Weiss v. Routh

• Decision Date: 02 May 1945
• Docket Number: No. 228.,228.
• Citation: 149 F.2d 193
• Parties: WEISS et al. v. ROUTH et al.
• Court: U.S. Court of Appeals — Second Circuit

149 F.2d 193 (1945)

WEISS et al. v. ROUTH et al.

No. 228.

Circuit Court of Appeals, Second Circuit.

May 2, 1945.

Louis D. Frohlich and Schwartz & Frohlich, all of New York City (Herbert P. Jacoby, of New York City, of counsel), for appellants.

James V. Hayes and Donovan Leisure Newton & Lumbard, all of New York City (J. Leo Coupe, of Utica, of counsel), for appellees.

Before L. HAND, SWAN and CHASE, Circuit Judges.

L. HAND, Circuit Judge.

This is an appeal from a judgment dismissing a complaint on the merits after trial in a removed action, brought to recover the loss in value of 500 shares of common stock owned by the plaintiffs in the United States Distributing Corporation, incorporated under the laws of Virginia. On December 31, 1942, that corporation was merged with a Delaware corporation known as the Pittston Company, and Routh, the individual defendant, was a director of both companies, and took part in the merger. The common shareholders of the United States Distributing Corporation for each common share received one-twentieth of a share of new common stock in the Pittston Company; the preferred shareholders for each preferred share received one share of "Class A" preference stock and one share of common stock in the Pittston Company. The plaintiffs disapproved the merger and voted against it at the shareholders' meeting; but a majority approved it, and it went into effect. In computing the exchange a credit was allowed to the preferred shares for cumulated dividends which had not been paid for a period of twelve years; and of this the plaintiffs complained on the theory that preferred dividends, until declared, are not debts of the corporation, and that it was not permissible to credit the preferred shares with them, even though the charter made preferred dividends cumulative.

Section 3822 of the "General Corporation Law" of Virginia, Code 1942, provides for the merger of corporations upon a majority vote at a meeting of shareholders called for that purpose. Subdivision (b) provides that if any shareholder is dissatisfied with the terms of a merger, and has voted against it, he shall be entitled to "the fair cash value of his stock"; and by applying "to the circuit court of the county * * * wherein the principal office of the corporation * * * is located * * * or to the chancery court of the city of Richmond * * * in the event the principal office of the corporation * * * is located in the city of Richmond,¹ to have the fair cash value of his stock * * * appraised by three disinterested persons, residents of this State, appointed by the court." The appraisers are to conduct hearings and report to the court, and if the shareholder is not satisfied, he may apply to the court "to set aside the finding of the appraiser; and the court * * * if of the opinion that the valuation is just, shall deny the application and * * * shall confirm * * * the amount * * * but if the court * * * be of opinion that the valuation is not just * * * the amount thereof shall be set aside, and * * * the court * * * shall proceed to ascertain the fair cash value of the stock * * * and shall enter judgment * * * accordingly." The judge found that the common shares of the United States Distributing Corporation at the time of the merger, had "no fair cash value"; basing his conclusion upon the fact that the arrears of cumulated preferred dividends constituted a credit which should not have been disregarded upon the merger.

The objection was raised in limine that § 3822 gave an exclusive remedy to dissatisfied shareholders; but Judge Goddard overruled it. Weiss v. Atkins, D.C., 52 F.Supp. 418. He held that Winfree v. Riverside Cotton Mills, 113 Va. 717, 75 S.E. 309, had decided, under an earlier act, that, although a dissenting shareholder could not upset the merger, he might, upon general equitable principles, recover the fair cash value of his shares, and that his remedy was not limited to the appraisal provided in the statute. He also held that Craddock-Terry Co. v. Powell, 181 Va. 417, 25 S.E.2d 363, had decided that the enactment of § 3822 in 1922 had not changed this result, and that therefore the district court had jurisdiction over an action in equity to award the fair value of his shares to a dissenter. Arguendo, we shall accept this ruling; and, although it does not inevitably follow that a dissenter may file such an action in the courts of another state, we shall assume that also. It follows that both the New York Supreme Court in which the action was originally brought, and the district court to which it was removed, had jurisdiction over the action at bar. It does not however also follow that they should have asserted that jurisdiction. That question was not raised before Judge Goddard or before us: we have taken the objection of our own motion, for upon it depends the propriety of entertaining the action at all. When a trial involves "the internal affairs" of a corporation, the rule is that the courts of a foreign forum will not assume jurisdiction over it; and the first question is whether the doctrine of Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487, applies: i. e. whether in deciding to accept or refuse jurisdiction we should follow the state law. It might be argued that those considerations which will set a court in motion are peculiar and personal to itself, and that it does not follow that what is enough to move a state court to act, should be enough to move a federal; or vice versa. Such a doctrine would, however,...