Smith v. Sperling

• Citation: 117 F. Supp. 781
• Decision Date: 16 December 1953
• Docket Number: Civ. No. 9005.
• Court: U.S. District Court — Southern District of California
• Parties: SMITH v. SPERLING et al.

117 F. Supp. 781

SMITH v. SPERLING et al.

Civ. No. 9005.

United States District Court, S. D. California, Central Division.

December 16, 1953.

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Herman H. Levy, Moss, Lyon & Dunn, Los Angeles, Cal., for plaintiff.

Eugene D. Williams, Harold R. Kelly, Freston & Files, Los Angeles, Cal., for defendants Harry M. Warner, Jack L. Warner and Warner Bros. Pictures, Inc.

Oliver B. Schwab, Beverly Hills, Cal., for defendant Milton Sperling and United States Pictures, Inc.

MATHES, District Judge.

Edward S. Birn, "owner of 400 shares of the capital stock of defendant Warner Bros. Pictures, Inc. * * * since August 21st, 1944," commenced this action in this court on December 15, 1948, "suing derivatively on behalf of and for the benefit of defendant Warner Bros. Pictures, Inc., and the stockholders thereof."

The complaint contains three separate claims or causes of action. The third, alleging a violation of the Sherman and Clayton Acts, 15 U.S.C.A. §§ 1, 15, was dismissed without prejudice by order of court prior to trial. Fed.Rules Civ.Proc. rules 23(a) (1) (c), 41(a) (2), (b), 28 U.S.C.A. The second cause of action is asserted against defendants Harry M. Warner and Jack L. Warner alone and is grounded upon alleged violation of "their fiduciary duties as directors" of defendant Warner Bros. Pictures, Inc.

The first cause of action is asserted against all named defendants and the allegations material here are briefly: that defendant Milton Sperling is a son-in-law of defendant Harry M. Warner; that the latter and his two brothers, Albert Warner and defendant Jack L. Warner, "control and dominate Warner Bros." and "actually select, dominate and control the directors and officers of Warner Bros."; that about the summer of 1945 the individual defendants Milton Sperling and Harry M. and Jack L. Warner conspired "to waste * * * and misappropriate the assets and business opportunities of Warner Bros. in favor of, and to further and enrich the private interests of defendant Sperling * * * at the expense of Warner Bros."; that in furtherance of the objects of this conspiracy defendant United States Pictures, Inc. was organized as a Delaware corporation and since September, 1946 defendant Sperling has been the sole stockholder; that "in or about September, 1945, the defendants caused Warner Bros. and United to enter into an agreement" for the production of motion pictures by United at the studios of Warner Bros. upon terms improvident and unfair as to Warner Bros. and unwarrantedly favorable to United; that "demand upon the directors of Warner Bros. to institute this action would be futile * * *"; and that plaintiff "and stockholders similarly situated and Warner Bros. will suffer irreparable damage unless the relief requested herein be granted."

The prayer is that "the defendants account to Warner Bros. * * *"; that "a trust be impressed upon the capital stock and assets of United in favor of Warner Bros."; that "the agreement between Warner Bros. and United * * be cancelled and terminated."

Defendants Harry M. and Jack L. Warner and Warner Bros. joined in an answer denying the substantive allegations of the complaint and pleading affirmatively the bar of California's applicable statute of limitations. Defendants Sperling and United filed an answer to like effect.

The original jurisdiction of this court is invoked upon the claimed ground that "the matter in controversy exceeds the sum or value of $3,000 exclusive of interest and costs, and is between * * * Citizens of different States * * *." 28 U.S.C. § 1332.

It is true, as alleged, that plaintiff is a citizen of New York, that defendants Warner Bros. and United are "corporations incorporated under the laws of * * * Delaware," and that defendants Milton Sperling and Harry M. and Jack L. Warner are citizens of California.

Since this court possesses only such jurisdiction as has been conferred by statute, U.S.Const. Art. III; Lockerty v. Phillips, 1943, 319 U.S. 182, 187, 63 S.Ct. 1019, 87 L.Ed. 1339 and "lack of federal jurisdiction cannot be waived or be overcome by an agreement of the parties". Mitchell v. Maurer, 1934, 293 U.S. 237, 244, 55 S.Ct. 162, 165, 79 L.Ed. 338, jurisdiction is the threshold issue in every case brought here. State of Rhode Island v. Massachusetts, 1838, 12 Pet. 657, 37 U.S. 657, 720, 9 L.Ed. 1233; Brown v. Keene, 1834, 8 Pet. 112, 33 U.S. 112, 8 L.Ed. 885; Capron v. Van Noorden, 1804, 2 Cranch 126, 6 U.S. 126, 2 L.Ed. 229.

"This question the court is bound to ask and answer for itself, even when not otherwise suggested * * *." Mansfield, Coldwater & L. M. Railway Co. v. Swan, 1884, 111 U.S. 379, 382, 4 S.Ct. 510, 511, 28 L.Ed. 462; Clark v. Paul Gray, Inc., 1939, 306 U.S. 583, 588, 59 S.Ct. 744, 83 L.Ed. 1001; St. Paul Mercury Ind. Co. v. Red Cab Co., 1938, 303 U.S. 283, 287-290, 58 S.Ct. 586, 82 L. Ed. 845; McNutt v. Gen. Motors etc. Corp., 1936, 298 U.S. 178, 184-189, 56 S.Ct. 780, 80 L.Ed. 1135; Robinson v. Anderson, 1887, 121 U.S. 522, 7 S.Ct. 1011, 30 L.Ed. 1021; Williams v. Nottawa, 1881, 104 U.S. 209, 211, 26 L.Ed. 719; Minnis v. So. Pac. Co., 9 Cir., 1938, 98 F.2d 913, 915, certiorari denied, 1939, 306 U.S. 631, 59 S.Ct. 461, 83 L.Ed. 1033.

While jurisdictional issues in each case are properly triable to the court North Pacific S. S. Co. v. Soley, 1921, 257 U.S. 216, 221-223, 42 S.Ct. 87, 66 L.Ed. 203; Gilbert v. David, 1915, 235 U.S. 561, 566-568, 35 S.Ct. 164, 59 L.Ed. 360; Taylor v. Hubbell, 9 Cir., 1951, 188 F.2d 106, 109, certiorari denied, 1951, 342 U.S. 818, 72 S.Ct. 32, 96 L.Ed. 618, there is no statute or rule of court prescribing "any particular mode in which the question of * * * jurisdiction is to be brought to the attention of the court, nor how such question, when raised, shall be determined." Wetmore v. Rymer, 1898, 169 U.S. 115, 120, 18 S.Ct. 293, 295, 42 L.Ed. 682.

Rule 12(h) directs "that, whenever it appears by suggestion of the parties or otherwise that the court lacks jurisdiction of the subject matter, the court shall dismiss the action." Fed.Rules Civ.Proc. rule 12(h), 28 U.S.C.A.

Rule 12(d) contemplates a hearing and determination of jurisdictional issues in advance of the trial of other issues. Fed.Rules Civ.Proc. rule 12(d), 28 U.S.C.A.; Stauffer v. Exley, 9 Cir., 1950, 184 F.2d 962, 967; 2 Moore's Federal Practice § 12.16 (2d ed. 1948).

And the Supreme Court has declared that: "As there is no statutory direction for procedure upon an issue of jurisdiction, the mode of its determination is left to the trial court." Gibbs v. Buck, 1939, 307 U.S. 66, 71-72, 59 S.Ct. 725, 729, 83 L.Ed. 1111; cf. Gulbenkian v. Gulbenkian, D.C.S.D.N.Y. 1940, 33 F.Supp. 19.

As a general rule therefore the trial court may, in its discretion, try all issues of fact as to jurisdiction by receiving oral testimony and other evidence, Gilbert v. David, supra, 235 U.S. at pages 566, 568, 35 S.Ct. 164, or by receiving and weighing affidavits, KVOS, Inc., v. Associated Press, 1936, 299 U.S. 269, 277-278, 57 S.Ct. 197, 81 L.Ed. 183; Mechanical Appliance Co. v. Castleman, 1910, 215 U.S. 437, 440-441, 445-446, 30 S.Ct. 125, 54 L.Ed. 272; Wetmore v. Rymer, supra, 169 U.S. at page 119, 18 S.Ct. 293; Fed.Rules Civ.Proc. rule 43(a, e), 28 U.S.C.A.

To borrow language from Land v. Dollar, 1947, 330 U.S. 731, 67 S.Ct. 1009, 91 L.Ed. 1209, "when a question of the District Court's jurisdiction is raised, either by a party or by the court on its own motion * * * Federal Rules Civil Procedure, rule 12(b), 28 U.S.C.A., the court may inquire by affidavits or otherwise, into the facts as they exist." 330 U.S. at page 735, note 4, 67 S.Ct. at page 1011.

Whether the question be raised by the court or by motion or plea or answer of a party, see Steigleder v. McQuesten, 1905, 198 U.S. 141, 25 S.Ct. 616, 49 L.Ed. 986; Susquehanna & Wyoming Valley R. R. & Coal Co. v. Blatchford, 1870, 11 Wall. 172, 78 U.S. 172, 178, 20 L.Ed. 179; Smith v. Kernochen, 1849, 7 How. 198, 48 U.S. 198, 12 L.Ed. 666, the burden of proof always rests upon the party asserting existence of jurisdiction, KVOS, Inc., v. Associated Press, supra, 299 U.S. at page 278, 57 S.Ct. 197; McNutt v. Gen. Motors etc. Corp., supra, 298 U.S. at pages 189-190, 56 S. Ct. 780; Seslar v. Union Local 901, 7 Cir., 1951, 186 F.2d 403, 407, 30 A.L.R.2d 593, certiorari denied, 1951, 341 U.S. 940, 71 S.Ct. 1000; Barron & Holtzoff, 1 Federal Practice and Procedure (Rules Edition), § 352 (1950 ed., 1952 Supp.). That is to say, it is incumbent upon any party who invokes the jurisdiction of a federal court to establish by a preponderance of evidence all facts "upon which the court's jurisdiction depends". Fed. Rules Civ.Proc. rule 8(a), 28 U.S.C.A.

In the case at bar oral motion was made by the defendants at pretrial hearing to dismiss the action for "lack of jurisdiction over the subject matter", Fed. Rules Civ.Proc. rule 12(b) (1), (d, h), 28 U.S.C.A., upon the ground that requisite diversity of citizenship was lacking at the commencement of the action, in that Warner Bros., a Delaware corporation, must be aligned as a party plaintiff for diversity purposes, thus leaving a New York citizen and a Delaware corporation as plaintiffs and three California citizens and a Delaware corporation as defendants. See Mississippi Pub. Corp. v. Murphree, 1946, 326 U.S. 438, 441, note 2, 66 S.Ct. 242, 90 L.Ed. 185; St. Louis & San Francisco Ry. Co. v. James, 1896, 161 U.S. 545, 562-563, 16 S.Ct. 621, 40 L.Ed. 802; Doctor v. Harrington, 1905, 196 U.S. 579, 586-587, 25 S.Ct. 355, 49 L.Ed. 606; Louisville, Cincinnati & Charleston R. Co. v. Letson, 1844, 2 How. 497, 43 U.S. 497, 554-558, 11 L.Ed. 353; Marshall v. Baltimore & O. R. R. Co., 1853, 16 How. 314, 57 U.S. 314, 325-329, 14 L.Ed. 953.

A trial of the jurisdictional and the statute-of-limitations issues, in advance of trial of the other issues in the case,...