Dixon v. Northwestern National Bank of Minneapolis

Citation276 F. Supp. 96
Decision Date19 October 1967
Docket NumberNo. 4-66 Civ. 65.,4-66 Civ. 65.
PartiesHoward G. DIXON, Homer Denno, Albino Zanchettin, Fred R. Harris, Joseph F. Walker, Arthur W. Rankin, Lehman H. Mengel, Karl G. Strickler, Plaintiffs, v. NORTHWESTERN NATIONAL BANK OF MINNEAPOLIS, Defendant and Third-Party Plaintiff, v. John B. DRAKE et al., Third-Party Defendants.
CourtUnited States District Courts. 8th Circuit. United States District Court of Minnesota

Carlsen, Greiner & Law, by Ronald D. Olson, Minneapolis, Minn., for plaintiffs.

Faegre & Benson, By Wright W. Brooks, Minneapolis, Minn., for defendant and third-party plaintiff.

Dorsey, Marquart, Windhorst, West & Halladay, by Horace Hitch, Minneapolis, Minn., for John B. Drake, George M. Drake and George R. Drake, third-party defendants.

Rider, Bennett, Egan & Johnson, by Stuart W. Rider, Jr., Minneapolis, Minn., for third-party defendants D. P. Jesson and Venita O'Shaughnessy.

R. L. Van Fossen, Minneapolis, Minn., for third-party defendants Violet S. Cuffel and W. C. Nordstrom.

Henson & Webb, by Robert F. Henson, Minneapolis, Minn., for third-party defendants R. P. Bayard, H. S. Bixby, C. W. Borden, E. R. Gallagher and C. W. Victorson.

NEVILLE, District Judge.

Eight individuals have joined as coplaintiffs to bring this action against defendant Northwestern National Bank of Minneapolis, premising federal jurisdiction upon the diversity provisions of 28 U.S.C. § 1332 (1964). Defendant moves to dismiss as to all but one of the plaintiffs alleging that seven of them independently fail to satisfy the $10,000.00 jurisdictional minimum prerequisite, conceding however that all plaintiffs meet the diversity requirement.

The complaint in the action asserts that defendant Northwestern National Bank, the trustee under an employees' profit sharing trust, improperly used the trust funds to buy and to invest in worthless preferred stock of the allegedly insolvent employer, Johnson, Drake & Piper, Inc. Defendant Northwestern National Bank has answered on the merits denying any wrongful action on its part; further it claims that any and all investments made by it were under the mandatory directions and authorization of a "Profit Sharing Committee" composed of some seven employees of the employer-trustor; that as trustee it had in this matter no discretion; and that in addition by the very terms of the trust instrument it was previously exculpated.

The present motion does not involve a determination on the merits. Defendant has entered a counterclaim against plaintiff Howard G. Dixon, Sr., and, acting in the capacity of a third-party plaintiff, claims by a proper pleading that in the event of ultimate liability on its part a right of indemnity exists against several third-party defendants as members of the Johnson, Drake & Piper, Inc. "Profit Sharing Committee".

Plaintiffs are past employees of the Johnson, Drake & Piper, Inc. construction firm. In an agreement originally dated December 22, 1942, the employer Johnson, Drake & Piper, Inc. entered into an "Employees' Profit Sharing Trust Agreement". Thereafter this instrument was amended on several occasions. The last major revision occurred December 17, 1954, at which time defendant Northwestern National Bank was installed as successor trustee under the amended agreement. Plaintiffs allege rights as beneficiaries of this trust agreement and press their action against the defendant in its capacity as trustee.

On differing dates between December 30, 1963, and January 19, 1965, the various plaintiffs left the employ of Johnson, Drake & Piper, Inc. As beneficiaries of the trust each received certain cash and stock distributions pursuant to the terms of the trust instrument. The stock distributions consisted of shares of $100.00 par value, 4% preferred stock of Johnson, Drake & Piper, Inc. Of the 458 shares of stock in the employer company distributed to the plaintiffs herein over that period as their pro rata shares of the total trust assets, the number respectively received were as follows:

                    Name           Shares           Name           Shares
                    Dixon             243           Walker              3
                    Denno              48           Rankin             69
                    Zanchettin         28           Mengel             14
                    Harris             14           Strickler          39
                

While the cash amounts received by these individuals are not relevant to the present inquiry, substantial sums accompanied the stock distributions, apparently in identical proportionate shares. Plaintiffs allege in their complaint that the aforementioned stock is presently owned by them as its recipients.

It is contended by plaintiffs that the defendant bank, as trustee, purchased 3,450 shares of stock of the described nature on or about May 25, 1962, including the 458 shares involved herein, from Johnson, Drake & Piper, Inc. when it was substantially insolvent and that the acquired shares were thus worthless. Furthermore, plaintiffs allege that approximately $320,000.00 of the $345,000.00 purchase price was thereafter applied by Johnson, Drake & Piper, Inc. to reduce its indebtedness to the defendant Northwestern National Bank in its capacity as a major creditor and that the bank acted maliciously, in bad faith and with reckless indifference to the rights of the beneficiaries of the trust in thus reducing the indebtedness. It is thus contended that the defendant purchased this stock knowing it was valueless or nearly so due to the insolvency of the corporation and intending to benefit directly from the purchase through reduction of its outstanding credit to the insolvent firm. The aforementioned distributions, occurring subsequent to the contested purchase, allegedly were conducted with like bad faith, maliciously and in reckless indifference, of the rights of the recipients and in breach of its fiduciary duty. Having set forth the foregoing factual circumstances, the plaintiffs in their complaint demand judgment against the defendant in two lump sums of $45,800.00 compensatory and $250,000.00 punitive damages. No individual prayers for relief are set forth in the complaint, there being but the one prayer for the above round amounts.

In support of its motion to dismiss, defendant appears to rely upon three principles of federal jurisdiction. (1) Defendant submits that the instant action is not a Rule 23 class action under the Federal Rules of Civil Procedure and the plaintiffs are therefore foreclosed from using the total $345,000.00 purchase price to determine the "amount in controversy". Indeed, plaintiffs seem not to contest this position. (2) Defendant argues that the plaintiffs in this action cannot aggregate their individual and separate claims to achieve the $10,000.00 minimum. (3) Defendant urges that the claim for punitive damages in the sum of $250,000.00 cannot be added to the alleged actual damages because punitive damages are not recoverable in the present action which it claims to be an equity action under the applicable Minnesota state law. Plaintiff suggests that punitive damages were alleged only for purposes of bringing plaintiffs' lawsuit within the jurisdiction of this court. Each of these contentions merits individual comment.

(1) This lawsuit is not within the provisions of Rule 23 of the Federal Rules of Civil Procedure relating to class actions. The plaintiffs have not purported to come within its terms nor assume a representative status; nowhere in their complaint do plaintiffs seek relief on behalf of others similarly situated nor a restoration of the total $345,000.00 allegedly improperly disbursed by the defendant trustee. Thus, since class action rules are not involved, the court need neither ascertain the applicability of Rule 23 as recently amended in June, 1966, to the instant facts nor consider the amendment's effect on previously existing aggregation principles. It may be noted, however, that post-amendment decisions apparently find that the amendment to Rule 23 did not effect a change in the so-called aggregation principles in class action circumstances. See Alvarez v. Pan Am. Life Ins. Co., 375 F.2d 992 (5th Cir. 1967); Snyder v. Harris, 268 F.Supp. 701 (E.D.Mo.1967).

(2) This court holds that plaintiffs' claims can be aggregated in this case. Defendant bank urges, which is undoubtedly true, that the plaintiffs have totalled their damage claims to achieve the lump sum of $45,800.00 compensatory damage claimed in their complaint. This is claimed to be contrary to well established aggregation principles and that on a pro rata basis seven of the eight plaintiffs seek relief below the $10,000.00 minimum. Defendant, assuming resolution of the punitive damage issue in its favor, therefore submits that these plaintiffs are subject to dismissal for want of federal jurisdiction.

The rule is well settled that a mere allegation of damages over the jurisdictional minimum in the complaint will not confer jurisdiction upon the federal courts under 28 U.S.C. § 1332 when plaintiffs are individually required to establish jurisdiction. Clark v. Paul Gray, Inc., 306 U.S. 583, 59 S.Ct. 744, 83 L.Ed. 1001 (1939). When some plaintiffs fall below the minimum and their claims cannot be aggregated, proper disposition requires their dismissal, irrespective of whether all plaintiffs fail to satisfy the requirement, as in Thomson v. Gaskill, 315 U.S. 442, 62 S.Ct. 673, 86 L.Ed. 951 (1942); Hughes v. Encyclopaedia Britannica, 199 F.2d 295 (7th Cir. 1952), or only some of them as in Clark v. Paul Gray, Inc., 306 U.S. 583, 59 S.Ct. 744, 83 L.Ed. 1001 (1939); Hackner v. Guaranty Trust Co., 117 F.2d 95 (2d Cir.), cert. denied, 313 U.S. 559, 61 S.Ct. 835, 85 L.Ed. 1520 (1941). The mere fact that one of many plaintiffs satisfies the minimum has been held not to permit retention of the other claims in federal court unless under some established principle of law their claims can be aggregated. The grant of diversity jurisdiction is said to demand strict construction. Thomson v. Gaskill, 315 U.S....

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