Guiterman v. Pennsylvania R. Co.

• Decision Date: 31 March 1931
• Docket Number: No. 5382.,5382.
• Citation: 48 F.2d 851
• Parties: GUITERMAN v. PENNSYLVANIA R. CO. et al.
• Court: U.S. District Court — Eastern District of New York

48 F.2d 851 (1931)

GUITERMAN v. PENNSYLVANIA R. CO. et al.

No. 5382.

District Court, E. D. New York.

March 31, 1931.

Frank M. Swacker, of New York City (H. F. O'Donnell, of New York City, of counsel), for plaintiff.

O'Brien, Boardman, Conboy, Memhard & Early, and Alfred A. Gardner, all of New York City (Alfred A. Gardner, Philip W. Boardman, and John Vance Hewitt, all of New York City, of counsel), for defendant Pennsylvania R. Co.

GALSTON, District Judge.

This action was begun in the Supreme Court of the state of New York, Nassau county, by the service of a summons and complaint on the Pennsylvania Railroad Company on January 2, 1931. That company was the only defendant served. On the petition of the railroad company, the action was removed to this court.

By this motion the defendant Pennsylvania Railroad Company seeks to set aside the service of the summons and complaint and to have the complaint dismissed, upon the grounds that the Supreme Court of the state of New York acquired no jurisdiction either over the defendant for the cause of action alleged in the complaint, or over the alleged cause of action.

It is conceded that, if the state court had no jurisdiction over the subject-matter, this court acquired none on removal.

The plaintiff is a stockholder of 100 shares of the capital stock of the Pennsylvania Railroad Company. She alleges that the Pennsylvania Railroad Company, some time between February 1, 1927 and June 30, 1928, acquired, by purchase, shares of the capital stock of the Wabash Railroad Company amounting to 48 per cent. of the total issued and outstanding stock and about 30 per cent. of the total capital stock issued of the Lehigh Railroad Company. It is also alleged that the Wabash Company owned and controlled 19 per cent. of the outstanding capital stock of the Lehigh Company, and that in consequence the Pennsylvania Company controlled approximately 49 per cent. of the total outstanding capital stock of the Lehigh Railroad Company. Such holdings are alleged to have been more than 50 per cent. of stock, which during the last five years preceding the filing of the complaint was represented at stockholders' meetings of these two companies, and thus in effect constituted a practical control by the Pennsylvania Railroad Company of each of said two railroad companies.

It is said that but for these acts of the defendant, the three railroad companies would be in active, keen and direct competition, and that the purpose and effect of the acquisition of the aforesaid securities by the Pennsylvania Railroad Company were in violation of the Act of Congress of July 2, 1890, known as the Sherman Anti-Trust Law, and acts amendatory thereof (15 USCA § 1 et seq.), and also of the Act of Congress of October 15, 1914 (38 Stat. 730), known as the Clayton Act and acts amendatory thereof, and that in consequence the railroad company became subject to continuing liability of the penalties provided in the Anti-Trust Act.

It further appears from the complaint that, on May 6, 1929, the Interstate Commerce Commission issued its complaint under the Clayton Act against the Pennsylvania Railroad Company concerning the acquisition of the aforesaid stocks of the Wabash Company and the Lehigh Company, and after due hearing found that the three companies were competitors in interstate commerce, and that the stocks acquired by the railroad company were not acquired solely for the purpose of investment. The Commission accordingly issued its order directing the Pennsylvania Railroad Company to divest itself of its holdings in the other two companies.

It is alleged that the price paid by the Pennsylvania Railroad Company for the securities purchased was exorbitant, the total cost being in excess of $106,500,000, and that the Pennsylvania Railroad Company has sustained and will continue to sustain a loss of not less than $2,500,000 annually, the excess of carrying cost over the dividends received on the said stocks.

The plaintiff seeks, therefore, to have the acts of the railroad company in the purchase by the railroad company of the aforesaid capital stock of the other two railroad companies adjudged unlawful and a breach of trust on the part of the defendant directors. She seeks an accounting, and prays that judgment of the amount of the losses sustained be rendered against the defendant directors and ordered to be paid by them to the treasury of the railroad company. Further relief demanded is that, upon the satisfaction of the judgment, the railroad company turn over to the defendant directors or their nominees the shares of stock held by the Pennsylvania Railroad Company in the other two railroad companies; and, finally, that, if any penalties under the Sherman Anti-Trust Act or any other act are exacted against the railroad company, the defendant directors be required to reimburse the railroad company.

The critical question involved is whether the state court had jurisdiction of the subject-matter of this action. It is contended by the defendant that cases arising out of the Sherman and Clayton Acts are within the exclusive jurisdiction of the federal court, and reliance is had on General Investment Co. v. Lake Shore & M. S. Ry. Co., 260 U. S. 261, 43 S. Ct. 106, 117, 67 L. Ed. 244.

That was a suit in equity begun in the state court of Ohio. The plaintiff sought to enjoin a proposed consolidation of certain railroads on the ground that such consolidation would contravene the Sherman Anti-Trust Act and the Clayton Act. The cause was removed, as herein, to the federal court. The jurisdiction of the court was then assailed on the ground that the plaintiff had no standing to sue under the Sherman Anti-Trust Act or the Clayton Act in the state court. The court said, referring first to the Sherman Anti-Trust Act: "The present suit for an injunction, brought by a private corporation in its own interest, was not within those remedies, and so could not be maintained under that act standing alone."

And again, referring to the eighteenth section of the Clayton Act (15 USCA § 26): "This section undoubtedly enlarges the remedies provided in the Sherman Anti-Trust Act to the extent of enabling persons and corporations threatened with loss or damage through violations of that act to maintain suits to enjoin such violations, save in the instances specified in the proviso. This right to sue, however, is granted in terms which show that it is to be exercised only in a `court of the United States.' This suit was brought in a state court, and in so far as its purpose was to enjoin a violation of the Sherman Anti-Trust Act that court could not entertain it. The situation was the same in respect of the purpose to enjoin a violation of the Clayton Act."

It may be noted that the relief sought herein is not injunctive. Plaintiff seeks not to restrain the defendants, but to obtain an accounting and to compel the individual defendants to reimburse the railroad company for any losses sustained arising out of their alleged illegal acts. Did the Supreme Court, in General Investment Co. v. Lake Shore & M. S. R. Co., in holding that a state court had no power to grant the statutory relief (i. e., that of injunction), foreclose a state court from entertaining jurisdiction of any other relief which might flow from a violation of the two acts or either of them? I cannot so interpret the opinion. On the contrary, proper significance given to the expression, "in so far as its purpose was to enjoin," etc., justifies the deduction that a state court might have jurisdiction of a cause which sought a different relief. There is nothing in the language of the opinion to warrant one in drawing the inference that the court excluded a state court from jurisdiction as to all rights which might relate to the Sherman Anti-Trust Act. At most, the Supreme Court said that only as its purpose was to enjoin a violation of the Sherman Anti-Trust Act was the state court without jurisdiction.

The plaintiff therefore properly contends that the question was not settled by the Supreme Court in General Investment Co. v. Lake Shore & M. S. Railroad Co.; and she urges that the remedy sought herein is in no sense statutory, but of such general equitable nature, as was approved in De Koven et al. v. Lake Shore & M. S. Ry. Co. et al. (D. C.) 216 F. 955, 957. In that suit the court said: "The present suit is one by a dissenting minority stockholder to restrain the majority stockholders from accomplishing what is asserted to be an illegal or ultra vires act. It is, therefore, a well recognized species of general equity jurisdiction and not a mere statutory remedy, conferred by the Anti-Trust Law. The plaintiffs would be entitled to resort to this remedy if the Sherman Law had provided no equitable remedy for its enforcement, and the fact that it did provide one, available only to the United States, cannot be held to deprive an individual of an equitable remedy which was open to him before and independent of the statute. The fact that the relief granted to the government in an equity suit, instituted by it under the...