Tucker v. New Orleans Laundries

• Citation: 90 F. Supp. 290
• Decision Date: 27 December 1949
• Docket Number: Civ. A. No. 2509.
• Parties: TUCKER v. NEW ORLEANS LAUNDRIES, Inc. et al.
• Court: United States District Courts. 5th Circuit. United States District Court (Eastern District of Louisiana)

90 F. Supp. 290

TUCKER v. NEW ORLEANS LAUNDRIES, Inc. et al.

Civ. A. No. 2509.

United States District Court E. D. Louisiana, New Orleans Division.

December 27, 1949.

Richard A. Dowling, New Orleans, La., William G. McRae, Atlanta, Georgia, for plaintiff.

A. A. Moreno, H. Martin Hunley, Jr., New Orleans, La., for Hibernia National Bank, et al.

A. P. Miceli, New Orleans, La., for Chas. Leftwich, et al.

Rudolph J. Weinmann, New Orleans, La., for Succession of Felix P. Vacarro.

Charles Kohlmeyer, Jr., George B. Matthews, New Orleans, La., for Mrs. Charles (Janet L.) Kohlmeyer, Jr.

Dufour, St. Paul & Levy, New Orleans, La. (Leonard B. Levy, New Orleans, La.) for Charles Lob, et al.

Nicholas Callan, New Orleans, La., for William Pharr Stewart, et al.

Rosen, Kammer, Wolff, Hopkins & Burke, and Justin V. Wolff, New Orleans, La., for Standard Fruit and Steamship Co.

Azzo J. Plough, Sidney W. Provensal, Jr., New Orleans, La., for Harry S. H. Verlander.

Eldon S. Lazarus, Herbert S. Weil, New Orleans, La., for W. Irving Moss.

Julian B. Humphrey, New Orleans, La. in pro. per.

Paul B. Habans, S. Goldman, New Orleans, La., for Edward C. Barker et al.

Edwin F. Marx, New Orleans, La., for Edwin F. Marx.

Sidney Wolff, New York City, for New Orleans Laundries, Inc.

M. F. Goldstein, Atlanta, Ga., for National Linen Service Corporation.

Monroe & Lemann, Monte M. Lemann, Nicholas Callan, New Orleans, La., for Monte M. Lemann et al.

Monte M. Lemann, New Orleans, La., for Administrators of Tulane Educational Fund.

BORAH, Circuit Judge.

Plaintiff, a shareholder of Crescent City Laundries, Inc., hereinafter called Crescent, and a citizen and resident of Louisiana, insituted this action, based on diversity, in the Eastern District of Louisiana against Crescent, a Maine corporation, and fifty-one other persons or their representatives who are alleged to have wronged it. Of the fifty-one defendants, forty-five are citizens of the State of Louisiana, three are Delaware Corporations licensed to do business in the State of Louisiana, one is a foreign corporation with an office and place of business in New Orleans, Louisiana, one a citizen of New York and one a citizen of Texas. Forty-four of the defendants were served within the Eastern District of Louisiana. The two citizens of New York and Texas were not served and have not appeared in the action. The United States Marshal's return for the service of the original summons and complaint upon Crescent shows that service was made on Ernest L. McLean, Clerk of Crescent at Augusta, Maine.¹ There is no return to show service made on Crescent of the amended complaint. Each of the defendants served and the representatives of one Louisiana citizen who was not served have appeared and moved to dismiss the complaint as to them on divers grounds. In the aggregate twenty-eight grounds are asserted.

A number of the movers herein insist that this court is without jurisdiction because there is no diversity of citizenship between the plaintiff, Mrs. Tucker, who is a citizen of Louisiana, and said movers, who are also citizens of Louisiana.

The plaintiff on the other hand insists that diversity of citizenship between the plaintiff who brings a stockholder's derivative action on behalf of his corporation and all the defendants is not necessary to confer jurisdiction upon a federal court, for the reason that the citizenship of the plaintiff stockholder in such cases is made the same as the citizenship of the corporation in whose right the action is brought. Relying upon Title 28 U.S.C.A. § 1401, which provides that: "Any civil action by a stockholder on behalf of his corporation may be prosecuted in any judicial district where the corporation might have sued the same defendants", plaintiff further contends that the Eastern District of Louisiana is a proper venue for this action because all of the defendants who have been served reside in this district and might have been sued here by Crescent, a Maine corporation, whose citizenship is diverse from the citizenship of all of said defendants.

Where as here jurisdiction is founded upon diversity of citizenship it is well settled that there is diversity of citizenship only when all the parties upon one side of the controversy are of different citizenship from all of the parties on the other side.² This, however, is not determined merely by the title to the action. If in any case the caption does not reflect the true relation of the parties to the controversy, they are realigned according to interest and the question whether diversity exists is determined after such realignment.³ But in a stockholder's derivative action the corporation whose right is asserted is properly aligned as a defendant where, as is here alleged, it is in antagonistic hands.⁴ Commencing with the leading case of Dodge v. Woolsey, 18 How. 331, 59 U.S. 331, 15 L.Ed. 401, and continuing throughout the years, the courts have in this class of cases consistently refused to realign the corporate defendant in whose behalf plaintiff sues, as a party plaintiff.⁵

In Koster v. (American) Lumbermens Mutual, the court said 330 U.S. 518, 67 S.Ct. 831: "The cause of action which such a plaintiff brings before the court is not his own but the corporation's. It is the real party in interest and he is allowed to act in protection of its interest somewhat as a `next friend' might do for an individual, because it is disabled from protecting itself. If, however, such a case as this were treated as other actions, the federal court would realign the parties for jurisdictional purposes according to their real interests. In this case, which is typical of many, this would put Lumbermens on the plaintiff's side, Illinois corporations would then appear among plaintiffs and among defendants, and jurisdiction would be ousted. City of Indianapolis v. Chase National Bank, 314 U.S. 63, 62 S.Ct. 15, 86 L.Ed. 47. But jurisdiction is saved in this class of cases by a special dispensation because the corporation is in antagonistic hands. Doctor v. Harrington, 196 U.S. 579, 25 S.Ct. 355, 49 L.Ed. 606."

The general rule which obligates the court to realign the parties for jurisdictional purposes according to their real interests is not invoked in stockholders' bills where the corporation is in antagonistic hands. The court should accordingly leave the parties here where the pleader has arranged them. Under the allegations of the within complaint plaintiff's controversy is with Crescent and the alleged wrongdoers and both are rightfully and necessarily made defendants, and neither can, for jurisdictional purposes, be regarded otherwise than as a defendant. It is clear from the authorities that the defendant corporation cannot be aligned as a party plaintiff, and since it is equally plain that the plaintiff stockholder, as an individual party to the controversy, is not presumed to be a citizen of the same state as the corporation,⁶ it follows that there is not present the complete diversity of citizenship required to give the court jurisdiction of this case,⁷ unless, as is not the case here, those defendants whose presence ousts the court of jurisdiction are mere formal parties.

Here, however, plaintiff has drawn her complaint on the theory of a conspiracy as a single cause of action, in which she alleges in paragraph 407(d) that "the majority of Crescent's directors and the majority of its shareholders are necessary parties in this action." The joinder of the defendants was the act of the plaintiff, and binding on her, and the court is without jurisdiction.⁸ However the jurisdictional defect may, under certain circumstances, be cured if the parties improperly joined are necessary but not indispensable, for the court, in the exercise of a sound discretion,⁹ on motion of any party or on its own initiative, may permit them to be dropped under Rule 21, Federal Rules of Civil Procedure for the United States District Courts, 28 U.S.C.A.

But even though we hold that the majority of Crescent's directors and a majority of its shareholders are necessary and not indispensable parties, and that the court has the power to dismiss all of the Louisiana citizens and retain jurisdiction over the five remaining corporate defendants, including Crescent, we must consider whether it is good judgment so to exercise the court's discretion.

The complaint charges a general conspiracy to wreck and mulct Crescent of its assets. Named as defendants are all the directors of Crescent, all the duly constituted voting trustees for the common stock of National Linen Service Corporation, the bondholders of a majority of Crescent's outstanding and past due bonds, the members of the bondholders protective committee of Crescent City Laundries, the attorneys for the Trustee of the First Mortgage Seven Percent Serial Gold Bonds of Crescent, the attorneys for bondholders protective committee of Crescent and for New Orleans Laundries, Inc., the voting trustees for the common stock of Crescent, holders of the majority of Crescent's common stock, all the directors of New Orleans Laundries, Inc., and New Orleans Laundries, Inc., and others who likewise are alleged to have joined the conspiracy prior to July 9, 1942.

All of Crescent's assets were sold at public outcry at Sheriff's sale on July 9, 1942. This suit has as one of its objectives the restoring of those assets to Crescent. The relief prayed for includes an accounting against all defendants with respect to the property divested from Crescent in 1942, an injunction against certain named defendants, the appointment of a receiver, and in respect to the assets of Crescent, among others, taken over by the New Orleans Laundries, Inc., on July 10, 1942, that judgment be rendered divesting the title of any of said defendants to said property and vesting title to same in Crescent. For reasons presently appearing we see no need for discussing the complaint in greater detail. It contains four...