Hackner v. Guaranty Trust Co. of New York

Decision Date13 January 1941
Docket NumberNo. 125.,125.
Citation117 F.2d 95
PartiesHACKNER et al. v. GUARANTY TRUST CO. OF NEW YORK et al.
CourtU.S. Court of Appeals — Second Circuit

Meyer Abrams, of Chicago, Ill. (Bennett I. Schlessel, of New York City, and Shulman, Shulman & Abrams, of Chicago, Ill., on the brief), for plaintiffs-appellants.

Ralph M. Carson, of New York City (Davis, Polk, Wardwell, Gardiner & Reed and Francis W. Phillips, all of New York City, on the brief), for defendants-appellees.

Before SWAN, AUGUSTUS N. HAND, and CLARK, Circuit Judges.

CLARK, Circuit Judge.

The following in substance are the allegations of the complaint. Each of the parties plaintiff was at one time a holder of one or more of a $30,000,000 issue of Five Year 6 per cent Gold Notes of the Van Sweringen Corporation — Hackner in the amount of $1,000; Bowman, $5,000; and Ballinger, $1,500. According to the terms of a Trust Indenture executed by the Corporation and defendant Guaranty Trust Company as trustee, a large amount of assets were retained unencumbered, and certain liquid assets "segregated" for the protection of the noteholders. The Corporation found itself unable to meet the payments of interest on the notes due November 1, 1931, and as a result a series of transactions was proposed and carried out whereby the noteholders received 50 per cent of the face value of their claims in cash and 50 per cent in common stock of the Corporation — the cash being supplied from the Corporation's "segregated assets," and the stock by defendant J. P. Morgan & Co. Morgan retained $15,000,000 in face value of the notes, and the rest were canceled. The stock so transferred to the noteholders was then worthless, and Morgan and defendant Guaranty Trust Company, which helped promote the plan, knew it to be worthless; nevertheless they prepared false balance sheets of the Corporation and its subsidiaries showing the stock to have a large value, with intent to deceive the noteholders, who were actually deceived into participating in the plan at a loss of 50 per cent of the value of their former claims. The fact of the misrepresentation was not discovered by plaintiffs until the time when suit was brought. The names of all other former noteholders are unknown; but their number exceeds 1,000, and the interests of all are in common and involve a common question of law and fact. The prayer for relief was for an accounting, damages for the losses sustained by all noteholders, and a receiver to pay the costs of administration and distribute the balance of the proceeds to rightful claimants.

Twenty-two days after the complaint was filed, and before any action by the defendants, defendants were served with an Amendment to Complaint striking the name of C. J. Bowman as party plaintiff and adding as plaintiffs Grace W. York, who was alleged to be still holding notes in the amount of $6,000, and Eunice E. Eastman, who had held notes in the amount of $10,000, but had been induced to part with them on the same terms as had the original plaintiffs. But the court, without accepting the amendment, granted the motion of the Trust Company and of Whitney, one of the Morgan partners, to dismiss the action for want of jurisdiction.

Diversity of citizenship between each of the plaintiffs and each of the defendants was alleged; the sole question is whether or not the amount in controversy exceeds, exclusive of interest and costs, $3,000. 28 U.S.C.A. § 41(1). Of the original plaintiffs, only C. J. Bowman held notes in excess of $3,000; but since his loss was not more than half the value of the notes held, he cannot supply the jurisdictional amount. Hence as to these plaintiffs, this amount can be found only by an aggregation of their claims. Appellants' objections to the timeliness or form of the motion to dismiss are unavailing, as jurisdictional issues may be raised by the court at any time on its own motion. Clark v. Paul Gray, Inc., 306 U.S. 583, 59 S.Ct. 744, 83 L.Ed. 1001; Federal Rule 12(h), 28 U.S.C.A. following section 723c.

It is well settled that when two or more plaintiffs, each having a separate and distinct demand, join in a single suit, the demand of each must be of the requisite jurisdictional amount. Pinel v. Pinel, 240 U.S. 594, 36 S.Ct. 416, 60 L.Ed. 817. Aggregation to make up the jurisdictional amount is permitted only when the claims are of a joint nature, as when it is sought to enforce a single title in which the plaintiffs have a common interest. Shields v. Thomas, 17 How. 3, 58 U.S. 3, 15 L.Ed. 93; Troy Bank v. G. A. Whitehead & Co., 222 U.S. 39, 32 S.Ct. 9, 56 L.Ed. 81. No such joint right is involved here. The claim here stated is for misrepresentation, whereby the plaintiffs were induced to make a sale of their notes for less than their true value. Clearly, each plaintiff, to prevail, must show that he himself was misled by the defendants' misrepresentations, and that as a result he sustained a loss. Ayer v. Kemper, 2 Cir., 48 F.2d 11, certiorari denied Union Trust Co. v. Ayer, 284 U.S. 639, 52 S.Ct. 20, 76 L.Ed. 543. That case was brought on a theory exactly the same as the one before us now; it was further declared that any trust sought to be imposed for the benefit of the plaintiffs was separable, each trust being on the particular securities of which each plaintiff had been deprived (cf. Freeman v. Dawson, 110 U.S. 264, 4 S.Ct. 94, 28 L.Ed. 141), and that the theory of a class suit could not be relied on to make jurisdiction. A class could be found only in the "spurious" sense (see 2 Moore's Federal Practice 2241) that a common question of law and fact was involved. Among parties so related, aggregation is improper regardless of whether other members of the class purport to join in the original complaint or intervene to submit to the adjudication. Oliver v. Alexander, 6 Pet. 143, 31 U.S. 143, 8 L.Ed. 349; Seaver v. Bigelow, 5 Wall. 208, 72 U.S. 208, 18 L.Ed. 595; Schwed v. Smith, 106 U.S. 188, 1 S.Ct. 221, 27 L.Ed. 156; Clay v. Field, 138 U.S. 464, 479, 480, 11 S.Ct. 419, 34 L.Ed. 1044; Pinel v. Pinel, supra; Lion Bonding & Surety Co. v. Karatz, 262 U.S. 77, 43 S.Ct. 480, 67 L.Ed. 871; Central Mexico Light & Power Co. v. Munch, 2 Cir., 116 F.2d 85.

The conspiracy doctrine of McDaniel v. Traylor, 196 U.S. 415, 25 S.Ct. 369, 49 L.Ed. 533, rather heavily relied on by appellants, is entirely irrelevant. Here no question has been raised of aggregating amounts put in controversy by several defendants: it is admitted for the purpose of the motion to dismiss that defendants are co-conspirators. Yet the requisite value from plaintiffs' viewpoint is lacking. Compare Woodmen of the World v. O'Neill, 266 U.S. 292, 45 S.Ct. 49, 69 L.Ed. 293; Central Mexico Light & Power Co. v. Munch, supra.

The proffered amendment added one plaintiff, York, who had never transferred her bonds; seemingly, therefore, she sustained no damage, but at any event, the possible loss of 50 per cent of her investment of $6,000 would be just under the required amount. The amendment also added another plaintiff, Eastman, who had turned in bonds of the value of $10,000 and whose interest, therefore, would be well over the requirement. Much of the argument has dealt with the question whether or not jurisdiction can be thus supplied. But that seems to us not a correct analysis of the important issues of the case. As to York, there cannot exist jurisdiction any more than as to the original plaintiffs, and it cannot be supplied for her or for them by adding a plaintiff who can show jurisdiction. Rich v. Lambert, 12 How. 347, 53 U.S. 347, 13 L.Ed. 1017; Stewart v. Dunham, 115 U.S. 61, 5 S.Ct. 1163, 29 L.Ed. 329; Gibson v. Shufeldt, 122 U.S. 27, 7 S.Ct. 1066, 30 L.Ed. 1083; Clark v. Paul Gray, Inc., supra, 306 U.S. at page 590, 59 S.Ct. 744, 83 L.Ed. 1001.

This disposes of the case as to all the plaintiffs except Eastman. Since she alleges grounds of suit in the federal court, the only question is whether or not she must begin a new suit again by herself. Defendants' claim that one cannot amend a nonexistent action is purely formal, in the light of the wide and flexible content given to the concept of action under the new rules. Actually she has a claim for relief, an action in that sense; as the Supreme Court has pointed out, there is no particular magic in the way it is instituted. Chisholm v. Gilmer, 299 U.S. 99, 57 S.Ct. 65, 81 L.Ed. 458, upholding a suit instituted by mere motion for judgment. Cf. Fowler, Virginia Notice of Motion Procedure...

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    ...suit now at bar, subsequently tried to intervene in that action as a party plaintiff, but her intervention was denied. Hackner v. Guaranty Trust Co., 2 Cir., 117 F.2d 95, certiorari denied 313 U.S. 559, 61 S.Ct. 835, 85 L.Ed. 1520. For lack of claims in the requisite jurisdictional amount, ......
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