Elkins v. City of Chicago

• Citation: 119 F. 957
• Parties: ELKINS v. CITY OF CHICAGO et al. (two cases).
• Decision Date: 08 May 1902
• Court: U.S. District Court — Northern District of Illinois

119 F. 957

ELKINS v. CITY OF CHICAGO et al. (two cases).

United States Circuit Court, N.D. Illinois, Northern Division.

May 8, 1902

Henry Crawford, John S. Miller, and W. R. Crawford, for complainant.

Charles M. Walker and Shope, Mathis, Zane & Weber, for defendant

John A Rose, for defendant railroad companies.

In Equity. On demurrer to bill for want of jurisdiction.

SEAMAN District Judge.

The complainant has filed two bills, as stockholders,-- one for his interest in the Chicago West Division Railway Company and the other for his interest in North Chicago City Railway Company,-- against the city of Chicago and the companies respectively, and their respective lessees, as defendants and each bill alleges a controversy concerning the duration of the charters and property rights of such companies in the operation of their systems of street railways in Chicago. The subject-matter is plainly of equitable cognizance, and an early determination of the controversy by a court of competent jurisdiction is of the utmost importance for all interests, public and private. That the state courts have ample jurisdiction for all the purposes of the bill is unquestioned, but the complainant is nevertheless entitled to the exercise of concurrent power vested in this court for an adjudication of the controversy, if brought within the limitations of federal jurisdiction. The demurrer challenges the sufficiency of the allegations of the bill to that end, and thus the only question to be considered is whether the case is presented within either of the grounds of federal cognizance: (1) On the requisite diverse citizenship of parties; or (2) as a case arising under the constitution of the United States,-- testing the allegations in each view by the well-recognized presumptions against jurisdiction and against the pleader.

1. Diverse citizenship of the parties appears as they are arranged by the bill,-- the complainant being a citizen of Pennsylvania, while each of the defendants is an Illinois corporation,-- but such an arrangement is not controlling for the present inquiry, in any aspect of the case. It is the duty of the court, for jurisdictional purposes, to ascertain the necessary parties to the suit, and align them upon the one side or the other in conformity with their true interests and attitude, irrespective of their designations in the bill. So considered, the interests of the complainant, as stockholder of the charter corporation, and of the corporation itself, are entirely identical, and, aside from any question as to the interests of the lessee or operating corporations named as defendants, such status is a bar to jurisdiction based alone on diversity of citizenship, unless compliance with equity rule 94 appears in the allegations of the bill, and saves the case from the general doctrine of alignment of parties. The complainant sues, in the capacity of stockholder, to enforce 'rights which may properly be asserted by the corporation,' and the action is governed by equity rule 94, which was adopted by the supreme court in 1881 to give effect to the principles declared in Hawes v. Oakland, 104 U.S. 450, 26 L.Ed. 827, in like case. The doctrine is well recognized that a stockholder in a corporation is entitled to relief in equity for the preservation of his interests against illegal or fraudulent management or action on the part of the corporation, and that such relief may extend as well to the protection of 'the property and rights of the corporation against the action of threatened action of third parties' arising out of such conduct of the corporation. City of Detroit v. Dean, 106 U.S. 537, 541, 1 Sup.Ct. 560, 27 L.Ed. 300; Hawes v. Oakland, supra, and cases reviewed. But the incidental right to have the relief so extend over third parties cannot serve alone to invoke federal jurisdiction through the noncitizenship of the stockholder complainant, as the wholesome rule for the alignment of parties would then arise to determine the jurisdiction. Whether a case brought strictly within rule 94 avoids an alignment for that purpose of the corporation refusing to institute a suit with the complainant, suing as an injured stockholder, is a question not involved in the present inquiry, unless the complainant has met the requirements of such rule; and the sufficiency of his allegations in that regard remains to be considered. Respecting the alleged controversies between the street railway companies and the municipal authorities, it may be assumed, for this point, that its nature would authorize suit on behalf of stockholders for its settlement in the event of refusal on the part of the corporation to bring the action, on the general principles of equity. Vide Dodge v. Woolsey, 18 How. 331, 15 L.Ed. 401. But equity rule 94 imposes further conditions upon the stockholder to maintain such action in the federal court. By way of compliance with these conditions, the allegations are that the complainant is a stockholder,-- the period of such interest not stated,-- and, as such, 'made demand of the board of directors of said corporation' to institute legal proceedings to the end sought by the bill, and that they notified him that the company 'declines and refuses to comply with such demand,' or to bring suit to establish title or protect the franchises, 'and leaves complainant to take such action as he may be advised'; and it is further averred that 'this suit is not a collusive one to confer on this court jurisdiction of a case of which it would not otherwise have cognizance.' These mere general averments are plainly evasive and insufficient for the purposes indicated by the rule, and in no sense meet the requirements pointed out in the decisions thereunder. Hawes v. Oakland, supra; Huntingdon v. Palmer, 104 U.S. 482, 26 L.Ed. 833; Greenwood v. Railroad Co., 105 U.S. 13, 26 L.Ed. 961; City of Detroit v. Dean, 106 U.S. 537, 1 Sup.Ct. 560, 27 L.Ed. 300; City of Quincy v. Steel, 120 U.S. 241, 7 Sup.Ct. 520, 30 L.Ed. 624. The 'earnest and persistent efforts' on the part of the stockholder to induce action by the directors, and 'an honest effort to obtain action by the stockholders as a body' to bring about such result, 'if time permits or has permitted,' are not 'made apparent to the court,' as required by the authorities cited; and the utmost effect of the allegations is to show a formal demand and a formal refusal, with no circumstances stated to indicate that either demand or refusal were other than perfunctory. The statement that the 'suit is not a collusive one to confer jurisdiction' does not meet this objection to the alleged demand and refusal, nor serve to show that either 'was not simulated, but real and persisted in.' City of Detroit v. Dean, supra. I am of opinion, therefore, that the allegations of the bill do not sustain jurisdiction on the ground of citizenship; and, in this view, the alleged want of verification in conformity with the intention of the rule is not material, if otherwise open to demurrer.

2. Jurisdiction is asserted, however, on the ground that the bills present a federal question, and on the further contention that the ninety-fourth...