Venner v. Great Northern Ry. Co.

• Decision Date: 16 May 1907
• Citation: 153 F. 408
• Parties: VENNER v. GREAT NORTHERN RY. CO. et al.
• Court: U.S. District Court — Southern District of New York

153 F. 408

VENNER v. GREAT NORTHERN RY. CO. et al.

United States Circuit Court, S.D. New York.

May 16, 1907

Stephen M. Yeaman (Abram J. Rose and Alfred C. Pette, of counsel) for complainant.

Shearman & Sterling, for Great Northern Railway Company.

Simpson Thacher & Bartlett (J. F. Workum and Millard C. Humstone, of counsel), for James J. Hill.

RAY District Judge.

The complainant, Clarence H. Venner, is a citizen and a resident of the state of New York; defendant, Great Northern Railway Company, is a corporation organized and existing under the laws of the state of Minnesota; and defendant James J. Hill is a citizen and resident of said state of Minnesota. The amount involved, exclusive of interest and costs, is upwards of $2,000. The bill of complaint alleges, in substance, that in or about November, 1900, the defendant James J. Hill, then being a director in and the president of the Great Northern Railway Company, and in acting as such, and in violation of his trust and duty as such, and to the great damage and injury of said railway company and its stockholders, did certain acts, fully stated, which, if done, created a cause of action in equity which said Great Northern Railway Company might have maintained against said Hill. The bill of complaint then alleges that about March 6, 1907, the complainant, a stockholder in said corporation, made a demand upon it, its directors and president, that this or a like action be instituted against said James J. Hill for the relief demanded in this action, and that they neglected and refused to institute such action. The bill of complaint also alleges that complainant now is, and that 'on and before the date of the demand,' the demand just stated, the complainant was, the owner of 300 shares of the preferred capital stock of said corporation of the par value of $100 per share and of the present market value of about $100,000. Complainant brings suit on behalf of himself and all others similarly situated, demanding that said Hill be required to account and pay over to the corporation for its benefit and the benefit, etc., of its creditors and stockholders. The bill of complaint contains no allegation or statement that the complainant was a stockholder or shareholder in the Great Northern Railway Company at the time of the transactions complained of, or that his shares have devolved upon him since that time by operation of law. There are no allegations from which we may legally even infer that such are the facts. Hence the amended bill of complaint fails to comply with the ninety-fourth rule of equity practice (see 104 U.S. ix) promulgated January 23 1882, and which provides:

'Every bill brought by one or more stockholders in a corporation, against the corporation and other parties, founded on rights which may properly be asserted by the corporation, must be verified by oath, and must contain an allegation that the plaintiff was a shareholder at the time of the transaction of which he complains, or that his share had devolved on him since by operation of law; and that the suit is not a collusive one to confer on a court of the United States jurisdiction of a case of which it would not otherwise have cognizance. It must also set forth with particularity the efforts of the plaintiff to secure such action as he desires on the part of the managing directors or trustees, and, if necessary, of the shareholders, and the causes of his failure to obtain such action.'

This action was commenced in the Supreme Court of the state of New York, and removed thence to the Circuit Court of the United States. A motion to remand was denied. A motion that complainant replead was granted, and complainant did replead, but has failed to strictly comply with the order in the respect named. However, a failure to comply with that order in such respect is not ground of demurrer. The question is: Does the amended bill of complaint state facts which in the Circuit Court of the United States entitle complainant to any relief in equity, or which entitle him to maintain an action in equity against these defendants? The complainant contends that in the Supreme Court of the state of New York, where this action was originally commenced, it is unnecessary to allege or prove, in order to maintain the action on this state of facts, that complainant owned his shares at the time of the transactions of which he complains, or that they thereafter devolved upon him by operation of law; in other words, to show that he was then interested in the corporation, or that the title to shares of one who then was interested therein has devolved upon him by operation of law. He insists that, as he had a cause of action in equity in the courts of the state of New York, when and where he brought his action, he has the same equitable cause of action in the Circuit Court of the United States, and that it may here be made out and sustained upon the same allegations and proof as are sufficient there. In short, he contends that equity rule 94, above quoted, has no application to a suit in equity removed to this court from a state court. The following cases are cited to sustain the contention: Earle v. Seattle R. Co. (C.C.) 56 F. 909; Evans v. Union Pac. R.R. Co. (C.C.) 58 F. 497; Maeder v. Buffalo Bill's Wild West Co. (C.C.) 132 F. 280; Frothingham v. Broadway, etc., R.R. Co., 9 Civ.Proc.R. (N.Y.) 304, 314; Hanna v. Lyon, 179 N.Y. 107, 71 N.E. 778.

It seems that in New York state its courts give equitable relief to a plaintiff, shareholder, who sues in behalf of himself and all others similarly situated to enforce a cause of action like this, which the corporation itself might enforce for its own benefit, and consequently for the benefit of its shareholders, but will not, even if such plaintiff had no interest in the corporation or in the enforcement of the cause of action at the time the wrong complained of was committed and his present interest has not devolved upon him by operation of law since. Young v. Drake, 8 Hun (N.Y.) 61-64; Frothingham v. Broadway, etc., R.R. co., 9 Civ.Proc.R. (N.Y.) 304, 314; O'Connor v. Virginia P. & P. Co., 46 Misc.Rep. 530, 535, 92 N.Y.Supp. 525; Fitchett v. Murphy, 46 A.D. 180, 186, 61 N.Y.Supp. 182; Sayles v. Central National Bank of Rome, 18 Misc.Rep. 155, 158, 41 N.Y.Supp. 1063; Hanna v. Lyon, 179 N.Y. 107, 71 N.E. 778.

It must be regarded as settled law in the courts of the United States that a shareholder or stockholder in a corporation cannot maintain an action in equity of the description pointed out in equity rule 94, before quoted, unless he was a shareholder at the time of the transactions of which he complains, or his shares or share have since devolved upon him by operation of law. To give the courts of the United States equitable jurisdiction, the right to give equitable relief, this fact must be pleaded and proved. If the fact does not exist, then the courts of the United States have no equitable jurisdiction of the case; that is, they will not exercise their general equitable powers and jurisdiction. Unless that fact appears, it is not a case cognizable in equity in the courts of the United States, whatever may be the rules of equity or of equity jurisdiction in the several states, or in any one of them. Hawes v. Water Co., 104 U.S. 450, 461, 26 L.Ed. 827; Dimpfel et al. v. Ohio & Miss. R.R. Co., 110 U.S. 209, 210, 211, 3 Sup.Ct. 573, 28 L.Ed. 121; Corbus v. Gold Mining Co., 187 U.S. 455, 462, 23 Sup.Ct. 157, 47 L.Ed. 256; Quincy v. Steel, 120 U.S. 241, 245, 246, 7 Sup.Ct. 520, 30 L.Ed. 624; Davis & F.M. Co. v. Los Angeles, 189 U.S. 207, 220, 23 Sup.Ct. 498, 47 L.Ed. 778; Greenwood v. Freight Co., 105 U.S. 16, 26 L.Ed. 961; Detroit v. Dean, 106 U.S. 537, 542, 1 Sup.Ct. 560, 27 L.Ed. 300; Porter v. Sabin, 149 U.S. 478, 13 Sup.Ct. 1008, 37 L.Ed. 815.

There is another line of cases in the Supreme Court of the United States holding that, where service of process in an action brought in the court of a state against a corporation of another state is made upon an officer of such corporation temporarily in such state on his own private business, the corporation having no office or agent or property in the state where such service is made and doing no business there, the state court obtains no jurisdiction of such corporation, even though the statutes of the state and its highest court pronounce and hold such service good and sufficient, and in such cases, after removal to the federal courts, the actions must be dismissed. Goldey v. Morning News, 156 U.S. 518, 15 Sup.Ct. 559, 39 L.Ed. 517; D'Arcy v. Ketchum, 11 How. 165, 13 L.Ed. 648; Hall v. Lanning, 91 U.S. 160, 23 L.Ed. 271; York v. Texas, 137 U.S. 15, 11 Sup.Ct. 9, 34 L.Ed. 604; Wilson v. Seligman, 144 U.S. 41, 12 Sup.Ct. 541, 36 L.Ed. 338; Lafayette I. Co. v. French, 18 How. 404, 15 L.Ed. 451; St. Clair v. Cox, 106 U.S. 350, 357, 359, 1 Sup.Ct. 354, 27 L.Ed. 222; Fitzgerald Co. v. Fitzgerald, 137 U.S. 98, 106, 11 Sup.Ct. 36, 34 L.Ed. 608; Mexican C.R. Co. v. Pinkney, 149 U.S. 194, 13 Sup.Ct. 859, 37 L.Ed. 699; In re Hohorst, 150 U.S. 653, 663, 14 Sup.Ct. 221, 37 L.Ed. 1211. There are many other cases to the same effect.

In Goldey v. Morning News, supra, at page 523 of 156 U.S., at page 561 of 15 Sup.Ct. (39 L.Ed. 517), the opinion of the court says:

'The jurisdiction of the Circuit Court of the United States depends upon the acts passed by Congress pursuant to the power conferred upon it by the Constitution of the United States, and cannot be enlarged or abridged by any statute of a state. The Legislature or the judiciary of a state can neither defeat the right given by a constitutional act of Congress to remove a case from a court of the state into the Circuit Court of the United States, nor limit the effect of such removal.

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