Giesecke v. Denver Tramway Corporation

• Citation: 81 F. Supp. 957
• Decision Date: 14 January 1949
• Docket Number: Civ. No. 1036.
• Parties: GIESECKE v. DENVER TRAMWAY CORPORATION et al.
• Court: U.S. District Court — District of Delaware

81 F. Supp. 957

GIESECKE v. DENVER TRAMWAY CORPORATION et al.

Civ. No. 1036.

United States District Court D. Delaware.

January 14, 1949.

Stewart Lynch, of Wilmington, Del., and John W. Giesecke and Harold C. Ackert, both of St. Louis, Mo., for plaintiff.

William S. Potter and James L. Latchum (of Southerland, Berl & Potter), both of Wilmington, Del., and Allan R. Phipps and Thomas Keely, both of Denver, Colo., for defendant Denver Tramway Corporation.

RODNEY, District Judge.

This is an action brought by the plaintiff, a citizen of Missouri, in his capacity as Trustee for one Annie E. Meier. The defendant is a corporation organized and existing under the laws of Delaware. The plaintiff alleges he is a holder of preferred stock of defendant company and the suit is brought to compel the declaration and payment of certain preferred dividends alleged to have been accruing and accumulating over a number of years but undeclared and unpaid. At oral argument in open court counsel for plaintiff limited the claim of plaintiff to those preferred dividends which had allegedly accrued prior and up to the effective date of a reorganization of defendant corporation, said date being January 1, 1944.

The defendant corporation moved to dismiss the complaint upon three several grounds and to strike it upon two additional grounds. Subsequent to oral argument and the filing of briefs upon these motions, the court sua sponte raised a jurisdictional question¹ in connection with the type of class action under Rule 23(a), Federal Rules of Civil Procedure, into which this suit must be placed, if at all. Upon request, counsel for the respective parties have submitted briefs upon this jurisdictional question, and the disposition herein of such question renders it unnecessary to consider the prior motions filed by the corporate defendant.

Jurisdiction here is based solely upon diversity of citizenship and thus there must also be present in controversy the requisite jurisdictional amount of an excess of $3,000 exclusive of interest and costs.²

I do not propose to enter into any extended examination in order to show the exact personal interest of the individual plaintiff in the present controversy and that such interest does not nearly equal the sum of $3,000. The plaintiff owns only seven shares of preferred stock.

This court, in its opinion in Barrett v. Denver Tramway Corp., D.C.Del.1944, 53 F.Supp. 198, 200, affirmed 3 Cir., 146 F.2d 701, and in Finding No. 11 of its Findings of Fact therein, found that on June 30, 1943, the accrued unpaid dividends on the preferred stock of defendant corporation amounted to $69.875 per share. In the present case there is filed an uncontroverted affidavit that the unpaid cumulative dividends on each outstanding share as of December 31, 1943 was $73.375. Under any discernible method of calculation the interest of the present plaintiff alone could not exceed $700.

Plaintiff of necessity, therefore, must treat this action as a class action in order to have in controversy the requisite jurisdictional amount.³ With this view obviously in mind, there appears in paragraph 23 of the complaint the allegation that the other holders of the corporate defendant's preferred stock "constitute a class so numerous as to make it impracticable to bring them all before this court; that the plaintiff, therefore, brings this action in behalf of all the holders of the preferred stock of the defendant corporation who are similarly situated."

No occasion here arises to discuss the origin or purpose of class actions. In Restatement of the Law of Judgments, sec. 86, p. 416, it is said they were "invented by Equity for situations in which the number of persons having substantially identical interests in the subject matter or litigation is so great that it is impracticable to join all of them as parties in accordance with the usual rules of procedure and in which an issue is raised which is common to all such parties." The quotation refers to class actions as a general type and not to any particular kind of class action as defined in the Federal Rules of Civil Procedure.

Long before the adoption of the Federal Rules of Civil Procedure, the Supreme Court in a multitude of cases had considered class actions and when claims could or could not be aggregated in order to give a federal court jurisdiction over the controversy. In Clay v. Field, 138 U.S. 464, 479, 11 S.Ct. 419, 425, 34 L.Ed. 1044, it is said, "The general principle observed in all the cases is that if several persons be joined in a suit in equity or admiralty, and have a common and undivided interest, though separable as between themselves, the amount of their joint claim or liability will be the test of jurisdiction; but where their interests are distinct and they are joined for the sake of convenience only, and because they form a class of parties whose rights or liabilities arose out of the same transaction, or have relation to a common fund or mass of property sought to be administered, such distinct demands or liabilities cannot be aggregated together for the purpose of giving this court jurisdiction by appeal, but each must stand or fall by itself alone."⁴

Rule 23 of the Federal Rules of Civil Procedure has divided class actions into three groups designated by the numerals (1), (2), and (3) and these divisions or groups are quite commonly called, respectively, "true" class actions, "hybrid" class actions or "spurious" class actions.

Subdivision (1) of Rule 23(a) is popularly referred to as the "true" class action and describes such action as one where "the character of the right sought to be enforced for or against the class is (1) joint, or common, or secondary in the sense that the owner of a primary right refuses to enforce that right and a member of the class thereby becomes entitled to enforce it * * *." Plaintiff concedes that the present suit is not secondary in nature as above described and thus that portion of the provision can be removed from consideration. It is left to be determined only whether the character of the right sought to be enforced for the class in the present suit is "joint," or "common."

Inasmuch as this purports to be a class action, it must conform to the provisions of Rule 23. Assuming only for the purpose of argument that this action can be placed into one of the three categories of Rule 23(a) and emphasizing that I am not passing upon such question, I believe the controlling point is whether or not the suit could fall under the first category as a "true" class action.

It is well settled that in a "true" class action in the federal courts, whether jurisdiction is based upon diversity of citizenship or upon a federal question arising under the Constitution or laws of the United States, the claims of all the members of the class may be aggregated for the purpose of obtaining the requisite jurisdictional amount.⁵

On the other hand, if the action is either a "hybrid" class suit under Rule 23(a) (2) or a "spurious" class suit under Rule 23(a) (3), then the claims of the several members of the class may not be aggregated to determine jurisdictional amount, but rather the claim of each party-plaintiff must at least equal the requisite jurisdictional amount specified in the statute in order for the court to have jurisdiction as to him.⁶

Consequently, unless the present action is a "true" class action, this court is without jurisdiction. The plaintiff's claim in itself does not equal the requisite jurisdictional amount and only by aggregating the claims of other preferred stockholders of defendant corporation with his own can the plaintiff aver such amount.

In Pentland v. Dravo Corp., 3 Cir., 152 F.2d 851, 852, the Third Circuit adopted that definition of a "true" class action given in 2 Moore's Federal Practice, p. 2236, as "one wherein, but for the class action device, the joinder of all interested persons would be essential."

The nature of the claim asserted by the plaintiff, and not the size of the fund against which the claim is asserted, governs the determination of whether there is a "true" class action. Andrews v. Equitable Life Assur. Co., 7 Cir., 124 F.2d 788, 789, 790; Hackner v. Guaranty Trust Co. of N.Y., 2 Cir., 117 F.2d 95, 97. If the plaintiff's claim is "joint" or "common" with the other members of his class, then such other members, in the absence of the class action device or some other statutory permissive device, would have to join with him in the suit. By virtue of the class action device, however, only so many members of the class as will fairly insure an adequate representation of the whole class need be made parties to the suit. Only if the nature of the plaintiff's claim determines that the suit is a "true" class action does the size of the fund become important as bearing upon the necessary jurisdictional amount. Andrews v. Equitable Life Assur. Co., supra.

The result of all the authorities, as I view it, is this. If a person has a claim which is a joint, undivided or common claim with others, even though separable among themselves, then action on such claim must be brought in a stipulated way. Either the claimant must join as parties all others holding interests in the joint, undivided or common fund and thus determine their interests, or, by virtue of a class action, bring suit on behalf of all other parties similarly situated. If the representation is otherwise sufficient, the claim of the individual plaintiff need not amount to the jurisdictional amount, but the amount of the joint claim will be the test of jurisdiction. This is denominated a true class action and is represented by Rule 23(a) (1).

If the claim of the party is a personal and separate claim, even though payable out of a common fund, then in a federal court such claimant may bring an individual action for his separate claim or, if there is a common question of law or fact affecting the several rights and a common relief is...