Swanson v. Traer

Decision Date10 June 1957
Docket NumberNo. 149,149
Citation354 U.S. 114,77 S.Ct. 1116,1 L.Ed.2d 1221
PartiesRalph D. SWANSON, Marie A. Swanson and Janet C. Sheaff, Petitioners, v. Glenn W. TRAER et al
CourtU.S. Supreme Court

Mr. James E. Doyle, Madison, Wis., for the petitioners.

Mr. James E. S. Baker, Chicago, Ill., and Marland Gale, New York City, for the respondents.

Mr. Justice DOUGLAS delivered the opinion of the Court.

This case, a companion case to Smith v. Sperling, 354 U.S. 91, 77 S.Ct. 1112, presents another aspect of the problem of realignment of parties in a stockholders' derivative suit that is brought in the Federal District Court on the basis of diversity of citizenship. Plaintiff-stockholders are citizens of Nevada and stockholders in the Chicago North Shore & Milwaukee Ry. Co., an Illinois corporation. It was made a defendant along with individuals, who are citizens of Illinois, a Delaware corporation, and an Indiana corporation. The complaint charged a conspiracy to defraud the Railway Co. The alleged fraud consisted of a series of sales of transit properties to the Railway Co., properties in which it is charged some of the directors were personally interested. The complaint averred a demand on the directors to bring suit, a refusal on their part, and the futility of making any demand on the stockholders.

Answers were filed and motions made to dismiss. The District Court dismissed the bill on the ground that no showing had been made that the refusal of the management to act to redress the alleged wrong was not a decision entrusted to the good-faith judgment of the directors. In other words, the District Court concluded that the controversy did not fall within the exceptional group of cases where the stockholder may dispute the management and take the reins of corporate litigation in his own hands.

On appeal, the Court of Appeals did not reach that question. Though it appeared from the record that the directors were opposed to the bringing of the suit, the Court of Appeals concluded that there was no such hostility to the plaintiffs as to make it 'antagonistic' within the meaning of the cases. It accordingly realigned the corporation as a party plaintiff. Since there were then Illinois citizens on each side of the litigation, the requisite diversity was not present and the orders dismissing the bill were affirmed. 7 Cir., 230 F.2d 228. The case is here on a writ of certiorari. 352 U.S. 865, 77 S.Ct. 91, 1 L.Ed.2d 74.

For the reasons stated in Smith v. Sperling, supra, we think this case is an instance where the management—for good reasons or for bad—is definitely and distinctly opposed to the institution of this litigation. The management is, therefore, antagonistic to the stockholders as that conception has been used in the cases. It follows that the corporation was properly made a defendant.

There remains for consideration the question ruled on by the District Court and which the Court of Appeals did not reach, viz. whether this suit is of that exceptional character which stockholders may bring.

As we stated in Smith v. Sperling, 354 U.S. 91, 77 S.Ct. 1112, since our ...

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43 cases
  • Rose Hall, Ltd. v. CHASE MANHATTAN OVERSEAS BANK.
    • United States
    • U.S. District Court — District of Delaware
    • June 27, 1980
    ...the pleadings and the nature of the dispute." Id. at 97, 77 S.Ct. at 1116. The Sperling case was followed in Swanson v. Traer, 354 U.S. 114, 77 S.Ct. 1116, 1 L.Ed.2d 1221 (1957). It held that "where the management — for good reasons or for bad — is definitely and distinctly opposed to the i......
  • Krangel v. Crown, Civ. No. 91-0210-R(P).
    • United States
    • U.S. District Court — Southern District of California
    • May 4, 1992
    ...and the management where the dominant officers and directors are guilty of fraud and misdeeds."); Swanson v. Traer, 354 U.S. 114, 116, 77 S.Ct. 1116, 1117, 1 L.Ed.2d 1221 (1957). See also Van Gelder, 621 F.Supp. at Clearly there is antagonism between the plaintiff shareholders and General D......
  • Klotz v. Consolidated Edison Co. of New York, Inc.
    • United States
    • U.S. District Court — Southern District of New York
    • December 23, 1974
    ...with the merits of the constitutional claim, thus making the Hughes opinion the decision of the court. 2 In Swanson v. Traer (1957) 354 U.S. 114, 77 S.Ct. 1116, 1 L.Ed.2d 1221, the Supreme Court — twenty-one years after Ashwander — noted that the classical description of those situations wh......
  • In re Digimarc Corp. Derivative Litigation
    • United States
    • U.S. Court of Appeals — Ninth Circuit
    • December 11, 2008
    ...good reasons or for bad—is definitely and distinctly opposed to the institution of [the derivative] litigation," Swanson, 354 U.S. at 116, 77 S.Ct. 1116. For example, where management "refuses to take action to undo a business transaction or whenever ... it so solidly approves [of the trans......
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