Goldstein v. Groesbeck

• Citation: 42 F. Supp. 419
• Parties: GOLDSTEIN v. GROESBECK et al.
• Decision Date: 19 December 1941
• Court: U.S. District Court — Southern District of New York

42 F. Supp. 419

GOLDSTEIN v. GROESBECK et al.

District Court, S. D. New York.

December 19, 1941.

William Rosenfeld, of New York City, for plaintiff.

Simpson, Thacher & Bartlett, of New York City (Louis Connick and Walter E. Beer, Jr., both of New York City, of counsel), appearing specially for defendants, C. E. Groesbeck and others.

Reid & Priest, of New York City, appearing specially for defendants Florida Power & Light Co. and others.

Reid & Priest, of New York City, and McCune, Caldwell, Downing & Noble, of Kansas City, Mo. (Russell C. Gay, Ralph M. McDermid and Sherwood E. Silliman, all of New York City, of counsel), appearing specially for defendant, Kansas Gas & Electric Co.

BRIGHT, District Judge.

Plaintiff, a resident of Massachusetts and a stockholder of the defendant American Power & Light Company, organized under the laws of Maine, brings this derivative action to recover judgment against twenty-two individual defendants, present and former directors of that corporation, and nineteen other corporate defendants for alleged violations of section 4(a) (2) and section 13(b) of the Public Utility Holding Company Act of 1935, 49 Stat. 838, 15 U.S.C.A. § 79 et seq.

From the complaint, it appears that the defendant Electric Bond & Share Company is a holding company, incorporated in New York State, holding a substantial portion of the stock of the defendant American Power & Light Company, which was, in turn, a holding company holding a substantial part of the stock of the other sixteen electric or gas utility operating corporations, with the exception of the defendant Ebasco Services Incorporated, which the complaint alleges was caused to be incorporated in New York State by the defendant Electric Bond & Share Company, which owns all of Ebasco's stock and which was organized by Electric Bond & Share to render certain technical and financial service and to give advice and assistance to and to perform construction work for the operating utilities. The complaint demands judgment that the defendants be required to account for payments alleged to have been illegally made to the Ebasco Services Incorporated and another service corporation subsequently merged with it, in violation of the sections of the act mentioned.

The individual defendants S. R. Inch, L. H. Parkhurst and D. W. Jack, residents of New Jersey, and C. E. Groesbeck and E. P. Summerson, residents of the Eastern District of New York, and the corporate defendants Central Arizona Light & Power Company, an Arizona corporation, Florida Power & Light Company, a Florida corporation, Kansas Gas & Electric Company, a West Virginia corporation, and the Minnesota Power Company, a Minnesota corporation, all appear specially and move to dismiss the action upon the ground that the suit is brought in the wrong district.

The sole allegation of jurisdiction in the complaint is diversity of citizenship. Section 51 of the Judicial Code, 28 U.S.C.A. § 112, defines the jurisdictional limits within which an action may be brought in these words: "§ 112. (Judicial Code, section 51, amended.) Civil suits; arrests in; district where brought; suits by corporate stockholders * * * where the jurisdiction is founded only on the fact that the action is between citizens of different States, suit shall be brought only in the district of the residence of either the plaintiff or the defendant; except that suit by a stockholder on behalf of a corporation may be brought in any district in which suit against the defendant or defendants in said stockholders' action, other than said corporation, might have been brought by such corporation and process in such cases may be served upon such corporation in any district wherein such corporation resides or may be found."

Plaintiff does not reside in this district, nor do any of the moving defendants; nor, in fact, does the defendant American Power & Light Company, of which the plaintiff is a stockholder. Corporations are residents of the state in which they are incorporated and not of any other state, even of one within which they do business. Seaboard Rice Milling Co. v. Chicago, R. I. & P. Ry. Co., 270 U.S. 363, 46 S.Ct. 247, 70 L.Ed. 633. Irrespective of the fact that some of the individual defendants reside in this district, those who do not may object to being parties here. Camp v. Gress, 250 U.S. 308, 39 S.Ct. 478, 63 L.Ed. 997.

Plaintiff argues that the exception applicable in stockholders' actions is ample authority for the maintenance here of this action. That exception, however, allows suit to be brought where the corporation could have brought it and nowhere else. Philipbar v. Derby, 2 Cir., 85 F.2d 27-30. The corporation referred to in the exception is the corporation of which plaintiff is a stockholder, and I cannot see my way clear to read into it any other corporation. Sabre v. United Traction Co., D. C., 225 F. 601-603; Busch v. Riddle Co., D.C., 283 F. 443, 444.

American Power & Light Company was incorporated under the laws of Maine, and is not, therefore, a resident of this district. Plaintiff, however, argues that each of the operating utilities, of none of which she is a stockholder and none of which reside in this district, has a cause of action against the defendants Electric Bond & Share Company and Ebasco for instigating and receiving improper payments, that because of their or any of their unreasonable failure to assert this cause of action, their parent, the American Power & Light Company, may sue derivatively in their behalf, and the latter's unreasonable failure to bring action entitles plaintiff so to do. While the "double derivative" action has received approval in two cited cases in the New York courts where the jurisdiction is general, as far as I can find, it has not been applied in the federal courts where the jurisdiction is purely statutory and where, we have been for some time and very recently warned, jurisdiction is scrupulously confined and jealously restricted. City of Indianapolis v. Chase National Bank, November 10, 1941, 62 S.Ct. 15, 86 L.Ed. ___, opinion by Mr. Justice Frankfurter; ...