Montro Corp. v. Prindle

• Decision Date: 28 May 1952
• Citation: 105 F. Supp. 460
• Parties: MONTRO CORP. v. PRINDLE et al.
• Court: U.S. District Court — Southern District of New York

105 F. Supp. 460

MONTRO CORP. v. PRINDLE et al.

United States District Court, S. D. New York.

May 28, 1952.

Abraham K. Weber, New York City, for plaintiff.

Hughes, Hubbard, Blair & Reed, New York City (Richard W. Hogue, Jr., New York City, of counsel), for defendant, Devoe & Reynolds Co., Inc.

Wickes, Riddell, Bloomer, Jacobi & McGuire, New York City (Harold F. McGuire, New York City, of counsel), for other defendants.

MURPHY, District Judge.

These are motions by defendants in a shareholder's derivative suit between plaintiff, a New Jersey corporation, and defendants, a New York corporation and eight individual directors, four of whom are residents of New York, two of Connecticut and one each of Kentucky and Indiana. Defendant directors seek alternately dismissal because of improper venue, stay of the action because of pendency of an identical cause in the New York State Supreme Court and to make the complaint more definite and certain. The corporate defendant separately moves for the same relief and, in addition, for $50,000 security pursuant to § 61-b, N.Y.General Corporation Law, McK.Consol.Laws, c. 23.

Venue

At the outset, there is presented a complex question of venue on which there is a sharp conflict of opinion in the Federal Courts. Where jurisdiction is founded, as it is in this case, only on diversity of citizenship, the general venue statute provides that "A civil action * * may, except as otherwise provided by law, be brought only in the judicial district where all plaintiffs or all defendants reside." 28 U.S.C.A. § 1391(a). It is self-evident that in the instant action neither plaintiff nor all defendants reside within this judicial district. Symbolically, using X, Y and Z to represent different districts in different states, this venue statute would require an alignment of parties according to residence in a shareholder's derivative suit, somewhat as follows:

Plaintiff vs. Defendants Corporation in whose Directors, alleged Shareholder behalf suit is brought wrongdoers X Y Y

Under this alignment, suit may be brought either in district X or Y, since all plaintiffs or all defendants reside in one or the other, and there is diversity of citizenship requisite for jurisdiction between plaintiff and defendants. An exception has been added, 49 Stat. 1213, 62 Stat. 936, on which the result here depends, in these words: "Any civil action by a stockholder on behalf of his corporation may be prosecuted in any judicial district where the corporation might have sued the same defendants." 28 U.S.C.A. § 1401.

Using the same symbols, this section clearly authorizes a suit in Y or Z when the parties are thus circumstanced:

Plaintiff vs. Defendants Corporation in whose Directors, alleged Shareholder behalf suit is brought wrongdoers X Y Z

This is so because this test, "in any judicial district where the corporation might have sued the same defendants", suggests application of the general venue test, mentioned above, "in the judicial district where all plaintiffs or all defendants reside" 28 U.S.C.A. § 1391(a) to a hypothetical suit in which the tripartite litigants are reduced to two parties and transposed as follows:

Plaintiff vs. Defendants Corporation Directors Y Z

Mere inspection indicates that under this hypothetical transposition, suit is possible in either Y or Z from the point of view of both jurisdiction and venue.

The instant case combines the two tripartite situations concededly possible under the venue statutes,

Plaintiff vs. Defendants Corporation in whose Directors, alleged Shareholder behalf suit is brought wrongdoers X Y Y

and

Plaintiff vs. Defendants Corporation in whose Directors, alleged Shareholder behalf suit is brought wrongdoers X Y Z

with this resulting combination:

Plaintiff vs. Defendants Corporation in whose Directors, alleged Shareholder behalf suit is brought wrongdoers X Y Y and Z (N.J. corp.) (N.Y.) (N.Y., 4) (States (other than (X or Y, 4)

And it is the question of whether such suit may be brought in Y that is the subject of divergent judicial opinion. In Saltzman v. Birrell, D. C., S.D.N.Y., 78 F.Supp. 778, 784, Judge Rifkind held that such suit could be maintained. Diversity of citizenship between the corporate defendant and defendant directors, in addition to such diversity between plaintiff shareholder and defendants — "double diversity", in short — are not required. This statute — one on venue, not jurisdiction — is "manifestly concerned with the choice of a district, a problem which does not arise until a jurisdictional basis already exists." Id. See also Citrin v. Greater New York Industries, D.C., S.D.N.Y., 79 F.Supp. 692.

On the other hand in a later case involving the same shareholder derivative suit venue pattern,

Plaintiff vs. Defendants Corporation in whose Directors, alleged Shareholder behalf suit is brought wrongdoers X Y Y and Z

an appellate court in another circuit has held that such suit should be dismissed for improper venue with respect to wrongdoers in Y, and sustained as to those in Z. Schoen v. Mountain Producers Corporation, 3 Cir., 170 F.2d 707, 5 A.L.R.2d 1226. See also Sale v. Pittsburgh Steel Co., D.C., W.D.Pa., 57 F.Supp. 283. In a carefully considered opinion, the Court of Appeals said: "* * * the language of the statute itself is quite clear and unambiguous. It does not say, as would be appropriate if the plaintiff's contention were correct, that a stockholder's derivative suit may in every case be brought in the district in which the injured corporation resides or in the district in which the other defendants reside. * * * Whether a corporation may bring a suit in a given district certainly depends just as much upon whether the district court of that district would have jurisdiction of the subject matter as upon whether the district is one in which the venue statute authorizes suit to be brought. * * * Moreover we find that this construction of the statutory language is supported by the legislative history of the Act * * *." 170 F.2d at page 711.

The question has been expressly left open in this Circuit. In a shareholder's derivative suit of the following pattern:

Plaintiff vs. Defendants Corporation in whose Directors, alleged Shareholder behalf suit is brought wrongdoers X X Y

the court held that this venue statute did not dispense with the jurisdictional prerequisite of diversity between the plaintiff shareholder and defendant corporation, but pointedly refrained from approval or disapproval of the conflicting decisions in the situation now under consideration, L. Hand, Ch. J., Lavin v. Lavin, 2 Cir., 182 F.2d 870, 18 A.L.R.2d 1017:

Plaintiff vs. Defendants Corporation in whose Directors, alleged Shareholder behalf suit is brought wrongdoers X Y Y and Z

I think that venue of subject matter may be sustained in this situation, both with respect to the alleged wrongdoing directors resident in Y as well as those in Z. The statute construed on its face as it is worded — and not as Congress might have worded it — is literally susceptible to more than one interpretation. The language, "in any judicial district where the corporation might have sued the same defendants", conceivably could mean from the point of view of (1) jurisdiction and venue; or (2) venue alone. The former construction — requiring "double diversity" — would lead to an absurd result. Concededly the plaintiff shareholder in this case (resident of X) could sue defendant corporation (domiciled in Y) and merely four of the wrongdoing defendant directors (similarly domiciled in Y) in judicial district Y. This is so because while the defendant corporation on whose behalf a derivative action is brought is an indispensable party, City of Davenport v. Dows, 18 Wall. 626, 85 U.S. 626, 21 L.Ed. 938; Swan Land & Cattle Co. v. Frank, 148 U.S. 603, 13 S.Ct. 691, 37 L.Ed. 577, not all of its alleged wrongdoing directors are such parties. As joint tortfeasors, all such directors need not be joined, Weaver v. Marcus, 4 Cir., 165 F.2d 862, 175 A.L.R. 1305, Friend v. Middle Atlantic Transportation Co., 2 Cir., 153 F.2d 778, or if joined could be omitted as parties presenting an embarrassing question of jurisdiction. Galdi v. Jones, 2 Cir., 141 F.2d 984, 991; Kassner v. United States Pictures, D.C., S.D.N.Y., 82 F.Supp. 633. Consequently, it is not denied that venue of subject matter could be sustained in Y district under the general venue statute, supra, 28 U.S.C.A. § 1391 (a), in the situation:

Plaintiff vs. Defendants Corporation in whose Directors, alleged Shareholder behalf suit is brought wrongdoers X Y Y (4, N.Y.)

It is equally so that such venue is permissible in Y under the exceptions added to this statute, supra, 28 U.S.C.A. § 1401, in the suits:

Plaintiff vs. Defendants Corporation in whose Directors, alleged Shareholder behalf suit is brought wrongdoers X Y Z (2, Conn.)

and

Plaintiff vs. Defendants Corporation in whose Directors, alleged Shareholder behalf suit is brought wrongdoers X Y Z (1, Ky.)

and

Plaintiff vs. Defendants Corporation in whose Directors, alleged Shareholder behalf suit is brought wrongdoers X Y Z (1, Ind.) Is it not arbitrary to insist that such venue cannot be sustained in Y in the following suit? Plaintiff vs. Defendants Corporation in whose Directors, alleged Shareholder behalf suit is brought wrongdoers X Y Y and Z

With respect to the legislative history, it most truthfully can be stated that it is quite mute...