Case Name: CITY OF CHICAGO v. MILLS
Court: Supreme Court of the United States
Jurisdiction: United States
Decision Date: 1907-02-04
Citations: 204 U.S. 321
Docket Number: No. 286
Parties: CITY OF CHICAGO v. MILLS.
Judges: Dissenting: Mr. Chief Justice Fuller and Mr. Justice Harlan.. ’
Reporter: United States Reports
Volume: 204
Pages: 321–331

Head Matter:
CITY OF CHICAGO v. MILLS.
APPEAL FROM THE CIRCUIT COURT OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF ILLINOIS-
No. 286.
Submitted December 21, 1906.
Decided February 4, 1907.
Although the certificate of the Circuit Court may. not state exactly how . the jurisdictional question certified arose, • this court can' ascertain it • from the record together with the opinión of the court below made a part thereof.
The jurisdiction of the Circuit Court must be determined with reference to the attitude of the case at the date of"the filing of the bill..
Whqn a.citizen of one State has a cause of'action against a citizen of another State which he may lawfully prosecute in a Federal court, his ipotive in preferring a Federal tribunal, in the- absence of fraud and collusion^ is. immaterial./ -
If it does not appear that there was any collusion within the meaning of the ninety-fourth rule in equity for the purpose of conferring jurisdiction, not otherwise existing, on the Circuit Court of the United States, that court does not lose its jurisdiction of a suit brought by a non-resident stockholder, aftej* request to and refusal by the. corporation, to enjoin the enforcement of an ordinance against the corporation, and of which the court would not have had jurisdiction had .the corporation been complainant, becaus.e subsequent events make it to the interest of the corporation and its officers to make commón cause-with the complainant stockholder.
An admission by complainant thajt ho expected the action to be brought in the United States court does not necessarily show .collusion to confer jurisdiction.
In this case held on the facts that no collusion between the stockholder bringing the suit and • the corporation njfufcing to bring it was shown that deprived the Circuit Court of jurisdiction thereover.
143 Fed. Rep. 430 affirmed.
The facts are stated in the opinion.
Mr. James Hamilton Lewis,'Mr.-HenryM. Ashton and'Mr. ‘Üavid K. Tone for appellant:
The undisputed evidence in this record shows that this suit was'collusi-vely brought by Mr. Mills at the instigation of and for the -benefit of the People’s Gas Light and Coke Company, for the purpose of conferring jurisdiction upon a Federal court in a case where such jurisdiction was otherwise wanting.
When it is sought to determine whether a suit is collusively brought for the purpose of conferring jurisdiction upon a Federal court, the question of motive becomes an important one.
•Here there.was every motive for instituting a collusive suit,, for the. conduct of the People’s Company, and its" officers and directors, prior to the filing , of the bill of complaint by Mills, clearly demonstrated that an unsuccessful effort had already been made by them to confer upon a Federal court jurisdiction of the litigation in question.
The ■ fact that fin a case where the question of conferring jurisdiction upon a Federal court by getting úp a collusive controversy is. involved, the burden of proof is upon tffe com-plainant, is established by-the well-considered case of Lehigh Mining & Manufacturing Co. v. Kelly, 160 U. S. 337.
There is no force in the contention that there was a real controversy between Mr. Mills and the directors of the People’s Company when the bill in 'the, cause was filed.
. The ündisputed evidence in this record shows that the corporate rights were being adequately, protected by the officers of the People’s Company at the time the bill of complaint-was filed, and therefore a stockholder had. no standing in the Federal court.
Independently of any question of collusion, the undisputed evidence in this record shows that the corporate rights of the stockholders were adequately protected by the injunction in force in the case of the People's Gas Light and ■Coke Company.' V-. The City of Chicago,;then pending in this court. 'No stockholder ha,d any'standing in-court to interfere, so long as no irreparable injury was suffered or threatened, and certainly not while the board of directors were proceeding in good faith and in the exercise of their best judgment in protecting the. corporate rights. That provision- is established by all the authorities.
The general rule is that a'majority of the stockholders of a corporation, through its board- of directors; are invested with the sole power to institute suits in -behalf of the corporation- and to redress .corporate' 'grieyances and to determine when and in what courts such suits shall be instituted, - and an'individual stockholder has no standing for any such purpose. Hawes v. Oakland, 104 U. S. 450-457; Morawetz on Corp., § 238. ' '
To the foregoing .rule should be added the qualification that where a corporation refuses to act and that refusal 'is arbitrary and wrongful and without"'just cause and á demand, is made, upon the corporation to act and it still refuses, a stockholder may institute a suit in his own name in behalf of himself and other stockholders to protect corporate rights. The -mere allegation that d demand has been made upon the corporation and it refuses to act is insufficient to authorize a stockholder to begin suit. It must further appear that the refusal was wrongful, constituting a breach of trust, for although the corporate officers may have acted erroneously in refusing to bring a suit, that' is not sufficient to authorize the stockholders tp' proceed, so long as it appears that the corporate officers were acting in good faith, with reasonable diligence,.-.and in the ex-ercis'e of their sound discretion. Memphis City v. Deán, 8 Wall. 64, 73; Dodge, v. Woqlsey, 1.8 How. 345; Wallace v. Lincoln Savings Bank, .89 Tennessee, .633; Samuel v. Holladay, 1 Woolw., U. S.„ C. Ct. 400; Morawetz on Corp., § 244; Hawes v. Oakland, 104 CVS. 457, 460, 462.
Mr, William D..Guthrie, Mr. John J. Herrick and Mr..UK. Boyesen for appellee:
The decree in the prior'suit dismissing the bill for want-of jurisdiction, was not a bar to a new suit in a court of the United States by the company itself, nor in any event for divisional relief' under -.the .contract, if the- company elected to demand it., The company itself, therefore, could have filed in a court of the United States substantially the same bill of complaint that Mills originally filed, praying .divisional relief under its alleged contract' right. It follows that diversity of citizenship was not essential or controlling as the basis of the jurisdiction of the'Circuit Court, and'that so far as .jurisdiction as a Federal court was concerned, there was really no .occasion or motive for collusion. There can .be no collusion without reason or ,motive or to . subserve some purpose. Simpson v... Union Stock Yards Co., 110 Fed. Rep. 799, 801; Illinois Central R. R. v. Adams-, 180 U. ,S. 28, 33, 37; Ball v. Rutland R. Co., 93. Fed. Rep. 513, 515; Kimball v. Cedar Rapids, 99 Fed. Rep. 130. .
The question of collusion is, of course, to be determined by the conditions existing when Mr. Mills requested the board of directors and the stockholders of the People’s Company - to institute a new suit, and when he filed his bill, June 8, 1903, •and pot by subsequent developments. Molían v. Torrance, 9 Wheat. 537, 539. See also Kirby v. American Soda Fountain Co.,. 194.U. S. 141,145; Hárdenbergh v. Ray, 151 U. S. 112,118; Colorado Central Mining Co. v. Twrck, 150 U. S. 138; 144; Mexican Centrally, v.. Pinkney, 149 U". S. 194, 200..

Opinion:
Mr. Justice Day
delivered the opinion of the court.
This case is here' upon a question of jurisdiction of the Circuit'Court of the United States for-the. Northern District of Illinois to .entertain the shit. 26 Stat. 326'. The case .originated in a bill filed in that-court by the complainant, Darius 0. Mills, a- citizen of California, as a stockholder in- the People's Gas, Light and Coke Company, a corporation of the 'State of Illinois, to restrainThe city of Chicago from enforcing-a certain ordinance limiting the right of the gas company as to charges for furnishing-gas.
Complainant, averred a demand of the directors that an action be brought by the company to restrain- the city from enforcing the ordinance, and alleged compliance' with the ninety-fourth equity rule, and the refusal of the company, to bring the action.
The original bill alleged that the ordinance impaired the obligation of. the contract contained in the charter of the. gas company, in contravention of the contract clause of the Federal Constitution; and, also, that the ordinance was illegal in.that the city had no poyjer to.pass it.
The ordinance thus complained of was adopted by the city of Chicago, October 15, 1900, and provided that charges for-gas in excess of 75 cents per 1,000 cubic feet should be illegal, and' fixed a penalty of nqt less than $25 or more than $200 for each and every violation of the ordinance.
The objection made to the jurisdiction of the Circuit Court, and which is said to be established in the record and duly presented here, is based upon the allegation that the suit by Mills was brought in the Federal court by collusion between him and the gas company, and for the fraudulent purpose of invoking the jurisdiction, of the Federal court concerning a controversy which was really between the company and the city of Chicago, parties lacking the requisite diversity of citizenship to maintain the suit in the Federal courts;
The record discloses that the appeal was allowed to this court solely, upon the question of the jurisdiction of the court as a Circuit Court of the United States. A certificate entered^ the same term at which the appeal was allowed sets forth that the city objected,to the jurisdiction of the court as a Federal court, and that the appeal was prayed solely upon the question of jurisdiction of the court as a Circuit Court of the United States, and that the appeal was granted solely upon the question ' of jurisdiction.
Portions of the, proceedings; including the testimony on the question of jurisdiction, duly signed and sealed and made part of the record, are certified to this court by certificate in the form of á bill of exceptions. In re Lehigh Mining Manufacturing Co., 156 U. S. 322; Nichols Lumber Co. v. Franson, decided at this term. 203 U. S. 278.
' A preliminary objection is made that the certificate does not show whether the jurisdictional question arose from insufficient amount, want of diversity of citizenship, collusion or otherwise. But we are of the opinion that an examination of the record, aided by the opinion' of the court contained therein, and- made., part thereof, distinctly shows that the auestion ;of jurisdiction passed upon concerned -the collusive character of the action of the complainant.
We thihk this brings the case within the ruling in Smith v. McKay, 161 U. S. 355, in which the court, looking Into the character of the appeal, the certificate of the court and the certified copy of the opinion made part of the récord, sustained, the court's jurisdiction) citing, with approval, Shields v. Coleman, 157 U. S. 168, and In re Lehigh Mining Manufacturing Company, 156 U. S. 322.
The Circuit Court, after, an exarifinatioQ of the, testimony, reached.the conclusion that the action was not collusive, and upon- filial- decree granted a perpetrial injunction against the enforcement of the ordinance in. questions On this appeal we are Only Concerned with the correctness of the conclusion feached i'n the Circuit Court as to the rquestiori of jurisdiction. This questiori -is before us uppri this record. Wetmore v. Rymer, 169 U. S. 115. In order to determine it it is necessary to consider briefly as may be the fa'cts shown in this record.
The ordinance in question was passed October- 15, 1900. The People's Gas, Light and Coke Company j on the' twenty-first of December, 1900, brought a suit in the Circuit Court of the United States for the Northern District of Illinois, seeking to enjoin enforcement of the ordinance upon the ground that it impaired the obligation of its charter contract, denied equal protection of the laws, and amounted to a confiscation of its property; and upon the further ground that no power had been conferred upon the city of Chicago by the legislature of Illinois to thus regulate the price of' gas.
' It is unnecessary to recite all of the proceedings of that suit in detail. The history of the litigation will be found in the opinion of the Chief Justice when the case came here from the Circuit Court on áppeal, 194 U. S. 1.
To the bill as originally filed in that case the city of Chicago filed a general demurrer, and the Circuit Court, holding that no constitutional right of the Company .was impaired, decided that its jurisdiction would not extend to thé question of the power of the council to pass the ordinance in question, and that such a question was one 'primarily for the state courts; thereupon the company filed an amended bill, limiting its rights to the alleged impairment of its contract;. The city of Chicago also demurred to the amended bill, and upon the hearing of the demurrer it was sustained and the bill dismissed for want of jurisdiction, and a final decree was entered to that effect. An appeal was thereupon taken to this court.
When the litigation Jiad' progressed thus far, complainant Mills, who was the largest stockholder in' the company, con-suited counsel in New York with a view to protecting his interests. Counsel having examined the record prepared a letter dated December 16, 1902, addressed to the directors of the'gas company and signed by complainant,-in which he set forth that the proceedings in the suit concerning the ordinance reducing the price of gas to 75 cents-per 1,000 cubic feet had been sub mitted tQ. his counsel, together with a copy of the opinion of the Circuit Court, and that an appeal was .then pending in the Supreme Court of the United States; the advice of his counsel that that suit might not adequately protect his interests, as the bill was dismissed for want of jurisdiction and that the Supreme Court might limit the decision of" the case to the question of jurisdiction. And, further, that it did not involve the question of the power of the council of the city of Chicago to. reduce the rates of the company. He then requested the institution of a suit against the city of Chicago at the earliest practicable moment for the purpose- of preventing the enforcement of the ordinance, upon the ground that it impaired its charter contract and that the council had no power to pass it. The letter further expounded the necessity of resorting to a court of'equity for protection of the company's rights.
The record discloses that the company's counsel, came to New York, where.-a conference was had with the counsel retained by Mills, and a difference of opinion was developed as to the propriety and advisability of a new suit which would cover the points in. difference. The- result of this conference was that- the company's counsel notified counsel for ¡(lilis that he should advise the board to decline the request to^ bring a new suit. -'
On- January 29, 1903, the company wrote to Mills, declining to-begin'the suit, and sent a copy of the resolution reciting the belief of the board that for the company to institute further legal proceedings to test the validity -of the ordinance of- October 15,1900, would excite' public prejudice against the company, Which at that time it was deemed of- great importance •to avoid, .and afterwards, at the annual meeting of the stockholders' of the company,- a resolution directing the beginning of the suit was defeated.
The question of jurisdiction, must be decided, having reference to the • attitude" of the case at the date the bill was filed, on. June 8, 1903. Kirby v. American Soda Fountain Co., 194 U. S. 141, 145, 146. As to the refusal of the company to institute a new suit, there is mo4hing in the record to show any concert of action between complainant and the company. At that time his counsel in New York was'not concerned in the litigation in Chicago or in the appeal to this court. As the case brought by the gás company then stood, it had been dismissed for want of jurisdiction:, and an appeal taken from that decree of dismissal. The case did not necessarily involve the question of contract rights, and did not embrace the question of power of the city.
In this attitude of affairs counsel might well advise that the protection of the stockholders' interest required, the beginning of a suit which should embrace the vital questions in issue. There was a sharp difference of -views between the representatives of Mills aiid those of the company's solicitors' as to the advisability of bringing an action.
For the prudential reasons outlined in their letter of January 29, 1903, above referred to, the directors of the company declined to bring the suit. After the judgment of the Circuit Court was affirmed in this court, the question of the power of the city to pass the ordinance was left undecided, and was subsequently litigated to a final decree in, favor of the contention made in the suit begun by Mills.
It is true that upon the hearing of the demurrer in this action the Circuit Court ordered a decree corfecting its former decree in the gas company suit so as to show that-the court decided the case upon the merits as to the allegations as to contract, and dismissed the bill without prejudice to the bringing -of any other suit to test the power of the city.
The corrected decree was brought before this court in the then pending appeal of the gas company. 194 U. S. 1.
'After the decision in this court, affirming the decree in the gas company suit, an amended bill was filed by complainant Mills, based solely upon the alleged want of power of the city council of Chicago to pass'the ordinance in controversy, which, resulted in the decree to which,we have referred, enjoining the enforcement'of the ordinance, for the reason that the city council of Chicago had no power to pass the same.
' As we have said, we think the record' establishes that complainant and his counsel honestly believed that such new suit was necessary to protect the stockholders' interests. There is an entire lack of testimony to show any collusive action at the time of the-beginning of the suit.
It is true that subsequent events made it to-the-interest of the' company to make eommon cause with Mills against the" enforcement of the ordinance in "question, but when he began his suit no proceedings were pending which involved-the important question of the power of the city upon which the complainant ultimately prevailed.
It is true that an officer of the company, .who was the ñext largest stockholder, to Mills, contributed to the expenses in this suit; but he testified, -and there is nothing in the record to contradict'him, that he. paid this money from his own resources without actual repayment or any understanding with the-company that he should be reimbursed.
It is true that Mills' counsel was retained in the suit in this court after the beginning of his suit in Chicago.'
It is also true that, in answering to a question put in the langúágé pf the ninety-fourth rule, as to whether the suit .was brought to' confer upon the Circuit Court of the United States jurisdiction in- a case "of which it would not otherwise have ' cognizance, complainant answered that he. -so understood it, but subsequently said that he did not understand the question; This.admission, intentionally made, would not necessarily show -collusion. • But we think that-it was'not the purpose, of. the complainant to say more than'that he expected his action to be brought in-the United States court. When a citizen of one State has á cause'of action against adrizen of another State which he may prosecute lawfully in-a Federal court,-and when the suit -is free from fraud or collusion, his motive in' preferring a Federal 'tribunal is immaterial. Blair v. Chicago, 201 U. S. 400, 408, and previous cases in this court therein cited.
Upon the whole record we agree with the Circuit Court that the testimony does not disclose' that the jurisdiction of the Federal court was collusively and fraudulently invoked, and .the judgment below will be
Affirmed.
Dissenting: Mr. Chief Justice Fuller and Mr. Justice Harlan.. '