Wesson v. Crain

• Decision Date: 16 January 1948
• Docket Number: No. 13603.,13603.
• Parties: WESSON et al. v. CRAIN.
• Court: U.S. Court of Appeals — Eighth Circuit

165 F.2d 6 (1948)

WESSON et al. v. CRAIN.

No. 13603.

Circuit Court of Appeals, Eighth Circuit.

January 16, 1948.

W. H. Jewell, of Little Rock, Ark. (J. W. House and R. C. Butler, both of Little Rock, Ark., on the brief), for appellants.

C. E. Daggett, of Marianna, Ark. (Reid & Roy, of Blytheville, Ark., and Daggett & Daggett, of Marianna, Ark., on the brief), for appellee.

Before SANBORN, WOODROUGH, and COLLET, Circuit Judges.

SANBORN, Circuit Judge.

The vital question for decision on this appeal is whether two of the beneficiaries of a business trust¹ can maintain an action in federal court to remove a trustee for misconduct, without making the other beneficiaries of the trust parties to the action.

The appellants were plaintiffs in the District Court. Their complaint alleged, in substance, that they are, respectively, citizens of Massachusetts and New York; that the defendant (appellee) is a resident no doubt meaning citizen of Arkansas; that plaintiffs each own a specified number of shares of beneficial interest in Lee Wilson & Company, a business trust having large agricultural and business interests in Arkansas; that plaintiffs' controversy with the defendant involves the requisite jurisdictional amount, that, by the terms of a Declaration of Trust executed February 24, 1937, the defendant and R. E. L. Wilson, Jr., were appointed trustees of Lee Wilson & Company; that they agreed to devote their entire time and energies to the management of the trust estate; that the defendant thereafter assumed exclusive management of the trust; that he has devoted a large portion of his time to his own business, to the detriment of the trust, and has committed various breaches of trust which are set forth in the complaint. In a subdivision of the complaint, the plaintiff Victoria Wilson Wesson asserts that the defendant, because of his personal hostility toward her, has called a demand note which she gave to the trust in 1941 for money borrowed by her from it; that the note is amply secured, but that the defendant threatens to foreclose upon the collateral given as security. The relief prayed for in the complaint is: (1) removal of the defendant as trustee, (2) an injunction against his taking any action toward collecting the indebtedness of Victoria Wilson Wesson or foreclosing on the collateral securing it, and (3) such other relief as the court may deem proper.

The defendant moved for a dismissal of the complaint on the grounds that other beneficiaries of the trust were indispensable parties plaintiff and had not been joined, and that the complaint failed to state a claim upon which relief could be granted. The motion to dismiss was submitted to the District Court upon the complaint and upon affidavits filed by the defendant. The facts which condition the plaintiffs' right to maintain the action are not in dispute. The plaintiffs are two of thirteen beneficiaries of the trust. Of the eleven who are not joined, five reside in Arkansas and six are nonresidents of that state. It is obvious that if all the beneficiaries of the trust must be joined as plaintiffs, the District Court will be without jurisdiction of the case, since diversity of citizenship will then vanish. Young v. Garrett, 8 Cir., 149 F.2d 223, 228, 229.

The District Court ruled, in effect, that the case involves an executory contract — the Declaration of Trust — to which all the beneficiaries were parties, and which created a trust relationship between them and the defendant as trustee; that to disturb this contractual relationship by removing the trustee would vitally affect the rights and interests of every beneficiary, and that therefore all beneficiaries are indispensable parties to the action. The District Court also ruled that the complaint stated no claim of Victoria Wilson Wesson upon which relief could be granted. The complaint was dismissed, and this appeal followed.

The history of the trust in suit, as disclosed by the affidavits submitted by the defendant, may be stated briefly as follows: R. E. Lee Wilson, the father of the plaintiffs, built for himself an agricultural and business empire in Mississippi County, Arkansas. In 1917 he created a trust estate out of his holdings, for the benefit of himself, his wife, and their three children. By the terms of the Declaration of Trust, which was amended in 1919, he, as trustee, retained complete control over the management and disposition of the trust properties. The beneficiaries, whose interests were evidenced by certificates or shares of beneficial interest, were given no voice in the management and no interest in the assets of the trust. Their only interest, prior to the eventual termination and liquidation of the trust estate, was in its distributable earnings or profits. The term of the trust was 21 years. R. E. Lee Wilson managed the estate under the Declaration of Trust until his death on September 27, 1933. J. H. Crain, the defendant, had long been his trusted employee and assistant. Shortly after the death of Mr. Wilson, the beneficiaries, in accordance with the provisions of the trust instrument, elected the defendant and R. E. L. Wilson, Jr., trustees for the period ending February, 1935. The same trustees were elected yearly thereafter. At the meeting of the beneficiaries in February, 1937, they unanimously adopted a resolution extending the life of the trust for an additional period of 21 years. The extension was accomplished by having the trustees (the defendant and R. E. L. Wilson, Jr.) execute a new Declaration of Trust. The new Declaration was signed by all of the beneficiaries to evidence their entire approval of it. The authority of the trustees and the rights of the beneficiaries were substantially the same under the new Declaration as they had been under the old Declaration. There was no provision in either Declaration for the removal of a trustee.

The question whether all of the beneficiaries of the trust are indispensable parties to this action has been exhaustively briefed and argued by counsel, who have reached diametrically opposite conclusions. This is one of those troublesome procedural problems about which reasonable minds may honestly differ.

Rule 19(a) of the Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c, requires that "persons having a joint interest shall be made parties and be joined on the same side as plaintiffs or defendants." This requirement is expressly made subject to subdivision (b) of the same Rule. Subdivision (b) permits a court to proceed with an action in the absence of persons who are not indispensable, but who ought to be joined if complete relief is to be accorded, when such persons are out of the reach of process or when their joinder would deprive the court of jurisdiction of the parties before it. Rule 19 made no change in existing law relative to compulsory or dispensable joinder. Young v. Garrett, 8 Cir., 149 F.2d 223, 228; Moore's Federal Practice, Vol. 2, page 2142.

We shall not attempt to add any thing to the literature on the subject of the classification of parties to an action. The subject is discussed at length in State of Washington v. United States, 9 Cir., 87 F.2d 421, 425-431; Moore's Federal Practice, Vol. 2 pages 2142-2162. See, also, Franz v. Buder, 8 Cir., 11 F.2d 854, 856-858. Parties who are so indispensable that a federal court will not proceed to final decision without them have usually been defined as "persons who not only have an interest in the controversy, but an interest of such a nature that a final decree cannot be made without either affecting that interest, or leaving the controversy in such a condition that its final termination may be wholly inconsistent with equity and good...