Mottolese v. Kaufman

• Decision Date: 06 July 1949
• Docket Number: No. 21334.,21334.
• Citation: 176 F.2d 301
• Parties: MOTTOLESE v. KAUFMAN, District Judge.
• Court: U.S. Court of Appeals — Second Circuit

176 F.2d 301 (1949)

MOTTOLESE v. KAUFMAN, District Judge.

No. 21334.

United States Court of Appeals Second Circuit.

Argued May 2, 1949.

Decided July 6, 1949.

Delson, Levin & Gordon, New York City (Harold F. Levin, Edward Marks and Norman Moloshok, New York City, of counsel), for petitioner.

Sullivan & Cromwell and John G. Dorsey, New York City, for intervenor Marine Midland Trust Co.

Abraham M. Glickman, New York City (Samuel Levinkind, New York City, of counsel), for intervenor Securities Corporation General.

Before L. HAND, Chief Judge, and SWAN and FRANK, Circuit Judges.

L. HAND, Chief Judge.

This is a petition for mandamus to direct the respondent, Judge Kaufman, to proceed in due course with the hearing and trial of an action in the District Court for the Southern District of New York, between Mottolese, the petitioner, as plaintiff, and Harry Preston and others, as defendants. The petitioner sought by appeal to review the same order which this petition brings up; and although we dismissed the appeal last January,¹ we suggested that mandamus might be an appropriate remedy. The petitioner has followed that suggestion without, however, renewing her motion before Judge Kaufman. The action is a shareholders' derivative suit brought in the interest of the San-Nap-Pak Company, Inc., a New York corporation, against its directors, past and present, and a number of corporations alleged to have been concerned in the wrongs in question, which consisted of depredations upon the corporate treasury. It was commenced on July 7, 1948, at which time there was already pending in the state court an action, consolidated out of nine separate actions, all upon the same claims and against substantially the same defendants, but brought by separate shareholders. The first of these nine actions had been begun on June 30, 1947, and the other eight had followed before November 28 of that year, the date of the consolidation order. The attorneys for the plaintiff in the present action were the attorneys for the plaintiffs in a majority of the nine actions, and the state court made them attorneys in the consolidated action. On July 21, 1947, another shareholder, Turner — also represented by these attorneys — commenced an action in the District Court of the Southern District of New York and on January 28, 1948, the same plaintiff commenced a second action, and these two have also been consolidated. Turner withdrew, and the complaints in the two Turner actions were ordered dismissed; but before any order had been entered, one, Martini, was allowed to intervene on November 8, 1948, and the action is still pending. A motion for a stay in this consolidated Turner action on the same grounds as that made in the case at bar is now pending undetermined before judge Bondy, awaiting the outcome of this motion. Judge Kaufman, by an order entered November 22, 1948, stayed any further proceedings in the action at bar pending the determination of the consolidated action in the state court "without prejudice, however, to the right of the plaintiff to apply to vacate or modify the stay in event of any change in circumstances in, or affecting the action entitled Waterman Corporation et al. v. James J. Johnston et al. * * * which would make it inequitable to continue the stay." Before this order was entered the plaintiff had given notice of the taking of the depositions of three of the corporate defendants, which they had moved to vacate; and the order now before us directed that any further proceedings to take the depositions should be held in abeyance.

There can be no question that we have jurisdiction to proceed by mandamus, and, if the stay of the action was wrong, the writ should go,² for the issues that will be decided in the Consolidated Action will be almost certain to dispose of the case at bar. The real plaintiff in interest there and here is not the shareholder, but, as in all shareholders' derivative suits, the San-Nap-Pak Company; and a judgment in the state action, if indeed not an absolute bar in this action, would at least be an estoppel as to the controlling issues. Therefore, although the district court — and we upon appeal — would not formally lose jurisdiction over the case, it would come to us already decided in substance. Only by a present review of the order can that consequence be avoided; and the writ is necessary to our appellate jurisdiction, which otherwise may be defeated.

It is probably true that originally the statutory privilege of access to a federal court was regarded as absolute and indefeasible, no matter whether its exercise resulted in inconvenience, delay and expense to the defendant.³ There can be no doubt, however, that this is no longer true. One of the many exceptions is when a critical issue in the federal action is the proper construction of a state constitution, or statute.⁴ Other exceptions are when the federal action involves interference in the internal affairs of a corporation;⁵ or when there is an adequate local administrative procedure provided by the state;⁶ or when a federal action for a declaratory judgment is brought, "where another suit is pending in a state court presenting the same issues."⁷ These are all instances of a discretionary power to stay the federal action, because a proper regard for the autonomy of the states makes that course desirable. However, the Ninth Circuit in Butler v. Judge of the United States District Court,⁸ as we read its opinion, sustained a stay of the federal action, merely because the same issues were involved in an earlier action in the state court between the same parties; and the First Circuit in In Re President & Fellows of Harvard College⁹ proceeded upon the assumption that that power existed, although it thought that the discretion of the district court had been abused, principally, if not altogether, because the federal action came first. In Brendle v. Smith¹⁰ Judge Rifkind stayed a shareholder's derivative suit in a situation similar to that at bar.

The power is well settled, when the earlier suit is also in a federal court. Landis v. North American Co.¹¹ recognized the general principle in language often quoted: "The power to stay proceedings is incidental to the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants. How this can best be done calls for the exercise of judgment, which must weigh competing interests and maintain an even balance." Perhaps, when a plaintiff has already sued in a federal court, the question whether he shall be allowed to start suit in another federal court is of less importance than whether he shall have access to a federal court after he has sued in a state court. And yet the privilege of suing in a particular federal court is as absolute, in form at least, as the privilege of suing in any federal court. However that may be, the decisions of the Supreme Court in Gulf Oil Company v. Gilbert¹² and Koster v. Lumbermen's Mutual Insurance Co.¹³ have settled it that a federal action depending in diverse citizenship is always subject to the plea, forum non conveniens; and from these it follows that a federal suit, which has been brought after a state suit, may be stayed, for we can see no difference in kind between the inconveniences which may arise from compelling a defendant to stand trial at a distance from the place where the transactions have occurred, and compelling him to defend another action on the same claim. For these reasons we think that the order on review was within the discretion of the district court, and the only question is whether in this instance that discretion was abused.

It is quite true, as was held in Meredith v. City of Winter Haven,¹⁴ that a defendant must show some positive reason why the federal action should not be allowed to proceed, if he is to bar the plaintiff's privilege. On the other hand, equity has always interfered to prevent multiplicity of suits, and the same considerations which persuaded the state court to consolidate the nine actions there pending, make equally desirable a course as near to that as the law permits. Since the action cannot be consolidated with the Consolidated Action, it is proper to stay it, except as some reason appears why the claim cannot be as speedily and as effectively prosecuted in the Consolidated Action as here. As the case comes to us the result therefore depends upon the likelihood that the eventual decision will be reached earlier in the federal action, or that the order on review will deprive the plaintiff of procedural advantages which do not have equivalents in the state action. As to the first, there is nothing in the record to show that an earlier trial is more likely in the federal court than in the state court. Indeed, we take judicial notice of the fact that the non-jury docket in the Southern District of New York is in the neighborhood of eleven months in arrears. As to any procedural advantages in the federal court, the petition alleged that "the practice of taking depositions in the state court was restricted and cumbersome and subject to extensive delays by appeals"; and this the defendants have not denied. Moreover, it is true that the power to examine orally given under Rule 30(a), Federal Rules of Civil Procedure, 28 U.S.C.A., is more certain and simpler than the procedure under the Civil Practice Act and Rules of the Supreme Court of the State of New York.

As has already appeared, Judge Kaufman is holding "in abeyance" the motions of the three defendant corporations, to vacate under Rule 30(b) the notices which the plaintiff has served upon them under Rule 30 (a); and we think that at some time and in some form the prosecution of the claim should have the advantage of privileges of examination before trial equivalent to those which the Federal Rules afford. On the other hand, no other advantages have as yet appeared which...