Rademacher v. Russ

• Decision Date: 27 April 1955
• Docket Number: Civ. No. 5040.
• Citation: 131 F. Supp. 50
• Parties: William F. RADEMACHER, Plaintiff, v. Donald C. RUSS, Harry A. Steffen, Clinton W. Erickson, Northwest Seed Grain, Inc., a corporation, Farmers Grain Corp., a corporation, and Superior Corporation, a corporation, Defendants.
• Court: U.S. District Court — District of Minnesota

131 F. Supp. 50

William F. RADEMACHER, Plaintiff, v. Donald C. RUSS, Harry A. Steffen, Clinton W. Erickson, Northwest Seed Grain, Inc., a corporation, Farmers Grain Corp., a corporation, and Superior Corporation, a corporation, Defendants.

Civ. No. 5040.

United States District Court D. Minnesota, Fourth Division.

April 27, 1955.

Morton J. Goustin, Minneapolis, Minn., for plaintiff in opposition to motion.

Hyman Edelman, Kaplan, Edelman and Kaplan, Minneapolis, Minn., for defendants in support of motion.

NORDBYE, Chief Judge.

Plaintiff alleges in the second cause of action that he is a stockholder in the corporate defendant Northwest Seed Grain, Inc. This action is in the nature of a shareholder's derivative suit, alleging that the individual defendants are in control of the corporation and have squandered and wasted its assets. Plaintiff's first cause of action, on the other hand, seeks to recover the price that plaintiff paid for his stock in Northwest and alleges that he was induced to purchase that stock by the fraudulent misrepresentations of the individual defendants as to the financial condition of the corporation and that, upon discovery of the fraud, plaintiff immediately notified defendants that he rescinded his purchase. It also alleges that defendants refused to return the purchase price of the stock, which he contends was $35,000.

Defendants contend that plaintiff's first and second claims for relief are inconsistent and that plaintiff has irrevocably elected to pursue his remedy of rescission rather than his derivative rights as a shareholder in Northwest. It appears from copies of letters attached to defendants' motion that plaintiff did notify defendants that he had elected to rescind the purchase and that defendants replied with what purported to be an acceptance of the rescission. However, defendants tendered only $6,000, the amount they contend was the purchase price of the stock, rather than the $35,000 demanded by plaintiff.

The fact that plaintiff has asserted inconsistent claims does not, of course, render his complaint defective as a matter of pleading. Federal Rules of Civil Procedure, 8(a) and 18(a), 28 U.S.C.A. However, Rules 8(a) and 18(a) are not decisive of the issue presented. For defendants' motion raises more than the question of permissive joinder of claims. They contend that the substantive doctrine of election of remedies absolutely bars plaintiff's second cause of action. Defendants' position, in other words, is that the second cause of action has been abandoned. If they are correct in that respect, it would follow that plaintiff would be barred from asserting his second cause of action even in a separate lawsuit.

Defendants rely entirely on the case of Albert Lea Foundry Co. v. Iowa Sav. Bank, 8 Cir., 1927, 21 F.2d 515. That case held, inter alia, that a defrauded party who had in a letter given notice of rescission had thereby abandoned his right to claim that the contract was valid and sue for damages based upon the fraud. That case, however, is not controlling. Although it arose in the United States District Court for the District of Minnesota, and cites a decision of the Minnesota Supreme Court as well as authorities from other jurisdictions, it does not purport to be an exposition of the law of the State of Minnesota. Since the Albert Lea case was decided before Erie Railroad Co. v. Tompkins, 1938, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, it is not controlling on a matter which defendants themselves urge is a matter of substantive law.

Under the decisions of the Minnesota Supreme Court, it cannot be held that the rescission here attempted was so complete as to constitute an irrevocable election that plaintiff would not later choose to pursue his rights as a minority shareholder in the corporation. Under the law of this State, a rescission is not a unilateral thing which becomes complete and perfect upon the mere assertion by the defrauded party of a claim for that mode of redress. A rescission is made up of offer and acceptance, and so a plaintiff whose offer of rescission has not been accepted can still elect to stand upon the contract and sue for damages. Kohanik v. Beckman, 1942, 212 Minn. 11, 2 N.W.2d 125; Jones v. Magoon, 1912, 119...