CH v. American Red Cross, 86-1713C(A).

• Decision Date: 08 February 1988
• Docket Number: No. 86-1713C(A).,86-1713C(A).
• Citation: 684 F. Supp. 1018
• Parties: C.H., Next Friend of K.P., a minor, Plaintiff, v. AMERICAN RED CROSS, a nationally chartered corporation, and Cardinal Glennon Children's Hospital, a Missouri Not-For-Profit Corporation, Defendants.
• Court: U.S. District Court — Eastern District of Missouri

684 F. Supp. 1018

C.H., Next Friend of K.P., a minor, Plaintiff, v. AMERICAN RED CROSS, a nationally chartered corporation, and Cardinal Glennon Children's Hospital, a Missouri Not-For-Profit Corporation, Defendants.

No. 86-1713C(A).

United States District Court, E.D. Missouri, E.D.

April 3, 1987.

Order on Reconsideration February 8, 1988.

COPYRIGHT MATERIAL OMITTED

Michael A. Lawder, Belleville, Ill., Gary Underwood, St. Louis, Mo., for plaintiff.

Frank N. Gundlach, Clark H. Cole, St. Louis, Mo., for defendant American Red Cross.

Kemper R. Coffelt, Clayton, Mo., for defendant Cardinal Glennon.

MEMORANDUM AND OPINION

HARPER, District Judge.

This matter is before the Court on its own motion to examine the propriety of defendants' petition for removal. Plaintiff originally filed the present suit in the Circuit Court for the City of St. Louis, State of Missouri, against the American National Red Cross (hereinafter "Red Cross") and Cardinal Glennon Children's Hospital (hereinafter "Cardinal Glennon"). In her petition, plaintiff asserts several state law causes of action seeking damages for complications allegedly arising from cryoprecipitate transfusions given to plaintiff's minor child between June 24, 1984 and April 23, 1985.

On August 22, 1986, defendants filed jointly a petition for removal in this Court. As grounds for removal by the Red Cross, defendants rely on 28 U.S.C. §§ 1349, 1441(a) and 1442(a)(1) and 36 U.S.C. § 2. Cardinal Glennon's removal is based solely upon the doctrine of pendent jurisdiction.

The Court will examine, in turn, each of the asserted statutory bases for removal.

I. 28 U.S.C. § 1349.

In the Pacific Railroad Removal Cases, 115 U.S. 1, 5 S.Ct. 1113, 29 L.Ed. 319 (1885), the Supreme Court held that "corporations of the United States, created by and organized under acts of Congress," are entitled to remove suits brought against them in the state courts to the Federal courts, "under and by virtue of the act of March 3, 1875 predecessor of 28 U.S.C. § 1331, on the ground that such suits are suits `arising under the laws of the United States.'" Id. at 11, 5 S.Ct. at 1117. The flood of litigation resulting from that decision led Congress to enact 28 U.S.C. § 1349, which provides as follows:

"The district courts shall not have jurisdiction of any civil action by or against any corporation upon the ground that it was incorporated by or under an Act of Congress, unless the United States is the owner of more than one-half of its capital stock."

Defendants contend that Section 1349 was never intended to apply to the "patriotic societies" chartered under Title 36, such as the Red Cross; rather Section 1349 was intended to restrict federal jurisdiction in only those suits involving federally chartered business corporations. Defendants further contend that the capital stock ownership requirement contained in the last phrase of Section 1349 is satisfied even though a corporation has not issued shares of stock when the United States has a substantial proprietary interest in a particular federal corporation.

The Federal Courts have routinely applied Section 1349 to corporations chartered under Title 36. See e.g. Burton v. United States Olympic Committee, 574 F.Supp. 517 (C.D.Cal.1983); Crum v. Veterans of Foreign Wars, 502 F.Supp. 1377 (D.Del.1980); Stop the Olympic Prison v. United States Olympic Committee, 489 F.Supp. 1112 (S.D.N.Y.1980); Rice v. Disabled American Veterans, 295 F.Supp. 131 (D.D.C.1968); Harris v. American Legion, 162 F.Supp. 700 (S.D.Ind.), aff'd 261 F.2d 594 (7th Cir.1958); Anthony Wayne Post No. 418 v. American Legion, 5 F.Supp. 395 (D.Pa.1933). Defendants nevertheless contend that the legislative history of Section 1349 clearly demonstrates the intent of Congress to restrict federal jurisdiction based upon federal incorporation to suits involving governmental business corporations. After examining the legislative history relied upon by defendants, the Court concludes that Congress drew a distinction based not upon whether a federal corporation was a business corporation or a patriotic society; rather, the distinction was made between Government-controlled corporations and privately-controlled corporations. See Jackson v. Tennessee Valley Authority, 462 F.Supp. 45, 52 (M.D.Tenn. 1978), aff'd 595 F.2d 1120 (6th Cir.1979) (Letter written by Senator Albert B. Cummins, then chairman of the Senate Judiciary Committee, to T.V. O'Connor, dated February 11, 1924). This disposes of defendants' first contention, and the Court will next consider the somewhat related question whether Section 1349's capital stock ownership requirement should be construed broadly as including federal corporations in which the United States has a substantial proprietary interest.

Many courts have examined this important question, but no definitive answer exists. Some have construed the last phrase of Section 1349 restrictively to confer federal jurisdiction only where the United States actually owns at least one-half of a corporation's issued shares of stock. See e.g. Hancock Financial Corporation v. Federal Savings and Loan Insurance Corporation, 492 F.2d 1325 (9th Cir.1974); Crum, supra; Stop the Olympic Prison, supra; Crockett Mortgage Co. v. Government National Mortgage Association, 418 F.Supp. 1081 (E.D.Pa.1976); Rice, supra; Harris, supra. Other courts, however, have refused to apply Section 1349 in such a formalistic manner, and instead, inquire whether the corporation is effectively controlled by the United States. See, e.g. Government National Mortgage Association v. Terry, 608 F.2d 614 (5th Cir.1979); United States v. Nowak, 448 F.2d 134 (7th Cir.1971), cert. denied, 404 U.S. 1039, 92 S.Ct. 714, 30 L.Ed.2d 731 (1972); Jackson, supra; Monsanto v. Tennessee Valley Authority, 448 F.Supp. 648 (N.D.Ala.1978). After careful consideration, the Court finds the latter interpretation to be more persuasive.

Although Section 1349 purports to confer federal jurisdiction in suits involving corporations in which "the United States is the owner of more than one-half of its capital stock," Congress' use of the term "capital stock" is ambiguous. See Jackson, supra, at 52-53. The term is sometimes used when referring to shares of corporate stock, but it also denominates the fund of money or other property fixed by the corporate charter or articles of incorporation as the amount available for conducting the business of a corporation. See 18 C.J.S. Corporations, § 193, 614-615 (1939). The courts which have concluded that federal jurisdiction exists only if the United States actually owns more than one-half of a corporation's shares of stock have uniformly failed to perceive this ambiguity, and additionally failed to consider congressional intent. "When aid to construction of the meaning of words, as used in the statute, is available, there certainly can be no `rule of law' which forbids its use, however clear the words may appear on `superficial examination.'" Train v. Colorado Public Interest Research Group, Inc., 426 U.S. 1, 10, 96 S.Ct. 1938, 1942, 48 L.Ed.2d 434 (1976) (citations omitted.)

The initial draft of what later became Section 1349 was incorporated as Section 12 of a bill introduced by Senator Albert B. Cummins, then Chairman of the Senate Judiciary Committee. This initial draft contained what is now the first section of Section 1349. The last phrase of Section 1349, the capital stock ownership requirement, was added after correspondence between Senator Cummins and T.V. O'Connor, then vice chairman of the United States Shipping Board Emergency Fleet Corporation. After receiving a letter from O'Connor which pointed out the obvious federal interest in preserving federal jurisdiction in suits involving federal corporations, Senator Cummins responded:

"Section 12 is obviously too broad. As you may know, there is a provision in Section five of the Act of January 28, 1915 of similar import, confined to railroad companies. It is a very proper provision when limited to private corporations, but of course, it should not be extended to government corporations or to corporations in which the government has the controlling interest."

Jackson, supra at 52 (letter from Albert B. Cummins to T.V. O'Connor, dated February 11, 1924). A short time later, the Senate Judiciary Committee proposed amending Section 12 to its present form. The report accompanying the proposed amendment stated that Section 12's initial jurisdictional limitation "should be somewhat restricted." S.Rep. No. 362, 68th Cong., 1st Sess. 4 (1924).

The foregoing legislative history demonstrates that Section 1349 was intended to confer federal jurisdiction on suits involving all "Government-controlled corporations", and not only those corporations controlled by the government by virtue of majority stock ownership. This construction of Section 1349 is not inconsistent with the use of the term "capital stock" in the statute, and, furthermore, it avoids elevating form over substance. For purposes of Section 1349, there is no real difference between a corporation controlled by the United States, and a corporation in which the United States has a majority stock ownership. In view of this conclusion, the Court's next task is to determine whether the United States effectively controls the Red Cross.

The Red Cross is a "national society" of the International Red Cross. It is a membership corporation, first chartered by Congress in 1900. Congress created the Red Cross in order to fulfill the undertakings of the United States as a contracting party to the Geneva treaties of 1864 and following, relating to the amelioration of the sick and wounded of the armies. Sturges, The Legal Status of the Red Cross, 56 Mich.L. Rev. 1 (1957). The original Act creating the Red Cross was superceded by the Act of 1905, which incorporated a majority of the original Act's provisions, but totally revised the organization's governing structure. The preamble of the ...