Case Name: OVERFIELD et al. v. PENNROAD CORPORATION et al. (three cases); WEIGLE et al. v. SAME (three cases)
Court: United States Court of Appeals for the Third Circuit
Jurisdiction: United States
Decision Date: 1944-12-28
Citations: 146 F.2d 889
Docket Number: Nos. 8288, 8289, 8303, 8304, 8371, 8372
Parties: OVERFIELD et al. v. PENNROAD CORPORATION et al. (three cases). WEIGLE et al. v. SAME (three cases).
Judges: Before BIGGS, JONES, and GOODRICH, Circuit Judges.
Reporter: Federal Reporter 2d Series
Volume: 146
Pages: 889–932

Head Matter:
OVERFIELD et al. v. PENNROAD CORPORATION et al. (three cases). WEIGLE et al. v. SAME (three cases).
Nos. 8288, 8289, 8303, 8304, 8371, 8372.
Circuit Court of Appeals, Third Circuit.
Argued Oct. 7, 8, 1943.
Decided Dec. 28, 1944.
Roscoe Pound, of Cambridge, Mass., for appellants Kaufmann and others.
Daniel O. Hastings, of Wilmington, Del. (R. E. Lee Marshall, of Baltimore, Md., Hugh F. O’Donnell, of New York City, George Cochran Doub, of Baltimore, Md., Philip H. Strubing, Paul Maloney, and Evans, Bayard & Frick, all of Philadelphia, Pa., Caleb R. Layton, 3d., John Van Brunt, Jr., and Hastings, Stockly and Layton, all of Wilmington, Del., and Marshall, Carey & Doub, of Baltimore, Md., on the brief), for plaintiffs.
Robert T. McCracken, of Philadelphia, Pa. (John Dickinson, of Philadelphia, Pa., Clarence A. Southerland, of Wilmington, Del., and Philip Price, John B. Prizer, Montgomery, McCracken, Walker & Rhoads, and Barnes, Dechert, Price & Smith, all of Philadelphia, Pa., on the brief), for Pennsylvania R. Co.
Morris Wolf, of Philadelphia, Pa., for Pennroad Corporation.
R. Sturgis Ingersoll, of Philadelphia, Pa., Elder W. Marshall, of Pittsburgh, Pa., and Thomas Stokes, W. Heyward Myers, Jr., Lewis M. Stevens, and Thomas Stokes, all of Philadelphia, Pa., for surviving directors and representatives of deceased directors of Pennroad Corporation.
Charles H. Tuttle, of New York City, and William S. Pettit, of Far Rockaway, N. Y., for Stockholders’ Committee of Pennroad Corporation, amicus curiae.
Hugh Roberts, of Philadelphia, Pa., for intervenor-appellee Roberts.
Francis E. Walter, of Easton, Pa., for intervenor-appellee Costello.
Before BIGGS, JONES, and GOODRICH, Circuit Judges.

Opinion:
GOODRICH, Circuit Judge.
These actions were brought for an accounting and other relief against the Pennsylvania Railroad and certain individual defendants. The plaintiffs are shareholders of the Pennroad Corporation and have been joined in these actions by other shareholders as intervenors. The defendants are the Pennsylvania Railroad and certain individuals (or their personal representatives) who were directors or officers of the Pennsylvania Railroad Company and/or the Pennroad Corporation. The District Judge gave judgment in favor of the individual defendants for the reason that the suit was barred by lapse of time. He gave judgment in favor of the plaintiffs against the Pennsylvania Railroad, but not to the extent claimed by the plaintiffs. Both sides have appealed.
We consider first the problems arising out of the general question whether the liability of individual and corporate defendants is barred by lapse of time. The transactions of which the plaintiffs complained are eight in number and began in June, 1929, with the Detroit, Toledo & Ironton purchase. It has been found as a fact, and not disputed by either party, that "Neither of these suits was brought within six years after the commission of any act complained of."
The individual defendants in their respective pleadings pleaded limitations generally as well as laches and nonconcealment. The corporate defendant pleaded laches on the part of the plaintiffs in a sufficient fashion to permit the defense under any application of this doctrine.
The first problem is the orientation of this case into the law applicable in federal court. Federal jurisdiction is invoked solely on account of diversity of citizenship; there is no independent federal question involved in the plaintiffs' claims. If all the operative facts had occurred in Pennsylvania and the actions were of a type formerly cognizable on the law side of the federal court there is no doubt that the Pennsylvania statute of limitations would control as to their timeliness. The same is true where, upon local facts, an action formerly cognizable in equity, is brought in federal court and the local statute is applicable to local suits in equity. Where the suit is brought in equity and is not in aid or support of a legal right, the jurisdiction on the equity side is said to be "exclusive" and the limitation period applicable is determined by the doctrine of laches as applied in federal courts, assuming that there is no local statute applicable to suits in equity. Where, however, the jurisdiction of equity is "concurrent" with that at law or the suit is brought in aid of a legal right, the state statute of limitations applicable to legal remedies and rights will be applied in the equity suit. With these propositions which have been recently enunciated by the Supreme Court in Russell v. Todd, 1940, 309 U.S. 280, 60 S.Ct. 527, 84 L.Ed. 754, before us, their application to the present litigation will be discussed.
The problem of the individual defendants will first be considered. It is not necessary in this aspect of the case to separate these individuals with regard to their length of service with the Pennsylvania Railroad, the dates of their respective deaths, or any other matter which might distinguish individual cases. The sole question is based on the facts as above stated. They are immune from suit by reason of lapse of time.
The Pennsjdvania Act of March 28, 1867, P.L. 48, provides that " no suit, at law or in equity, shall be brought or maintained against any stockholder or director in any corporation to charge him with any neglect of duty as such stockholder or director, except within six years after the commission of such act of negligence by such stockholder or director." The trial judge applied this statute in favor of the individual defendants. The plaintiffs say this is error because, while the statute sounds in terms of "neglect of duty" the present action is based on fraud and this particular statute is, therefore, inapplicable.
Fraud in the sense of conscious misstatement or other deliberate misrepresentation is clearly negatived by the findings made by the trial judge. Pie found the lack of moral culpability on the part of the directors. "The findings of fact and conclusions of law in this case," he said, "in no way cast any improper reflection on the personal honor and integrity of the defendants." [42 F.Supp. 586, 629] The plaintiffs do not dispute this statement, which while not made as a formal finding of fact was submitted as such finding pursuant to a direction by this Court at the conclusion of the argument to list findings of fact, either from the opinion or formally made.
This rather sweeping statement is buttressed by others more specific which, while not agreed to by plaintiffs, are not seriously attacked in argument. Thus, the judge found: "Here again it may be conceded that the directors acted conscientiously and without deliberate fraud or any intent to benefit themselves." "It is believed that they acted honestly and conscientiously and that there was no element of fraudulent intent or bad faith on the part of any of the persons involved, and that their default resulted from a misconception of their fiduciary position and primary duties." " the directors, who are men of unimpeachable character and integrity, acting in the interest of serving their companies, have misconceived their duties ." "Their breach of duty and abuse of fiduciary obligations did not involve intentional moral delinquency." At the trial of the case only one of the individuals named as defendants was available as a witness. One was too ill to testify; the rest were dead. With the one exception noted, their own story of the conduct of events which led to this litigation was, therefore, not heard. Yet in their absence the findings of the trial judge upon the subject of personal culpability went the whole way to absolve them. The plaintiffs have not shown us and we cannot find that the findings of the trial court were clearly erroneous.
Moral fraud is thus clearly eliminated. We think it does not clear the view of the case to speak of what happened as "constructive" fraud. If the descriptive adjective means anything it means that something less than fraud is going to be called fraud so as to attribute to it the same consequence as that applicable to fraudulent conduct. If directors violate their duty to the corporation on whose board they sit we do not need to resort to fictitious allegations of fraud to hold them liable. They are responsible for the neglect of fiduciary duty. That we think is the substance of plaintiffs' charges against these individual defendants and that was the way it was regarded by the trial judge as shown in the excerpts from his findings of fact, above quoted. That neglect of duty is squarely covered by the terms of the Act of 1867 and the directors in this case fairly come within it.
This conclusion is fortified by the Pennsylvania decisions under this statute and the general statute of limitations. The Pennsylvania court has, in a case where the plaintiffs charged direct misappropriation of corporate funds by the managers of a railroad company, seemingly applied the six year limitation period of the Act of 1867 to an action brought against the directors after the expiration of that time by a shareholder. Link v. McLeod, 1900, 194 Pa. 566, 45 A. 340. The authority of the case is not quite complete since it does not appear in the opinion of the lower court, adopted by the Supreme Court, which statute was relied upon.
This decision was cited in a recent Pennsylvania case upon the subject, decided since this cause was submitted. Ebbert v. Plymouth Oil Co., 1943, 348 Pa. 129, 34 A. 2d 493. This, too, was an action by a shareholder suing in equity to compel a restoration to a corporation (also a Delaware corporation) of a sum of money plaintiff alleged to have been improperly expended by the corporation directors for a purpose for which corporate funds should not have been spent. The impropriety of the expenditure charged was so serious as to amount to a charge of misappropriation comparable to that in Link v. McLeod. Mr. Justice Horace Stern, writing the opinion for the Supreme Court of Pennsylvania, cited that decision and said in accepting that case as a precedent: "it would follow that the Act of 1867 is applicable to the present proceedings." Then he went on to say that it is well established that equity will frequently adopt and apply the statute of limitations which controls analogous proceedings at law. One of those cases is where an accounting is sought, that being the case of concurrent equitable jurisdiction only. From that he concluded that whether the Act of 1867 was considered applicable to the then case ex proprio vigore, or that the general six year limitation should be adopted by way of analogy to proceedings at law, the result was the same. The six year limitation was applicable. The applicability of the general state of limitations to the defendants is discussed below, in connection with the limitations defense of the Pennsylvania Railroad. As shown there, we find it also applicable.
The words of the Pennsylvania statute, the findings as to the conduct of the directors of Pennroad and the application of the statute of limitations by the Pennsylvania courts dearly leave the directors free from liability in this litigation, except for the question of concealment. This will be considered later.
We turn now to the question whether the defense of lapse of time should be applied in favor of the Pennsylvania Railroad. Here the problem is whether the Pennsjdvania general statute of limitations limiting the time for bringing an ac tion to six years is applicable or whether" the plaintiffs are to be barred, if at all, by the general equitable doctrine of laches. If the general doctrine of laches governs, then we must examine the facts to see whether they make out such undue delay as to bar the plaintiffs because of the probable prejudice to the defendants through lapse of time. If the general statute applies, either of its own force or because equity adopts it as conclusive on delay, which would be the case if the equity jurisdiction here is concurrent with that at law, or in aid of a legal right, then no examination of facts is necessary.
The claims asserted in this case are claims by the corporation, Pennroad, against others who under the theory of the complaints have done things to the injury of Pennroad. The individual shareholder of Pennroad is concerned only because he has an interest in the corporate enterprise, not through any individual claim of his own against those who, by their wrongs, injure the corporation of which he is a member. What was claimed here was the failure of the directors of the Pennroad corporation to do their duty as such directors and the participation in their breach of duty by the corporate defendant, the Pennsylvania Railroad, whom they also served. For this claim an action at law could have been brought had the appropriate officers of Pennroad, through corporate action, desired to bring it. The fact that an accounting was asked for in addition to money damages would not have changed the action at law to one cognizable exclusively in equity. Equity jurisdiction, where an accountings is sought from one who has breached a fiduciary duty, such as 'that owed by a corporate director, is concurrent with that at law. The shareholder gets into the litigation only by a derivative suit. The right being enforced is that of the corporation of which he is a member. He gets into court because he shows that the corporation, through its appropriate officers, neglects or refuses to enforce rights belonging to the corporation, the enforcement of which will, of course, be to the advantage of all the shareholders. The proposition is carefully stated by Pome-roy as follows:
"The stockholder does not bring such a suit because his rights have been directly violated, or because the cause of action is his, or because he is entitled to the relief sought; he is permitted to sue in this manner simply in order to set in motion the judicial machinery of the court. The stockholder, either individually or as the representative of the class, may commence the suit, and may prosecute it to judg ment; but in every other respect the action is the ordinary one brought by the corporation, it is maintained directly for the benefit of the corporation, and the final relief, when obtained, belongs to the corporation, and not to the stockholder-plaintiff. The corporation is, therefore, an indispensably necessary party, not simply on the general principles of equity pleading in order that it may be bound by the decree, but in order that the relief, when granted, may be awarded to it, as a party to the record, by the decree. This view completely answers the objections which are sometimes raised in suits of this class, that the plaintiff has no interest in the subject-matter of the controversy nor in the relief. In fact, the plaintiff has no such direct interest; the defendant corporation alone has a direct interest; the plaintiff is permitted, notwithstanding his want of interest, to maintain the action solely to prevent an otherwise complete failure of justice."
The findings of the trial judge with respect to the unwillingness of the directors of Pennroad to enforce its alleged legal rights are sufficient to justify the resort to equity in a stockholder derivative suit. But the fact that the shareholder gets into the litigation through a bill in equity does not change the fact that the right to be enforced is the legal right of the corporation. We have then a situation where equity is resorted to merely as a means of enforcing a legal claim. The description usually given is that this is a situation where the jurisdiction of equity is concurrent. The jurisdiction is concurrent, although equity is resorted to as a means of putting the machinery in motion and although, also, the relief given by an equity court may in a given case be more complete and satisfactory than that afforded through a judgment at law.
Now what is the situation with regard to the application of a statute of limitations where a suit of this kind is in equity, but where the jurisdiction of equity is concurrent? In so far as that situation is governed by state decisions the Pennsylvania rule, fully and broadly discussed in the recent decision of Mr. Justice Stern in Ebbert v. Plymouth Oil Co., already referred to, is perfectly clear. If the case is one of concurrent equity jurisdiction, as the Pennsylvania court held it was, the statute that bars the legal right bars recovery upon it in an action at law or a suit in equity. This last discussion of the matter by the Pennsylvania Supreme Court leaves no doubt upon that point.
When we turn to the authorities generally we find the same rule established by the overwhelming weight of decision. We shall not discuss the cases in detail but point out that one case directly on the point is that of this Circuit in Kelly v. Dolan, 3 Cir., 1916, 233 F. 635, 639, 640. The Court said: "But, assuming' for the present purpose that equity had jurisdiction to litigate this claim [neglect of duty by directors] at the instance of a stockholder, it is manifest that such jurisdiction is concurrent with that of a court of law to litigate the claim at the instance of the receiver, and, being concurrent, the claim is barred in equity by the statute of limitations. To hold otherwise would be to aid a plaintiff to evade a statute by going on the equity instead of the law side of a court." Thus, whether we look to the Pennsylvania authority or to the weight of legal opinion generally the same result is reached. The case is one of concurrent equity jurisdiction; the statute which bars the enforcement of the legal right at the suit of the corporation for mismanagement or breach of duty, bars it in equity at the instance of a shareholder. Obviously, this same bar protects the directors of the Pennsylvania Railroad in this case, even though the Act of 1867 had not, itself, given them immunity from suit. The conclusion is clear then, that unless there was something to toll the running of the statute, plaintiffs are barred from recovery both against the corporate defendant as well as the individual directors.
We turn, therefore, to the remaining question of whether the running of the statute was tolled. Fraud in the moral sense, that is conscious misstatements of facts, may be dismissed from consideration. Obviously, the corporation, itself, could make no statements except through the individuals who were its spokesmen and the nature of their conduct so far as it concerns personal honesty has already been disposed of in the discussion of the findings made by the trial judge on that point. Whatever effect the existence of actual fraud might have upon the running of the statute does not call for consideration here.
The plaintiffs say, however, that there was concealment and such concealment as would toll the running of the statute under Pennsylvania law. We are confronted at the outset, however, with the proposition, laid down over and over again in the Pennsylvania decisions that the concealment which tolls the statute must be an affirmative, independent act of concealment; mere silence or nondisclosure, even by corporate officials is not enough. The time at which it takes place is immaterial whether before, contemporaneous with or subsequent to the act complained of. But independent act, "affirmative efforts to divert, mislead, or prevent discovery" there must be. We do not see here any such conduct independent of the very things about which the plaintiffs complain. The plaintiffs complain of investments and say that they were made with an eye not to Pennroad's interest, but that of the Pennsylvania Railroad. But the sum and substance of that complaint is a series of transactions which alone make up the gravamen of the alleged offenses. We see no independent acts, designed to' "divert, mislead, or prevent discovery", unless they be found in the facts and circumstances under which the Pennroad venture was launched. Those facts and circumstances and the subsequent conduct of the Penn- road directors do not bear out plaintiffs' charge of concealment. Let us look for a moment at the facts surrounding the inception of the Pennroad venture.
The whole matter had been discussed by Pennsylvania Railroad people prior to the spring of 1929. As part of the Pennroad promotion, a letter signed by W. W. Atter-bury, President of the Pennsylvania Railroad, was sent to 157,000 shareholders of that company on April 24, 1929 and written on the letterhead of the Pennsylvania Railroad. It contained the following paragraph :
"Your Directors have given earnest consideration to recent developments in the field of transportation, and have reached the conclusion that it will be of material advantage to this Company and its stockholders, for the stockholders to unite in establishing a corporation so organized that it may make investments and take advantage of opportunities on a much broader basis than is possible under the limited powers of a railroad company. Your Directors are of the opinion that such an independent instrumentality is needed to protect your interests and those of your Company."
Simultaneously, there went through the mails a letter of the same date upon the letterhead of the Pennroad Corporation, which had then been formed, signed by that corporation through its President, H. H. Lee, making the offer of share subscriptions, naming the first board of directors of Pennroad and calling attention to the fact that seven of them were members of the board of directors of the Pennsylvania Railroad. This letter also informed prospective subscribers that all of the common stock was being placed in a voting trust for ten years. Both of these letters were sent to the then shareholders of the Pennsylvania Railroad and their right to subscribe for shares in the new Pennroad venture was based upon their holdings of record in the Pennsylvania Railroad.
When Pennroad was incorporated its charter, paragraph 7 of article 8 provided that "Except as may be required by law, the Corporation shall not be required to make public in any manner, to its stockholders or otherwise, any statement concerning its assets, liabilities or earnings; A similar provision was also contained in section 7 of article VII of the by-laws. Both of these documents, of course, are matters of public record. Subscribers bought and received voting trust certificates not share certificates. The plaintiffs talk about the manner of the initiation of the venture as concealment aforehand. This presupposes that the directors of Pennroad and Pennsylvania had a premeditated scheme to organize Penn-road as a sham corporation to fleece its shareholders and to hide what they intended to do by a skillfully drawn charter, bylaws, and other corporate forms. However, the findings as to the personal integrity of the individual defendants, the substantial sums invested by the latter and their friends in Pennroad certificates, and the publicity attending the Pennroad transactions, as developed further in this opinion, negative the notion -that such was the purpose underlying the charter and by-law provisions. The prospective subscribers knew the relation of the venture to the interests of the Pennsylvania Railroad. They were written to as shareholders of that railroad in the first instance. The very name of the corporation carried a suggestion of its affiliation with the Pennsylvania Railroad. In fact, the plaintiffs have averred in their complaints that they made their purchases in reliance on the letters of April 24th, describing the Pennroad-Pennsylvania relationship. The Pennsylvania people were, obviously, in charge of a venture to which they, the subscribers, were told they were entitled to no information except as provided by law. Nor did the plaintiffs seek information about the affairs of the corporation into which they had bought from directors or other corporate officers.
Not only is there an absence of affirmative acts of concealment, but the directors did disclose the transactions complained of. Many years before this action was brought, the plaintiffs received a great deal of information, even though they were in no legal position to require its production. During the period when Pennroad was making its purchase of shares of other corporations its management did not disclose to its shareholders or the public the fact of such purchases. Its explanation is that such information would have been harmful to its own shareholders by increasing the price which Pennroad would have had to pay for the stock it was buying. Whether that was so or not, it is undisputed that beginning with 1930 various reports to Pennroad's shareholders disclosed the list of all of its holdings, the price at which they were purchased and, in case the shares had an established market value, the then selling price. Indeed, some reports set out in disheartening detail the long lists of securities purchased at the 1929 market prices and footed the total purchase cost comparing it with the sadly shrunken values as of the date of the report. These reports not only went to shareholders but were given to the usual publication media which carry financial news and to the daily press. Facts concerning the Pennroad venture were brought to light in the Splawn report and Pécora investigation by Congressional committees in 1931 and 1932. The trial court found that there was no evidence that the plaintiffs actually knew the facts disclosed by these investigations. Whether they did or not they are matters of general public information. Courts can and do take judicial notice of such Congressional proceedings and the existence of facts disclosed by them is certainly relevant on any question of concealment. Finally, in 1932, a suit was filed in the Delaware Court of Chancery, by a Pennroad shareholder, complaining generally on charges similar to those made in this action.
To conclude, therefore, on this point: there was not only no concealment, but there was in fact a much fuller disclosure than the corporation and directors were obligated by their agreement with the subscribers to make.
The plaintiffs claim that, in any event, the running of the statute was tolled by a suit covering the same causes of action in general terms filed in the Delaware Court of Chancery, by another shareholder, Perrine, in 1932. This action is still pending, it not even having come to trial. This contention is not pertinent here.
The applicable statute of limitations is that of Pennsylvania. If the action is barred by the Pennsylvania statute of limitations, no action can be maintained in Pennsylvania, even though the action is not barred elsewhere. Suit must be brought in Pennsylvania before the Pennsylvania statute has run. A suit in another state can no more toll the Pennsylvania statute, applicable to suits in Pennsylvania, than an unexpired claim under the statute of another state can operate to lift the Pennsylvania bar in Pennsylvania courts. " it would be impossible to contend successfully for the proposition, that a suit commenced in another state would take a case out of the statute of limitations of Massachusetts, in an action pending here." Mr. Justice Story in Delaplaine v. Crowninshield, C.C.D.Mass.1824, 7 Fed.Cas.No.3,756. This situation is significantly different from the case where suit is started in Pennsylvania and thus tolls the Pennsylvania statute. Then it is possible that the Pennsylvania statute would be tolled as to all shareholders subsequently asserting the same claims. The Delaware suit does not toll the running of the Pennsylvania statute.
Certain subordinate arguments have been made in connection with the tolling of the statute. These have been examined and carefully considered. .We think there is no merit in them nor is there anything to be gained by elaborate elucidation of the obvious.
In this discussion we have endeavored to refrain carefully from passing any opinion upon the merits of the plaintiffs' claims. As was pointed out at the beginning, the suits are in federal court purely upon grounds of diversity. It is our obligation to apply the state law where applicable and this we have done. The result is the clear conclusion that the actions in Pennsylvania were brought too late.
The judgment of the District Court in favor of the individual defendants is affirmed; the judgment of the District Court against the Pennsylvania Railroad Company is reversed and the case remanded with directions to enter judgment in its favor.
The Second Circuit, in York v. Guaranty Trust Co., 1944, 143 F.2d 503, has recently held that in a case of concurrent jurisdiction, the state statute does not necessarily control where the defendant is guilty of inequitable conduct causing plaintiff's ignorance of his rights. Regardless of whether there are cases in which a federal court will not follow the state statute of limitations, we do not think the present case is one for the reasons which are-set forth later in this opinion where the, subject of concealment is discussed.
12 P.S.Pa. § 41.
An examination of the briefs discloses that both statutes were urged. It was also claimed, as here, that there was no actual fraud, at most "constructive"' fraud.
This case was cited and approved in Naffah v. Diebold et al., 1944, 349 Pa. 219, 30 A.2d 782.
348 Pa. at page 134, 34 A.2d at page 495.
The Act of March 27, 1713, 1 Sm.L. 76, § 1,12 P.S. § 31 provides:
"Personal actions, when to be brought
"All actions of trespass quare clausum fregit, all actions of detinue, trover and replevin, for taking away goods and cattle, all actions upon account and upon the case (other than such accounts as concern the trade of merchandise between merchant and merchant, their factors or servants), all actions of debt grounded upon any lending, or contract without specialty, all actions of debt, for arrearages of rent, except the proprietaries' quit-rents, and all actions of trespass, of assault, menace, bat tery, wounding and imprisonment, or any of them, which shall be sued or brought at any time after the five and twentieth day of April, which shall be in the year of our Lord one thousand seven hundred and thirteen, shall be commenced and sued within the time and limitation hereafter expressed, and not after; that is to say, the said actions upon the case, other than for slander, and the said actions for account, and the said actions for trespass, debt, det-inue and replevin, for goods or cattle, and the said actions of trespass quare clausum fregit within three years after the said five and twentieth day of April next, or within six years next after the cause of such actions or suit, and not after. And the said actions of trespass, of assault, menace, battery, wounding, imprisonment, or any of them, within one year next after the said five and twentieth day of April next, or within two years next after the cause of such actions or suit, and not after; and the said actions upon the case for words, within one year next after the words spoken, and not after."
3 Fletcher, Cyclopedia Corporations (Perm.Ed.1931) § 1271 and cases cited; 2 Thompson on Corporations. (2nd Ed.1909) § 1310, 1312, 1313.
"The most important, comprehensive, and multiform remedy of the concurrent jurisdiction which results in pecuniary recovery is that of accounting. Among the most. common instances in which this remedy is employed by courts of equity are the ascertainment and settlement of claims and liabilities between principals and agents, and between all other persons standing in fiduciary relations to each other ." 1 Pomeroy, Equity Jurisprudence (5th Ed.1941) § 186a. " receivers, directors, and other managers of stock corporations, and tho like, are in a general sense trustees, or rather quasi trustees, in respect of the particular persons towards whom they stand in a fiduciary relation, — , stockholders, etc. But the analogy should not be pushed too far. The trust which exists in these and similar eases is not of so high and complete a character that equity has an exclusive jurisdiction over the rights and interests of the beneficiaries, to maintain and enforce them against the trustees." Id. § 157; see also § 158.
4 id. § 1095.
The court affirmed plaintiffs' requested finding that "it would have been useless for any stockholder of Pennroad, including the complainants in this case, to have asked the management to seek the relief here sought."
Note (1939) 39 Col.L.Rev. 842, 847: " the courts view the cause of action as essentially that of the corporation and apply the statute of limitations or not, depending on the 'nature' of the cause of action in the hands of the corporation." Note (1938) 47 Yale L.J. 1004: " the majority opinion has been that the relationship of the parties is in itself unimportant and, that the limitation period applied should be one which would have controlled had the corporation brought the suit." And, see cases cited infra, f. n. 13.
Equity, of course, does not have exclusive jurisdiction merely because the remedy at law is inadequate. See 1 Pomeroy, Equity Jurisprudence, Pt. I, Ch. I; McClintock, Equity (1936) § 40. In fact it is the inadequacy of the legal remedies to do complete justice that furnishes the foundation of the concurrent jurisdiction. 1 Pomeroy, Equity Jurisprudence § 217.
Ebbert v. Plymouth Oil Co. was cited and approved in Naffah v. Diebold et al., 1944, 349 Pa. 219, 36 A.2d 7S2.
Kelly v. Dolan, 3 Cir., 1916, 233 F. 635. Cf. McNair v. Burt, 5 Cir., 1934, 68 F.2d 814 (suit by receiver); Hughes v. Reed, 10 Cir., 1931, 46 F.2d 435 (suit by receiver); Cooper v. Hill, 8 Cir., 1899, 94 F. 582 (suit by receiver); Anderson v. Gailey, D.C.N.D.Ga.1929, 33 F.2d 589 (suit by receiver); see also, Curtis v. Connly, 1921, 257 U.S. 260, 42 S.Ct. 100, 66 L.Ed. 222 (suit by receiver). These actions, although brought at the instance of receivers, were equitable actions seeking recoveries for mismanagement, breach of duty, and the like.
State decisions: Blythe v. Enslen, 1922, 209 Ala. 96, 95 So. 479; Arrigoni v. Adorno, 1943, 129 Conn. 673, 31 A.2d 32; New York: ". . t. the present New York rule appears to be that, irrespective of the identity of the plaintiff, the equitable statute is applied only when the underlying cause of action could not adequately be treated at law." Note (1941) 41 Col.L.Rev. 686, 691. The author points out that originally, the New Xork decisions, held, through a misapprehension, as the court did in Backus-Brooks Co. v. Northern Pac. R. Co., infra, that since the shareholders could sue only in equity, the equity jurisdiction was exclusive. Wallace v. Lincoln Sav. Bank, 1891, 89 Term. 630, 15 S.W. 448, 24 Am.St.Rep. 625 (suit hy shareholder and creditor on behalf of all other shareholders and creditors). Cf. Boyd v. Mutual Fire Ass'n of Eau Claire, 1003, 116 Wis. 155, 90 N.W. 1086, 94 N.W. 171, 61 L.R.A. 918, 96 Am.St.Rep. 948 (suit by creditors); Pietseh v. Wegwart, 1922, 178 Wis. 498, 190 N.W. 616 (suit by purchaser of all the stock and assets of a corporation).
Contra: Backus-Brooks Co. v. Northern Pac. R. Co., 8 Cir., 1927, 21 F.2d 4, certiorari denied 1927, 275 U.S. 562, 48 S.Ct. 120, 72 L.Ed. 427; Broom-field v. Doolittle, D.C.S.D.N.X.1942, 2 F.R.D. 517. Cf. Greenfield Savings Bank v. Abercrombie, 1912, 211 Mass. 252, 97 N.E. 897, 39 L.R.A.,N.S., 173, Ann.Cas. 1913B, 420 (suit by receiver; court considered directors as "express" trustees for purpose of statute of limitations, a doctrine repudiated by the cases cited, supra, this footnote).
Smith v. Blachley, 1901, 198 Pa. 173, 47 A. 985, 53 L.R.A. 849; Hall v. Pennsylvania R. Co., 1917, 257 Pa. 54, 100 A. 1035, L.R.A.1917F, 414; Deemer v. Weaver, 1936, 324 Pa. 85, 187 A. 215; Bailey v. Jacobs, 1937, 325 Pa. 187, 189 A. 320; Ebbert v. Plymouth Oil Co., supra.
Deemer v. Weaver, supra, 324 Pa. at page 88, 187 A. at page 216.
There were altogether eight Pennroad directors named as being on the first board. H. H. Lee was the eighth one.
The plaintiffs' requested finding that "The name 'Pennroad' was given to the new company in order to more definitely identify it with Pennsylvania," was affirmed by the trial judge.
The following findings are undisputed:
There is no evidence that any of the plaintiffs or intervenors ever made any inquiry of the officers or directors of The Pennroad Corporation in respect of any matter here complained of.
There is no evidence that any of the plaintiffs or intervenors ever made any inquiry of the officers or directors of The Pennroad Corporation that was not fully answered.
The statement for 1930 listed the various stocks owned by Pennroad, the amount of each, the bonds owned and their par value. For the years 1934 to 1937 inclusive the cost of each of the holdings was listed. The statements for the years 1931, 1932, and 1933, listed in addition to the cost, the current market quotations of each of the securities, in cases where they were available. The statements also reported the current income of Pennroad, its assets, liabilities, etc.
See United States v. Darby, 1941, 312 U.S. 100, 109, 657, 61 S.Ct. 451, 85 L.Ed. 609, 132 A.L.R. 1430; Louisville Gas & Electric Co. v. Federal Power Commission, 6 Cir., 1942, 129 F.2d 126, 134, cer-tiorari denied 1943; 318 U.S. 761, 63 S.Ct. 559, 87 L.Ed. 1133.
In re Newton's Estate, 1911, 46 Pa. Super. 40, 44 (action against stockholder of insolvent New Jersey corporation); In re Mercer's Estate, 1938, 330 Pa. 475, 199 A. 481; Ebbert v. Plymouth Oil Co., supra (action against directors and promoters of a Delaware corporation).
See also, Fisher v. Reaser, 1943, 113 Ind.App. 292, 46 N.E.2d 280. Cf. Elder v. McClaskey, 6 Cir., 1895, 70 F. 529, certiorari denied 1896, 163 U.S. 685, 16 S.Ct. 1201, 41 L.Ed. 315; Hooker v. East Riverside Irr. Dist., 1918, 38 Cal.App. 615, 177 P. 184, 187; Baker v. Cohn, 1st Dept. 1943, 266 App.Div. 236, 41 N.Y.S.2d 765.
Restatement, Conflict of Laws (1934) § 603.
See Southern Pacific Company v. Bogert, 1919, 250 U.S. 483, 488-490, 39 S.Ct. 533, 63 L.Ed. 1099; Maas v. Sullivan, Sup.1924, 124 Misc. 295, 207 N.Y.S. 181, affirmed 1st Dept. 1925, 213 App.Div. 820, 208 N.Y.S. 895.