116 F. 381 | U.S. Circuit Court for the District of Western Missouri | 1902
The motion to remand raises two principal questions; First, that the defendant J. M'. Purdy is a citizen of the state of Missouri, and the cause of action is joint as to the alien corporation, on whose application the cause was removed from the state court into this court, and the resident defendant, J. M. Purdy; and, second, because the alien defendant corporation had, prior to the application for a removal from the state circuit court, so far appeared to the merits of the case as to have waived and lost the right to remove. To a proper understanding and solution of the first objection a brief reference to the history of this controversy and the state statute on which this suit is based is important. In 1899 this complainant instituted a like suit against the defendant corporation in the state court, which was removed into this court by the defendant. A demurrer to the bill was sustained by this court. See 101 Fed. 481. Thereupon the complainant filed an amended bill, setting up substantially the same material facts, with some additional averments, but in all essential particulars containing the same facts alleged in the present bill respecting the defendant corporation. The defendant again demurred, and that demurrer was heard by Judge Adams, of the Eastern district of this state, which demurrer was sustained. The principal ground of the court’s rulings was that, the defendant being an alien corporation of Scotland, Great Britain, neither at common law nor under the then existing statute of this state would an action lie in favor of an individual shareholder of the corporation, in the courts of this country for the appointment
It is to be conceded that in determining the question of jurisdiction and removal the court has nothing to' do with the underlying motive of the actor, except in so far as it may appear on the face of the bill or evidence aliunde. Does the bill on its face state a joint cause of action against the.corporation and Purdy? The entire substance of the allegations in respect of the accountability of the defendant Purdy are as follows: First. That shortly after the organic
“The only necessary parties defendant to such a controversy are the persons having the legal control and responsibility of the enterprise. A decree against them binds their servants, agents, and officers; and, where a corporation is the principal, no amount of mere pecuniary interest in the corporation by an individual stockholder will make him a necessary or indispensable party.” New York v. New Jersey S. S. Transp. Co. (C. C.) 24 Fed. 817.
Further on, the court, in the course of its opinion, said:
“It is clear, therefore, that the defendant Starin is the only defendant, besides the corporation, concerning whom, upon the record, there can be any doubt that he is an unnecessary party. But, even as respects Starin, the fair inference from the whole record is that neither in law nor in equity does he stand in the attitude of a responsible operator of this ferry; and that the complaint does not mean to make any such averment. He may, and doubtless does, have a warm personal interest in the success of the enterprise. He may own, indirectly, a large part, or even the whole, of the stock of the corporation. He may thereby possibly influence and direct the election of its officers, and in that sense be said to be ‘actually operating the ferry;’ but unless he is directly and legally responsible personally for the running of the alleged ferry in other ways than these, he is not a necessary party to this suit. Every corporation must have its stockholders, its officers, and its managers. Whether these are few or many, and whether its business through them be controlled by one man or by many, is wholly immaterial. The corporation, so long as it is in the possession and management of its business affairs, is the only party directly responsible, and the only party necessary to a suit like this. * * * I regard it as obligatory upon the court to scrutinize the complaint thus rigidly, and to make no intendments in the complainant’s favor upon a question of this character, because there are indications in the record of an attempt to prevent a trial in the federal courts through the joinder of defendants in no way necessary to the determination of the real issue; and because, if the cause were remanded, and it should turn out on the trial that these general averments of the complaint in regard to Starin and others were not sustained in any different sense from that above referred to, the cause might still proceed to judgment against the corporation in the state court, though the individual defendants were clearly shown to be unnecessary parties; and the corporation would thus be*386 deprived of the right of a trial in the federal courts, which the United States statute was designed to secure to it.”
See, also, Wood v. Davis, 18 How. 470, 15 L. Ed. 460.
The bill does not charge defendant Purdy with misappropriation or concealment of any assets of the corporation. The allegation of the bill in this respect is only that he aided the board of directors in the matter of managing and conducting its business, whereby losses to the company ensued. If he merely aided the directors, as the bill charges, in subservience to them, of what avail is the phrase, “and has failed to account to the company therefor”? This, taken in its connection, is but words, or at most is but the sequence of the antecedent predicate, that as the pliant agent of the directors he had combined with, obeyed, and aided them in the work of wasteful mismanagement,' giving cause for the appointment of a receiver, and the taking charge of the corporate property and the winding up of its affairs by a court of equity. No decree in personam could go against him oh the bald averment that “he failed to account to the company therefor.” What property, what fund, what money has he concealed, or applied to his own use? The bill does not even by implication charge that he has in his possession any property or assets of the corporation wrongfully. It states no fact upon which a judgment in personam could go against him. And as his possession of any property of the corporation is the possession of the corporation, by all the authorities he is not a necessary or indispensable party to this bill. As said in Black’s Dill. Rem. Causes, § 87:
“Where the officers of a corporation are made codefendants with the corporation to a suit in equity, but no relief is prayed for as to any of such officers that is not prayed for in respect to the corporation, and no relief is asked against any such officer in his individual capacity, the officers are merely nominal parties to the suit, and their personal citizenship will not affect the question of federal jurisdiction. So, in a suit to enjoin the execution of a lease by a railroad company, or a suit involving the title to lands alleged to have been fraudulently conveyed by a corporation, the officers or directors of the company are not such necessary parties to the suit that their citizenship will affect the right of removal of the cause to the federal court.”
This whole question is aptly summed up in 18 Enc. Pl. & Prac. pp. 195, 196:
“It is well settled that in applications for removal on the ground of diverse citizenship the citizenship of formal parties, or nominal parties, or parties without interest united with the real parties will be ignored, and the citizenship of the real parties is alone to be considered. The rule is usually laid down substantially in that form, but a more accurate and satisfactory statement is that the citizenship of one who is not an indispensable party will be disregarded.”
The court of appeals of this circuit, speaking through Judge Caldwell, also has said:
“It is only parties who are necessary to the determination of the real controversy whose citizenship or presence on record will defeat the right of removal.” Shattuck v. Insurance Co., 7 C. C. A. 386, 58 Fed. 609, 610.
See, also, Myers v. Murray, Nelson & Co. (C. C.) 43 Fed. 695, 11 L. R. A. 216.
“The reason assigned for this rule of construction is that it is a natural presumption that the party pleading will state his case as favorably as he can for himself. And if he do not state it with all its legal circumstances, the case is not in fact favorable to him, and the rule of construction in such case is that, if a plea has on the face of it two intendments, it shall be taken most strongly against the defendant (the pleader); that is, the most unfavorable meaning shall be put upon the plea.”
This rule of pleading should be strictly observed where it is sought to defeat the removal of a case from the state court to the federal court by joining with a nonresident defendant a local defendant under the circumstances of this case. See New York v. New Jersey S. S. Transp. Co. (C. C.) 24 Fed. 817-822; Arapahoe Co. v. Kansas Pac. Ry. Co., 4 Dill. 283, Fed. Cas. No. 502; Shepherd v. Bradstreet Co. (C. C.) 65 Fed. 142-144.
Moreover, this suit being confessedly based and dependent upon the act of the state legislature of March 13, 1901, it must stand or fall by the provisions of the act. Under the emergency clause (section 2) it is declared that there is no law protecting the rights of a Missouri shareholder in an alien corporation, and therefore this act ought to go into immediate effect. The complainant’s rights, therefore, can be no broader or other than those presented by the enabling act. The first substantive, remedial provision of the act confers jurisdiction on the state court, where such alien corporation has property in the state, to compel the directors, managers, trustees, or other officers “to account for their official control in the management and disposition of the funds, property, and business committed to their charge, and to restrain and prevent any alienation of the property ■ of the company by said directors, managers, trustees, or other officers in case where it may be threatened, or good reason is shown to.apprehend, that it is intended to be made in fraud of the rights and interests of such company or any shareholder.” The entire scope of this is to authorize the court to compel the officers, etc., to account for their official control in the management and disposition of the funds, etc. This is made manifest by the succeeding and conse
“First, to compel such directors, managers, trustees and other officers to account for their official conduct in the management and disposition of the funds, property and business committed to their charge; second, to order, decree and compel payment by them to the corporation which they represent, and to its creditors, of all sums of money and of the value of all property which they may have acquired to themselves, or transferred to others, or may have lost or wasted by any violation of their duties or abuse of their powers as such directors, managers, trustees or other officers of such corporation.”
This statute, it will be observed, has exclusive reference to corporations organized under and by virtue of “this article,”—that is, under the general statutes of the state of Missouri; whereas, in the act of 1901 the legislature made it applicable to an alien corporation doing business in this state in so> far as the first clause of this section is concerned, but entirely omitted the provisions of the second clause thereof, which gave jurisdiction to proceed in personam against the directors, managers, trustees, and other officers of the company individually. The court, in applying this new act of the legislature, must assume that the second clause of the old statute (section 1338) was left out for a purpose. The obvious reason for it is found in the fact that the latter act leaves it chiefly to the function of the receiver to be appointed by the court “to collect, sue for, and recover the debts and demands that may be owing to such corporation.” This is a specific remedy furnished by the act for recovering any demand the corporation may have against its manager and officers. It is the method, and the only method, designated and contemplated by this act for a personal judgment against the manager. “When a statute gives a new and extraordinary remedy, and directs how the right to the remedy is to be acquired or enjoyed, the act should be strictly construed, and the steps pointed out for the enjoyment of the remedy provided should be construed as mandatory, rather than directory or optional.” Lumber Co. v. Hubbert, 50 C. C. A. 435, 112 Fed. 718. Therefore, even if it could be said that the bill charges the defendant Purdy so as to authorize a judgment against him in personam, which can be the only ground of proceeding against him, he is not an in
Stress is laid by complainant’s counsel upon that portion of the prayer for relief which asks that the defendants, and each of them, “be enjoined from any further disposition of the property and assets of the company, or interfering therewith in any manner.” It is a complete answer to this to say that an injunction against the corporation to prevent any further disposition of its property would effectually bind the agents and servants of the company. The latter are in no sense necessary parties to the effectual operation of such an injunction. It is the usual practice, in granting injunctions against corporations to prevent the removal and disposition of corporate property, to extend it to the agents and servants of the corporation; and it is just as effectual and binding on such agents and servants as if they were parties defendant to the bill. Furthermore, there is nothing disclosed by the bill, or by the charter of the corporation or its by-laws, which indicates that the manager of the corporate property in this state has the power to convey or dispose of the company’s property. No conveyance of realty by an agent could be made effectual without a deed duly executed by the corporation. Nor does the principal bill even aver that Purdy, the agent, is about to convey or transfer the property of the defendant corporation.
The final contention of complainant’s counsel on this branch of the case is that in what counsel term the “supplemental bill of complaint” the defendant Purdy is properly joined as a codefendant. What is denominated as a supplemental bill of complaint in counsel’s brief is in no sense of the nature of an amendatory or supplemental bill. During the progress of the hearing before the judge for the appointment of a receiver on the original bill of complaint, and after much evidence had been heard thereon, the complainant, merely for the purpose of impressing the trial judge with the idea of a present emergency for the appointment of a receiver, filed in the case an affidavit, in which he made certain statements respecting a purpose on the part of the defendant company to escape the jurisdiction of the state court by removing its offices and agency into another state or territory. No other relief is sought by this affidavit than a request for the appointment of a receiver. Under the state practice under the Code an amended pleading operates as an entire abandonment of the original pleading. Basye v. Ambrose, 28 Mo. 39; Young v. Woolfolk, 33 Mo. 110; Ticknor v. Voorhies, 46 Mo. 110; Breckenkamp v. Rees, 3 Mo. App. 585; W.yler v. Railway Co. (C. C.) 89 Fed. 44. No leave was asked for or granted by the court to complainant to amend the original bill, and it was not understood or contemplated by the parties or the trial judge that this affidavit was considered as a supplemental bill of complaint. This affidavit is a strange medley of inconsistencies and con
Did the proceedings had in the state court for the appointment of a receiver bar the right of removal to the alien defendant? The judiciary act of 1888 (25 Stat. 433) authorizes a nonresident defendant (which applies as well to an alien corporation), when sued either at law or in equity in any state court, where the amount in controversy' exceeds $2,000 exclusive of interest and costs, to remove the same into the United States circuit court. The only limitation as a condition precedent to this right is that he shall “make and file a petition in such suit in such state court at the time or at any time before the defendant is required, by laws of the state or rule of the state court in which such suit is brought, to answer or'plead to the declaration or complaint of the plaintiff,” and that he shall give the required bond. The defendant corporation complied strictly with this statute. And as he is not required to make such application before he is required by the statute of the state or rules of the state court to plead or answer to the declaration or complaint, how can the court, without a judicial amendment of the act of congress, hold that if, before he is required to make answer or plead to the complaint, he appears in vacation before the state judge to resist the preliminary application for the appointment of a receiver, to displace his dominion over his property, he has thereby pleaded or answered to the declaration or complaint? The state
We are aware that Judge Shiras, in Chicago, I. & N. P. R. Co. v. Minnesota & N. W. R. Co. (C. C.) 29 Fed. 337, held, under the act of 1875, that an appearance to resist an application for a temporary injunction, and an appeal from the action of the court in granting the same, prior to the time when the defendant was entitled to a removal, prevented a subsequent removal of the controversy. This opinion was based upon two propositions: First, that the statute of Iowa forbade the issuance of a temporary injunction except where the petition showed facts sufficient to entitle the plaintiff to the 'relief sought, and that, when the temporary injunction was tried, the court determined the merits of the case far enough to pass upon the sufficiency of the petition ; and, second, that the case could not be divided into two parts, and therefore, when an appeal was taken to the supreme court on a part of the case then there, it could not be so divided that the remainder could be removed. Waiving any expression of opinion as to whether that ruling is to be differentiated from other rulings of the courts by reason of said special provision of the Iowa statute, it is sufficient to say that it is, in my humble judgment, against the weight of authority and a proper construction of the removal statute of 1888. Judge Barr, in Freeman v. Butler (C. C.) 39 Fed. 1, brought under the act of 1887, expressly held that a preliminary contest before the court respecting the appointment of a temporary receiver, from which an appeal was taken to the court of appeals of Kentucky, did not bar the defendant from afterwards applying for a removal. He observed of the ruling of Judge Shiras that “the court commented upon the fact that the order granting an injunction had been appealed from and superseded, and that before this was done the party had an opportunity of filing his petition for removal in the state court. In the case at bar Butler could not have filed his petition until the term of the-state court, which commenced on the 22d of April, which was the day upon which he did file it. The order of the judge of the state court appointing a receiver was appealable, but it could not be superseded.” And the court further said that he was of the opinion that “the effect of the petition to' remove to this court was an abandonment of the appeal.” In Franklin v. Wolf, 78 Ga. 446, 3 S. E. 696, the state court, before the time of removal transpired, had appointed a receiver and granted a temporary injunction. It was held that the defendant could thereafter remove the case. The court said:
“We think that the proceedings which were heard by the court in this case in granting this injunction, the appointment of a receiver, and other acts entered into, were merely preliminary or ancillary to the main cause of action. The object of the appointment of a receiver was to maintain the status quo. There was no decision upon the merits. It was not intended to be a trial of the case, and was not a trial of any of the issues that could be formed upon the bill of complaint.”
It is to be kept in mind that the decision of Judge Shiras was based upon the act of 1875, which provided that the petition for removal must be filed “before or at the term at which said cause could be first tried, and before trial.” The language of the act of 1888 is different,
It does seem to me that in view of the provisions of section 4 of the Act of 1875, which is still in force, which provides that “all injunctions, orders and other proceedings had in such suit prior to its removal shall remain in full force and effect until dissolved or modified by thie
I am inclined to the opinion that the suggestion made by - Judge Barr in the case supra that the removal of the cause from the state court into> the federal court may operate as a discharge of the appeal taken to the supreme court is correct. On the removal of the case “the controversy,” in its entirety, between the parties, passes under the jurisdiction and control of this court, and the jurisdiction of the state court over the matter of controversy between the parties ceases.
The propriety of the continuation of the receivership after removal rests solely with the federal court. The receiver may be dismissed or continued, in the sound discretion of the court.
The motion to remand is denied.