It may be noted that the entire matter of the propriety of the bond issue here involved was heard by the Interstate Commerce Commission, the case having been submitted July 9, 1943. Information relative to the applications, the hearings and order of the Interstate Commerce Commission was widely advertised and published throughout the United States.
The Commission gave full consideration to bids made by Halsey, Stuart & Co., and by Otis & Co., the instant plaintiff; likewise, the Commission heard Otis & Co., as intervener in that action, on the issue of the propriety of the private sale and the appropriateness of competitive bidding. In its report, 254 I.C.C. 473, the Commission approved the bond issue at a slightly higher price. In answering the question on competitive bidding, the Commission pointed out that it had, for a number of years, required competitive bidding for certain types of securities of special characteristics, but as to other securities, such as those involved here, the Commission said: "* * * the negotiated price has been scrutinized in the light of the terms of each issue and the money market conditions obtaining at the time of the sale, and, if the price has been found to be fair and reasonable, the issue and sale has been authorized. However, when we have deemed the proposed sale price to be too low, the carrier has been so advised or a minimum price has been fixed in authorizing the issue of the security. Those practices have been long established and are well understood by the railroads. We have not recently engaged in a general investigation as to the matter of competitive bidding. * * * Nor have we, in a decision in a particular case, given any indication, as a timely notice, that such practice would be expected to be observed. * * * In the absence of such general rule or a decision of similar purport, these railroads have considered they should proceed along the lines heretofore followed in the sale of their securities. * * * The bonds have been favorably received, and now to say, after the exploratory testing of the market is accomplished, and because some other prospective purchaser is willing in the light thereof to offer a higher price, that this issue is one which requires that the sale should be made only through competitive bidding, would be a conclusion not warranted by the facts. * * *"
Although the Commission has since required competitive bidding on railroad bond issues, see 9 F.R. 7205 Appendix, June 29, 1944, the fact is that the bond issue here was approved and the corporate policy at that time found to be in accordance with custom and the Interstate Commerce Commission rules.
There having been an attack on a long established corporate policy, recognized and approved by the Interstate Commerce Commission, reflecting on the good faith of the administration and affecting the good will of the corporate defendants, it seems to me it is proper that the corporations here involved by permitted to answer the complaint. Kanneberg v. Evangelical Creed Cong., 1911, 146 Wis. 610, 131 N.W. 353, 39 L.R.A., N.S., 138, Ann.Cas.1912C, 376; Central Shorewood Bldg. Corp. v. Saltzstein, 1944, 245 Wis. 138, 13 N.W.2d 525, 527, 528. They have a definite stake in the controversy; good will is of importance to corporations existing in an industry where money frequently is borrowed on a large scale. It has been suggested that the damage is done when the complaint is filed; see Harris v. Pearsall, 1921, 116 Misc. 366, 190 N.Y.S. 61; and that vindication would come with victory by the individual defendants, see Washington, op. cit. supra. But the corporate policy and corporate good will are of vital economic interest to the corporations, and they should be given the opportunity to defend. In speaking of indispensability of the presence of a corporation as a party in a stockholders' derivative suit, the Supreme Court of Pennsylvania, in Kelly v. Thomas, 1912, 234 Pa. 419, at page 429, 83 A. 307, at page 310, 51 L.R.A., N.S., 122, stated: "Not only was its (the corporation's) presence necessary to the plaintiff, but the defendants were entitled thereto * * * and the company itself was entitled to notice in order that its interests and the rights of its creditors might be protected."
Even under the well-known theory of the nature of the stockholders' suit, that is, that there are two causes of action combined, one by the stockholder against the corporation for refusing to act, the other by the stockholder as representative of the corporation against the individual defendants, the defendant corporations here have a right to defend their refusal to sue. See 13 Fletcher, Corporations, (1937) §§ 5945, 5947; Dodge v. Woolsey, 1855, 18 How. 331, 59 U.S. 331, 343, 344, 15 L. Ed. 401; Grant v. Cobre Grand Copper Co., 1908, 126 App.Div. 750, 111 N.Y.S. 386, 391; see also Kelly v. Thomas, supra. The mere fact that the defendant corporations stand to gain financially should plaintiff succeed is not enough to conclude their standing. Venner v. Great Northern R. Co., 1908, 209 U.S. 24, 32, 28 S. Ct. 328, 52 L. Ed. 666.
It must be kept in mind, too, that this is a stockholders' secondary action and that inherent in such an action is the corporations' prior failure to enforce an alleged right. The stakeholders' action is critical of the corporations' management and the corporations should have a right to answer, subject to the exceptions hereinbefore mentioned where fraud of the directors or management is the essence of the stockholders' action. A realistic view must take into consideration that a secondary action brought by even one stockholder is regarded by law as being a class action -- taken by or on behalf of all stockholders.
Thus we have an arraignment of the stockholders on one side and management on the other, with the issue being the charges of mismanagement. To peremptorily shut the door on management and deny it its day in court might, in many instances, have a destructive effect on the interest of the stockholders.
Finally, plaintiff further seeks to remove counsel of defendants on the ground of conflicting, dual and inconsistent interests. It appears that Albert Ward, Esq., entered his appearance, on March 24, 1944, for P.R.R. and P.O. & D.; that R. Sturgis Ingersoll, Esq., entered appearance on March 17, 1944, for all individual defendants, and on March 23, 1944, for the corporate defendants; that John Dickinson, Esq., entered appearance on April 14, 1944, for the individual defendants. It is alleged that Dickinson is general counsel for P.R.R. although he did not enter appearance for them. Nevertheless, both Ingersoll and Dickinson have filed various documents -- the answer of all defendants to the instant motion, and the brief of all defendants in support of the answer -- in which they appear as "Counsel for All Defendants."
In my opinion there is no reason to require removal of counsel as petitioned. The corporation, as an interested party having a right to appear and defend, may select such counsel as it chooses. Moreover, there is no allegation of any breach of confidence or trust of which either the corporations or the individual defendants complain. In any event, it is doubtful whether plaintiff is the proper party to complain, since the attorneys hold no confidence belonging to it. See 7 C.J.S., Attorney and Client, § 47, p. 827; Ferguson v. Alexander, Tex.Civ.App., 122 S.W.2d 1079; Michel v. McKenna, 1929, 199 Wis. 608, 227 N.W. 396, 398. Moreover, there are many stockholders' suits on record in which the same counsel represented both the individual and corporate defendants. See Riley v. Boynton Coal Co., 305 Pa. 364, 157 A. 794; Bonini v. Family Theatre Corp., 327 Pa. 273, 194 A. 498; Beck v. O'Laughlin, 337 Pa. 416, 11 A.2d 867; Steckler v. Pennroad Corp., D.C., 44 F.Supp. 800, affirmed 3 Cir., 136 F.2d 197, certiorari denied 320 U.S. 757, 64 S. Ct. 64. See also Elberta Oil Co. v. Superior Court, 1930, 108 Cal.App. 344, 291 P. 668 (where the court specifically noted the fact that counsel represented the corporation and the individual defendants who were charged with profiting at the corporation's expense).
For the reasons stated the plaintiff's motion to strike the answer of the corporate defendants and to remove counsel is denied.