153 F.2d 888 (2nd Cir. 1946), 86, Koster v. (American) Lumbermens Mut. Cas. Co.

Docket Nº:86.
Citation:153 F.2d 888
Party Name:KOSTER v. (AMERICAN) LUMBERMENS MUT. CASUALTY CO. et al.
Case Date:February 04, 1946
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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Page 888

153 F.2d 888 (2nd Cir. 1946)

KOSTER

v.

(AMERICAN) LUMBERMENS MUT. CASUALTY CO. et al.

No. 86.

United States Court of Appeals, Second Circuit.

February 4, 1946

Federal District Court of New York had discretion to decline jurisdiction of derivative action by New York policyholder in Illinois mutual insurance company to require one of its directors and another to account to company for diverting assets and refusal to exercise jurisdiction was not an abuse of discretion, where the company's principal place of business was in Illinois and all general records were maintained there, and none of witnesses who apparently had knowledge of acts alleged in complaint lived outside Illinois.

Page 889

Alfred Gurkin, of New York City (Abraham L. Pomerantz and William E. Haudek, both of New York City, of counsel), for appellant.

Townley, Updike & Carter, of New York City (Stuart N. Updike, of New York City, of counsel), for appellee.

Before SWAN, CHASE and CLARK, Circuit Judges.

SWAN, Circuit Judge.

This is a derivative action brought in the federal court on the ground of diverse citizenship. The plaintiff, a resident of the Eastern District of New York, is the holder of an automobile liability policy issued by (American) Lumbermens Mutual Casualty Company, a mutual insurance company organized under the laws of Illinois and licensed to do business in New York. For brevity the company will hereafter be called Lumbermens. The other defendants are James S. Kemper, who resides in Illinois and is an officer and director of Lumbermens, and James S. Kemper & Co., an Illinois corporation controlled by Mr. Kemper. In the right of Lumbermens and on behalf of all its policyholders, the plaintiff's complaint charges Kemper and the Kemper company with diversion of Lumbermens' assets and asks that they account to it for profits and damages. There are four causes of action pleaded: the first charges that Kemper dominated Lumbermens and caused it to pay him excessive salary for which he gave no consideration; the second charges that he caused Lumbermens to pay the Kemper company unwarranted commissions and fees; the third and fourth charge that he caused Lumbermens to sell to him and other persons allied with him various securities at less than their value. Lumbermens moved to dismiss the complaint on the ground of (1) forum non conveniens, and (2) absence of an indispensable party, James S. Kemper not having been served. The motion was granted and the complaint was dismissed without prejudice. The plaintiff has appealed.

Since James S. Kemper is the only defendant against whom relief is sought in counts one, three and four, it is obvious that the causes of action alleged in those counts cannot proceed to trial unless Mr. Kemper can be served within the jurisdiction of the court. But it would have been premature to dismiss the complaint for lack of service on him during the two months which intervened between the filing of the complaint and the Lumbermens' motion to dismiss. 1 Moreover Mr. Kemper was not an indispensable party to the cause of action asserted in court two against Kemper & Co. Its liability rests upon participation in the alleged wrongdoing of Kemper as a fiduciary of Lumbermens, and there is no reason why such liability cannot be tried without Kemper's presence as a party. Therefore dismissal could not properly be rested on the absence

Page 890

of an indispensable party; nor was it. The motion was granted because, as stated in the district court's opinion, 'the suit relates to the internal affairs of a foreign corporation' and the 'the convenience of witnesses and efficiency and justice demand that the courts of the state of domicile of Lumbermens and the Kemper corporation are the appropriate tribunals for the determination of this case.' Hence the question presented for decision by this appeal is whether the doctrine of forum non conveniens justified dismissal of the action.

The appellant relies upon the rule that where jurisdiction is conferred on a federal court its exercise of jurisdiction is mandatory, and only in exceptional cases of a stereotyped character has the court discretion to decline it. Meredith v. Winter Haven, 320 U.S. 228, 234, 64 S.Ct. 7, 88 L.Ed. 9; Williams v. Green Bay & Western R. Co., 66 S.Ct. 284; Griffith v. Bank of New York, 2 Cir., 147 F.2d 899, 904, certiorari denied 325 U.S. 874, 65 S.Ct. 1414. Controversies which involve interference with the internal affairs of a foreign corporation fall within one of the well-recognized exceptions. Rogers v. Guaranty Trust Co., 288 U.S. 123, 53 S.Ct. 295, 77 L.Ed. 652, 89 A.L.R. 7; Weiss v. Routh, 2 Cir., 149 F.2d 193, 159 A.L.R. 658. But as Mr. Justice Douglas pointed out in the recent Williams case, supra, where only a money judgment is sought, the court will normally entertain jurisdiction, even though internal affairs are in some sense involved. In the case at bar, the insurance company is nominally a defendant but in essence is the plaintiff in an action which Seeks an accounting for the waste and diversion of corporate assets by a faithless director and (in count two) by a corporation alleged to have participated in the fiduciary's wrongdoing. Inquiry into the conduct of the directors of the insurance company will be required but no such supervision into its internal affairs as to make the courts of Illinois a more appropriate forum than those of New York. Consequently, assuming for the moment that the plaintiff, as a policyholder in a mutual company, has the same right as would a shareholder in a stock company to bring a derivative action on the corporation's behalf, the district court should not decline jurisdiction on the ground that the action involves the internal affairs of a foreign corporation. 2

The parties are in dispute as to whether a policyholder has the same standing as a stockholder to bring a derivative action against a faithless fiduciary. The plaintiff asserts that the answer to this question depends upon the law of New York. We think not. Whether a person is a shareholder or other member of a corporation is determined by the law of the state of incorporation. Gallup v. Caldwell, 3 Cir., 120 F.2d 90, 93; A.L.R. Restatement of Conflict of Laws, Sec. 182. And the rights of a policyholder in a mutual company to bring a derivative action are likewise governed by the terms of his contract under the law of the...

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