclaiming any intention of, in any manner, representing or binding the United States, denied the jurisdic- [187 U.S. 455, 456] tion of the court, its right to enjoin the defendant from paying the license, and argued in favor of the constitutionality of the law.
The bill alleged that the defendant was incorporated under the laws of the state of Minnesota, and engaged in mining and milling ore in the district of Alaska, with an office and manager in the district; that 'the general control of the affairs of said company is intrusted to a board of directors who reside in San Francisco, state of California, and are nonresidents of the district of Alaska; that the complete control and management of the affairs of said company in Alaska are under the supervision and control of its general superintendent and manager, J. P. Corbus.'
It is further averred that the company by its general superintendent in Alaska is intending to pay the license tax which, for the year beginning July 1, 1899, amounted, with the clerk's fee, to the sum of $1, 875. After denying the legality of the tax the bill proceeds:
A demurrer to the bill was sustained, and a decree entered dismissing the suit. A single opinion was filed by the district judge in disposing of all of these tax cases. In that opinion, and with special reference to the present case, he said:
From the decree of dismissal the plaintiff appealed to this court.
Messrs. L. T. Michener, W. W. Dudley, J. F. Malony, and J. H. Cobb for appellant on first argument.
No counsel for appellee.
Messrs. S. M. Stockslager, George C. Heard, John R. Winn, and John G. Heid for appellant on reargument.
Solicitor General Richards and Assistant Attorney General Beck for the United States. [187 U.S. 455, 459]
Mr. Justice Brewer delivered the opinion of the court:
The thought suggested by the quotation from the opinion of the district judge impresses us forcibly. Evidently the plaintiff patterned his proceeding upon Pollock v. Farmers' Loan & T. Co. 157 U.S. 429 , 39 L. ed. 759, 15 Sup. Ct. Rep. 673. But that case does not determine to what extent a court of equity will permit a stockholder to maintain a suit nominally against the corporation but really for its benefit. Hawes v. Oakland, 104 U.S. 450 , sub nom. Hawes v. Contra Costa Water Co. 26 L. ed. 827, is pertinent in this direction. In that case a citizen of New York, a stockholder in the Contra Costa Waterworks Company, a California corporation, filed his bill in the circuit court of the United States for the district of California against the city of Oakland, the waterworks company, and its directors. The gravamen of the bill was that the city claimed and received from the company without compensation a supply of water for all municipal purposes whatever; that the claim had no legal foundation, and that such supply without compensation resulted in a diminution of the dividends which should come to the plaintiff and other stockholders, and a decrease in the value of their stock. The bill further alleged that the plaintiff applied to the directors to desist from such illegal practice and take immediate proceedings to prevent the city from taking water from the waterworks without compensation, but that they declined to do so, and threatened to continue to furnish water to the city of Oakland free of charge for all municipal purposes, as had theretofore been done. To this bill the company and its directors failed to make answer or other defense. The city of Oakland filed a demurrer, which was sustained and the bill dismissed, and from such decree the case was appealed to this court. The opinion, which is too long to quote in full, opens with these observations (pp. 452, 453, L. ed. p. 829):
After a full discussion, with the citation of many authorities, the conclusion is summed up in these words (pp. 460, 461, L. ed. p. 832):
While this case is unlike that in that it does not attempt to transfer from a state to a Federal court a controversy which really belongs in the former,-there being none other than Federal courts in the territory,-yet the principle is the same, for it is an effort to secure for the benefit of the corporation an injunction which it could not itself obtain, and which no individual similarly situated can obtain.
Immediately after announcing the decision in Hawes v. Oakland, 104 U.S. 450 , sub nom. Hawes v. Contra Costa Water Co. 26 L. ed. 827, this court promulgated an additional equity rule (rule 94):
It appears from the bill that the capital stock of the corporation is divided into 200,000 shares of the par value of $25 each, of which the plaintiff is the owner of 100 shares; that the total annual tax, including fees, amounts to $1,875, which results in a charge upon the plaintiff's interest of less than $1 a year. This would scarcely be a case of 'irremediable injury or a total failure of justice,' as indicated in next to the last paragraph of the quotation from the opinion of this court in Hawes v. Oakland. Indeed, the tax upon the company of $3 a stamp for each of the 540 stamps used by it in the crushing and reduction of ore does not appear to be such as threat- [187 U.S. 455, 464] ens ruin to the company. It does not appear from the bill that any other stockholder shares with the plaintiff his belief in the illegality of the tax, or objects to its payment by the corporation, although, of course, it may be assumed that every person is willing to be relieved from the payment of a tax if other parties will bring about that relief without any trouble to himself.
Again, as suggested by the district judge in his opinion, the plaintiff could not maintain an injunction suit to restrain a similar tax upon himself, and why should he be permitted to secure a relief to the corporation (of which he is a minor stockholder) which he could not secure for himself individually? Are corporations the favored parties in respect to the enforcement of taxes? And when the assistance of a court of equity is invoked, the purpose of the suit and the object which is sought to be accomplished are frequently matters which may properly be considered. Not only is it the general rule that equity will not restrain the collection of a tax on the mere ground of its illegality, but also, as appears by its legislation, Congress has attempted to enforce that rule and to require payment of a tax by the party charged therewith before inquiry as to its validity will be permitted. See Pacific Steam Whaling Co. v. United States, 187 U.S. 447 , 23 Sup. Ct. Rep. 154. Now, before a court of equity will in any way help a party to thwart this intent of Congress, it should affirmatively and clearly appear that there is an obsolute necessity for its interference in order to prevent irreparable injury. No considerations of mere convenience are sufficient. And if the party primarily and directly charged with a tax is unable to make a case for the interference of a court of equity, no one subordinately and indirectly affected by the tax should be given relief unless he shows, not merely irreparable injury to the tax debtor as well as to himself, but also that he has takne every essential preliminary step to justify his claim of a right to act in behalf of such tax debtor. We have seen how small the burden of this tax is upon the plaintiff, and how comparatively light it is upon the corporation,-how far short it comes of anything like irretrievable ruin. It is clearly an attempt to thwart, in behalf of this corporation, the obvious purpose of Congress, that a tax must be paid before its validity [187 U.S. 455, 465] is challenged. Under those circumstances, a court of equity should scrutinize with the utmost care the conduct of the plaintiff, and see that he has done everything which ought to have been done to secure action by the corporation and its directors, and justify under the assumption of a controversy between himself and the corporation his prosecution of a litigation for its benefit.
It appears affirmatively that no demand has been made on the directors to protect the corporation against this alleged illegal tax. The only demand shown is that upon the managing agent of the corporation in charge of the business in Alaska, and the excuse is that the directors ( living in San Francisco) are too far away to be reached by notice. The act went into effect March 3, 1899, and this bill was filed July 17, 1899. The rule requires that the plaintiff must set forth with particularity the efforts made by him to secure action by the directors. It does not appear that he made any effort to secure such action, but he relies simply on the distance of the directors from the place where he resides and in which the court is held, as an excuse for not applying to them. We are of opinion that the excuse is not sufficient. He should at least have shown some effort. If he had made an effort, and obtained no satisfactory result, either by reason of the distance of the directors, or by their dilatoriness or unwillingness to act, a different case would have been presented, but to do nothing is not sufficient. For aught that the bill discloses, he may have been in San Francisco from the time of the passage of the act until he left to come to Alaska for the purpose of bringing this suit. The district judge, in his opinion, said that the facts disclosed by the record lend color to the contention that the suit was collusive. In addition to the matters pointed out by him, it may also be stated that since the case was brought to this court the company has not appeared by counsel in either brief or argument.
Putting all these things together, we are of opinion that the action of the District Court in dismissing the suit was right, and it is affirmed.
The CHIEF JUSTICE took no part in the decision of this case.
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Citation: 187 U.S. 455
Docket No: No. 10
Argued: April 25, 1901
Decided: January 05, 1903
Court: United States Supreme Court
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