196 U.S. 579 (1905), 477, Doctor v. Harrington

Docket Nº:No. 477
Citation:196 U.S. 579, 25 S.Ct. 355, 49 L.Ed. 606
Party Name:Doctor v. Harrington
Case Date:February 20, 1905
Court:United States Supreme Court

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196 U.S. 579 (1905)

25 S.Ct. 355, 49 L.Ed. 606




No. 477

United States Supreme Court

February 20, 1905

Submitted January 25, 1906




The presumption of law that stockholders are deemed to be citizens of the the corporation's domicil must give way to the actual fact proved that complainant is a citizen of a different state from the corporation, and in such a case the stockholder, if other conditions of jurisdiction exist, can bring his suit against the corporation in the circuit court of the United States.

The ninety-fourth rule in equity contemplates and provides for a suit brought by a stockholder against the corporation and other parties on rights which may be properly asserted by the corporation, and when such a suit is between citizens of different states and is not collusive, but the corporation is controlled by interests antagonistic to complainant, it involves a controversy which is cognizable in a circuit court of the United States, and the defendant corporation is not to be classed on the same side of the controversy as complainant for the purpose of determining the diversity of citizenship on which the jurisdiction of the circuit court must rest.

The bill in this case was dismissed by the circuit court on the ground that it had no jurisdiction upon the fact alleged, and certified to this Court the question of jurisdiction. The following is the question certified.

Whether or not the complainants' bill of complaint showed that there was such diversity of citizenship between the parties complainant and parties defendant in this cause as would be sufficient, under the provisions of the United States Revised Statutes, to confer jurisdiction upon the United States Circuit Court for the Southern District of New York, of this cause.

The court further certified that it entered a decree dismissing the bill,

holding that it appeared from the said bill of complaint that there was no such diversity of citizenship between the parties complainant and defendant as would confer

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jurisdiction upon the United States Circuit Court for the Southern District of New York in the cause within the meaning of the United States Revised Statutes, and that, in arranging the parties to this cause relatively to the controversy, the Sol Sayles Company must be grouped on the side of the complainants, with the result that citizens of the same state would thus be parties on both sides of the litigation, and thus deprive this court of jurisdiction.

The bill is very voluminous, and, as it is agreed by appellees that the statement of appellants substantially states its allegation, we quote from appellants' brief as follows:

This action was brought by the appellants, as stockholders of the Sol Sayles Company, a corporation organized under the laws of the State of New York, for the purpose of vacating and setting aside a judgment obtained by the appellees Harrington against the Sol Sayles Company in the Supreme Court of the State of New York on October 28, 1902, and the levy and sale under an execution issued thereunder, and of requiring the appellees Harrington to deliver to the Sol Sayles Company certain shares of stock in the Sayles, Zahn Company, and certain bonds, belonging to the Sol Sayles Company, which had been sold under such execution, and for other equitable relief.

In substance, the complainants allege in their bill of complaint that they are citizens of Morris County, New Jersey; that the defendants Harrington are citizens of the State of New York, and that the defendants Sol Sayles Company and Sayles, Zahn Company are likewise citizens of said state, both being incorporated under the laws of that state; that the Sol Sayles Company was organized with a capital stock of $100,000, divided into 1,000 shares of the par value of $100 per share, of which the complainants owned 500 shares and the defendants Harrington 500 shares; that, by an arrangement made between the owners of the stock, the voting power on a majority thereof was given to the defendant John J. Harrington, who directed the management of the affairs of the corporation, dictated its

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policy, and selected its directors; that, on January 26, 1898, the defendant John J. Harrington caused the defendant Sayles, Zahn Company to be organized for the purpose of taking over the business of the defendant Sol Sayles Company and of one Henry Zahn, and thereupon the property of the Sol Sayles Company and of Zahn were transferred to the Sayles, Zahn Company, which likewise was controlled by the defendant John J. Harrington; that the Sol Sayles Company received, in consideration of the transfer of [25 S.Ct. 356] its property, $50,000 of the capital stock of the Sayles, Zahn Company, and subsequently subscribed for $50,000 additional stock.

It is further alleged that, about February 1, 1899, the defendants Harrington, for the purpose of cheating and defrauding the Sol Sayles Company and the complainants of their interest in the assets of the Sayles, Zahn Company, fraudulently caused the Sol Sayles Company to execute and deliver to them, without any consideration whatsoever, its promissory notes, aggregating $23,700, which were utterly fictitious, and thereafter, and on October 3, 1902, the defendants Harrington, in furtherance of their fraudulent scheme, caused an action to be instituted, and a judgment to be recovered...

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