Williams v. Green Bay & Western R. Co.

• Decision Date: 09 February 1945
• Docket Number: No. 207.,207.
• Parties: WILLIAMS et al. v. GREEN BAY & WESTERN R. CO.
• Court: U.S. Court of Appeals — Second Circuit

147 F.2d 777 (1945)

WILLIAMS et al. v. GREEN BAY & WESTERN R. CO.

No. 207.

Circuit Court of Appeals, Second Circuit.

February 9, 1945.

Unger & Pollack, of New York City (Milton Pollack and Ludwig Mandel, both of New York City, of counsel), for appellants.

Cadwalader, Wickersham & Taft, of New York City (Merrill M. Manning and Walter Bruchhausen, both of New York City, of counsel), for appellee.

Before CHASE, HUTCHESON and FRANK, Circuit Judges.

HUTCHESON, Circuit Judge.

Brought by appellants on behalf of themselves and other holders of Class B debentures¹ against appellee, a corporation organized and existing under the laws of Wisconsin, the suit sought judgment for $809,618.85 alleged to belong to the holders of the debentures as their share of the undistributed and withheld net earnings of defendant for the years 1924 to 1943, inclusive. It was alleged that the debentures constituted a fixed and binding contract for the appropriation and payment to the holders, of the net earnings; that the provision² requiring action by the directors was a mere formality; that during the years in question the net earnings applicable to Class B debentures had aggregated $1,649,618.15; that though in each year except the years 1932, 1933 and 1934, the defendant had distributed part of the applicable net earnings in the aggregate sum of $840,000, it had in each year withheld portions thereof and passed them to surplus; and that such sums, so wrongfully passed to surplus instead of being paid on the debentures, now aggregated the sum for which plaintiffs sued.

The defendant met the suit with two motions to dismiss. In one of them, the ground taken was lack of jurisdiction over the person of the defendant for want of proper service on it. In the other it was that, in the exercise of a sound discretion, jurisdiction of the action should not be assumed because its subject matter was concerned with the internal affairs of a corporation foreign to the state of suit.

Affidavits and counter affidavits having been filed and heard on the motions, the district judge, holding that the defendant was present in the district and was properly served, denied the first motion. Of the opinion though that the suit concerned the internal affairs of the defendant corporation and could be better tried in Wisconsin, the state of its incorporation, the district judge, on the authority of Rogers v. Guaranty Trust Co., 288 U.S. 123, 53 S.Ct. 295, 77 L.Ed. 652, 89 A.L.R. 720; Cohn v. Mishkoff-Costello Co., 256 N.Y. 102, 175 N.E. 529; Cohen v. American Window Glass Co., 2 Cir., 126 F.2d 111, exercised his discretion to dismiss the suit without prejudice to its being renewed in Wisconsin.

Appellants are here insisting that the doctrine of forum non conveniens, on which the dismissal was based, was not properly applied, that discretion was abused in dismissing the suit, and, because it was, the judgment must be reversed. We do not think so.

If we could agree with appellants' assumption that the suit involved nothing except a claim upon a liquidated demand, that in short the contract of the Class B debentures operated of itself to set apart and appropriate each year to those debentures the specific sums plaintiffs sue for, and that the fixing and declaration of the amounts by the Directors was a mere formality, we should agree that jurisdiction ought not to have been declined. But we think it clear that this is an over-simplified view of what the debentures intended to, and did, provide. The provision for declaration and payment of sums due annually under the debentures, as well as the long continued practice under it for the many years in question, leave in no doubt, we think, that before any sums became due and payable under the debentures, corporate action had to be taken to fix and determine them. Instead of carrying a fixed rate of interest, the debentures promised, in lieu thereof, a contingent portion of the annual net earnings, this interest to be ascertained, fixed and declared in each year by the directors. According to the claim, the directors in each of the years but three fixed and declared, and the appellee paid the amounts determined to be due. If, therefore, support were needed for the view that the provision in the debentures, that the sums, if any, due were to be fixed and declared by the directors, meant just that, the long practise in accordance therewith and the long acquiescence of the debenture holders in that practise would provide it. The question before us is not one of jurisdiction but one of the exercise of judgment as to which would be the most convenient forum. In the circumstances this case provides, it seems quite clear to us that in declining jurisdiction and remitting the parties to that of Wisconsin, where both corporation and directors can be sued and all matters governing the rights of the corporation and the holders of its securities can be determined under the laws of that state, the court used, it did not abuse, its discretion. Its order dismissing the action without prejudice to the right to renew it in Wisconsin is accordingly affirmed.

FRANK, Circuit Judge (dissenting).

1. To explain my reasons for dissenting, it is first necessary to state some of the facts more fully than they are stated in the majority opinion.

The debentures provide: "After the payment of 2½ per cent upon the face value of Class A Debentures, the stockholders of the Company are entitled to receive the balance of such net earnings until 2½ per cent shall have been paid out of the same upon the par value of the said stock, and all surplus net earnings then remaining shall be paid to the holders of Class A Debentures and of the stock pro rata until five per cent shall have been paid upon the face value of said Debentures and upon the par of said stock for such year, and any surplus net earnings arising in such year which may then remain shall be paid to and distributed among the holders of Class B Debentures pro rata."¹

It is undisputed that the amount required annually for the preferential payment to holders of defendant's stock and Class A Debentures aggregated $155,000 (i.e., $125,000 for the stock and $30,000 for the Class A Debentures). In each of the years 1924 to 1943, inclusive, excepting 1932-1934, defendant, after paying this $155,000, had additional net earnings which aggregated $1,649,618.85. In those years, out of such additional net earnings, defendant paid to the Class B Debentures only $840,000, leaving an unpaid balance of $809,618.85. The figures, in detail for each of those years, are not at all in doubt; they appear in exhibits B and C attached to plaintiffs' complaint which I set forth in a footnote.²

I see no basis for any suggestion that the directors are given any discretion in fixing the amount to be paid. The instrument expressly provides that it is to be computed by deducting from the net income the amount paid on the capital stock and the amount paid on the Class A Debentures. The resulting sum is to be paid to the Class B Debenture-holders. Nor are the directors given any discretion as to whether or not that sum is to be paid to the Class B Debenture-holders. The instrument declares that "the amount payable will be fixed and declared by the Board of Directors." Under such a provision, a resolution by the directors would be purely ministerial. Cf. Crocker v. Waltham Watch Co., 315 Mass. 397, 53 N.E.2d 230; Wood v. Lary, 47 Hun 550, appeal dismissed 124 N.Y. 83, 26 N.E. 338; Burk v. Ottawa Gas & Electric Co., 87 Kan. 6, 123 P. 857, Ann.Cas.1913D, 772. The obligation of defendant to make payment of the amounts withheld is therefore, I think, complete without any resolution.

My colleagues, however, make this suggestion: Plaintiffs are here suing for monies alleged by them to have been improperly withheld in the years 1924 to 1943, inclusive; since this suit was not brought until 1944, the plaintiffs have "by long acquiescence" accepted as correct an interpretation of the debenture provision which precludes payments not expressly declared by the directors to be due, i.e., makes a directors' resolution an indispensable condition precedent. Since here there is not (and my colleagues do not even intimate that there is) such delay as to bar the suit because of the statute of limitations or laches, my colleagues' suggestion comes to this: One who does not promptly sue on a written instrument must be presumed to have acquiesced in an interpretation of it unfavorable to him. I know of no authorities to sustain that position, and my colleagues cite none.

2. It follows, I think, that the doctrine of forum non conveniens has no proper application here.³ For, in the circumstances, decision will involve no interference with the corporation's internal affairs. We said in Cohen v. American Window Glass Co., 2 Cir., 126 F.2d 111, 113, that the ruling in Rogers v. Guaranty Trust Co., 288 U.S. 123, 53 S.Ct. 295, 77 L.Ed. 652, 89 A.L.R. 720, had been much weakened; and the facts here...