326 U.S. 549 (1946), 100, Williams v. Green Bay & Western R. Co.

Docket Nº:No. 100
Citation:326 U.S. 549, 66 S.Ct. 284, 90 L.Ed. 311
Party Name:Williams v. Green Bay & Western R. Co.
Case Date:January 07, 1946
Court:United States Supreme Court
 
FREE EXCERPT

Page 549

326 U.S. 549 (1946)

66 S.Ct. 284, 90 L.Ed. 311

Williams

v.

Green Bay & Western R. Co.

No. 100

United States Supreme Court

Jan. 7, 1946

Argued December 10, 1945

CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE SECOND CIRCUIT

Syllabus

Petitioners, residents of New York and holders of Class B debentures issued by respondent, a Wisconsin corporation, brought suit in a New York court to recover amounts due and payable under the debentures out of earnings in lieu of interest. Under the covenant in the Class B debentures, the holders thereof were entitled to all of the remaining net earnings each year after holders of Class A debentures had received 5% on the face value thereof and stockholders had received 5% on the par value of the stock, the amounts payable to the Class B debenture holders to "be fixed and declared by the Board of Directors." Respondent's railroad lines were wholly in Wisconsin, and its president and general auditor were there. However, it did business in New York; its Class B debentures were payable, listed, and traded in there; it maintained its financial office, a traffic office, and a bank account there; five of its six directors (including all of the executive and fiscal officers except the president and general auditor) and two of the three members of its executive committee were there; directors' meetings were customarily held there, and its financial records, transfer books, minute books, and the like were kept there. After removing the case to a federal district court in New York on the grounds of diversity, respondent moved to dismiss on the ground that the suit concerned the internal affairs of a foreign corporation, and could more conveniently

Page 550

be tried in the state of its incorporation. The district court granted the motion.

Held:

1. It was improper to dismiss the suit on the ground of forum non conveniens. Pp. 552, 560.

2. This rule was designed as an instrument of justice to prevent a case from being tried in one court when, in fairness, it should be tried in another. (Illustrations given.) P. 554.

3. When it is invoked, each case turns on its facts. P. 557.

4. The relief sought, a money judgment, was not of such a character that a federal court in New York would be so handicapped that it should remit the parties to Wisconsin. P. 558.

5. Nor should the case have been remitted to Wisconsin on the theory that a construction of the covenant would primarily affect the interests of the public in that State. P. 558.

6. Since the suit sought only a money judgment, it did not involve sufficient interference in the internal affairs of the foreign corporation to justify dismissal on forum non conveniens. P. 559.

7. Under the facts in this case, it would not be vexatious or oppressive to entertain the suit in New York, whether the availability of witnesses or any other aspect of a trial be considered. P. 559.

147 F.2d reversed.

Certiorari, post, p. 699, to review affirmance of a judgment, 59 F.Supp. 98, dismissing a suit under the rule of forum non conveniens.

DOUGLAS, J., lead opinion

MR. JUSTICE DOUGLAS delivered the opinion of the Court.

Petitioners, residents of the City of New York, are holders of Class B debentures issued by respondent railroad company, a Wisconsin corporation. They brought this suit in the New York courts to recover amounts alleged to be due and payable under the debentures out of earnings in lieu of interest. On petition of respondent, the

Page 551

action was removed to the federal District Court for the Southern District of New York on the grounds of diversity. Respondent thereupon moved (1) to set aside the service because respondent was not doing business in New York, and (2) to dismiss because the subject matter was concerned with the internal affairs of a foreign corporation. The District Court denied the first motion, but granted the second. 59 F.Supp. 98. On appeal, the Circuit Court of Appeals affirmed by a divided vote, holding that the District Court did not abuse its discretion in basing its dismissal on forum non conveniens. 147 F.2d 77. We granted certiorari because of the importance of the question presented.

The Class B debentures, issued in 1896, have no maturity date. Their principal is payable "only in the event of a sale or reorganization" of the company and "then only out of any net proceeds" remaining after specified payments to the Class A debentures and to the stock. The covenant in the Class B debentures out of which this litigation arises is set forth below.1 The Circuit Court of

Page 552

Appeals was divided as to its meaning. The majority concluded that, even though there were net earnings after the payments to the Class A debentures [66 S.Ct. 286] and to the stock, the directors had discretion to determine whether or not that sum should be paid to the Class B debentures. The court thereupon held, in reliance on Rogers v. Guaranty Trust Co., 288 U.S. 123; Cohn v. Mishkoff-Costello Co., 256 N.Y. 102, 175 N.E. 529; Cohen v. American Glass Window Co., 126 F.2d 111, that the suit concerned the internal affairs of respondent and could better be tried in Wisconsin, the state of its incorporation. The minority thought that the amount of net earnings remaining after deducting the payments made to the Class A debentures and to the stock was to be paid to the Class B debentures, that the directors had no discretion to withhold such amounts, and that their payment involved nothing more than a ministerial act.2 In that view, the suit was substantially the same as one for a liquidated sum, and would entail no interference with the internal affairs of a foreign corporation.

We leave open the question of the proper construction of the "net earnings" covenant in the Class B debentures. Although we assume that the majority of the court below

Page 553

was right in its interpretation of the covenant, we think it was improper to dismiss the case on the grounds of forum non conveniens.

Rogers v. Guaranty Trust Co., supra, is the only decision of this Court holding that a federal court should decline to hear a case because it concerns the internal affairs of a corporation foreign to the State where the federal court sits. A corporation chartered by one State commonly does business in the farthest reaches of the nation. Its business engagements -- the issuance of securities, mortgaging of assets, contractual undertakings -- frequently raise questions concerning the construction of its charter, bylaws and the like, or the scope of authority of its officers or directors, or the responsibility of one group in the corporate family to another group. All such questions involve, in a sense, the internal affairs of a corporation -- whether, in a suit on a contract the corporation interposes the defense of ultra vires, or a bondholder sues on his bond or a stockholder asserts rights under his stock certificate. But a federal court which undertakes to decide such a question does not trespass on a forbidden domain. See Williamson v. Missouri-Kansas Pipe Line Co., 56 F.2d 503, 510. Under the rule of Erie R. Co. v. Tompkins, 304 U.S. 64, a federal court in a diversity case applies local law. In conflict of laws cases, that may mean ascertaining and applying the law of a State other than that in which the federal court is located. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487. The fact that the corporation law of another State is involved does not set the case apart for special treatment. The problem of ascertaining the state law may often be difficult. But that is not a sufficient ground for a federal court to decline to exercise its jurisdiction to decide a case properly before it. As we said in Meredith v. Winter Haven, 320 U.S. 228, 234,

The diversity jurisdiction was not conferred for the benefit of the federal courts or to serve their convenience. Its purpose

Page 554

was generally to afford to suitors an opportunity in such cases at their option, to assert their rights in the federal, rather than in the state, courts.

So long as diversity jurisdiction remains, the parties may not be remitted to a state court merely because of the difficulty of making a decision in the federal court. Meredith v. Winter Haven, supra. If the District Court were sustained in declining to exercise its jurisdiction in this case, there could be no assurance that the litigation would be transferred to the Wisconsin state courts. If petitioner sued in the federal court in Wisconsin, as they could by reason of diversity of citizenship, no reason is apparent why that court should not proceed to decision. The fact that the federal court in Wisconsin could pass on [66 S.Ct. 287] this internal affair of this corporation does not, of course, mean that the federal court in New York need do so. The nature of the problem presented and the relief sought might be of controlling significance in inducing the federal court in New York to remit the parties to Wisconsin. But, as we shall see, no special circumstances of that nature are present here.

We mention this phase of the matter to put the rule of forum non conveniens in proper perspective. It was designed as an "instrument of justice."3 Maintenance of a suit away from the domicile of the defendant -- whether he be a corporation or an individual -- might be vexatious or oppressive.4 An adventitious circumstance might land

Page 555

a case in one court when, in fairness, it should be tried in another. The relief sought against a foreign corporation

Page 556

may be so extensive or call for such detailed and continuing supervision that the matter could be more efficiently handled nearer home.5 The limited [66 S.Ct. 288] territorial jurisdiction of the federal court6 might indeed make it difficult for it to make its decree effective.7 But where, in this type of litigation, only a money judgment is sought, the case normally is different. The...

To continue reading

FREE SIGN UP