311 U.S. 223 (1940), West v. American Telephone & Telegraph Co.

Citation:311 U.S. 223, 61 S.Ct. 179, 85 L.Ed. 139
Party Name:West v. American Telephone & Telegraph Co.
Case Date:December 09, 1940
Court:United States Supreme Court

Page 223

311 U.S. 223 (1940)

61 S.Ct. 179, 85 L.Ed. 139



American Telephone & Telegraph Co.

United States Supreme Court

Dec. 9, 1940




1. In a suit in a federal court for equitable relief in protection of legal rights growing out of an unlawful transfer of stock by a corporation, the state laws defining those rights are the rules of decision. P. 236.

2. A rule announced and applied by state courts as the law of the State, though not passed on by the highest state court, may not be rejected by a federal court because it thinks that the rule is unsound in principle or that another is preferable. P. 236.

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3. In deciding local questions it is the duty of the federal court to ascertain from all available data what the state law is and apply it, however superior a different rule may appear from the viewpoint of general law and however much the state rule may have departed from prior decisions of the federal courts. P. 237.

4. Where an intermediate state appellate court rests its considered judgment upon the rule of law which it announces, that is a datum for ascertaining state law which is not to be disregarded by a federal court unless it is convinced by other persuasive data that the highest court of the State would decide otherwise. P. 237.

This is the more so where, as in this case, the highest state court has refused to review the lower court's decision, rendered in one phase of the very litigation which is being prosecuted by the same parties before the federal court.

5. The Ohio County Court of Appeals, by a judgment which the Supreme Court of the State declined to review, decided that an action against a corporation for damages resulting from its issue of a certificate for shares of its stock in the name of one who was a life tenant of the stock, without disclosing on the face of the certificate that the stockholder was a life tenant or the interest of the remaindermen, followed by a wrongful transfer of the stock to a third person, was premature because no demand had been made on the corporation to reinstate the plaintiffs' rights in the stock and because the corporation had not refused this in advance of the suit. In a second suit brought in the federal court after a sufficient demand had been made, in which the same plaintiffs sought equitable relief and damages from the same corporation, the Circuit Court of Appeals, declining to follow the ruling of the state Court of Appeals, held that a demand was not essential -- that the cause of action accrued when the stock was issued to the life tenant and, counting from that time, was barred by a statute of limitations, or laches. Held:

(1) No reason appears for supposing that, if the second suit had been brought in a state court, the state Court of Appeals would depart from its previous ruling or that the Supreme Court of the State would grant the review which it withheld before. P. 238.

(2) The law thus announced and applied by the state Court of Appeals is the law of the State, applicable to a case between the same parties in the federal court, and the federal court is not free to apply a different rule, however desirable it may believe it to be,

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and even though it may think that the state Supreme Court may establish a different rule in some future litigation. P. 238.

(3) Since the cause of action under the Ohio law did not arise until demand, which was either when the suit was brought in the state court or when the formal demand was made, the statute of limitations did not begin to run until one or the other of those dates. P. 238.

(4) No special circumstances are shown effective under Ohio law to limit the time of demand or shorten the statutory period after demand; the findings of the District Court that the plaintiffs were not estopped or guilty of laches were supported by evidence and should not be disturbed. P. 239.

108 F.2d 347 reversed.

Certiorari, 310 U.S. 618, to review a decree of the Circuit Court of Appeals which (upon separate appeals by the petitioners and respondent here, but on a single record) reversed a decree of the District Court requiring the respondent corporation to procure shares of its common stock to be held in a trust during the life of a decedent's widow and to be ultimately distributed to remaindermen, as directed by the will. Jurisdiction was by diversity of citizenship.

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STONE, J., lead opinion

MR. JUSTICE STONE delivered the opinion of the Court.

The Circuit Court of Appeals in this case, in which jurisdiction rests exclusively on diversity of citizenship, declined to follow the ruling in West v. American Telephone & Telegraph Co., 54 Ohio App. 369, 7 N.E.2d 805, 7 Ohio Opinions 363, of the Cuyahoga County Court of Appeals, an intermediate appellate court of Ohio. The question for decision is whether, in refusing to follow the rule of law announced by the state court, the court below failed to apply state law within the requirement of § 34 of the Judiciary Act of 1789 and of our decision in Erie Railroad Co. v. Tompkins, 304 U.S. 64.

In 1926, an Ohio decedent, domiciled at death in Cuyahoga County, bequeathed his estate, including ninety-two shares of the common stock of respondent, to his widow for life, with remainder to petitioners, the sons of decedent's first wife, who was the sister of his widow. February 2, 1927, the widow tendered to respondent, for transfer, certificates for the ninety-two shares of stock standing in decedent's name, each endorsed with an assignment of the shares evidenced by the certificate, to the widow, signed in her name as executrix of decedent's estate. Accompanying the certificate were duly attested documents as follows: a copy of decedent's will, a certificate

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of the Cuyahoga County Probate Court of the qualification of the widow as executrix under the will; copy of an application of the executrix for the distribution in kind of the estate, consisting of specified corporate stocks including the ninety-two shares of respondent's stock, with the appended consent of petitioners to the distribution in kind, and a copy of the journal of the probate court showing that it had granted the application and ordered the distribution.

Thereupon, respondent issued a new certificate for the ninety-two shares in the name of the widow which did not disclose her limited interest as life tenant or that of petitioners as remaindermen. October 31, 1929, the widow endorsed and delivered the certificate as collateral security for her brokerage account to a stockbroker to whom respondent issued a new certificate in his name as stockholder on November 4, 1929. In March, 1934, petitioners first learned of this disposition of the shares by the widow, and, in June, 1934, brought suit against respondent in the Cuyahoga County Court of Common Pleas, seeking recovery of damages for the wrongful transfer of the shares. In addition to defenses on the merits, respondent set up the Ohio four-year statute of limitations. After a trial on the merits, the trial court gave judgment for petitioners, which the Cuyahoga County Court of Appeals reversed. The state Supreme Court denied petitioners' motion to require the court of appeals to certify its record to the Supreme Court for review because of "probable error" in the case, after which the Court of Common Pleas entered "final judgment against appellees [petitioners here] and in favor of appellant [respondent here]" upon the mandate of the Court of Appeals stating

the judgment of the Court of Common Pleas is reversed for reasons stated in opinion on file and final judgment is hereby rendered for appellant,

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no error appearing in the record.

The opinion of the appellate court was not filed but copies were furnished counsel and it appears of record.

The state court of appeals held that, upon the tender for transfer of the certificates of stock by the executrix, it was the duty of respondent to issue a new certificate showing on its face the respective interests of the life tenant and of the petitioners as remaindermen; that the transfer of the shares by respondent to the broker without the endorsement of the certificate by petitioners was unauthorized and wrongful; that the unlawful disposition of the stock by the life tenant did not terminate the [61 S.Ct. 182] life interest or accelerate the rights of the remaindermen, but that the refusal of respondent after demand by petitioner to recognize and reestablish petitioners' rights in the stock, or other stock of equal par value, was a conversion of it entitling petitioners to damages to the extent of the value of their interest in the stock or to a decree of restitution directing respondent to issue a new certificate for the ninety-two shares in such manner as would protect the respective interests of all parties.

Construing the relevant provisions of the Ohio Uniform Stock Transfer Act (Ohio G.C., §§ 8673-1 to 22), the court held that, as a prerequisite to recovery for conversion of petitioners' interest in the stock, it was necessary that respondent repudiate petitioners' title and that the petitioners should allege and prove that respondent had refused to recognize petitioners' right in the stock and to issue an appropriate certificate for it. As petitioner had failed to allege or prove any demand on respondent or any refusal by it in advance of suit to recognize petitioners' rights or to issue an appropriate certificate, the court directed judgment for respondent in...

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