Northern Pac. Ry. Co. v. Crowell

• Decision Date: 17 October 1917
• Citation: 245 F. 668
• Parties: NORTHERN PAC. RY. CO. v. CROWELL et al.
• Court: U.S. District Court — District of New Jersey

245 F. 668

NORTHERN PAC. RY. CO. v. CROWELL et al.

United States District Court, D. New Jersey.

October 17, 1917

[Copyrighted Material Omitted]

Pitney Hardin & Skinner, of Newark, N.J., for plaintiff.

Lewis Starr, of Camden, N.J., for defendants.

DAVIS District Judge.

This is a suit to recover from the defendants, directors of the Chico Mining Company, a corporation organized under the laws of Montana, May 11, 1912, the amount of the judgment recovered against the said company in the district court of the Sixth judicial district of Montana. The defendants are residents of the state of New Jersey, and have been directors of the mining company from the date of its incorporation. Shortly after the incorporation of the company, it made a contract with the plaintiff to rent a steam shovel from it, with an option to purchase said shovel. The mining company did not exercise its option to purchase the shovel. Disputes arose between the railway company and the mining company, and in April, 1913, the railway company instituted proceedings against the mining company, apparently joining in the same complaint an action on contract and an action in tort. The mining company entered a demurrer to the complaint, whereupon it was amended, the plaintiff proceeding upon the tort. To this amended complaint an answer was filed March 28, 1914 and on April 21, 1914, the railway company filed its reply. Before the trial, but at just what time is not apparent, the attorneys of the mining company, with permission of the court, withdrew their appearance, and counsel for the defendants in the suit at bar in his brief states that:

'On January 29, 1915, the case in Montana, between the railway company and the mining company, came on regularly for hearing. The mining company was neither present nor represented by counsel. Thereupon a jury was waived, and the case tried by the court, which found the issues in favor of the plaintiff, and assessed damages at the sum of $4,000, for which amount judgment was entered, together with costs, $180.50.'

The purpose of the present suit, as above stated, is to recover the amount of said judgment from the defendants, directors of the mining company. The cause is before the court at this time on plaintiff's motion to strike out defendants' answer. The determination of the motion involves two questions: (1) Does the statute upon which plaintiff's action is based impose liability upon the defendants? (2) If it does, have they pleaded a defense which shields them from liability?

It is agreed by stipulation between counsel that the Montana statute (Laws Mont. 1909, page 217) provides as follows:

'Every corporation, having a capital stock, except banks, trust companies and building and loan associations, shall annually, within twenty days from and after the thirty-first day of December, file, in the office of the clerk of the county in which the principal place of business of such corporation is situated, a report which shall state the amount of the capital stock, the proportion thereof actually paid in and the amount thereof actually paid in cash and the amount issued, if any, in payment of property purchased and the amount of existing debts and also the names and addresses of the directors or trustees and of the president, vice president, general manager and secretary of the corporation. Such report shall be signed by the president and a majority of the directors, inclusive of the president, secretary or treasurer of such corporation. In the absence, or inability to act, of the president, the vice president may sign and verify such report. If any such corporation shall fail to file such report, directors of the corporation shall be, jointly and severally, liable for all debts or judgments of the corporation then existing, or which may thereafter be in anywise incurred until such report shall be made and filed: Provided, however, that if within ten days after such failure a director, or directors, shall make and file, as aforesaid, an affidavit or affidavits, stating that the failure was due to no fault or neglect of his or theirs, and stating, also, that, within the said twenty days, he or they requested the president or sufficient number of the other directors, whose residence was known to the affiants, to join them in making report, such director, or directors, shall not be liable under this section. If the required report be made and filed after the time herein specified, the directors shall not, on account of the prior failure to make report, be liable for the debts thereafter contracted. Where such corporation, on account of insolvency or for any other reason, has ceased to be a going concern and has ceased to voluntarily incur financial obligations, the directors may include a statement to that effect in their report, giving the reasons for the cessation of the corporate activities of such corporation, and, after two annual reports have been filed, the directors shall not be liable for a failure to file annual reports during such time as the disability of such corporation shall continue.'

This statute in its original or amended form has been passed upon by the Supreme Court, the court of last resort, in Montana, and the directors have been held liable when their corporation has failed to file the required report. Gans v. Switzer, 9 Mont. 408, 24 P. 18; Daily v. Marshall, 47 Mont. 377, 133 P. 681; First National Bank of Missoula v. Cottonwood Land Co. et al., 51 Mont. 544, 154 P. 582.

Many states have passed statutes making directors of corporations liable for the debts thereof upon their failure to file annual reports setting forth their debts, etc. The acts, so far as I am aware, have all been held constitutional, wherever construed, and directors held liable, when they have failed to file exculpating affidavits, etc., to relieve from liability. The Montana statute is the only one brought to my attention making directors liable for 'judgments' as well as for 'debts.' The plaintiff contends that 'judgments' include tort actions when reduced to judgments. This is denied by defendants. This point will be discussed later. It seems to be perfectly clear, and to require no discussion to establish, that the statute does impose liability upon the defendants.

Has a defense sufficient to shield the defendants from liability been pleaded? The answer is based upon the following legal propositions variously stated in the 'defenses' by the pleader:

1. The statute of limitations of New Jersey, and not that of Montana, is applicable to the case at bar.

The New Jersey statute provides that:

'All actions or informations which shall be brought or exhibited for any forfeiture, or cause upon any statute, made or to be made, the benefit and suit whereof is or shall be limited or given to the party aggrieved, shall be brought or exhibited within the space of two years, next after the offense committed or to be committed, or cause of action accrued, and not after. ' Comp. Stat. 3171, Sec. 21.

A report was filed by the directors of the defendant company in January, 1913, for the year 1912, but that report did not include the indebtedness of the defendant company to the plaintiff, and was not a compliance with the requirement that the report should set forth 'the amount of the existing debts,' and therefore the statute began to run at that time, January 20, 1913, and this suit, which was instituted January 5, 1916, was not within two years after the cause of action accrued, and is therefore barred by the statute of limitations of New Jersey.

The plaintiff's reply is twofold. It contends that the statute of Montana controls as to limitation of actions, and that the failure to include a small item of indebtedness in the report, filed in good faith and in time, is not the equivalent in law of failure to file any report whatever and does not start the statute to running. Accordingly it asks that the answer in so far as it is based upon this ground be stricken out.

The Montana Code of 1907 (sections 6443 and 6448) provides, under the title of 'Time of Commencing Actions,' that the statutory period for actions on penalties shall be two years; but section 6471 of the Code (old section 554) provides that:

'This title does not affect actions against directors or stockholders of a corporation, to recover a penalty or forfeiture imposed, or to enforce a liability created by law; but such actions must be brought within three years after the discovery by the aggrieved party of the facts upon which the penalty or forfeiture attached or the liability created.'

The law of the forum as to the statute of limitations generally prevails, but--

'where by statute a right of action is given which did not exist by common law, and the statute giving the right fixes the time within which the right may be enforced, the time so fixed becomes a limitation or condition on such right, and will control, no matter in what forum the action is brought. ' The Harrisburg, 119 U.S. 199, 7 Sup.Ct. 140, 30 L.Ed. 358; Finnell v. Southern Kansas Railway Co. (C.C.) 33 F. 427; Theroux v. Northern Pacific Railway Co., 64 F. 84, 12 C.C.A. 52; Brunswick Terminal Co. v. National Bank, 99 F. 635, 40 C.C.A. 22; Whitman v. Citizens' Bank, 110 F. 504, 49 C.C.A. 122; 25 Cyc. 21.

But if the limitation is not contained in the statute giving the right of action, provided it is directed to the newly created liability 'so specifically as to warrant saying that it qualified the right,' it controls just as though it were contained in the statute creating the right. In the case of Davis v. Mills, 194 U.S. 451, at page 454, 24 Sup.Ct. 692, at page 694, 48 L.Ed. 1067, the court said:

'But the fact that the limitation is contained in the same section

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