Ackert v. Pelt Bryan, Docket 27240.

• Decision Date: 03 January 1962
• Docket Number: Docket 27240.
• Citation: 299 F.2d 65
• Parties: Harold C. ACKERT, as Trustee for the benefit of Laura B. Smith, Petitioner, v. Honorable Frederick van Pelt BRYAN, District Judge, United States District Court for the Southern District of New York, Respondent.
• Court: U.S. Court of Appeals — Second Circuit

299 F.2d 65 (1962)

Harold C. ACKERT, as Trustee for the benefit of Laura B. Smith, Petitioner, v. Honorable Frederick van Pelt BRYAN, District Judge, United States District Court for the Southern District of New York, Respondent.

Docket 27240.

United States Court of Appeals Second Circuit.

Motion Argued November 27, 1961.

Decided January 3, 1962.

Rehearing Denied February 8, 1962.

Abraham L. Pomerantz, New York City (Pomerantz, Levy & Haudek, and William E. Haudek, Rosenfeld & Silverman, New York City, on the brief), for petitioner.

Samuel E. Gates, New York City (Debevoise, Plimpton & McLean, and Robert J. Geniesse, Robert L. King, New York City, Davis, Polk, Wardwell, Sunderland & Kiendl, and Taggart Whipple, Philip C. Potter, Jr., Roland W. Donnem, New York City, on the brief), for respondent.

Before CLARK, FRIENDLY and KAUFMAN, Circuit Judges.

KAUFMAN, Circuit Judge.

Plaintiff in Ackert v. Ausman¹ petitions this Court for a writ of mandamus directing Judge Frederick van Pelt Bryan to retain jurisdiction over that action. On October 17, 1961 Judge Bryan filed an opinion granting a motion made by two of the defendants in that case for its transfer pursuant to 28 U.S.C. § 1404 (a) from the Southern District of New York to the District of Minnesota, Fourth Division (at Minneapolis). Pending argument and disposition of this application the proceedings in the District Court were stayed.²

Petitioner urges this Court to issue the writ, claiming: (1) that Judge Bryan abused his discretion in directing a transfer of the action to Minnesota, and (2) that the action could not have been "brought" in the transferee court within the meaning of Section 1404(a)³ and therefore the transfer could not, as a matter of law, be made.

The action giving rise to this motion was begun by a trustee of a trust which was alleged to be a stockholder of defendant Investors Mutual, Inc. (Mutual), a diversified open-end management investment company. The trustee's amended complaint states that the action is brought "derivatively on behalf of Investors Mutual and representatively on behalf of himself and other stockholders of Investors Mutual" against Investors Diversified Services, Inc. (Diversified), an investment advisor to Mutual, and thirteen individual defendants who are or have been directors of Mutual and Diversified or both.⁴ Jurisdiction was alleged to exist under the Investment Company Act of 1940⁵ and also because of diversity of citizenship.⁶ The amended complaint charges, as summarized by the District Court, at page 540 of its opinion,

"that the individual defendants and Diversified dominate and control Mutual, and the individual defendants as directors of Mutual are subservient to the wishes of Diversified without regard to Mutual\'s best interests; that the fees payable to Diversified were established arbitrarily and collusively to benefit the defendants and not Mutual; that the fees are grossly excessive and unfair and will become increasingly so under the same fixed percentage arrangement as Mutual\'s assets increase; that Diversified gives the same advice to Mutual which it gives to all five mutual funds it services and thereby multiplies its fees; and that Diversified and the individual defendants used the advice paid for by Mutual and obtained by them for nothing to build their own portfolios of securities and thus appropriated a valuable asset of Mutual for their own use and benefit."

These acts were alleged to constitute a waste of Mutual's assets for the benefit of defendants, and a violation of the individual defendants' fiduciary duties under the Investment Company Act of 1940. The plaintiff sought a declaration of the rights of the parties, an accounting by the defendants of their profits, damages, and the costs and expenses of the action including counsel and accountant's fees. None of the defendants has answered as yet. Instead, the corporate defendants, Mutual and Diversified moved for transfer pursuant to Sec. 1404(a); and Mutual made a second motion under 28 U.S.C. § 1406 for dismissal or alternatively for transfer because of improper venue. The two individual defendants did not join in these motions, but neither did they oppose them. Having granted transfer under Section 1404(a), Judge Bryan quite properly denied as moot the motion for transfer pursuant to Section 1406.

It has long been settled in this Circuit that an order granting or denying a motion for transfer of an action under Section 1404(a) to a District Court in another Circuit is not final, and is therefore not appealable. 28 U.S.C. § 1291; Henvey v. Briscoe, 253 F.2d 484 (2d Cir. 1958); Littman v. Bache & Co., 246 F.2d 490 (2d Cir. 1957); Arrowhead Co. v. The Aimee Lykes, 193 F.2d 83 (2d Cir. 1951); Ford Motor Co. v. Ryan, 182 F.2d 329 (2nd Cir.), cert. denied 340 U.S. 851, 71 S.Ct. 79, 95 L.Ed. 624 (1950); Koons v. Kaufman, 187 F.2d 1023 (2nd Cir. 1950), cert. denied 340 U.S. 942, 71 S.Ct. 505, 95 L.Ed. 679 (1951); Magnetic Engineering & Mfg. Co. v. Dings Mfg. Co., 178 F.2d 866 (2nd Cir. 1950).

This does not mean that Section 1404(a) orders entered in the trial courts of this circuit are immune from review by this Court. On petitions for mandamus, invoking our auxiliary appellate power under the All Writs section of the Judicial Code, 28 U.S.C. § 1651, we have undertaken a closely circumscribed review of such orders. Nevertheless, mandamus is not a substitute for appeal, Bankers Life & Cas. Co. v. Holland, 346 U.S. 379, 383, 74 S.Ct. 145, 98 L.Ed. 106 (1953); Ex parte Fahey, 332 U.S. 258, 260, 67 S.Ct. 1558, 91 L.Ed. 2041 (1947); Alcoa S. S. Co. v. Ryan, 211 F.2d 576, 577 (2nd Cir. 1954), and it is not to be used as a method of appealing from an interlocutory order not made appealable by statute, Abrams v. McGohey, 260 F.2d 892 (2nd Cir. 1958). See generally, Note, Appealability of 1404(a) Orders: Mandamus Misapplied, 67 Yale L.J. 122 (1957).

When appeal in due course is a clearly inadequate remedy, the extraordinary writ may be appropriate. Ex parte Fahey, supra. Thus, when a trial court has refused to grant a transfer, its action has been reviewed to determine whether the refusal involved an abuse of discretion. Lykes Bros. S. S. Co. v. Sugarman, 272 F.2d 679 (2nd Cir. 1959); Ford Motor Co. v. Ryan, supra. This is because any error in the interlocutory order "would probably be incorrectible on appeal" since the party which sought the transfer, and then lost the action on its merits, "could hardly show that a different result would have been reached had the suit been transferred." Id., 182 F.2d, at p. 330.

However, when a trial court has granted a motion for transfer, review of its action on a petition for mandamus is more restricted. This is because the appellate court must consider the interference which review itself will work on the transfer procedure contemplated by the statute. Judge Magruder, in a brilliant opinion, gave particular attention to this problem. By enacting Section 1404(a), he noted, Congress

"provided an administrative facility that was supposed to contribute to the convenience and expedition in the disposition of cases. This policy" he warned, "would certainly be defeated if the courts of appeals in the transferor districts should make it a routine practice to hold up the trial of a case pending review on mandamus of the question where the case ought to be tried." In re Josephson, 218 F.2d 174, 182 (1st Cir. 1954).

See also the opinion by Judge Goodrich in the earlier case of All States Freight v. Modarelli, 196 F.2d 1010, 1012 (3rd Cir. 1952) wherein he concludes,

"it will be highly unfortunate if the result of an attempted procedural improvement is to subject parties to two lawsuits: first, prolonged litigation to determine the place where a case is to be tried; and, second, the merits of the alleged cause of action itself."

Therefore, when a motion for transfer has been granted, review of the lower court's order on a petition for mandamus has been limited to consideration of whether the trial court had power to make that transfer, Anthony v. Kaufman, 193 F.2d 85 (2nd Cir. 1951), cert. denied 342 U.S. 955, 72 S.Ct. 629, 96 L. Ed. 710 (1952); Arrowhead Co. v. The Aimee Lykes, supra; Foster-Milburn Co. v. Knight, 181 F.2d 949 (2nd Cir. 1950), or whether it committed a gross abuse of discretion by causing extreme hardship on the party who opposed it, Magnetic Engineering & Mfg. Co. v. Dings Mfg. Co., supra, 178 F.2d, at p. 869. See generally, Kaufman, Observations on Transfers Under Section 1404(a) of the New Judicial Code, 10 F.R.D. 595 (1951); Kaufman, Further Observations on Transfers Under Section 1404(a), 56 Colum.L.Rev. 1 (1956).

In the instant case petitioner does not seriously press any claim that the transfer to be ordered by Judge Bryan would "handicap his presentation of the case," or that it would so unreasonably "add to the costs of trial" as to cause him to be prejudiced within the meaning of Magnetic Engineering & Mfg. Co. v. Dings Mfg. Co., supra, 178 F.2d, at p. 869. The finding by the trial court, with which we agree, that "the balance of convenience of parties and witnesses is overwhelmingly in favor of transfer," and that the Southern District of New York was not in fact "a convenient or appropriate forum," a finding which is supported by very substantial evidence, negates this possibility of prejudice.⁷

Instead, the petitioner in the main directs our attention to the question of the District Court's power to make the transfer, regardless of the balance of convenience. Foster-Milburn Co. v. Knight, supra. He states quite properly that a necessary condition of any such order is that the action "might have been brought" in the suggested transferee court. 28 U.S.C. § 1404(a). It is his claim that the present action could not have been "brought" in the District Court for the District of Minnesota, because the individual defendants do not reside in Minnesota, and the District Court...