Lawrence v. Southern Pac. Co.

• Decision Date: 28 July 1910
• Citation: 180 F. 822
• Parties: LAWRENCE v. SOUTHERN PAC. CO. et al.
• Court: U.S. District Court — Eastern District of New York

180 F. 822

LAWRENCE v. SOUTHERN PAC. CO. et al.

United States Circuit Court, E.D. New York.

July 28, 1910

Dittenhoefer Gerber & James (A. J. Dittenhoefer, H. Snowden Marshall, and David Gerber, of counsel), for plaintiff.

Joline Larkin & Rathbone (Arthur H. Van Brunt and Henry V. Poor, of counsel), for defendants Central Trust Company of New York Southern Pacific Company, and Houston & Texas Central Railroad Company.

Turner Rolston & Horan, for defendant Farmers' Loan & Trust Company.

Parsons, Closson & McIlvaine, for defendant Metropolitan Trust Company of City of New York.

CHATFIELD District Judge.

The facts involved in the present motion are matters of record and are sufficiently set forth in the opinions upon the motions previously decided in 165 F. 241, and 177 F. 547.

The earlier of these motions was an application to remand to the state court from which the action had been removed, the plaintiff alleging that certain necessary defendants were citizens of the same state as himself. It appeared that these parties were not indispensable, and the motion was denied. The later application was for a dismissal of the action upon affidavits alleging facts from which it was apparent that the present situation was likely to develop, and also setting up the death of one of the defendants whose personal representatives had not sought to have themselves brought in, and who could not be reached by the process of this court. That motion was disposed of upon the ground that the deceased defendant, or his personal representatives, were not indispensable to a trial of the issues between the other parties to the action, and also that the pleas which had been interposed should be brought on for argument, rather than on motion to anticipate the actual joinder of issues. At the present time the defendants the Southern Pacific Company and the Houston & Texas Central Railroad Company have joined in interposing a plea to the action, based upon the absence of the Houston & Texas Central Railway Company, as service cannot be had in such a manner upon that company as to be valid in the Circuit Court of the United States for this district. The Central Trust Company of New York, one of the defendants which was held to be a proper, but not indispensable, party upon the first motion to remand, has likewise interposed a plea of the same nature, and, a replication to these pleas having been filed by the plaintiff, a hearing has been had at which an agreed statement of facts has been presented. Upon these facts the defendants have moved to dismiss the entire action upon the ground of lack of jurisdiction, while the plaintiff has asked that, if the court does not retain jurisdiction, the action be now remanded to the state court, under the provisions of section 5, Act March 3, 1875, c. 137, 18 Stat. 472, as amended by Act March 3, 1887, c. 373. Sec. 6, 24 Stat. 555, and Act Aug. 13, 1888, c. 866, Sec. 6, 25 Stat. 436 (U.S. Comp. St. 1901, p. 511). It is apparent that the purpose of the various parties is to settle the question of jurisdiction, and to determine the forum (if any) in which this suit can be brought before a discussion of the merits of the case is attempted. The sufficiency of the plea of no jurisdiction, as a matter of law, is thereby raised, and, if the Circuit Court of the United States for this district has no jurisdiction, and if the action be dismissed, a determination of the case upon the merits is plainly unnecessary; while, if the action should be remanded to the state court, a determination upon the merits there should not be embarrassed by expressions of opinion of this court about what would be its decision if the case were before it.

The defendant contends as a primary proposition that the present action is in form what is known as a representative or stockholder's action. The plaintiff alleges in his complaint that he brings suit for himself and for all others who as minority stockholders have been affected by the various transactions in a similar way to himself, and who may come in and share in the burdens and benefits of the action. A number of cases have been cited upon this question, such as Davenport v. Dows, 85 U.S. 626, 21 L.Ed. 938, in which Judge Davis said:

'That a stockholder may bring a suit when a corporation refuses is settled in Dodge v. Woolsey, 18 How. 340 (15 L.Ed. 401), but such a suit can only be maintained on the ground that the rights of the corporation are involved. * * * A court of equity will not take cognizance of a bill brought to settle a question in which the corporation is the essential party in interest, unless it is made a party to the litigation.'

Dewing v. Perdicaries, 96 U.S. 193, 24 L.Ed. 654, Central Railroad Co. of New Jersey v. Mills et al., 113 U.S. 249, 5 Sup.Ct. 456, 28 L.Ed. 949,

and Swan Land & Cattle Co. v. Frank, 148 U.S. 603, 13 Sup.Ct. 691, 37 L.Ed. 577, all substantiate this proposition. Various New York state decisions cited and affirmed in Niles v. New York Central, etc., R.R. Co., 176 N.Y. 119, 68 N.E. 142, hold to the same effect. A minority stockholder, therefore, if allowed to sue for a wrong done to the corporation, must recover, if he recovers at all, damages or specific performance which would result in the payment of money or transfer of property to the corporation, and in which all stockholders have their rights as stockholders. In the cases of De Neufville v. New York, etc., Ry. Co., 81 F. 10, 26 C.C.A. 306, Redfield v. Baltimore & Ohio R.R. Co. (C.C.) 124 F. 929, and Ames v. American Tel. & Tel. Co. (C.C.) 166 F. 820, it was held on demurrer that when the injuries alleged have been sustained, if at all, by the corporation, it should come in and defend its action, or its failure to follow up the alleged wrongs, and the corporation was decided in each case to be a necessary party.

The plaintiff herein attempts to meet the charge that this is a representative action, and that the Houston & Texas Central Railway Company (which has not been served) is a necessary party to the suit. He has cited Rogers v. Penobscot Mining Co., 154 F. 606, 83 C.C.A. 380, and Sioux City Terminal R. & W. Co. v. Trust Co. of N.A., 82 F. 124, 27 C.C.A. 73, in which the courts discuss at length the provisions of section 737 of the Revised Statutes (U.S. Comp. St. 1901, p. 587), and equity rule 47. But these cases do not settle for us the question whether the Houston & Texas Central Railway Company is an indispensable rather than a proper party in the present action. In the case of Rogers v. Penobscot Mining Co., supra, a number of citations are given and a clear definition of indispensable and proper parties furnished on page 616 of the report. The conclusion is that the defendants in question were necessary parties under the old chancery rule, but not indispensable parties under the section and rule above referred to, 'because a final decree can be rendered herein between the complainants and the defendants, which will completely adjudicate their rights, without binding or injuriously affecting the rights of the defendants not served. ' Recently in this circuit, in the case of Kuchler v. Greene (C.C.) 163 F. 91, and again in Slater Trust Co. v. Randolph-Macon Coal Co. (C.C.) 166 F. 171, the Circuit Court of the Southern District of New York passed upon the question whether a certain defendant was an indispensable party. In the Kuchler v. Greene Case the action was against individuals for an accounting of profits as between stockholders, while in the Randolph-Macon Case the real controversy was against certain directors, who were being sued for fraud by bondholders who asked for money damages, and, while each case is near enough in its nature to the case at bar to afford some aspects of a representative action, nevertheless the actual relief there demanded would not seem to be the restoration of rights to the corporation itself, to be there devoted to corporation purposes for the benefit of the plaintiff, as is the case in the present action. In Payne v. Hook, 7 Wall. 425, 19 L.Ed. 260, the Supreme Court of the United States said that the rule requiring all persons materially interested to be made parties to an action should yield if the court is able to proceed to a decree and to do justice to the parties before it, especially when an enforcement of the rule would oust the court of jurisdiction, 'and deprive parties entitled to the interposition of a court of equity of any remedy whatever.'

Many cases are cited in support of this proposition, and Mr. Justice Story in West v. Randall, 2 Mason, 181, Fed. Cas. No. 17,424, again refers to the necessity of such a yielding of rule in the United States Courts, where the limited nature of its authority might otherwise oust the court of jurisdiction. In Ervin and Others v. Oregon Railway & Nav. Co. (C.C.) 20 F. 577, a corporation was held not to be indispensable as it was not a going concern, when the plaintiffs, who were formerly stockholders, attempted to follow into the hands of third parties assets that had been transferred by the corporation before it ceased to exist. The doctrine asserted in this case is more nearly applicable to the present litigation than any of the other cases cited, and but for the peculiar facts of this case might be taken as a precedent at the present time.

In the present action, however, the charge is that the missing defendant company, which now appears to have but one director within the state of New York, and to be doing no business in that state, to have had no election of directors since 1885 and to have had no meetings of any sort since the decree of foreclosure under which the property was sold, should nevertheless be brought to life, and its directors should sue the other defendants...