Groel v. United Elec. Co. of New Jersey

• Decision Date: 13 September 1904
• Citation: 132 F. 252
• Parties: GROEL v. UNITED ELECTRIC CO. OF NEW JERSEY et al.
• Court: U.S. District Court — District of New Jersey

132 F. 252

GROEL v. UNITED ELECTRIC CO. OF NEW JERSEY et al.

United States Circuit Court, D. New Jersey.

September 13, 1904

Nathan Bijur and Edwin G. Adams, for complainant.

R. V Lindabury, Robert H. McCarter, and Charles E. Morgan, Jr. for defendant United Gas Imp. Co.

LANNING District Judge.

The complainant is a citizen of the state of New Jersey, and a stockholder in the United Electric Company of New Jersey, a corporation organized under the laws of New Jersey. The defendants are the United Gas Improvement Company, a corporation organized under the laws of Pennsylvania, and the above mentioned New Jersey Company. The complainant sues, on behalf of himself and other stockholders of the New Jersey company, to recover from the Pennsylvania company for the New Jersey company secret profits alleged to have been received by the Pennsylvania company in the promotion and organization of the New Jersey company and in the sale and disposition of its stock and bonds. The bill was originally filed in the Court of Chancery of the state of New Jersey. The Pennsylvania company had the case removed to this court upon a petition alleging that the controversy therein is wholly between citizens of different states, and that it can be fully determined as between them. The complainant now moves to remand the case to the New Jersey Court of Chancery on the ground that the citizenship of the parties is not such as to enable this court to assume jurisdiction. He insists that the New Jersey company must be aligned with the Pennsylvania company as a party defendant, and that, as the complainant and the New Jersey company are both citizens of New Jersey one being the complainant and the other a defendant, the removal of the case was erroneous. The Pennsylvania company on the other hand, insists that, as no relief is sought against the New Jersey company, and no decree against it can be made, the citizenship of the latter company is not a factor to be considered in determining the question of jurisdiction, or, if it is, that the New Jersey company must be aligned with the complainant because its interests are identical with those of the complainant.

In the second section of the removal act of March 3, 1875, as amended in 1888 (Act March 3, 1875, c. 137, Sec. 2, 18 Stat. 470, amended Act Aug. 13, 1888, c. 866, Sec. 1, 25 Stat. 433 (U.S. Comp. St. 1901, p. 509), it is provided that 'when in any suit mentioned in this section (and the Pennsylvania company insists that this suit is such an one) there shall be a controversy wholly between citizens of different states, and which can be fully determined as between them, then either one or more of the defendants actually interested in such controversy may remove said suit into the Circuit Court of the United States for the proper district. ' In construing this section, the Supreme Court has repeatedly held that, where a removal from a state court to a Circuit Court of the United States is made on the ground that there exists in the cause removed a controversy which is wholly between citizens of different states and which can be fully determined as between them, there must exist in the suit a separate and distinct cause of action in which a controversy will be presented with citizens of one or more states on one side of it, and citizens of one or more other states on the opposite side of it. Hyde v. Ruble, 104 U.S. 407, 26 L.Ed. 823; Corbin v. Van Brunt, 105 U.S. 576, 26 L.Ed. 1176; Fraser v. Jennison, 106 U.S. 191, 1 Sup.Ct. 171, 27 L.Ed. 131; Crump v. Thurber, 115 U.S. 56, 5 Sup.Ct. 1154, 29 L.Ed. 328; Geer v. Mathieson Alkali Works, 190 U.S. 428, 23 Sup.Ct. 806, 47 L.Ed. 1122. It is also settled that, if there be in any such cause any merely formal or nominal parties, their citizenship will be ignored in determining the question of the jurisdiction of a federal court. Wormley v. Wormley, 8 Wheat. 451, 5 L.Ed. 651; Wood v. Davis, 18 How. 467, 15 L.Ed. 460; Bacon v. Rives, 106 U.S.99, 1 Sup.Ct. 3, 27 L.Ed. 69. And it is also settled that, in one respect at least, the removal act of 1875 radically changed the law concerning the removal of causes from the state courts. Previous to its passage the position of parties in the record of a case was a governing factor in determining their rights respecting a removal. Since its passage those right are fixed by their actual relation to the controversy, without regard to their position as plaintiffs or defendants on the fact of the pleadings. Removal Cases, 100 U.S. 457, 25 L.Ed. 593; Barney v. Latham, 103 U.S. 205, 26 L.Ed. 514.

The New Jersey company, in the case under consideration, cannot be considered a merely formal or nominal party. It is a necessary and indispensable party. The case could not proceed without it. The complainant seeks relief in its behalf because it will not seek it for itself. As it will not voluntarily act as complainant, the practice in equity requires that it shall be brought in as a party defendant. It follows that, in determining the question of jurisdiction, its citizenship cannot be ignored. But the mere fact that it stands as a defendant on the face of the pleadings does not fix its status in the controversy. That is fixed by its real relation to the controversy. Whether that relation requires it to be ranged with the complainant or with the Pennsylvania company as a party defendant, is the question presented in this case.

In Dodge v. Woolsey, 18 How. 331, 15 L.Ed. 401, the complainant, a citizen of Connecticut, filed his bill in the Circuit Court of the United States against a bank, a corporation of Ohio, in which he was a stockholder, and other citizens of Ohio, to have certain taxes assessed against the bank set aside. He had requested the bank to sue, and it refused. The jurisdiction of the Circuit Court was upheld. This case was decided 20 years before the passage of the removal act of 1875, and during the time when, under the provisions of the judiciary act of 1789, the jurisdiction of a federal court in a controversy between citizens of different states depended, not upon the relation of the parties to the controversy, but upon the places occupied by them as complainants and defendants on the face of the pleadings. Of course, under that rule the corporation of Ohio could not have been aligned with the complainant. The case furnishes no aid in solving the question now presented.

In Arapahoe County v. Kansas Pacific Railway Co., Fed. Cas. No. 502, decided in 1877, it appears that the commissioners of Arapahoe county, Colo., stockholders in the Denver Pacific Railway Company, a Colorado corporation, commenced proceedings in equity in a Colorado state court against the company and its directors, two of whom were citizens of Colorado, but against whom no charges were made or relief asked. The other defendants were the Kansas Pacific Railway Company, a corporation of Kansas, and other parties who were citizens of other states. The object of the bill was to secure an accounting in favor of the Colorado company against the Kansas company, and to secure a decree in personam against the nonresident directors of the Colorado company. On application of the Kansas company and other defendants, the case was removed to the United States Circuit Court. The complainants moved to remand. Mr. Justice Miller, of the Supreme Court, sitting in circuit, heard the motion. In considering the question, he pointed out that the two defendant directors, who were citizens of Colorado, were declared in the bill to have protested against the wrong complained of, that it was hard to see why they were put into the bill at all, and that they were entirely immaterial parties, and might be regarded as out of the case. As to the Colorado company, however, a different conclusion was reached. It was held that the company was not a mere nominal party, but an indispensable party, without whose presence the suit could not proceed. But as the object of the suit was to secure an accounting to the Colorado company by the Kansas company, and a decree against the directors of the Colorado company who were not residents of Colorado, the learned justice declared that the interest of the Colorado company was the interest of the complainants, and that the controversy in the case was one in which the complainants and the Colorado company, citizens of Colorado, were on one side, and all the other defendants (excepting the two directors of Colorado who were 'immaterial' parties), citizens of other states, were on the other side.

In Hawes v. Oakland, 104 U.S. 450, 26 L.Ed. 827, decided in 1881, a citizen of New York brought suit in the United States Circuit Court for the District of California against his own company, a corporation of California, and the city of Oakland, Cal., and other parties, directors of his company. The opinion was again by Justice Miller. A demurrer to the bill was sustained on the ground that the complainant had not shown by the allegations of his bill that the case could be sustained upon any principle justifying a stockholder in suing his company in equity in his own name on a right of action existing in that company, and in which the company might itself be the appropriate complainant, and, further, because it did not appear that he had exhausted all available means to obtain, within the company itself, the redress of his grievances. The subject-matter of the actual relation of the parties to the controversy was not considered or even referred to. The same remark is true of Huntington v. Palmer, 104 U.S. 482, 26 L.Ed. 833. These tow cases revealed to the Supreme Court so clearly the fact that a stockholder, a citizen of one state, and his corporation, a citizen of another state, might easily enter into a collusive agreement that a suit should be...