Mason v. American Express Company

• Decision Date: 12 December 1963
• Citation: 224 F. Supp. 288
• Parties: Florence W. MASON and Willard M. Mason, Plaintiffs, v. AMERICAN EXPRESS COMPANY and Howard L. Clark as President of American Express Company, Defendants.
• Court: U.S. District Court — Southern District of New York

224 F. Supp. 288

Florence W. MASON and Willard M. Mason, Plaintiffs, v. AMERICAN EXPRESS COMPANY and Howard L. Clark as President of American Express Company, Defendants.

United States District Court S. D. New York.

December 12, 1963.

Baker, Nelson, Williams & Mitchell, New York City, for plaintiffs.

Charles Dickerman Williams, New York City, of counsel.

Michels, Gangel & Walton, New York City, for defendants.

Louis W. Mele, New York City, of counsel.

WYATT, District Judge.

A separate trial was ordered by the Court, on motion of plaintiffs and without opposition by defendant, of the issues raised by the Second Defense in the answer. Fed.R.Civ.P. 42(b). These issues relate to whether the provisions of a certain circular, a ticket and a receipt delivered to plaintiffs are sufficient to absolve defendant of liability. The separate trial was ordered because if the Second Defense is sustained it is a bar to the action.

That separate trial has taken place to the Court, without a jury, by consent of the parties; all rights of the parties to a jury as to all other issues were reserved.

Plaintiffs are husband and wife. The action arises out of a personal injury suffered by Mrs. Mason on February 13, 1960 while crossing the Nile River in Egypt from Luxor to Thebes. Travel arrangements for the shore excursion which included this crossing had been made by plaintiffs with defendant.

Plaintiffs are citizens of New Jersey. Defendant is a joint stock association organized under New York law. Jurisdiction of this Court is rested on diversity of citizenship. 28 U.S.C. § 1332(a)(1).

During consideration of this matter, the Court became concerned as to whether diversity of citizenship exists so as to support jurisdiction under 28 U.S.C. § 1332(a)(1). It has been held that there is no jurisdiction. Brocki v. American Express Company, 279 F.2d 785 (6th Cir.1960); cert. denied, 364 U.S. 871, 81 S.Ct. 113, 5 L.Ed.2d 92 (1960). The attention of counsel was called to the problem and their views obtained.

With great reluctance and with equal regret, it is concluded that this Court is without jurisdiction and that the action for this reason must be dismissed.

The problem arises because of the somewhat unusual nature of defendant as a joint stock association. This form of organization is rare for a large publicly owned business and, with respect to defendant, has recently attracted the attention of the press (e.g. The New York Times, November 30, 1963, page 31, column 1; TIME magazine, December 13, 1963, page 87A, column 2).

The complaint alleges that defendant "is a joint stock company organized under the laws of the State of New York".

The answer of defendant avers that it "is an unincorporated association consisting of more than seven members organized under the laws of the State of New York".

Shortly after defendant answered, the caption of the action was changed by agreement to add as a party defendant "Howard L. Clark, as President of American Express Company" and it was further agreed that Clark was "named defendant in that capacity as a means of bringing suit against said American Express Company in accordance with Section 7 of the Unincorporated Associations Law of the State of New York" (apparently the reference is to Section 13 of the General Associations Law of New York).

The pertinent facts as to American Express Company, while not appearing in total in the pleadings or in the formal record, appear to be beyond dispute.

American Express Company was organized under the laws of New York on November 25, 1868 as a joint stock association, which was then, and is now, one of several types of unincorporated associations. The shares of American Express are actively traded in the over-the-counter market. At the present time, it has over 20,000 member shareholders (the last certicate filed under General Associations Law, § 4, gives the number as 23,366); according to a letter from its counsel, "as of March 31, 1962" should this be "1963"?, there were 1,602 member shareholders "residing" in New Jersey. It must be assumed therefore that there are member shareholders of American Express domiciled in, and citizens of, New Jersey, the same state of which plaintiffs are citizens.

Jurisdiction in this Court thus depends on whether the defendant association has New York citizenship, as a corporation might have, or whether its citizenship is that of its individual members, as in the case of an ordinary partnership.

When American Express was organized in 1868, the laws of New York recognized and authorized joint stock associations in substantially the same manner as today, endowing them with certain but not all of the characteristics of corporations and leaving them with some of the characteristics of the partnerships which in fact they are. The great study in this field is that by Professor Warren, Corporate Advantages Without Incorporation (New York, 1929); his specific treatment of New York law is at pages 426-507.

A joint stock association can have shares and upon transfer of shares (or upon the death, insanity or bankruptcy of an associate) there is no dissolution or liquidation of the enterprise, as would be the case with an ordinary partnership. General Associations Law, §§ 3, 5, McKinney's Consol. Laws, c. 29.

The joint stock association can hold real property in the name of its president under certain circumstances. See General Associations Law, § 6.

The powers of managament can be concentrated in a few associates and these can be made a self-perpetuating body. General Associations Law, § 3; Spraker v. Platt, 158 App.Div. 377, 143 N.Y.S. 440, 447-448 (3d Dept., 1913).

Suit can be brought by or against the association without making all of the associates parties to the suit. The president or treasurer can act in a representative capacity. General Associations Law, §§ 12, 13.

The foregoing are all characteristics similar to those of corporations. But in at least one important respect, there is radical difference between a corporation and a joint stock association in New York. The shareholder of a corporation is not personally liable for the debts of the corporation. The shareholders of a joint stock association are personally liable for the debts of the association. National Bank of Schuylerville v. Van Derwerker, 74 N.Y. 234 (1878); People ex rel. Winchester v. Coleman, 133 N.Y. 279, 285, 31 N.E. 96, 16 L.R.A. 183 (1892); Warren, above cited, 460.

Beginning about the middle of the nineteenth century many express companies were organized as joint stock associations under New York law. The reasons for this are suggested in the following passage from 1 Dewing, The Financial Policy of Corporations (5th ed.) 70:

"Owing to the unlimited liability that attaches itself to such partnership interests, these certificates of association are not in use anywhere in the United States, except in the case of the large express companies and certain small New England businesses which have maintained a kind of localized partnership character for the last fifty or more years. The express companies' stocks are the only remaining partnership shares which are held by the public. These partnerships were formed many years ago by means of `articles of association' under which the original associates and their successors agreed to engage in the express business. The management was restricted to a small group of officials which organized and maintained itself independently of the great body of certificate holders or partners. In this manner the management of the association was independent of all regulation either from within or without, and it was not until the federal government, by the constitutional authority of the `commerce between the states' provision, placed the express companies under the Interstate Commerce Commission that any control was exercised over the conduct of their business."

See also American Express Company v. United States, 29 S.Ct. 315, 53 L.Ed. 635, 212 U.S. 522 (1909); United States v. Adams Express Company, 229 U.S. 381, 33 S.Ct. 878, 57 L.Ed. 1237 (1913).

Elsewhere at 2 Dewing, above cited, 858, appears the following comment:

"In two important respects the joint stock company differs from the ordinary business corporation. Its shareholders are, like partners in a partnership, liable for the debts of the association; and the board of management is self-perpetuating and not elected, as in the case of an American corporation. Owing to both of these characteristics, the joint stock form of organization has been little used, during the last century, in the United States."

And the following footnote:

"The nearest approach to the joint stock company of Elizabethan and Stuart England in the United States was the large express companies. The parallelism is not exact. The shareholders of the express companies were probably liable for the debts of the association and the management was self-perpetuating. * * *"

We need now to turn to a study of the citizenship of corporations and of joint stock associations for the purposes of the diversity jurisdiction of federal courts.

"It took half a century of litigation" in the Supreme Court "finally to confer on a corporation, through the use of a fiction, citizenship in the chartering state for jurisdictional purposes". Neirbo Co. v. Bethlehem Shipbuilding Corp., 308 U.S. 165, 169, 60 S.Ct. 153, 84 L.Ed. 167 (1939). The decision "finally" determining that a corporation was a citizen of the state of its incorporation was in 1853. Marshall v. Baltimore & Ohio R. R. Co., 16 How. 314, 57 U.S. 314, 14 L.Ed. 953.

In 1876 an action involving defendant association was in a federal court. Although recognizing that the shareholders were "liable individually for the debts of the association", the court felt, on the authority of the Marshall case and other Supreme Court cases, that defendant "must be regarded as a citizen of the state which created it" and that it was "immaterial...