Schoen v. Mountain Producers Corporation

• Decision Date: 09 November 1948
• Docket Number: No. 9651.,9651.
• Citation: 170 F.2d 707
• Parties: SCHOEN v. MOUNTAIN PRODUCERS CORPORATION et al.
• Court: U.S. Court of Appeals — Third Circuit

170 F.2d 707 (1948)

SCHOEN v. MOUNTAIN PRODUCERS CORPORATION et al.

No. 9651.

United States Court of Appeals Third Circuit.

Argued October 7, 1948.

Decided November 9, 1948.

Rehearing Denied December 10, 1948.

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Herbert L. Cobin, of Wilmington, Del., and Louis B. Arnold, of Washington, D. C. (Roberts & McInnis, of Washington D. C., and Edgar J. Schoen, of Chicago, Ill., on the brief), for appellant.

William S. Potter and James L. Latchum, both of Wilmington, Del. (John J. Morris, Jr., and Howard L. Williams, both of Wilmington, Del., on the brief), for Johnson, Murphy, Herndon and Argo Oil Corporation.

A. Leslie Hodson, of Chicago, Ill., and Morris, Steel, Nichols & Arsht, of Wilmington, Del. (Hugh M. Morris and S. Samuel Arsht, both of Wilmington, Del., Donald Campbell, of Tulsa, Okl., and Weymouth Kirkland and James S. Kemper, Jr., both of Chicago, Ill., on the brief), for defendant Stanolind Oil & Gas Co.

Before MARIS, McLAUGHLIN and O'CONNELL, Circuit Judges.

MARIS, Circuit Judge.

On May 26, 1947 the plaintiff, Edgar J. Schoen, who is a stockholder in Mountain Producers Corporation and a citizen of Illinois, brought this stockholder's derivative suit on behalf of Mountain Producers Corporation in the United States District Court for the District of Delaware. The suit was brought against Standard Oil Company (Indiana), an Indiana corporation, Stanolind Oil and Gas Company, a Delaware corporation, Saltmount Oil Company, a Delaware corporation, Argo Oil Corporation, a Delaware corporation, D. R. Murphy, a citizen of Colorado, Arthur E. Johnson, a citizen of Colorado, Harold D. Herndon, a citizen of Texas, G. E. Griffith, a citizen of Colorado, W. J. Geddes, a citizen of Colorado, T. A. Dines, a citizen of Colorado, and T. C. Tonkin, a citizen of Wyoming. The plaintiff also joined as a defendant Mountain Producers Corporation, which is a corporation of Delaware. All the defendants were served within the District of Delaware except Standard Oil Company (Indiana), Griffith, Geddes, Dines and Tonkin. These five defendants were not served and have not appeared in the action.

Defendants Johnson, Murphy and Herndon appeared and moved to dismiss the complaint as to them on the ground of improper venue and forum non conveniens. Defendants Stanolind, Argo, Mountain Producers, and Saltmount each appeared and filed motions to dismiss on the ground of forum non conveniens. With leave of the district court defendant Argo subsequently amended its motion to include improper venue as one of the grounds of dismissal. The district court entered a judgment dismissing the complaint as to all the defendants. Its action was based upon its conclusion that the venue was improperly laid and it did not pass upon the question of forum non conveniens. D.C., 76 F.Supp. 554. The present appeal by the plaintiff followed.

The case thus presents the question whether the District of Delaware was an appropriate district under the venue statute in which to bring this stockholder's derivative suit. The proper venue in such cases was determined, at the time the suit was brought,¹ by Section 51 of the Judicial Code of 1911,² which, as amended by the Act of April 16, 1936, 49 Stat. 1213, read as follows: "Sec. 51. Civil Suits; Where to be Brought. — Except as provided in the five succeeding sections, no person shall be arrested in one district for trial in another, in any civil action before a district court; and, except as provided in the six succeeding sections, no civil suit shall be brought in any district court against any person by any original process or proceeding in any other district than that whereof he is an inhabitant; but where the jurisdiction is founded only on the fact that the action is between citizens of different States, suit shall be brought only in the district of the residence of either the plaintiff or the defendant; except that suit by a stockholder on behalf of a corporation may be brought in any district in which suit against the defendant or defendants in said stockholders' action, other than said corporation, might have been brought by such corporation and process in such cases may be served upon such corporation in any district wherein such corporation resides or may be found."

The jurisdiction of the district court in the present case is founded upon diversity of citizenship. Accordingly the general venue provisions of Section 51 relating to diversity cases are applicable. Those provisions are that a diversity suit may be brought either in the district where the plaintiff resides or in the district where the defendant resides. It has been held that when there is more than one defendant the latter means the district in which all the defendants reside.³ In the present suit the plaintiff resides in Illinois and the defendants do not all reside in Delaware. Accordingly if the venue statute applicable to the ordinary diversity case is to be applied Delaware would not be a proper district in which to bring the present suit against all the defendants who have here been served.

The plaintiff, however, points to the last clause of Section 51, which is applicable only to stockholders' derivative suits, and he says that this clause authorized him to bring this suit in the District of Delaware, that being the district of residence of Mountain Producers, the injured corporation in whose behalf he brought the suit. The provision to which he refers is that "suit by a stockholder on behalf of a corporation may be brought in any district in which suit against the defendant or defendants in said stockholders' action, other than said corporation, might have been brought by such corporation". The crucial question in the case is as to the meaning of this language.

The district court took the view that this clause could be availed of by the plaintiff to provide an additional venue only if the injured corporation itself would have been empowered to bring a suit on the same cause of action in a federal court against the same group of defendants. The court thought, in other words, that in the hypothetical corporate suit to which the clause in question refers there would have to be diversity of citizenship between the hypothetical corporate plaintiff and the defendants before it could be said that such a suit could be brought at all, let alone in any particular district. In so holding it relied upon the decision of the District Court for the Western District of Pennsylvania in Sale v. Pittsburgh Steel Co., 1944, 57 F.Supp. 283. Since in the present case the injured defendant, Mountain Producers, and three of the other defendants, Stanolind, Saltmount and Argo, are residents of the same state, Delaware, the district court pointed out that there would not be diversity of citizenship in the hypothetical corporate suit to which the last clause of Section 51 refers and so concluded that this clause did not support the venue in the present suit. Since, as we have seen, the venue was not supported by the other provisions of Section 51 the court sustained the motions and dismissed the complaint.

The plaintiff strongly urges that in so doing the district court erred. He says, and he has as support the recent decision by the District Court for the Southern District of New York in Saltzman v. Birrell, 1948, 78 F.Supp. 778, that the clause under discussion relates only to venue, that it is wrong to import into it the jurisdictional concept of diversity of citizenship and that it was merely intended, assuming that there was jurisdiction in the hypothetical corporate suit, to designate the district in which the injured corporation resides and the district in which the other defendants all reside as appropriate venue for a stockholder's derivative suit.

The question is one of first impression in the courts of appeals. After mature deliberation we find ourselves in agreement with the construction which the district court in the present case placed upon the clause under discussion. In the first place the language of the statute itself is quite clear and unambiguous. It does not say, as would be appropriate if the plaintiff's contention were correct, that a stockholder's derivative suit may in every case be brought in the district in which the injured corporation resides or in the district in which the other defendants reside. What it does say is that the stockholder may bring his suit on behalf of the injured corporation in any district in which suit against the other defendants "might have been brought by such corporation". Whether a corporation may bring a suit in a given district certainly depends just as much upon whether the district court of that district would have jurisdiction of the subject matter as upon whether the district is one in which the venue statute authorizes suit to be brought. If no federal district court in any district would be empowered to entertain the suit it is idle to talk of a particular district in which the suit might be brought. Moreover under the statutory language we are compelled in any event to consider the question of jurisdiction before we can ascertain the proper venue. For the venue may be one thing if the case is founded on diversity of citizenship and quite another if it is based on some other ground of jurisdiction. It is true, of course, that this construction of the statute imports a jurisdictional element into a statute relating to venue but there is nothing to prevent Congress from drawing a venue statute in such terms and we think that in this instance it did so.

Moreover we find that this construction of the statutory language is supported by the legislative history of the Act of April 16, 1936, 49 Stat. 1213, which added to Section 51 the language here involved. That act originated as Senate Bill 2524 of the 74th Congress. The report of the House Committee on the Judiciary⁴ as well as the statement of the sponsor of the bill in the Senate⁵ show quite clearly that ...