Levin v. Mississippi River Corporation

• Decision Date: 30 July 1968
• Docket Number: No. 67 Civ. 5095.,67 Civ. 5095.
• Citation: 289 F. Supp. 353
• Parties: Betty LEVIN, on behalf of herself and all other holders of the Class B Common Stock of Missouri Pacific Railroad Company, and on behalf of said Corporation, Plaintiff, v. MISSISSIPPI RIVER CORPORATION, Missouri Pacific Railroad Company, Robert H. Craft, T. C. Davis and Thomas F. Milbank, Defendants.
• Court: U.S. District Court — Southern District of New York

289 F. Supp. 353

Betty LEVIN, on behalf of herself and all other holders of the Class B Common Stock of Missouri Pacific Railroad Company, and on behalf of said Corporation, Plaintiff, v. MISSISSIPPI RIVER CORPORATION, Missouri Pacific Railroad Company, Robert H. Craft, T. C. Davis and Thomas F. Milbank, Defendants.

No. 67 Civ. 5095.

United States District Court S. D. New York.

July 30, 1968.

COPYRIGHT MATERIAL OMITTED

Orans, Elsen & Polstein, New York City, for plaintiff, Betty Levin, Sheldon H. Elsen, Lewis Shapiro, New York City, of counsel.

Donovan, Leisure, Newton & Irvine, New York City, for plaintiff-intervenor, Alleghany Corp., Granville Whittlesey, Jr., New York City, of counsel.

Sullivan & Cromwell, New York City, for defendants, Mississippi River Corp. and Missouri P. R. R. Co., Edward W. Keane, Michael M. Maney, New York City, of counsel.

OPINION

HERLANDS, District Judge:

Defendants Mississippi River Corporation and Missouri Pacific Railroad Company move, in the alternative, (1) to transfer this action, pursuant to 28 U.S.C. § 1404(a), from this Court to the United States District Court for the Eastern District of Missouri, Eastern Division (St. Louis); or (2) to dismiss this action (a) for failure to join indispensable parties, pursuant to Rules 12(b) (7) and 19(b), Fed.R.Civ.P., or (b) on the ground of forum non conveniens; or (3) to stay this action, pursuant to Rules 23 and 23.1, Fed.R.Civ.P., pending the outcome of a similar action, LeVasseur v. Bass, et al., Civil Action No. 68 C 27(3), currently in the Eastern District of Missouri, Eastern Division.

Plaintiff, a holder of Class B Common Stock of Missouri Pacific Railroad Company (hereinafter "Mopac"), brings this action on behalf of herself, representatively on behalf of all other Class B shareholders of Mopac, and derivatively on behalf of Mopac, against Mopac, Mississippi River Corporation (hereinafter "Mississippi")—holder of a majority of the Class A stock of Mopac—and three of the fifteen directors of Mopac. In addition to being directors of Mopac, the individual defendants hold other positions with Mopac and/or Mississippi: Robert H. Craft allegedly is a director and Financial Vice President of Mississippi, and chairman of the Finance Committee and a member of the Executive Committee of Mopac; defendant T. C. Davis¹ allegedly is a member of the Executive Committee and a former Chairman of the Board of Mopac; and defendant Thomas F. Milbank is allegedly a director and member of the Executive Committee of Mississippi.

The complaint alleges that there are 1,852,977 shares of Class A stock and 39,731 shares of Class B stock para. 3 (a)²; that about 59% of the Class A stock is presently owned by Mississippi para. 4(a); that Article VII D(4) of Mopac's "Articles of Association" ("Exhibit A" attached to complaint) provides that each share of Class A stock and each share of Class B stock "shall have the same voting power"—i. e., one vote per share para. 3(g); and, therefore, Mississippi controls the election of each of the members of Mopac's Board of Directors para. 4(h), and, in addition, "Mississippi controls and dominates the affairs of Mopac, and has done so throughout the period when the matters complained of by plaintiff occurred" para. 4(g).

The complaint charges that "in breach of its fiduciary obligations to MoPac and to MoPac's Class B stockholders, Mississippi, acting in concert with the individual defendants and the other directors of Mississippi and MoPac, has entered upon, and is in the process of carrying out, an unlawful scheme to enrich itself by depriving MoPac's Class B stockholders of their rightful share of Mopac's earnings, and by destroying the Class B stockholders' valuable residual equity in MoPac * * *" para. 10. As part of this "scheme", it is alleged, inter alia, that, in spite of Mopac's "sound" financial condition para. 9(a), "grossly inadequate" dividends have been paid on the Class B stock para. 11(d); excessive surpluses have been accumulated by Mopac para. 11(f); a "predatory" "Plan of Consolidation" was attempted para. 13-14³; Mississippi and its directors have "publicly denigrated" the Mopac Class B stock para. 16(a); and Mississippi has failed and refused to permit Mopac to take steps to reduce Mopac's increasing federal income tax burden para. 18(d).

The action seeks, inter alia, (1) an order directing Mopac's Board of Directors to declare, and Mopac to pay, judicially determined "just and reasonable" dividends on the Class B stock for the years 1955 to 1967; and (2) an injunction restraining Mississippi and Mopac's Board of Directors "* * * from the illegal, oppressive, and arbitrary use of their power to withhold dividends on the Mopac Class B stock * * *" and requiring "adequate dividends" to be declared and paid in the future. Plaintiff also requests the court to retain jurisdiction over the action to insure compliance with its judgment.

This action was commenced on December 29, 1967. A short time thereafter, on January 19, 1968, a similar suit— LeVasseur v. Bass—was commenced in the United States District Court for the Eastern District of Missouri. The parties herein do not dispute that the LeVasseur action is substantially identical to the Levin action presently before this Court. In the LeVasseur action all fifteen Mopac directors are named as defendants. However, as of February 21, 1968, only three directors were served.⁴

The Motion to Transfer

This motion seeks to transfer the action to the United States District Court for the Eastern District of Missouri, Eastern Division, pursuant to 28 U.S.C. § 1404(a). That section provides:

"For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought." (Emphasis added.)

Defendants Craft, Davis and Milbank are citizens of New York and are, therefore, not amenable to process in Missouri. It is clear, therefore, that this Court lacks the power to transfer the action because the Eastern District of Missouri is not a district "where it might have been brought" at the time suit was commenced. Hoffman v. Blaski, 363 U.S. 335, 80 S.Ct. 1084, 4 L.Ed.2d 1254 (1960); Johnson & Johnson v. Picard, 282 F.2d 386, 388 (6th Cir. 1960) (per curiam); Blackmar v. Guerre, 190 F.2d 427, 429 (5th Cir. 1951), affirmed, 342 U.S. 512, 72 S.Ct. 410, 96 L.Ed. 534 (1952); Glicken v. Bradford, 204 F. Supp. 300, 302-303 (S.D.N.Y.1962); Ackert v. Ausman, 198 F.Supp. 538 (S.D. N.Y.1961), petition for writ of mandamus denied sub nom. Ackert v. Bryan, 299 F.2d 65 (2nd Cir. 1962); Shelley v. The Maccabees, 191 F.Supp. 742 (E.D. N.Y.1961).

The affidavits submitted by defendants Craft and Milbank consenting to the jurisdiction and venue of the Missouri court⁵ cannot alter this conclusion. The relevant inquiry under 28 U.S.C. § 1404(a) is whether the suit "might have been brought" in the transferee court "* * * independently of the wishes of defendants * * *." Hoffman v. Blaski, 363 U.S. at 344, 80 S.Ct. at 1090; Johnson & Johnson v. Picard, supra; Glicken v. Bradford, supra.

Defendants argue, however, that the Court can circumvent the problem of its power to transfer this action by either (1) dismissing the claims against defendants Craft and Milbank, pursuant to Rule 21, Fed.R.Civ.P.; or (2) severing the claims against defendants Craft and Milbank, also pursuant to Rule 21, and staying further proceedings in this district.⁶

The power to sever claims in a shareholder suit "* * * solely for the purpose of facilitating transfer" has recently been upheld by the Court of Appeals for this Circuit in Wyndham Associates v. Bintliff, 398 F.2d 614, 618, (2nd Cir. June 26, 1968).⁷ The Court upheld this power "* * * at least in cases where * * * the defendants as to whom venue would not be proper in the transferee district are alleged to be only indirectly connected to the manipulations which form the main subject matter of the action"; or, in other words, are "* * * in some manner peripherally involved in the alleged wrongdoing" (398 F.2d at 619) (Emphasis added.).

It is obvious that such a severance presupposes a finding that the balance of convenience and justice favors transfer, or that, as the Court of Appeals put it, "* * * the administration of justice would be materially advanced by severance and transfer * * *" (398 F.2d at 618). This Court, in the exercise of its discretion, does not deem such a finding meritorious in the slightest.

The parties have submitted numerous affidavits and memoranda of law detailing the considerations which they honestly believe weigh heavily either in favor of a transfer or in favor of retaining the action in this district. In addition, extensive argument of the motions presently before the Court was heard on March 15, 1968. The reported minutes of that argument⁸ also contain much that is relevant to the discretionary aspects of a Section 1404(a) motion.

Defendants argue that in a suit such as this—to compel the declaration of dividends —the "fundamental issue" will be one of business judgment: whether "in the light of such factors as Mopac's earnings, its obligations, its need for cash, its need to maintain and modernize its physical facilities, and its opportunities for profitable mergers and acquisitions, * * * Mopac's Board of Directors acted in good faith and with reasonable business judgment in determining dividend policy during the period 1955-66" Affidavit of Edward W. Keane, sworn to April 8, 1968, pp. 4-5.

With this issue in mind, defendants assert that they will be obliged to reconstruct Mopac's financial and operating data for the years in issue SMP 13-14, 37; Affidavit of L. A. Bruns, treasurer of Mopac, sworn to March 6, 1968; Affidavit of Edward W. Keane, sworn to April 8, 1968, pp. 5-8; that "inside" expert witnesses—i. e., Mopac officers and employees—will be required to testify concerning the...