KOSTER v. (AMERICAN) LUMBERMENS MUTUAL CASUALTY CO.
No. 206
Supreme Court of the United States
Argued December 19, 1946.—Decided March 10, 1947.
330 U.S. 518
Stuart N. Updike argued the cause for respondent. With him on the brief were Weymouth Kirkland, Howard Ellis and Louis G. Caldwell.
MR. JUSTICE JACKSON delivered the opinion of the Court.
This is a derivative action, in equity as are all such derivative actions, begun by plaintiff as a member and policyholder of Lumbermens Mutual Casualty Company “in the right of Lumbermen‘s and on behalf of all its members and policy holders.” It was brought in the United States District Court for the Eastern District of New York, of which plaintiff is a citizen. Jurisdiction rests on diversity of citizenship. The defendants are the Lumbermens Mutual Casualty Company, a nominal defendant, organized under the laws of Illinois; one James S. Kemper, president and manager thereof, a citizen of Illinois, and James S. Kemper & Co., an Illinois corporation. The relief asked is that the other defendants account to Lumbermens, for damages it has sustained and for profits they
The district court, on motion to dismiss under the doctrine of forum non conveniens,1 found that Lumbermens does business in forty-eight states, but its home and principal place of business are in Illinois. There its directors live; there all records are kept; and no witness shown to be necessary to either side of the case resides outside of Illinois. The plaintiff himself lives in New York, but he does
Under these circumstances, two courts below concurred in the view that the case should not be tried in New York as there was ample remedy available in the state and federal courts of Illinois. Both relied upon Rogers v. Guaranty Trust Co., 288 U. S. 123. The dissenting judge below considered that our more recent decision in Williams v. Green Bay & Western R. R., 326 U. S. 549, implies disapproval of the Rogers case and restricts application of the doctrine of forum non conveniens. We brought the case here on certiorari. 329 U. S. 700.
This case involves the special problems of forum non conveniens which inhere in derivative actions, and which have been little considered by this Court. Williams v. Green Bay & Western R. R., 326 U. S. 549, was not a derivative action brought in the right of a nominal defendant corporation. Rogers v. Guaranty Trust Co., 288 U. S. 123, was a derivative action, but that feature of the case was given almost no attention and the emphasis was entirely on the extent to which it involved inquiry into
The stockholder‘s derivative action, to which this policyholder‘s action is analogous, is an invention of equity to supply the want of an adequate remedy at law to redress breaches of fiduciary duty by corporate managers. Usually the wrongdoing officers also possess the control which enables them to suppress any effort by the corporate entity to remedy such wrongs. Equity therefore traditionally entertains the derivative or secondary action by which a single stockholder may sue in the corporation‘s right when he shows that the corporation on proper demand has refused to pursue a remedy, or shows facts that demonstrate the futility of such a request. With possible rare exceptions, these actions involve only issues of state law and, as in the present case, can get into federal courts only by reason of diversity in citizenship of the parties. Their existence and peculiar character were recognized by this Court in the old Equity Rules. Rule 27,
The cause of action which such a plaintiff brings before the court is not his own but the corporation‘s.2 It is the
Plaintiffs also, as in this case, often have only a small financial interest in a large controversy. Plaintiffs, like this one, if their own financial stake were the test, sometimes do not have a sufficient individual interest to make up the required jurisdictional amount. Again this class of cases is favored with the fiction that plaintiffs’ possible recovery is not the measure of the amount involved for jurisdictional purposes but that the test is the damage asserted to have been sustained by the defendant corporation. Hence, although a plaintiff‘s own interest may be small, if the conditions laid down by
Where there are only two parties to a dispute, there is good reason why it should be tried in the plaintiff‘s home forum if that has been his choice. He should not be deprived of the presumed advantages of his home jurisdiction except upon a clear showing of facts which either (1) establish such oppressiveness and vexation to a defendant as to be out of all proportion to plaintiff‘s convenience, which may be shown to be slight or nonexistent, or (2) make trial in the chosen forum inappropriate because of considerations affecting the court‘s own administrative and legal problems. In any balancing of conveniences, a real showing of convenience by a plaintiff who has sued in his home forum will normally outweigh the inconvenience the defendant may have shown. But where there are hundreds of potential plaintiffs, all equally entitled voluntarily to invest themselves with the corporation‘s cause of action and all of whom could with equal show of right go into their many home courts, the claim of any one plaintiff that a forum is appropriate merely because it is his home forum is considerably weakened.3 Such a plaintiff often may represent an important public and stockholder interest in bringing faithless managers to book. The nature of the secondary action is such that without
While, even in the ordinary action, the residence of the suitor will not fix the proper forum without reference to other considerations, it is a fact of “high significance.” International Milling Co. v. Columbia Transportation Co., 292 U. S. 511, 520. But, in derivative actions, although the plaintiff may have a substantial interest of his own to protect, he may also be a mere phantom plaintiff with interest enough to enable him to institute the action and little more. He may have taken some active part in the corporate affairs, or have personal knowledge of them, or have had dealings in course of protest and objection which make it requisite or at least expedient for him personally to be present at the trial. Or he may, like this plaintiff, make no showing of any knowledge by which his presence would help to make whatever case can be made in behalf of the corporation.
To entertain such an action places the forum in a position of responsibility toward the whole class which the plaintiff assumes to represent. To prevent collusive settlements and abuses, the Court must approve dismissal or compromise and often must give notice to the other potential plaintiffs, in this case to the other members and policyholders in whose behalf plaintiff sues and who have a right to be heard on the propriety of settlement.
The nature of the action imports other unusual considerations when trial courts are faced with applications to dismiss for reasons of forum non conveniens. It might well be that the books, records and witnesses to establish all or a part of the cause of action are in or near the chosen forum. But in other cases they may all be in some distant jurisdiction, perhaps that of the defendants, as is the case here. In the ordinary suit it is plaintiff‘s own books and records and transactions that are important—in the derivative action it is more likely that only the corporation‘s books, records and transactions will be important and only the defendant will be affected by the choice of the place of production of records. In the present case, in response to defendant‘s motion and supporting affidavits, which prima facie established vexation to defendant and the inappropriateness of the court, the plaintiff shows not a single fact provable by record or witness within the district or state where he has brought suit. It is undenied that every source of evidence to prove plaintiff‘s own case, as well as for defendant to disprove it, is in Illinois.
The District Court also found that “the suit relates to the internal affairs of a foreign corporation” and for that reason also considered that the “courts of the state of domicile of Lumbermens and the Kemper corporation are the appropriate tribunals for the determination of this case.” 64 F. Supp. 595, 599. But many kinds of cases may “relate to internal affairs of a corporation,” and that fact does not have the same significance as to the doctrine of forum non conveniens in all settings.
There is no rule of law, moreover, which requires dismissal of a suitor from the forum on a mere showing that the trial will involve issues which relate to the internal affairs of a foreign corporation. That is one, but only one, factor which may show convenience of parties or witnesses, the appropriateness of trial in a forum familiar with the law of the corporation‘s domicile, and the enforceability of the remedy if one be granted. But the ultimate inquiry is where trial will best serve the convenience of the parties and the ends of justice. Under modern conditions corporations often obtain their charters from states where they no more than maintain an agent to comply with local requirements, while every other activity is conducted far
Rogers v. Guaranty Trust Co., 288 U. S. 123, holds only that the district court “. . . was free in the exercise of a sound discretion to decline to pass upon the merits of the controversy and to relegate plaintiff to an appropriate forum. . . . Obviously no definite rule of general application can be formulated by which it may be determined under what circumstances a court will assume jurisdiction of stockholders’ suits relating to the conduct of internal affairs of foreign corporations. But it safely may be said that jurisdiction will be declined whenever considerations of convenience, efficiency and justice point to the courts of the State of the domicile as appropriate tribunals for the determination of the particular case.” 288 U. S. at 130-31. There was disagreement in that case as to whether the facts warranted exercise of the discretion but little as to the general rule by which discretion is governed and none as to existence of the power of the court.
In the Williams case we reversed an exercise of discretion by a trial court, but far from laying down a rigid rule to govern discretion we said, “Each case turns on its facts.” 326 U. S. at 557. The facts in that case were quite different from those before us now. The action was a class suit brought to recover amounts alleged to be due to plaintiffs on debentures. There was a possibility that under one view as to construction of the debentures, the Court would have to review the corporate internal affairs to determine net earnings which were or should be available as dividends, and under another view, to decide whether under the applicable local law directors’ discretion had been abused. In that case, as here, the plaintiffs resided in New York. But the opinion points out that
Since this case is pending in New York and is a diversity case, it is appropriate to observe that the law of New York, if applicable, is to the same effect as to the considerations to govern forum non conveniens questions in this class of cases. The cases on which petitioner relies to establish his contention that in a similar suit the courts of New York would not decline jurisdiction, seem to be ones in which the corporate defendant had its principal place of business in New York or a substantial amount of property there, which would assure the effectiveness of a judgment. Miller v. Quincy, 179 N. Y. 294, 72 N. E. 116; Ramsey v. Rosenthal, 242 App. Div. 526, 275 N. Y. S. 783; Hamm v. Christian Herald Corp., 236 App. Div. 639, 260 N. Y. S. 743; Tarlow v. Archbell, 47 N. Y. S. 2d 3, 7-8, aff‘d, 269 App. Div. 837, 56 N. Y. S. 2d 363.5 Those cases,
Confronted with defendant‘s motion and supporting affidavits in this case reciting the facts earlier set forth herein, the plaintiff was utterly silent as to any reason of convenience to himself or to witnesses and as to any advantage to him in expense, speed of trial, or adequacy of remedy if the case were tried in New York. He recited only that Lumbermens and the Kemper Company had been served with process, and that Kemper individually had not, but that plaintiff proposed to serve him on his “next visit to New York.” For the rest, he relied on a memorandum of law. That the absence from the case of Kemper makes remedy in New York inadequate, if not impossible, as to some counts is admitted. To that extent, it makes it inappropriate for a court in New York to adjudicate some closely related issues, deciding plaintiff‘s grievances piecemeal. Petitioner shows not a single witness or source of evidence available to him in New York and does not deny that his complaint will require exhaustive examination of the transactions of these Illinois corporations, all of which occurred in Illinois and are to be tested by its law. The plaintiff demanded trial in New York as matter of right and of law irrespective of the facts set out by defendant. This Court cannot say that the District Court abused its discretion in giving weight to the undenied sworn statements of fact in defendant‘s motion papers, especially in view of the failure of plaintiff‘s answering affidavit to advance any reason of convenience to the plaintiff. We hold only that a district court, in a derivative action, may
Affirmed.
I agree substantially with the dissent of MR. JUSTICE REED, but wish to add this thought. Today‘s decision goes far beyond the dubious doctrine announced in Rogers v. Guaranty Trust Co., 288 U. S. 123. There may be rare instances in which a federal court could decline to provide an equitable remedy against multi-state corporate defendants. A prayer for relief which requires the appointment of a receiver or the detailed and continuing supervision of the affairs of a defendant corporation whose headquarters is beyond the jurisdiction of the court would in my view constitute such a situation. Cf. Pennsylvania v. Williams, 294 U. S. 176.
The whole trend of recent congressional legislation has been to protect corporate stock and security holders. See e. g.
MR. JUSTICE RUTLEDGE joins in this opinion.
MR. JUSTICE REED, dissenting.
For the purposes of this case we may assume, without examining New York law, 153 F. 2d 888, 890, that a Federal District Court, in its discretion, can dismiss a cause on the ground that the forum is vexatiously inconvenient to the defendant. Still we think the exercise of such a power is not warranted in the circumstances of this case.
We need not restate the facts, which are amply set out by the majority. The sole inquiry is whether the exercise of discretion by the trial judge in this case was an abuse of his power. On motion of Lumbermens, joined in by no other defendant, for dismissal of the complaint on the grounds that the action would require interference by the court with the internal management of Lumbermens and that, further, an indispensable party had not been served, the trial court dismissed the complaint because it required interference with the internal affairs of a foreign corporation and because the forum was not convenient. The Circuit Court of Appeals affirmed the order of dismissal on the ground that the forum in which the action was brought was not convenient for the trial of the causes of action asserted by the complaint.
By a venue statute, Congress has provided that an action may be brought in the district where the plaintiff resides against defendants residing in other states than that of the forum. This plaintiff starts with a presumption in his favor that he may maintain this action at his own residence.
We need not tarry to consider the small interest of the plaintiff in the assets of his corporation, nor the effect of realigning the corporation on the side of the cause where its true interest lies. However interesting the implications of these facts, they have nothing to do with a dismissal on the ground of the inconvenience of the forum. The same facts would exist no matter what the forum, and they are accordingly not pertinent to our inquiry. Nor should we concern ourselves with the possibility that this may be a strike suit. Whatever the motives of the plaintiff, the only inquiry now here is whether the forum is inconvenient or not.
In some cases, which may at the expense of analysis be grouped under the doctrine of forum non conveniens, the convenience of the court may be important. In such cases the crowded condition of the court‘s calendar and its lack of familiarity with the law of another state may be weighty factors. But in those cases neither the defendant nor the plaintiff is a resident of the forum state. Western Union Telegraph Co. v. Russell, 12 Tex. Civ. App. 82, 33 S. W. 708; Robinson v. Oceanic Steam Nav. Co., 112 N. Y. 315, 19 N. E. 625; Burdick v. Freeman, 120 N. Y. 420, 24 N. E. 949; Morris v. Missouri Pacific R. Co., 78 Tex. 17, 14 S. W. 228; see cases collected in 32 A. L. R. at p. 34. Cf. Smith v. Empire State-Idaho Co., 127 F. 462. See also Davis v. Farmers Co-operative Co., 262 U. S. 312, 317. Such cases have the support of policy which hesitates to give an advantage to parties who do not bear the expense of supporting the courts of the forum. Douglas v. New York, N. H. & H. R. Co., 279 U. S. 377, 387.
But where the cause is transitory and the plaintiff a resident of the forum state, the convenience to the court would seem to be outweighed by its duty to entertain actions brought by citizens of the state of which the court is an arm. See Arizona Commercial Mining Co. v. Iron Cap Copper Co., 119 Me. 213, 110 A. 429. Cf. Mexican Nat. R. Co. v. Jackson, 89 Tex. 107, 33 S. W. 857; Slater v. Mexican Nat. R. Co., 194 U. S. 120. This would seem particularly true of federal courts whose duty it is to entertain suits between citizens of different states. Williams v. Green Bay & W. R. Co., 326 U. S. 549, 553-4.
Since the plaintiff in this action is a resident of the forum state, we are only concerned with the relative convenience of the parties. It is clear that ordinarily a plaintiff may bring his suit in a forum of his choosing regardless of the inconvenience to him of making proof, so long as venue is properly laid. But here, as the Court points out, should the inconvenience to the defendant far outweigh any convenience to the plaintiff, it would not be fair to oppress the defendant, for it is not a legitimate advantage to a plaintiff to vex his opponent. We cannot agree, however, that in assessing the relative convenience of the parties the court may put a burden upon the plaintiff to make a positive showing that it is to his legitimate advantage to bring suit in the forum of his choosing. It is the defendant‘s burden to convince the court that the forum is both inconvenient to it and not convenient to the plaintiff. Despite the necessity of going elsewhere for evidence, it is hardly capricious for a plaintiff to bring suit in his home state: the advantages of so doing are usually no less real than apparent.
Accordingly we must judge this case from the showing made by the defendant as to the relative convenience of the parties in its affidavits in support of its motion to dismiss. The defendant‘s affiants urged that the suit be dismissed because all the proof would come from “vast quan-
As to the last argument: it is recognized of course that a federal court need not entertain a case which involves interference with the internal affairs of a corporation. Rogers v. Guaranty Trust Co., 288 U. S. 123; but see Williams v. Green Bay & W. R. Co., 326 U. S. 549. The Circuit Court was of the opinion that no interference with the internal affairs of a foreign corporation of a kind “to make the courts of Illinois a more appropriate forum than New York” would be required by this action. This Court specifically concedes there is no problem of corporate administration that leads to refusal of jurisdiction in this case. This Court, however, depends upon the relation of the issues to the internal affairs of a corporation as one factor in the exercise of the court‘s discretion to dismiss on the ground of forum non conveniens. If corporate administration is not involved, the mere fact that the issues relate to the internal affairs of the corporation does not seem significant. Almost any suit against a corporation may involve an examination into corporate affairs. Here the only inquiry, other than the alleged misconduct of the defendant Kemper, has to do with the relationship between Kemper & Co. and Lumbermens. Although this inevitably involves inquiry into internal affairs of a corpo-
When there is no showing of interference with corporate administration, the party seeking dismissal is forced to depend upon what “will best serve the convenience of the parties and the ends of justice.” This, we think, requires strong and clear proof to overcome the presumption that the place of trial is controlled by the venue statute. Mere inconvenience is not enough.
As for the expense to the defendant of bringing documents and witnesses to New York, even admitting that proof in this action will involve documentary evidence situated in Illinois or testimony of witnesses located in Illinois, it is not amiss to point out that the plaintiff must carry the burden in this action and must make his case before defense is necessary. Since both documents and witnesses are beyond the jurisdiction of the chosen forum, it will be the plaintiff‘s expense initially to transport such records and witnesses, an inconvenience which he has determined to bear, if it is true that he has no other source of proof. But even supposing that the defendant will have to transport documents and witnesses to meet the plaintiff‘s proof, a bare allegation to that effect is hardly a showing of such hardship as to make it proper to dismiss this case on the grounds of forum non conveniens. The same allegation might be made in any action brought against the defendant in any state other than Illinois on any cause, contract or tort, which involves records of the company, and this even though the corporation has chosen to do business in forty-eight states. To dismiss a cause on such bare allegations without a particular showing of the hardship involved in transporting a mass of documents and witnesses not easily accessible to the forum puts a powerful weapon into the hands of corporations alleged to
Petitioner, on behalf of Lumbermens, seeks recovery for excessive payments and services by Lumbermens to those who dominate the company, and for sales of company assets to those persons at inadequate prices. Petitioner must prove these allegations. None are now denied by defendant. That petitioner‘s success will result in “monetary damage” to Lumbermens seems impossible. Petitioner‘s success will enrich Lumbermens at the expense of those who are alleged to have mulcted it of large sums. Petitioner speaks for the whole membership and all policyholders of Lumbermens. From this record, we do not see that an adequate basis of fact has been laid by the respondent‘s affidavits to overcome the right of petitioner to pursue his remedies in the District Court for the Eastern District of New York.
MR. JUSTICE BURTON joins in this dissent.