Ross v. Stanley

• Decision Date: 13 July 1965
• Docket Number: No. 21089.,21089.
• Citation: 346 F.2d 645
• Parties: Frank ROSS, Appellant, v. F. E. STANLEY et al., Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

346 F.2d 645 (1965)

Frank ROSS, Appellant, v. F. E. STANLEY et al., Appellees.

No. 21089.

United States Court of Appeals Fifth Circuit.

June 1, 1965.

Rehearing Denied July 13, 1965.

Wm. E. Haudek, New York City, Charles Jay Hardee, Jr., Tampa, Fla., William E. Sherman, DeLand, Fla., for appellant. Pomerantz, Levy, Haudek & Block, New York City, Hardee, Ott & Hamilton, Tampa, Fla., of counsel.

M. W. Wells, Maguire, Voorhis & Wells, Orlando, Fla., for appellees, F. E. Stanley, W. J. Bowen, Harold A. Martin, and O. Paul Herzig.

David W. Hedrick, of Giles, Hedrick & Robinson, Orlando, Fla., for appellees, Midwestern Constructors, Inc., Walco Engineering & Construction Co., Midwestern-Walco Contractors.

John Bingham, William J. Ward, Birmingham, Ala., for appellee, Harbert Construction Corp. Martin, Balch, Bingham & Hawthorne, Birmingham, Ala., of counsel.

F. L. Andrews, Andrews, Kurth, Campbell & Jones, Harry R. Jones, Jr., Houston, Tex., R. Y. Patterson, Jr., Winter Park, Fla., for defendants, Florida Gas Co. and Florida Gas Transmission Co.

J. Compton French, Daytona Beach, Fla., Erskine W. Landis, William E. Sherman, of Hull, Landis, Graham & French, DeLand, Fla., for appellee, Barnard and Burk Pipeline Engineering, Inc.

Before TUTTLE, Chief Judge, RIVES, Circuit Judge, and SIMPSON, District Judge.

TUTTLE, Chief Judge:

This is an appeal from an order of the district court dismissing this shareholder's derivative action which the trial court considered to have alleged two separate claims, one for damages and the other for unjust enrichment. The court dismissed the former claim on the ground that it was barred by the Florida three-year statute of limitations¹ and it dismissed the latter claim on the ground that it was prematurely in court. Whether or not this conceptual bisection of the complaint is too finical a refinement, it can avail the appellant nothing. Regardless of the number of claims which may have been stated, we hold that the entire lawsuit is barred by the statute of limitations.

The complaint, while long and involved, because of the number of parties and the relationships of the several parties, stated the following relatively simple situation: Ross had been a stockholder of Florida Gas Company (FGC), a Florida corporation, since August 21, 1958. Florida Gas Transmission Company (Transmission), a Delaware corporation, is Florida Gas Company's whollyowned subsidiary. The two companies and their eight directors individually were joined as defendants with three construction companies and one engineering company which had performed substantial work in connection with the construction of Transmission's gas pipeline from Texas to Florida. Plans for the construction of Transmission's pipeline began around 1952, with various of the individual and corporate defendants (and the latter's predecessors) in on the early planning. The plan contemplated construction work to be performed by the three defendant construction companies and engineering work by the defendant engineering company. There was to be no competitive bidding on the construction or engineering contracts, but they were to be executed "on terms analogous to but incorporating a cost no higher than an arm's length contract for similar work under similar circumstances." The persons in control of the defendant contracting companies, it was alleged, were and are still also in control of FGC, Transmission, and their corporate predecessors. Therefore, it was alleged that the contracts in question were subject to the Federal Power Commission's "no profits to affiliates" rule, under which the FPC excludes from a regulated company's rate base the amount of a claimed cost item which represents profits made by an "affiliate." The contracts between the gas companies and their "affiliates" were entered into in November, 1958. It was alleged that these contracts contemplated a substantial profit to the "affiliates" which the defendants knew or ought to have known would be disallowed by the FPC in determining the proper rate base to be used by FGC in fixing the rates for the ultimate sale of its gas. Thus, it was alleged, the defendants knowingly entered into contracts with themselves or their associates which resulted in approximately $10,000,000 of profits to the affiliated group all of which, as they knew or should have known, would be disallowed from the rate base and thus be lost as an asset to Florida Gas Company.

Since the question of accrual depends on the nature of the claim or claims forming the basis of the complaint, we copy the language of the complaint asserting the claim:

"31. Defendants and the other developers and directors of Transmission and Florida Gas breached their fiduciary duties to Transmission or Florida Gas as follows:

"(a) The manner of appointment and the membership of Transmission\'s negotiating committees * * were such as to foreclose arm\'s length negotiation of the contracts between Transmission and the contracting firms.

"(b) By reason of the absence of arm\'s length negotiation of such contracts and by reason of the matters alleged * * * previously, and during the period referred to * * * previously, each of the contracting firms was an affiliate of Transmission within the purview of the FPC\'s `no profit to affiliates\' rule, as defendants and the other developers and directors of Transmission and Florida Gas knew or should have known.

"(c) To the knowledge or notice of defendants and the other developers and directors of Transmission and Florida Gas, such affiliation of the contracting firms with Transmission exposed Transmission and Florida Gas to the danger that the FPC might eliminate from Transmission\'s rate base so much of the cost of the pipeline as reflects the profits of the contracting firms.

"(d) Defendants and the other developers and directors of Transmission and Florida Gas could and should have avoided such danger by causing Transmission to award the contracts to firms not affiliated with Transmission, or by awarding the contracts to the contracting firms at cost.

"(e) Defendants and the other developers and directors of Transmission and Florida Gas caused Transmission to award the contracts to the contracting firms pursuant to their aforementioned plan and scheme and in order to give the contracting firms an opportunity to profit, regardless of the foreseeable injury to Transmission and Florida Gas.

"(f) By reason of the acts of defendants and the other developers and directors of Transmission and Florida Gas, said companies have been injured or damaged, and may or will suffer further injury and damage, as alleged in paragraph 15, supra.

"(g) Each of the contracting firms, including its stockholders, has been unjustly enriched by so much of the payments received by it as constitutes a profit to it.

"32. (a) Defendants are jointly and severally liable to Transmission and Florida Gas for the profits realized by each of them and for the damages sustained and to be sustained by Transmission and Florida Gas.

"(b) The determination of the amounts of defendants\' profits and of the damages sustained and to be sustained by Transmission and Florida Gas requires an accounting by defendants."

The complaint alleged that the staff of the Federal Power Commission had, at the time the complaint was filed, raised the issue but at that time the Commission had not made its determination as to how much, if any, of the profits of these contracting companies were comprehended within the "no profits to affiliates" rule and, therefore, how much, if any, of the alleged profits would ultimately be disallowed. The complaint alleged that this entitled the plaintiff to an accounting for such amounts as were ultimately determined by the Federal Power Commission not to be allowable as part of the "actual legitimate cost" of the transmission lines² under its rule prohibiting the inclusion in the cost of facilities of any "inter-company profits."³ The complaint ended with the stock assertion that "plaintiff has no adequate remedy at law."

Each of the appellees filed a motion to dismiss the complaint under Rule 12(b) (6), of the Federal Rules of Civil Procedure for failure to state a claim upon which relief could be granted. Some of them also filed specific pleas of limitation by the Florida three-year statute of limitations, and of laches. The court considered that the Rule 12(b) (6) motion sufficiently raised the defense of the statute of limitations as to all appellees. The trial court expressly ruled, and the parties both concede in this Court, that the Florida three-year statute of limitations is available as a defense if it applies under the pleaded facts.

All parties seem to agree that "limitation never commences to run until the time when the plaintiff could first have maintained his action to a successful result." Brownell v. City of St. Petersburg, 5 Cir., 1942, 128 F.2d 721, 724. The appellees argue that an action for nominal damagees or for rescission of the contract could have been maintained in November, 1958. The appellant denies the possibility of a suit for nominal damages and argues that the maintainability of a rescission action is immaterial since that would be a different "claim" from the one presented here. We find no need to resolve this debate, because a careful reading of the complaint reveals that substantially the same complaint, asserting in essence the same claim, or claims, could have been filed by the appellant and maintained "to a successful result" as early as November, 1958.

In the section of his brief arguing that his complaint states a claim upon which relief could be granted, the appellant states that "it would be within the allegations of the complaint * * * to adduce proof of a conversation among all defendants, at which one of them stated, and the others agreed to, these propositions:

`We know that the contracting firms are affiliates of Transmission and FGC. We know that their

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