Klebanow v. New York Produce Exchange

• Citation: 344 F.2d 294
• Decision Date: 02 April 1965
• Docket Number: Docket 29270.,No. 305,305
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)
• Parties: Bernard KLEBANOW and George Lewis, Plaintiffs-Appellants, v. NEW YORK PRODUCE EXCHANGE, New York Produce Exchange Clearing Association, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Defendants-Appellees, and Ira Haupt & Company and Morton Kamerman as Liquidating Trustee, etc., Defendants.

344 F.2d 294 (1965)

Bernard KLEBANOW and George Lewis, Plaintiffs-Appellants, v. NEW YORK PRODUCE EXCHANGE, New York Produce Exchange Clearing Association, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Defendants-Appellees, and Ira Haupt & Company and Morton Kamerman as Liquidating Trustee, etc., Defendants.

No. 305, Docket 29270.

United States Court of Appeals Second Circuit.

Argued January 20, 1965.

Decided April 2, 1965.

Max Freund, New York City (Rosenman, Colin, Kaye Petschek & Freund, Jerome E. Sharfman, New York City, of counsel), for plaintiffs-appellants.

Donald Marks, New York City (Baer, Marks, Friedman & Berliner, New York City, Stephen F. Selig, New York City, of counsel), for defendant-appellee New York Produce Exchange Clearing Association.

William B. Shealy, New York City (Holtzmann, Wise & Shepard, New York City, Howard M. Holtzmann, New York City, of counsel), for defendant-appellee, New York Produce Exchange.

Richard C. Casey, New York City (Brown, Wood, Fuller, Caldwell & Ivey, New York City, Louis B. Eten, James B. May, New York City, of counsel), for defendant-appellee, Merrill Lynch, Pierce, Fenner & Smith Incorporated.

Before MOORE, FRIENDLY and MARSHALL, Circuit Judges.

FRIENDLY, Circuit Judge:

The novel issue, crucial to decision of this appeal, is whether limited partners of a New York partnership in dissolution can sue on its behalf for damage claimed to have been inflicted on it by conduct proscribed by the federal anti-trust laws, when the partnership and the liquidating partner allegedly have rendered themselves unable to sue and their delegate is claimed to be unwilling to do so because of affiliations with the defendants.

Plaintiffs were limited partners in the brokerage firm of Ira Haupt & Co., a New York limited partnership whose term was to end December 31, 1963. The partnership agreement provided that upon any termination or dissolution of the partnership, liquidation should be effected by the managing partners (or the managing partner, if there were only one) as "Liquidating Trustees." After November 1, 1963, Morton Kamerman was sole managing partner.

The instant complaint, filed in the District Court for the Southern District of New York on March 4, 1964, alleged the foregoing and went on as follows: In late November, 1963, Haupt appeared to be currently unable to meet its obligations as they matured. On November 25, Kamerman and the other general partners entered into an agreement with various bank creditors and the New York Stock Exchange whereby they divested themselves of power to do any act in behalf of the partnership, and executed powers of attorney authorizing James P. Mahony, an employee of the Stock Exchange, as representative of the Exchange and the banks, to exercise all their powers with respect to the assets and business of Haupt. Since that date the Exchange and the banks have exercised full control over these assets and have been liquidating them. The three defendants (other than the partnership and Kamerman) — New York Produce Exchange, New York Produce Exchange Clearing Association, and Merrill Lynch, Pierce, Fenner & Smith Incorporated — were claimed to have engaged "in an illegal contract combination and conspiracy with others, unknown to the plaintiffs, to restrain and monopolize trade in, and to fix the price of, cottonseed oil," thereby damaging the partnership "in the sum of at least $11,000,000." The Stock Exchange, the complaint said, will not permit Haupt or Kamerman to prosecute this claim because (1) Merrill Lynch "and possible additional defendants" are members of that exchange and of the Produce Exchange, (2) members of the Board of Governors of the Stock Exchange are partners in firms that also have partners on the Board of Governors of the Produce Exchange and the Clearing Association, and (3) the Stock Exchange "has numerous members who are also members of the Produce Exchange." Demand on Haupt or Kamerman to prosecute the claim would thus have been futile.

Defendants moved under F.R.Civ. P. 12(b) to dismiss for failure to state a claim on which relief can be granted. They contended that plaintiffs lacked capacity to sue¹ and that the allegations of violation of the antitrust laws were insufficient. Sustaining the first ground, Judge Tyler granted the motions, without having to reach the second.

Section 4 of the Clayton Act, 15 U.S.C. § 15, authorizes suit by "any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws." We have no doubt, and the few authorities indicate, that when business is conducted by a partnership, the statute views the partnership rather than a partner as the person injured. Coast v. Hunt Oil Co., 195 F.2d 870 (5 Cir.), cert. denied, 344 U.S. 836, 73 S.Ct. 46, 97 L.Ed. 651 (1952); Leh v. General Petroleum Corp., 165 F.Supp. 933 (S.D.Cal.1958). Who may bring an action under § 4 of the Clayton Act on behalf of a partnership is a question within federal competence. But the parties agree, and we shall assume they are right, that the provision in F.R.Civ.P. 17(b) — "In all other cases capacity to sue or be sued shall be determined by the law of the state in which the district court is held" — refers this determination to the law, the "whole law," of the place of suit. Since New York, the forum in this case, is also the place where the limited partnership was formed and had its headquarters, we encounter no choice of law problem as between states.

Pointing to the description of the liquidator as a "trustee," appellants claim the case to be won for them by the principle, Restatement (Second), Trusts § 282(2) (1959), followed in New York, that a cestui que trust may sue to enforce a claim of the trust when the trustee has wrongfully refused. Bonham v. Coe, 249 App.Div. 428, 292 N.Y.S. 423, aff'd mem., 276 N.Y. 540, 12 N.E.2d 566 (1937); Brooklyn Free Kindergarten Soc'y v. Elbran Realty Corp., 255 App. Div. 852, 7 N.Y.S.2d 531 (1938). Appellees answer — satisfactorily insofar as the argument is claimed to be decisive — by saying that it unduly stresses the words of the Haupt partnership agreement; Kamerman's legal position was no different than if he had been called a liquidating partner or agent, or a liquidator simpliciter. But the point remains pertinent as an analogy; appellants properly ask why, if a cestui que trust may sue under such circumstances, a limited partner may not. See Klebanow v. Funston, 35 F.R.D. 518 (S.D.N.Y.1964). They press also the example of the stockholder, an analogy which becomes the more forceful when we add that a preferred stockholder also may maintain a derivative action, Ashwander v. TVA, 297 U.S. 288, 321-322, 56 S.Ct. 466, 80 L.Ed. 688 (1936).² This gains further force from the New York Court of Appeals' statement that the position of a limited partner is "analogous to that of a corporate shareholder." Ruzicka v. Rager, 305 N.Y. 191, 197-198, 111 N.E.2d 878, 39 A.L.R.2d 288 (1953).

Appellees respond that limited partners are mere creditors who must work out their remedies through receivership or bankruptcy; appellants disclaim creditor status in this appeal, although on another, Klebanow v. Chase Manhattan Bank, 343 F.2d 726 (2 Cir. 1965), they assert they are that for the purpose of voting their claims as limited partners in the election of a trustee in bankruptcy. A limited partner, barred from using his name in the firm title, said to lack "property rights" in partnership assets, and presumed to have priority over other partners in the distribution of assets, does have some resemblance to a creditor. See N.Y. Partnership Law, McKinney's Consol. Laws, c. 39, §§ 94, 112; Alley v. Clark, 71 F.Supp. 521 (E.D.N.Y.1947). However, in the main, a limited partner is more like a shareholder, often expecting a share of the profits, subordinated to general creditors, having some control over direction of the enterprise by his veto on the admission of new partners, and able to examine books and "have on demand true and full information of all things affecting the partnership * *" See N. Y. Partnership Law §§ 98, 99, 112. That the limited partner is immune to personal liability for partnership debts save for his original investment, is not thought to be an "owner" of partnership property, and does not manage the business may distinguish him from general partners but strengthens his resemblance to the stockholder; and even as to his preference in dissolution, he resembles the preferred stockholder. Indeed, it makes considerably greater sense to clothe the instant appellants with whatever descriptive phrase is necessary to enable them to sue on behalf of the partnership than to entertain derivative suits by persons owning a few shares in giant corporations, especially if the shares are non-participating redeemable preferred. Of course, the defendants in any suit brought by limited partners are entitled to process that will make any judgment binding on the partnership, but that has been accomplished here.

Appellees say that however all this may be, the issue has long since been decided otherwise by New York's legislature in § 115 of the Partnership Law:

"Parties to actions. A contributor, unless he is a general partner, is not a proper party to proceedings by or against a partnership, except where the object is to enforce a limited partner\'s right against or liability to the partnership."

This provision came into New York law in 1922 when the legislature adopted the Uniform Limited Partnership Act, Laws 1922, ch. 640, § 1. The corresponding provision in the previous law, Laws 1897, ch. 420, § 38,³ carried forward in the 1909 and 1919 Partnership Laws, Consol. Laws of 1909, ch. 39, § 38; Laws 1919, ch. 408, § 98, had read:

"Actions by and against the partnership — Actions and special proceedings in relation to the business of the partnership may be brought and conducted by and against the general partners, in the

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