Meyer v. Kansas City Southern Ry. Co.

• Decision Date: 06 September 1935
• Citation: 11 F. Supp. 937
• Parties: MEYER et al. v. KANSAS CITY SOUTHERN RY. CO. et al.
• Court: U.S. District Court — Southern District of New York

11 F. Supp. 937

MEYER et al. v. KANSAS CITY SOUTHERN RY. CO. et al.

District Court, S. D. New York.

September 6, 1935.

Samuel Moore, of New York City, for defendants Kansas City Southern Ry. Co. and others.

Marcus L. Bell, of New York City, for defendants Hayden and others.

George L. Buland, Ben C. Dey, and Charles L. Minor, all of New York City, for defendant Southern Pacific Co. and others.

Cullen & Dykman, of Brooklyn, N. Y. (J. A. Dykman and Jules Haberman, both of Brooklyn, N. Y., of counsel), for defendants Bailey and others.

Pierce & Greer, of New York City (F. C. Nicodemus, Jr., H. C. Campbell, and C. S. Hadley, all of New York City, and A. H. Kiskaddon, of St. Louis, Mo., of counsel), for defendants St. Louis Southwestern Ry. Co. and others.

Hines, Rearick, Dorr & Hammond, of New York City (A. C. Rearick and Paul Smith, both of New York City, of counsel), for defendants Missouri-Kansas-Texas R. Co. and others.

Van Vorst, Siegel & Smith, of New York City (Alexander B. Siegel, of New York City, of counsel), for defendants Rosenthal and others.

Cravath, deGersdorff, Swaine & Wood, of New York City (Frederick H. Wood, Carl A. deGersdorff, and Littleton Groom, all of New York City, of counsel), for defendants Felix M. Warburg and others.

Bruce R. Duncan, of Brooklyn, N. Y., for defendant Arthur H. Waterman.

Clarence G. Bernheimer, of New York City, for defendant Bing.

Walter E. Meyer, of New York City, pro se (Leo M. Drachsler and Leon Ulman, both of New York City, of counsel), for intervening plaintiffs.

WOOLSEY, District Judge.

My decision in this cause is that there must be a final decree dismissing without costs the bill of complaint herein on the ground that this court is without subject-matter jurisdiction of the controversy therein set forth.

I. As this is a court of limited jurisdiction, the first matter always to be decided in respect of any action or suit is whether the court has subject-matter jurisdiction thereof. Questions of venue, of jurisdiction of the persons of the defendants, of the plaintiff's locus standi, and as to whether a cause of action is stated or not should not be considered until it is determined that the court has subject-matter jurisdiction.

The first question to be determined herein is whether this cause falls under the category of suits arising under the Constitution and laws of the United States, 28 USCA § 41, subd. 1 (a), and under this branch of jurisdiction subdivision 23 of said section 41 (28 USCA § 41, subd. 23), which gives this court jurisdiction "of all suits and proceedings arising under any law to protect trade and commerce against restraints and monopolies," is the only section which need be considered.

If this cause is not a cause falling within this category as arising under the Constitution and laws of the United States, the only other category of subject-matter jurisdiction under which it might fall is that of a suit between citizens of different states under subdivision 1 (b) of said section 41 (28 USCA § 41, subd. 1 (b).

II. A careful study of this very long and discursive complaint satisfies me that it does not state a cause of action arising under the Constitution and laws of the United States, but is merely a derivative suit in equity by minority stockholders of a railroad company against other railroad companies and many individuals based on the principle which finds its most authoritative exposition in the case of Southern Pacific Co. v. Bogert, 250 U. S. 483, 39 S. Ct. 533, 63 L. Ed. 1099, that those stockholders who have the control of a corporation must not use inequitably their power of control in a way detrimental to the minority stockholders. Cf. also De Koven v. Lake Shore & Michigan Southern R. Co. (D. C.) 216 F. 955, 957, 958; Boyd v. New York & H. R. Co. (D. C.) 220 F. 174, 181; Farmers' Loan & Trust Co. v. New York & Northern R. Co., 150 N. Y. 410, 415, 44 N. E. 1043, 34 L. R. A. 76, 55 Am. St. Rep. 689; Fletcher on Corporation (1919 Edition) §§ 3977, 3987, 3988, and "The Holding Company" by Bonbright and Means, Appendix A, at page 343 ff.

The complaint, after alleging a conspiracy by the several railroads and many individuals to secure control of the St. Louis Southwestern Railway Company, and by such control cause loss and damage to the minority stockholders thereof, states in its prayers objectives which may be summarized as follows:

(1) Accountings by the several alleged conspirators for certain acts by which it is alleged that they profited illegally at the expense of the St. Louis Southwestern Railway Company, and, hence, of its minority stockholders by a total amount of $30,000,000;

(2) The appointment "pending final hearing and thereafter permanently" of what might properly be called a receiver ad litem for the St. Louis Southwestern Railway Company to prosecute under the federal Anti-Trust Acts actions at law for treble damages and suits in equity based on the facts set forth in the bill of complaint against the several corporations and defendants therein named, and from whom accountings for profits are prayed for herein by the minority stockholders on behalf of the St. Louis Southwestern Railway Company;

(3) Injunctions appropriate to end the alleged conspiracy and the present allegedly damaging majority control of the St. Louis Southwestern Railway Company which is now held with the consent and approval of the Interstate Commerce Commission by the Southern Pacific Company; and

(4) The never omitted request for compensation for services and reimbursement for expenses incurred by the plaintiff and other minority stockholders joining in the cause.

Owing to the allegations of the complaint that "the ground upon which the jurisdiction of this Court depends is that this suit includes matters in controversy arising under the laws of the United States," and, further, that it involves "the construction and interpretation of title 15, §§ 1-7, of the United States Code Annotated, commonly known as the Sherman Anti-Trust Act, and title 15, §§ 12 to 27, of the United States Code Annotated, commonly known as the Clayton Act" (section 1 et seq.), defendants' counsel have not unnaturally assumed that the plaintiff considered his suit as based on the so-called Anti-Trust Acts, and, hence, as within the subject-matter jurisdiction of the court under title 28, § 41, subd. 23, hereinabove mentioned, and have pointed their motions and arguments accordingly.

On the oral argument, however, as the minutes show, the plaintiff stated, referring to his bill of complaint: "My claim is that it is not a suit under the Sherman Act or the Clayton Act, but it is a representative stockholders action."

The reason for this admission apparently is that the plaintiff realizes that as a stockholder of a corporation he would be without any locus standi to maintain a suit under the Anti-Trust Acts in respect of damages to his corporation, Fleitmann v. Welsbach Street Lighting Co., 240 U. S. 27, 28, 36 S. Ct. 233, 60 L. Ed. 505, or in respect of matters within the jurisdiction of the Interstate Commerce Commission, as were the matters involved in this suit. Board of Railroad Com'rs v. Great Northern R. Co., 281 U. S. 412, 421, 422, 50 S. Ct. 391, 74 L. Ed. 936; Midland Valley R. Co. v. Barkley et al., 276 U. S. 482, 48 S. Ct. 342, 72 L. Ed. 664; Keogh v. Chicago & N. W. R. Co., 260 U. S. 156, 43 S. Ct. 47, 67 L. Ed. 183.

Aside from its accounting and injunctive prayers, the bill is merely a prelude to actions and suits under the federal Anti-Trust Acts which the plaintiff hopes are to be instituted and maintained by the receiver ad litem, whose appointment, as above noted, is...