Smith v. Sperling

• Decision Date: 20 April 1960
• Docket Number: No. 16387.,16387.
• Citation: 277 F.2d 634
• Parties: Charles B. SMITH, as Special Administrator of the Estate of Edward S. Birn, Deceased, Appellant, v. Milton SPERLING et al., Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

277 F.2d 634 (1960)

Charles B. SMITH, as Special Administrator of the Estate of Edward S. Birn, Deceased, Appellant, v. Milton SPERLING et al., Appellees.

No. 16387.

United States Court of Appeals Ninth Circuit.

April 20, 1960.

Moss, Lyon & Dunn, Herman H. Levy, Los Angeles, Cal., for appellant.

Freston & Files, Eugene D. Williams Ralph E. Lewis, H. R. Kelly, Los Angeles, Cal., Oliver B. Schwab, Schwab & Sears, Beverly Hills, Cal., for appellees.

Before CHAMBERS, MAGRUDER and JERTBERG, Circuit Judges.

PER CURIAM.

This case was up on appeal previously. Smith v. Sperling, 9 Cir., 1956, 237 F.2d 317, reversed, 1957, 354 U.S. 91, 77 S.Ct. 1112, 1 L.Ed.2d 1205.

It started by the filing on December 15, 1948, of a typical minority stockholder's derivative suit brought by the plaintiff, a citizen of New York, against Warner Bros. Pictures, Inc., and United States Pictures, Inc., both Delaware corporations, and against certain named individuals, Harry M. Warner, Jack L. Warner, and Milton Sperling, all citizens of California. Sperling was the son-in-law of Harry M. Warner. Originally the complaint contained three causes of action, but the third suit was dismissed without prejudice several years ago, and we are now concerned only with the first and second causes of action.

The first, brought against all the defendants, charged that a certain contract for the production of motion pictures, and subsequent modifications thereof, had been made improperly by Warner Bros. Pictures, Inc., with United States Pictures, Inc., as a result of domination of the former corporation by the stock control of the Warner brothers, for the purpose of enriching United States Pictures, Inc., and its president, Milton Sperling, at the expense of Warner Bros. Pictures, Inc. The relief sought was the cancellation of the contract. This relief has now become moot with the expiration of the contract, and what the minority stockholder is presently seeking is a financial reimbursement to Warner Bros. Pictures, Inc., for errors or misrepresentation of the contract during the time it was being administered.

After a lengthy hearing, the district court found as a fact that though the individual defendants, the Warner brothers, had sufficient stock ownership to control the election of the directors of Warner Bros. Pictures, Inc., such directors were not, as alleged in the complaint, "dominated" by them, but had approved the contract in good faith and in the exercise of their independent business judgment as being a sound business arrangement for the best present and future interest of Warner Bros. Pictures, Inc. Therefore the district court thought that, so far as the first cause of action was concerned, Warner Bros. Pictures, Inc., should be realigned as a party plaintiff, and as thus realigned there would be no diversity of citizenship. Hence the district court entered an order dismissing the first cause of action for lack of jurisdiction. Smith v. Sperling, D.C.S.D.Cal.1953, 117 F.Supp. 781.

The second cause of action was different in that United States Pictures, Inc., was not named as a defendant, and the complaint charged mismanagement of Warner Bros. Pictures, Inc., by the individual defendants as officers and directors of the corporation, all to the large pecuniary loss of the corporation. This cause of action the district court also dismissed, but on the merits for lack of equity.

On appeal this court thought the district court was right as to the first cause of action, but reversed its action as to the second and...