Quinn v. Post

• Decision Date: 05 January 1967
• Docket Number: No. 66 Civ. 3281.,66 Civ. 3281.
• Parties: David C. QUINN and Stuart M. Speiser, individually, and as stockholders of the Airways Club, Inc., a corporation, suing on behalf of themselves and all other stockholders of the Airways Club, Inc., similarly situated, and in the right of the Airways Club, Inc., a Delaware corporation, Plaintiffs, v. Troy V. POST et al., Defendants.
• Court: U.S. District Court — Southern District of New York

262 F. Supp. 598

David C. QUINN and Stuart M. Speiser, individually, and as stockholders of the Airways Club, Inc., a corporation, suing on behalf of themselves and all other stockholders of the Airways Club, Inc., similarly situated, and in the right of the Airways Club, Inc., a Delaware corporation, Plaintiffs, v. Troy V. POST et al., Defendants.

No. 66 Civ. 3281.

United States District Court S. D. New York.

January 5, 1967.

COPYRIGHT MATERIAL OMITTED

Speiser, Shumate, Geoghan & Krause, New York City, for plaintiffs; Stuart M. Speiser, Alfred W. Gans, New York City, of counsel.

Kaye, Scholer, Fierman, Hays & Handler, New York City, for defendants Troy V. Post, Greatamerica Corp., American-Amicable Life Ins. Co., Braniff Airways, Inc. and Gulf Life Ins. Co.; Sheldon Oliensis, New York City, Murray J. Laulicht, New York City, of counsel.

Kissam & Halpin, New York City, for defendants Morris D. Jaffe, First Financial Life Ins. Co., Wallace M. Greene, Raymond D. Luecker and Roger Zeller; Leo T. Kissam, Neal Hurwitz, New York City, of counsel.

Davis, Polk, Wardwell, Sunderland & Kiendl, New York City, for defendant The Airways Club, Inc.; Robert B. Fiske, Jr., John Zuccotti, New York City, of counsel.

OPINION

WEINFELD, District Judge.

This is a derivative action on behalf of The Airways Club, Inc. (Airways) commenced in September 1966 in the New York State Supreme Court by two stockholder plaintiffs, one a citizen of the State of New York, and the other a citizen of the State of Connecticut. The complaint in a single claim alleges a conspiracy by the defendants, individuals and corporations, to waste the corporate assets of Airways, and generally to injure its business.

The action was removed to this court pursuant to 28 U.S.C. section 1441(a), upon a petition which alleged that, except for three defendants who were citizens of New York, the remaining defendants were citizens of states other than New York and that the action is one over which this court has original jurisdiction under 28 U.S.C. section 1332(a). The removal petition further alleged that the joinder of the three New York State citizens, Gustave L. Levy, Anthony B. Akers and William H. Osborn, Jr., was fraudulent and made for the sole purpose of defeating federal diversity jurisdiction. The petition was supported by the affidavits of the three resident defendants denying the basic allegations of the complaint.

The plaintiffs taking issue with the charge of fraudulent joinder now move to remand the action to the state court, insisting that the three New York citizens were named in good faith and upon a substantial claim that they and the other defendants are, by reason of various acts alleged in the complaint, jointly and severally liable for breach of their respective fiduciary duties to Airways which resulted in waste of its assets. The defendants thereupon offered additional affidavits of the three resident defendants, reiterating and amplifying their previous denials of wrongful conduct and their assertions that no basis exists for their inclusion as defendants. The affidavits, pro and con, are in sharp conflict. The court conferred with counsel as to whether an evidentiary hearing would shed greater light on the contested issues, and they were in accord that the affidavits fully present the matters upon which they rely to support their respective contentions, and so the matter is ripe for disposition.

We necessarily turn to the complaint and concentrate upon those allegations which relate to the resident defendants. It alleges that prior to September 1, 1965 Airways was an organization dedicated to the safety, security and economy of airline passengers and acted as a "watchdog" of scheduled air carriers; that its services extended to providing its thousands of members with blanket air carrier accident insurance, which by reason of a favorable experience rating constituted a valuable asset of Airways; further, that some of its activities on behalf of its membership resulted in decreasing the income and increasing the expenditures of scheduled air carriers.

The basic charge is a general conspiracy to waste and despoil the assets of Airways for the benefit of Greatamerica Corp., Braniff Airways, Inc., and other corporate defendants, commencing about August 1964, when Greatamerica and other defendants obtained control of Braniff, and continuing to the date of the filing of the complaint, September 1966. Greatamerica, Braniff, First Financial Life Insurance Company, as well as other corporations, by reason of direct or indirect ownership of controlling stock in Airways, or by reason of ownership and control of its affairs through individuals named as defendants, are stated to be under a fiduciary duty to Airways and its minority stockholders.¹ It is also alleged that Levy was and is a director of Greatamerica and Braniff; that Osborn was and is a director of Greatamerica; that Akers was and is a director of First Financial Life Insurance Company; that each was under a fiduciary duty to Airways and its minority stockholders; that both Levy and Osborn played a role in a transaction whereby Greatamerica obtained control of Braniff.

The complaint further alleges that when in August 1964 Greatamerica obtained control of Braniff, because of Greatamerica's huge stockholdings in Braniff and because Airways' activities could affect changes in the income and expenditure of scheduled carriers, which in turn would influence the value of Greatamerica's holdings in Braniff stock, various defendants, including Levy and Osborn, decided "to neutralize, make captive, stultify and terminate the independent influence of * * * Airways" — to bring to an end Airways' services which previously had resulted in decreasing the income had increasing the expenditures of scheduled carriers such as Braniff, and, in general, to use Airways to the benefit of Braniff and to the detriment of Airways. It is further charged that to carry out this objective it was decided by various defendants, including Levy and Osborn, to transfer controlling stock-ownership in Airways to corporations or persons who would be under their control and would cooperate with them in carrying out the objective of using Airways to benefit Braniff in order to protect Greatamerica's investment in Braniff stock "without regard to the detrimental effects thereof on the financial condition of Airways and the value of its stock"; that to implement that purpose a number of defendants, including Levy and Osborn, met with other defendants, including Akers, during 1964 and 1965, which resulted in an agreement dated and effective September 1, 1965, to which First Financial Life Insurance Company was a party, whereby First Financial ostensibly acquired voting stock control of Airways, whereas in fact it was merely a device intended, by various defendants including Levy, Osborn and Akers, to retain joint control of Airways; to terminate the services it previously rendered to its membership; to divert its income; to charge to it expenses properly chargeable to other corporations; to use it as a device, front and facade for the sale of life insurance for the benefit of the defendants other than Airways; and in general to destroy its business for the benefit of Braniff and other defendants.

Another claim is that the defendants destroyed a principal asset of Airways when the valuable blanket travel accident policy covering its members was cancelled in March 1966 as a result of causing Airways to omit payments of premiums to the issuer of the policy, although continuing to collect dues from Airways' members, and procuring the issuance of a new and less favorable policy with another company without advising the membership of the change, and that the sole purpose was to benefit other corporations in which one or more defendants were interested; that the alleged acts which resulted in destruction of this asset of Airways and its members were participated in by various defendants, including Akers, with the knowledge and acquiescence of other defendants, including Levy and Osborn. Finally, it is further charged that the various derelictions attributed to the defendants violated their fiduciary obligations to Airways; that "said defendants, including all defendants named as individuals personally and actively participating, continue to persist in such conduct up to and including the present time."

Reference is made to other events to set the matter in proper focus. Plaintiffs, in January 1966, had commenced a prior action in the New York State Supreme Court on behalf of Airways by the service of a summons.² In April 1966 they served their complaint, which, in large measure, contains substantially similar charges to those alleged in the instant case. The defendants were all those named in the instant suit, with the exception of Levy, Osborn and Akers, and Gulf Life Insurance Company, a Florida corporation. The defendants removed the first action to this court upon a claim of diverse jurisdiction and then moved to quash service of process and to dismiss the suit for lack of personal jurisdiction, or in the alternative for an order transferring the action to the United States District Court for the Western District of Texas, pursuant to 28 U.S.C., section 1404(a). Before the motion was heard, the plaintiffs filed a voluntary dismissal, which the defendants opposed and which is simultaneously herewith approved in an accompanying memorandum.

The defendants contend that the joinder of the New York residents herein is fraudulent because (1) the plaintiffs have no "conceivable" claim for relief against them; and (2) that plaintiffs know this is so, since in the original action those three defendants were not named and thus it is clear that the voluntary dismissal was for the sole purpose of commencing this action in order to include the three residents as defendants, thereby preventing removal to this court under its...