Lapides v. Doner

Citation248 F. Supp. 883
Decision Date09 December 1965
Docket NumberCiv. A. No. 27191.
PartiesMorton M. LAPIDES, Gilbert B. Redmond, Harry J. Conn and Allegheny Pepsi-Cola Bottling Company, Plaintiffs, v. W. B. DONER, Robert S. Gordon, Fred Deutsch, Richard H. Sucher, Gerald Schwartz and D W G Cigar Corporation, Defendants.
CourtU.S. District Court — Western District of Michigan

COPYRIGHT MATERIAL OMITTED

Hudson Mead, MacFarlane, Tolleson, Burgess & Mead, Detroit, Mich., Harvey J. Fried, of counsel, Blum, Haimoff, Gersen & Szabad, New York City, for plaintiffs.

Nathan B. Goodnow, Dykema, Wheat, Spencer, Goodnow & Trigg, Detroit, Mich., Leon Silverman, Strasser, Spiegelberg, Fried & Frank, New York City, for defendants.

FREEMAN, District Judge.

In this diversity action by three individual directors and a corporate minority stockholder in the defendant, D W G CIGAR CORPORATION, an Ohio corporation, against five individual directors of the Cigar Corporation and the Corporation itself, plaintiffs seek a declaration that a meeting of the board of directors of the D W G Cigar Corporation on July 23, 1965, and all resolutions adopted at that meeting, are null and void. These resolutions included the election of defendant Doner to the board, the removal of plaintiff Lapides as chairman of the board and chairman of the executive committee, the removal of plaintiff Redmond as vice-chairman of the board, the reduction of the membership of the executive committee to three persons by removal of plaintiff Redmond from the committee, the election of defendant Gordon as chairman of the board, and the replacement of counsel for the corporation. Plaintiffs seek a determination that Lapides remain as chairman of the board and chairman of the executive committee, that Redmond remain as vice-chairman of the board and a member of the executive committee, that Gordon's election as chairman of the board and executive committee be set aside, and that the individual defendants be enjoined from exercising the powers of the offices purportedly conferred at the meeting on July 23, 1965. Essentially then, the action involves a determination of control of the Corporation's board of directors and executive committee.

The case is now before the Court on defendants' motion to dismiss. The first ground, upon which defendants appear to rely most strongly, and which is discussed in a large portion of the extensive and excellent briefs filed by both parties, is that this Court, under the doctrine of Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), is obliged in this diversity case to follow the law of Michigan as expressed in Wojtczak v. American United Ins. Co., 293 Mich. 449, 292 N.W. 364 (1940), that the Michigan courts will not assume jurisdiction over a case such as this one, which is said to involve the exercise of control or management of the internal affairs of a foreign corporation.

In Wojtczak, the plaintiff alleged that a reinsurance contract entered into by defendant Insurance Corporation, incorporated under the laws of Indiana and having its headquarters and principal place of business in Indianapolis, was an ultra vires contract, in violation of the defendant Company's bylaws. The Court stated categorically:

"If the restraint sought undertakes to exercise control or management of the internal affairs of defendant, a foreign corporation, the courts of this State will not assume jurisdiction. This rule is in line with authority."

In determining whether the case involved the control and management of internal affairs of a foreign corporation, the Court quoted from the Maryland case of North State Copper & Gold Mining Co. v. Field, 64 Md. 151, 20 A. 1039, as follows:

"That, where the act complained of affects the complainant solely in his capacity as a member of the corporation, whether it be as stockholder, director, president, or other officer, and is the act of the corporation, whether acting in stockholders' meeting, or through its agents, the board of directors, then such action is the management of the internal affairs of the corporation, and, in case of a foreign corporation, our courts will not take jurisdiction."

Under such a test it appears clear, and plaintiffs do not contest the point, that the relief herein sought does involve the control and management of internal affairs of a foreign corporation. Therefore, it would seem that if this Court were to follow the Michigan rule stated in Wojtczak, it would be obliged to decline jurisdiction of the instant case.

Plaintiffs contend that the holding in Wojtczak does not represent a rule of substantive law binding on this Court, but rather an application of the doctrine of forum non conveniens to the particular facts of that case. Plaintiffs further contend that the application of the Michigan doctrine of forum non conveniens in the instant case would require this Court to exercise its jurisdiction rather than dismiss or transfer the case, because, it is argued, this Court is located in the most convenient state to resolve the issues in view of the parties and subject matter involved. Additionally, plaintiffs assert that the Michigan forum non conveniens doctrine is not binding on this Court, and, hence, this Court is free under the Federal doctrine of forum non conveniens to assume jurisdiction over this case as the Court located in the most convenient forum for the parties.

Plaintiffs argue that in Wojtczak, the Michigan Supreme Court had the power to assume jurisdiction over a foreign corporation, but that it exercised discretion not to do so on the particular facts above-mentioned. However, plaintiffs argue that in this case the Court should exercise discretion to assume jurisdiction, since the defendant corporation, unlike the defendant foreign corporation in Wojtczak, has its principal place of business in Michigan.

This Court recognizes that the opinion in Wojtczak contains no analysis of the relative convenience to the parties of the possible forums. The Michigan Court did not mention the term forum non conveniens, and did not refer to the concepts of discretion or convenience of the parties. Nor did the Court discuss any facts which would bear on which forum would be most convenient for the parties. Indeed, the Court quoted language from Fletcher on Corporations to the effect that courts ordinarily decline jurisdiction over cases involving internal affairs of foreign corporations "even though the corporation may be doing business in the state or country and may have expressly or impliedly agreed to submit to the jurisdiction of the court in suits against it, and has a substantial portion or even all of its tangible property in the state and is for all practical purposes a local corporation except as to the place of its creation." Such language tends to indicate that the Court in Wojtczak declined jurisdiction without regard to the convenience of the forum for the parties concerned.

However, the Court in Wojtczak also quoted from Fletcher on Corporations as to the reasons for declining jurisdiction, namely the necessity of applying foreign law and the possible inability of the Court to enforce any judgment it might render against the foreign corporation in such a case. It appears that the Michigan Supreme Court recognized that it had jurisdiction in the sense of power to hear the case, but that it chose in its discretion not to assume jurisdiction for the reasons stated.

It is well recognized that the rule declining jurisdiction over controversies relating merely to the internal management of foreign corporations "* * * is not strictly one of jurisdiction, but rather of discretion in the exercise of jurisdiction, and of convenience and expediency rather than power, the purpose of the rule being the protection of the foreign corporation." 20 C.J.S. Corporations § 1879. The problem of exercising discretion to assume or decline jurisdiction presented the Court in Wojtczak with a question within the broad general area of the law of forum non conveniens. However, the Court did not exercise its discretion on the basis of all the factors normally taken into account in forum non conveniens cases, but chose instead to adopt a rule for the exercise of discretion which takes into account only two such factors, the place of incorporation and the nature of the suit. Under such a rule, once it is established that the corporation involved is in fact a foreign corporation, i. e., one not incorporated in Michigan, and that the suit concerns the control and management of its internal affairs, the inquiry is at an end and jurisdiction must be declined. This does not mean that the Michigan courts have no jurisdiction over such a suit in the first place, as defendants seem to imply in their argument, but rather that the Michigan Supreme Court has laid down a rule in the exercise of its discretion that jurisdiction will not be assumed when such is the case. Thus, the rule announced in Wojtczak appears to be a Michigan rule of forum non conveniens in the limited class of cases involving control and management of the internal affairs of foreign corporations.

It must be noted that the Wojtczak case was briefed on appeal as a forum non conveniens case by both sides and submitted as such to the Michigan Supreme Court. Further, the case primarily relied on by the Court in support of its holding, Rogers v. Guaranty Trust Co., 288 U.S. 123, 53 S.Ct. 295, 77 L.Ed. 652 (1933), must be considered a forum non conveniens case by its own language. The Supreme Court stated in Rogers (p. 131, 53 S.Ct. p. 298):

"Obviously no definite rule of general application can be formulated by which it may be determined under what circumstances a court will assume jurisdiction of stockholders' suits relating to the conduct of internal affairs of foreign corporations. But it safely may be said that jurisdiction will be declined whenever considerations of convenience, efficiency, and justice point to the courts of the
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