Burton v. Exxon Corp.

• Decision Date: 19 April 1982
• Docket Number: No. 81 Civ. 5040 (GLG).,81 Civ. 5040 (GLG).
• Citation: 536 F. Supp. 617
• Parties: John R. BURTON, suing on behalf of himself and all other similarly situated holders of $7 Cumulative Second Preferred Stock of European Gas & Electric Company, Plaintiff, v. EXXON CORPORATION, European Gas & Electric Company, R. F. Dilworth, D. G. Gill and W. W. Stewart, Defendants.
• Court: U.S. District Court — Southern District of New York

536 F. Supp. 617

John R. BURTON, suing on behalf of himself and all other similarly situated holders of $7 Cumulative Second Preferred Stock of European Gas & Electric Company, Plaintiff, v. EXXON CORPORATION, European Gas & Electric Company, R. F. Dilworth, D. G. Gill and W. W. Stewart, Defendants.

No. 81 Civ. 5040 (GLG).

United States District Court, S. D. New York.

April 8, 1982.

As Amended April 19, 1982.

Dickstein, Shapiro & Morin, New York City and Chestnut & Brooks, P.A., Minneapolis, Minn., for plaintiff and plaintiff class; Leonard Garment, Peter W. Morgan, New York City, and Thomas H. Graham, Minneapolis, Minn., of counsel.

Sullivan & Cromwell, New York City, for defendant Exxon Corp.; Roy H. Steyer, Robert M. Osgood, Nadine Strossen, Albert P. Lindemann, Jr., Kenneth M. Bialo, New York City, of counsel.

Walsh & Frisch, New York City, for European Gas & Elec. Co.; Jerome K. Walsh, Richard M. Auerbach, New York City, of counsel.

Satterlee & Stephens, New York City, for defendants Dilworth, Gill and Stewart; Robert M. Callagy, Ronald R. Papa, New York City, of counsel.

OPINION

GOETTEL, District Judge:

This is a diversity action brought by the plaintiff John Burton, a holder of "$7 Cumulative Second Preferred Stock" (Second Preferred) in the European Gas & Electric Company (Eurogasco),¹ against Eurogasco, the Exxon Corporation, R. F. Dilworth, D. G. Gill, and W. W. Stewart. He alleges that they breached their fiduciary duties to all Second Preferred shareholders, and he seeks various forms of equitable relief. Before this Court is Exxon's motion, in which all defendants join, to dismiss the complaint.²

Eurogasco is a Delaware corporation whose affairs are directed by Exxon. Since 1937, Exxon has controlled Eurogasco's Board of Directors, and since 1975, all directors have been employees of Exxon or its affiliates. (The individual defendants in this action are the current directors of Eurogasco.) Exxon also owns 91% of Eurogasco's outstanding shares — 100% of the "$7 Cumulative First Preferred Stock" (First Preferred), 26.5% of the Second Preferred, and 90.9% of the Common Stock.³ Besides the obvious advantages of owning such a large percentage of a corporation's stock, Exxon, as holder of the entire class of First Preferred, enjoys dividend and dissolution rights far superior to those of the other shareholders. For example, although the holders of the First Preferred and the Second Preferred are each entitled to an annual dividend of seven dollars per share and, upon dissolution, to $105 per share plus accrued but unpaid dividends, Eurogasco's Certificate of Incorporation and Certificate of Designation provide that payments to the holders of the First Preferred take precedence over payments to the holders of the other classes of stock. Thus, before dividends can be paid to the holders of the Second Preferred, the annual dividends and any arrearages must be paid to the holders of the First Preferred. Likewise, the holders of the Second Preferred cannot receive any dissolution payments until the rights of the First Preferred shareholders have been completely satisfied.

Eurogasco's business activities have been dormant for over thirty years. Organized in 1931, it engaged in the business of exploring for, producing, transporting, and selling oil and natural gas in Hungary, Austria, and Czechoslovakia during the 1930's. It lost substantially all its assets, however, as a result of World War II and the nationalization of industry by the Hungarian Communist regime in 1948. (These assets were held by wholly owned Austrian and Hungarian subsidiaries.) According to Exxon, the pursuit of compensation claims arising from the loss of these assets has been the sole reason for Eurogasco's existence since 1948.

Eurogasco has achieved some success in its pursuit of compensation. Most recently, it received a series of payments totalling approximately nine million dollars from the Hungarian government pursuant to the 1973 United States-Hungarian Claims Agreement.⁴ The last payment under this agreement in September 1980, however, marked the last payment that Eurogasco could hope to receive for its losses in the 1940's.

Early in 1981, therefore, Eurogasco's Board of Directors concluded that no useful purpose would be served by the continued existence of the corporation and decided to seek dissolution. As two-thirds of each preferred class of stock had to approve the dissolution, the Board adopted a resolution calling for a shareholder vote at the annual meeting in May 1981. In preparation for the vote, a proxy statement was sent to all shareholders. The statement apprised the Second Preferred shareholders that, due to the financial condition of Eurogasco, they would receive no dissolution payments. It also informed all shareholders that, if the resolution was not approved, Exxon might seek a court ordered dissolution. Not surprisingly, the resolution was defeated at the annual meeting; although 100% of the First Preferred shareholders — that is, Exxon — approved, only 38.3% of the Second Preferred shareholders voted for dissolution.

The plaintiff filed this lawsuit in August 1981. At issue is the use of the money received from Hungary pursuant to the Claims Agreement. Among other things, this money was placed on deposit with Exxon and used to pay $4.1 million in dividends on the First Preferred stock.⁵ The plaintiff asserts that these actions, as well as certain tax decisions, amounted to a breach of the defendants' fiduciary duties to the Second Preferred shareholders. He now seeks an order requiring the defendants to account for all profits received as a result of the breach, to convey these profits to Eurogasco's corporate treasury, to invest these profits in accordance with their fiduciary obligations to the Second Preferred shareholders, and to refrain from any attempts to dissolve Eurogasco.

In October 1981, Exxon petitioned the Delaware Court of Chancery for dissolution of Eurogasco. (This petition was filed on the same day that Exxon filed this motion.) That court, however, has stayed the action pending resolution of Exxon's motion in this Court.

It is against this backdrop that we now view Exxon's motion to dismiss. The motion is based on the following grounds. Initially, Exxon argues that the Court does not have subject matter jurisdiction over this action. Alternatively, it argues that, even if the Court does have jurisdiction, it should decline to exercise it because there is now a related action pending in the Delaware Chancery Court or because the action involves the internal affairs of a Delaware corporation. For the reasons stated below, this motion is denied.

I. Jurisdiction

The first issue raised by this motion is whether this Court has jurisdiction to adjudicate the plaintiff's claims. According to Exxon, jurisdiction is lacking because the amount in controversy does not exceed $10,000. See 28 U.S.C. § 1332(a) (1976). We disagree.

Unlike an action for damages, determination of the amount in controversy — "the value of the object of the litigation," Hunt v. Washington State Apple Advertising Commission, 432 U.S. 333, 347, 97 S.Ct. 2434, 2443, 53 L.Ed.2d 383 (1977) — can present difficulties in a suit for equitable relief. McCarty v. Amoco Pipeline Co., 595 F.2d 389, 391-92 (7th Cir. 1979). In particular, the court is faced with the problems of determining what rights are implicated by the lawsuit and attaching a monetary value to those rights. Id. at 392. These problems, however, are tempered somewhat by the fact that absolute precision in valuing the object of the litigation is not required. Moore v. Betit, 511 F.2d 1004, 1006 (2d Cir. 1975). Only if it is "legally certain" that the jurisdictional amount requirement cannot be met should a court dismiss for lack of jurisdiction. Hunt v. Washington State Apple Advertising Commission, supra, 432 U.S. at 346, 97 S.Ct. at 2443; St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 288-89, 58 S.Ct. 586, 590, 82 L.Ed. 845 (1938); Moore v. Betit, supra, 511 F.2d at 1006. See generally Novosel v. Northway Motor Car Corp., 460 F.Supp. 541, 544 (N.D.N.Y.1978) (legal certainty test makes it difficult to dismiss a complaint for failure to meet the jurisdictional amount requirement).

Exxon's argument is that the jurisdictional amount requirement is not satisfied because, taken from the viewpoint of the plaintiff and the class he seeks to represent, see Kheel v. Port of New York Authority, 457 F.2d 46, 49 (2d Cir.), cert. denied, 409 U.S. 983, 93 S.Ct. 324, 34 L.Ed.2d 248 (1972), the rights being protected in this lawsuit are inherently speculative and unmeasurable. See Kheel v. Port of New York Authority, supra, 457 F.2d at 49; Rosado v. Wyman, 414 F.2d 170, 176-77 (2d Cir. 1969), rev'd. on other grounds, 397 U.S. 397, 90 S.Ct. 1207, 25 L.Ed.2d 442 (1970). In support of this proposition, Exxon places primary reliance on Kheel v. Port of New York Authority, supra. Kheel involved a challenge to the constitutionality of a New York statute that limited Port Authority investment in "non-self-supporting" railroad facilities. Reasoning that the possible benefits of a successful lawsuit were indirect and incapable of valuation, the Second Circuit held that the jurisdictional amount requirement was not satisfied. Id. at 49; see also Texas Acorn v. Texas Area 5 Health Systems Agency, Inc., 559 F.2d 1019, 1023 (5th Cir. 1977) (benefit that plaintiffs would receive as a result of adequate representation on the board of directors of a public health agency); Podrazik v. Blum, 479 F.Supp. 182, 188 (N.D.N.Y.1979) (right to own unencumbered property), aff'd. mem., 622 F.2d 575 (2d Cir.), cert. denied, 446 U.S. 922, 100 S.Ct. 1860, 64 L.Ed.2d 277 (1980); State v. Holy Spirit Ass'n. for World Unification, 464 F.Supp. 196, 198 (S.D.N.Y.1979) (parent's right to custody of a child); Post v. Payton, 323 F.Supp. 799, 803, 804 (E.D.N.Y.1971) (right to receive...