## Facts

- Minority shareholders of Warren-Teed Seed Company (a Nevada corporation) sued John L. Kellogg, an Illinois resident and controlling shareholder, alleging fraud, misappropriation, and self-dealing through a network of related entities.
- Warren-Teed and Seedtown Products, Inc. (a Delaware corporation) entered a 1930 agreement under which Seedtown would acquire Warren-Teed’s assets in exchange for Seedtown stock, and Warren-Teed shareholders could exchange their shares for equivalent Seedtown shares.
- Plaintiffs alleged Kellogg dominated the corporations and caused corporate assets to be diverted, preventing shareholders from receiving Seedtown stock due under the agreement.
- Plaintiffs also alleged Kellogg obtained an Illinois default judgment against Seedtown for about $220,006.90 as part of a scheme to appropriate assets.
- Plaintiffs filed a representative and derivative bill in equity in Michigan seeking an accounting and restitution from Kellogg for harms asserted to belong to Warren-Teed and Seedtown.
- Kellogg was not personally served in Michigan and did not appear or submit to Michigan jurisdiction.
- Warren-Teed and Seedtown were not personally served through any officer or agent in Michigan; plaintiffs attempted constructive service by publication.

## Issues

1. Whether a Michigan equity court may adjudicate corporate causes of action in a shareholder derivative suit against a nonresident controller when the beneficiary corporations are foreign and not amenable to process in Michigan.
2. Whether the foreign beneficiary corporations are indispensable parties whose absence requires dismissal.

## Decision

- The Michigan Supreme Court affirmed dismissal of the bill of complaint.
- The court held it could not proceed on claims belonging to Warren-Teed and Seedtown because those corporations were indispensable parties and were not properly before the court.
- The court further noted the absence of personal jurisdiction over Kellogg, who was not personally served and did not submit to Michigan jurisdiction.
- The court did not reach the merits of the alleged fraud and misappropriation.

## Legal Principles

- A shareholder derivative action asserts a corporate right; the corporation is the real party in interest and ordinarily must be joined so a decree binds it and prevents later relitigation.
- Where the beneficiary corporation is a foreign entity not amenable to process in the forum, the court will not assume jurisdiction to adjudicate corporate claims when the corporation cannot be made a party.
- Equity jurisdiction to remedy fraud or misappropriation is constrained by jurisdictional limits and indispensable-party rules; such constraints may bar relief despite serious allegations.
- Constructive service is insufficient to make foreign corporations parties for adjudication of substantive corporate rights in a derivative action, and a nonresident defendant must be properly brought within the court’s jurisdiction.

## Conclusion

The court affirmed dismissal because the alleged causes of action belonged to foreign corporations that were indispensable to a derivative suit yet were not subject to Michigan process, and the nonresident controlling shareholder also was not properly within Michigan jurisdiction, leaving the dispute to be pursued in a forum where all necessary parties could be joined and served.


Dean v. Kellogg, 292 N.W. 704 (Mich. 1940)