Williamson v. Missouri-Kansas Pipe Line Co.

Decision Date29 February 1932
Docket NumberNo. 4676.,4676.
Citation56 F.2d 503
CourtU.S. Court of Appeals — Seventh Circuit




Theodore E. Rein, of Chicago, Ill., for appellant.

Ralph M. Shaw, Harold Beacom, and John R. Nicholson, all of Chicago, Ill., for appellee Missouri-Kansas Pipe Line Co.

Clay Judson, of Chicago, Ill., for appellee Frank P. Parish & Co.

Before ALSCHULER, EVANS, and SPARKS, Circuit Judges.

SPARKS, Circuit Judge (after stating the facts as above).

It is quite apparent that the issues raised by paragraphs 35 of the answer of M-K Company and 34 of the answer of Parish & Co. were not passed upon by the trial court. Aside from the question of venue, the court did not pass upon the issues raised by paragraphs 36 and 35 of the respective answers of appellees. In other words, the court gave no opinion, nor was it required to do so, as to whether the bill alleged sufficient facts to constitute a cause of action in equity had the bill been filed in Delaware, the habitat of the corporations. The court merely held that the bill did not allege sufficient facts to warrant an exercise of the jurisdiction which it admittedly had. This ruling was based on the theory that appellees were foreign corporations, and that the bill relates only to the internal affairs and management of such corporations. If this ruling is permitted to stand, it must be on the theory that there is want of equitable facts pleaded to warrant the exercise of jurisdiction, and not on lack of jurisdiction. Burnrite Coal Briquette Co. v. Riggs, 274 U. S. 208, 47 S. Ct. 578, 71 L. Ed. 1002.

In analogous cases some courts have referred to the exercise of such jurisdiction as a discretionary power of the trial court. If this be a proper characterization of such power, it is, at most, not an arbitrary one, but must be exercised fairly and soundly and be based upon the facts which are well pleaded, if the ruling is based upon the pleadings; or based upon the facts proven if the ruling is based upon evidence submitted. Osborn v. Bank of United States, 9 Wheat. 738, 6 L. Ed. 204; United States v. Meldrum (D. C.) 146 F. 390.

Except in cases involving the exercise of visitorial powers, the question is not strictly one of jurisdiction, but rather of discretion in the exercise of jurisdiction. The rule rests more on grounds of public policy and expediency than on jurisdictional grounds; more on lack of power to enforce a decree than on jurisdiction to make it. Where the wrongs complained of are merely against the sovereignty by which the corporation was created or the law of its existence, or are such as require for their redress the exercise of the visitorial powers of the sovereign, or where full jurisdiction of the corporation and of its stockholders is necessary to such redress, the courts will decline jurisdiction. Babcock v. Farwell, 245 Ill. 14, 91 N. E. 683, 137 Am. St. Rep. 284, 19 Ann. Cas. 74.

It is contended by appellees that the acts complained of involve internal affairs and management of a foreign corporation, and that no facts appeared from which the trial court could see that it could, as a matter of expediency, grant effective relief. Among the cases relied upon by appellees in support of these contentions are the following, which are typical: Wallace v. Motor Products Corp. (D. C.) 15 F.(2d) 211, 213; Maguire v. Mortgage Co. of America (C. C. A.) 203 F. 858; Chicago Title & Trust Co. v. Newman (C. C. A.) 187 F. 573; Parks v. United States Bankers' Corp. (C. C.) 140 F. 160; Sidway v. Missouri Land & Live Stock Co. (C. C.) 101 F. 481, 485; Leary v. Columbia River & P. S. Nav. Co. (C. C.) 82 F. 775.

A court of equity will not, as a general rule, administer the internal affairs of a foreign corporation. Chicago Title & Trust Co. v. Newman, supra; Wallace v. Motor Products Corp., supra; Sidway v. Missouri Land & Live Stock Co., supra.

Mr. Thompson, in his Commentaries on Corporations, vol. 6, par. 8011, says: "As a general rule, actions brought by stockholders, generally in equity, to restrain or redress frauds or breaches of trust committed by the directors or officers of the corporation, or by a majority of its shareholders in the management of its business and property, can only be brought in the courts of the State under whose laws the corporation was created. This rule rests partly on jurisdictional grounds, and partly on grounds of policy and expediency."

Referring to the reasons for such rule, he continues: "It is indispensable, in such an action, that the corporation should be made a party in its corporate name and character. This reason alone, in many cases, drives the stockholders to the forum of the State of the corporation, because service of process cannot not be had upon the corporation in other jurisdictions. It also rests upon a consideration of the inexpediency of opening the doors of the courts of the State to litigations in respect of rights depending upon transactions taking place outside the State and governed by foreign law. It rests upon the further consideration that, in many cases, by reason of the fact of the property of the corporation being situated outside the State, it will be impossible for the court to effectuate its judgment if it should render any. But it is obvious that many cases will arise where these reasons will not be controlling. Take, for instance, * * * a case * * * where a manufacturing corporation migrated with its entire business, corporate books, and personnel, from the State of its creation into another State, and there did all its business and held all its corporate meetings. Clearly, the courts of the State in which it had thus, * * * acquired a de facto domicile, would be better able to take jurisdiction of an action by its stockholders for the redress of grievances in respect of corporate management, than would a court of the jurisdiction from which it migrated."

Thus it is quite apparent that, aside from the question of jurisdiction, which in the instant case is admitted, the question as to whether the trial court should exercise jurisdiction is one of policy and expediency, regardless of whether or not the acts complained of involve the internal affairs and management of the corporation. In such instances courts are not warranted in declining to exercise jurisdiction merely because the act complained of involves internal affairs and management of the corporation; but it must further appear that to do so would be inexpedient or contrary to the policy of the law. Inexpediency may well be based upon comity, legal restrictions, lack of equity on the part of plaintiff, or lack of power on the part of the court to render or enforce an equitable decree for want of jurisdiction of property or parties; but, unless some such basis is apparent, we can see no reason why the court should decline to exercise jurisdiction which it admittedly has. In support of this principle we cite the following cases: Babcock v. Farwell, supra; Voorhees v. Mason, 245 Ill. 256, 91 N. E. 1056; Burnrite Coal Briquette Co. v. Riggs, supra; Fudickar v. Louisiana Loan & Inv. Co. (D. C.) 13 F.(2d) 920; Backus v. Finkelstein (D. C.) 23 F.(2d) 357; Krouse v. Brevard Tannin Co. (C. C. A.) 249 F. 538; American Creosote Works v. Powell (C. C. A.) 298 F. 417; Richardson et al. v. Clinton Wall Trunk Mfg. Co., 181 Mass. 580, 64 N. E. 400; Miller v. Quincy, 179 N. Y. 294, 72 N. E. 116; Cunliffe v. Consumers' Ass'n, 280 Pa. 263, 124 A. 501, 32 A. L. R. 1348; Corry v. Barre Granite, etc., Co., 91 Vt. 413, 101 A. 38; State ex rel. Wisconsin Dry Milk Co. v. Circuit Court, 176 Wis. 198, 186 N. W. 732; Ganzer v. Rosenfeld, 153 Wis. 442, 141 N. W. 121.

We think the cases relied upon by appellees are not inconsistent with the foregoing principles. Chicago Title & Trust Co. v. Newman, supra, was decided by this court. The bill was filed in the state court of Illinois by Newman, who owned 42 per cent. of the stock, against Newman Clock Company and other defendants, who owned 58 per cent. of the corporate capital. The suit was brought for an injunction to prevent illegal corporate action feared by complainant, at the hands of the individual defendants, which it is alleged would affect complainant's interest as a stockholder. Other wrongs charged to have been committed by defendant Renshaw, consisting of neglect and fraudulent mismanagement, were against the corporation, but the opinion gives no information as to the nature of the wrongs charged. The company, Renshaw, and two other defendants were nonresidents, and the residence of no defendant is given; neither was there service of process upon any defendant. The prayer asked for an accounting, and to enjoin the directors' meeting in New York, and also for a receiver to prevent the removal of the corporate assets from Chicago to New York. The relief prayed, other than the receivership, related entirely to the internal affairs of the corporation, according to the statement of the opinion. The defendants appeared and a preliminary injunction was issued, and appellant was appointed receiver. Subsequently the cause was transferred to the federal court, and the receivership was continued. The corporation filed a demurrer and a motion to dismiss for want of jurisdiction, which demurrer was sustained, and the receiver was discharged and was ordered to return the property to the corporation and present its report. The receiver filed an application for fees for its services and those of its attorneys, and asked that it be permitted to retain the same. This was denied, on the theory that the court had no jurisdiction to appoint a receiver. This court on appeal held that the ruling was right, but that the reason assigned was wrong — that it was not a question of jurisdiction, but one of discretion in the exercise of jurisdiction; that the court had power to sustain a demurrer for...

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