Duvall v. Moore
| Decision Date | 21 November 1967 |
| Docket Number | Civ. No. 66-C-2047-C. |
| Parties | Thomas O. DuVALL, Lucille C. DuVall and Ben C. Birdsall, Plaintiffs, v. G. E. MOORE, James E. Scherrman, G. E. Moore and James E. Scherrman, as Trustees of Midwest Employees' Profit Sharing Trust, Midwest Limestone Company, Incorporated, Defendants. |
| Court | U.S. District Court — Northern District of Iowa |
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Lloyd Karr, Webster City, Iowa, for plaintiffs.
A. Arthur Davis, Donald A. Wine and Donald J. Brown, Des Moines, Iowa, for defendants.
This ruling is predicated upon defendants' motion to stay the proceedings herein. Resistance has been filed thereto.
The Court will briefly summarize the course of the cause to date in order for the motion to be seen in proper perspective. On December 29, 1966, certain minority shareholders of Midwest Limestone Co., Incorporated, filed this action against majority stockholders of the Corporation. The plaintiffs held nonvoting shares in the corporation which were denied voting rights upon a resolution to amend the Articles of Incorporation of Midwest to provide for perpetual existence. The plaintiffs prayed, inter alia, that the amendment be set aside as illegal under Section 491.25 of the Code of Iowa because of the disallowance of voting power of the nonvoting stock upon its adoption. The plaintiffs further sought to have Section 491.25 declared in contravention of the State and Federal Constitutions if it were determined that that Section did not permit nonvoting stock to vote on such an amendment.
On August 30, 1967, the Court entered a Memorandum and Order in which it concluded that the amendment was illegally adopted under Section 491.25 because the Court construed the statute to bestow voting privileges upon nonvoting stock when voting upon whether or not the corporate life should be extended. The Court did not deem it necessary to reach plaintiffs' constitutional challenges.
On September 12, 1967, the plaintiffs responded to that ruling by introducing their own motion for summary judgment. On September 18, 1967, the defendants made application to stay the proceedings. The motion related that a declaratory judgment action had been commenced in Iowa District Court for Humboldt County by the defendants herein against one John A. Cloos. Cloos is also an owner of nonvoting stock in Midwest Limestone and was similarly denied the privilege of voting upon whether the corporate duration was to be prolonged. The affidavit of Ben C. Birdsall states that "upon information and belief, the state court action was commenced on or about September 14, 1967."
The general issue presented by the motion and resistance is simply whether the subject matter of the action is within the traditional confines of the abstention doctrine. There are two important subsidiary issues: Whether the law is sufficiently ambiguous and obscure upon the voting privileges of nonvoting stock to justify application of the doctrine; and, whether abstention is necessary in order to avoid the constitutional issues presented as to Section 491.25 in light of the Court's previous Memorandum and Order.
The Court agrees with plaintiffs that the doctrine of abstention must be sparingly applied. As stated in Allegheny County v. Frank Mashuda Co., 360 U.S. 185, 188-189, 79 S.Ct. 1060, 1063, 3 L.Ed.2d 1163 (1959):
One well-settled exception to the obligation of a federal court to decide a controversy before it lies in the situation where a state statute is challenged as being violative of the United States Constitution and the statute should be construed in the first instance by the courts of that state. See, e. g., Railroad Comm. of Texas v. Pullman Co., 312 U.S. 496, 61 S.Ct. 643, 85 L.Ed. 971; City of Chicago v. Fieldcrest Dairies, Inc., 316 U.S. 168, 62 S.Ct. 986, 86 L.Ed. 1355; Spector Motor Service, Inc. v. McLaughlin, 323 U.S. 101, 65 S.Ct. 152, 89 L.Ed. 101; Alagama State Federation of Labor, etc. v. McAdory, 325 U.S. 450, 65 S.Ct. 1384, 89 L.Ed. 1725; American Federation of Labor v. Watson, 327 U.S. 582, 66 S.Ct. 761, 90 L.Ed. 873; Stainback v. Mo Hock Ke Lok Po, 336 U.S. 368, 69 S.Ct. 606, 93 L.Ed. 741; Shipman v. DuPre, 339 U.S. 321, 70 S.Ct. 640, 94 L.Ed. 877; Albertson v. Millard, 345 U.S. 242, 73 S.Ct. 600, 97 L.Ed. 983; Leiter Minerals, Inc. v. United States, 352 U.S. 220, 77 S.Ct. 287, 1 L.Ed.2d 267; Government & Civic Employees Organizing Committee, C. I. O. v. Windsor, 353 U.S. 364, 77 S.Ct. 838, 1 L.Ed.2d 894; City of Meridian v. Southern Bell Tel. & Tel. Co., 358 U.S. 639, 79 S.Ct. 455, 3 L.Ed.2d 562.
This exception was recently reviewed in Harman v. Forssenius, 380 U.S. 528, 534-535, 85 S.Ct. 1177, 1181, 14 L.Ed.2d 50 (1965):
In the situation in which constitutional issues are not involved, the Supreme Court has refused to permit abstention merely because state law is uncertain or difficult to determine. Meredith v. City of Winter Haven, 320 U.S. 228, 64 S.Ct. 7, 88 L.Ed. 9 (1943). However, it appears that the Supreme Court may have silently overruled the Winter Haven case and altered its position on abstention when the sole factor in its favor is the unsettled posture of state law. Kurtland, Toward a Co-operative Judicial Federalism; The Federal Court Abstention Doctrine, 24 F.R.D. 481 (1959); Note, Fifth Circuit Abstention Procedure— A Proposed Solution, 52 Iowa L. Rev. 686 (1967). In Louisiana Power & Light Co. v. City of Thibodaux, 360 U.S. 25, 79 S.Ct. 1070, 3 L.Ed.2d 1058 (1959), the City of Thibodaux had filed a petition for expropriation of the land, buildings, and equipment of the Louisiana Power & Light Company. The case was removed to the federal court where it was stayed pending an interpretation by the Supreme Court of Louisiana. The Supreme Court held that abstention was warranted. The Court viewed eminent domain as a proceeding of a special nature which justified submission of the controverted state statute to "the only tribunal empowered to speak definitively".
The instant case belongs to a species of cases which are more properly left to the "state courts as the final expositors of state law." England v. Louisiana State Board of Medical Examiners, 375 U.S. 411, 415-416, 84 S.Ct. 461, 465, 11 L.Ed.2d 440 (1964).
The Supreme Court of Iowa has never passed upon whether nonvoting stock is entitled to voting power upon a proposed extension of the corporate life and this Court finds itself able to do no more than to make a questionable prognosis of what it would hold if confronted with the problem.
The plaintiffs assert that the Supreme Court of Iowa pronounced the law upon this subject in Woodward v. Quigley, 257 Iowa 1077, 133 N.W.2d 38 (1965) and this Court so held in its Memorandum and Order. The Court did determine that the Iowa Supreme Court "laid down the principle that `the statute was enacted to permit a majority to vote to renew the corporate life and at the same time allow a dissenting minority to get out of the corporation with the real value' of its stock." And the Court did say that if the statement were dicta, it was obligated to honor it as it was "suggestive of what the Iowa Supreme Court would probably hold in the instant case." However, the Woodward case involved the valuation of stock and the plaintiffs recognized "their obligation to purchase the stock under this statute". Id., 133 N.W.2d at p. 40.
The Iowa Supreme Court is the appropriate body to ordain whether the principle should be expanded beyond valuation to voting rights. A multitude of different policy considerations could enter such a determination. There is a good possibility that this Court's evaluation of the direction of the law of Iowa in this area is a miscalculation and that its judgment could be displaced tomorrow, particularly in view of the fact that the Court's prediction appears to be contrary to the trend in legislative enactments and judicial opinions in other jurisdictions.
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