Case Name: WATSON et al. v. HUNTINGTON et al.
Court: United States Court of Appeals for the Second Circuit
Jurisdiction: United States
Decision Date: 1914-04-07
Citations: 215 F. 472
Docket Number: No. 171
Parties: WATSON et al. v. HUNTINGTON et al.
Judges: 
Reporter: Federal Reporter
Volume: 215
Pages: 472–489

Head Matter:
WATSON et al. v. HUNTINGTON et al.
(Circuit Court of Appeals, Second Circuit.
April 7, 1914.)
No. 171.
1. Equity (§ 148 )—Pleading—Multifariousness.
A bill by stockholders of a corporation to recover damages from the defendant on the ground of his fraudulent acts as an officer of the corporation by which, as alleged, certain of the complainants were induced to purchase their stock, and others, who had previously purchased, were otherwise injured, is bad for multifariousness; the right to relief of the two groups being based on a different state of facts.
[Ed. Note.—For other cases, see Equity, Cent. Dig. §§ 341-367; Dec. Dig. § 148. ]
2. Equity (§ 46 )—Jurisdiction—Adequate Remedy at Law.
A stockholder cannot maintain a suit in equity to recover the amount he paid for his stock on the ground that he was induced to purchase the same by the fraud of defendant in making false representations in respect to the condition and business of the corporation; his remedy at law being full and complete.
[Ed. Note.—For other cases, see Equity, Cent. Dig. §§ 151, 152, 157, 159-163; Dec. Dig. § 46. ]
3. Equity (§ 51 )—Jurisdiction—Multiplicity op Suits.
A mere community of interest between plaintiffs in matters of law and fact does not make it admissible for all such plaintiffs, each of whom has a separate cause of action at law -against the defendant for a tort, to join in a suit in equity in order to avoid a multiplicity of actions, especially where the defendant makes no objection to such possible separate actions.
[Ed. Note.—For other cases, see Equity, Cent. Dig. §§ 167-171; Dec. Dig. | 51. ]
4. Equity (§ 383 )—Federal Courts—Change op Form of Action.
Where a bill in equity, filed in a federal court by numerous complainants, states a separate cause of action at law in favor of each complainant against the defendant, but no ground of jurisdiction in equity, the suit should not be dismissed, but each complainant should be permitted to file a separate complaint.
[Ed. Note.—For other cases, see Equity, Cent. Dig. § 787; Dee. Dig. § 383. ]
Rogers, Circuit Judge, dissenting.
Appeal from the District Court of the United States for the Southern District of New York.
Suit in equity by Wentworth Watson and others against Henry E. Huntington and others. Decree dismissing the bill, and complainants appeal.
Reversed.
Plaintiffs, 38 in number, sued to have certain votes, east by defendant Huntington under a voting trust agreement, canceled so far as plaintiffs are concerned, and to have a conversion of the holdings of stock in the National Steel & Wire Company into the securities of the National Consolidated Wire & Cable Company set aside, so that plaintiffs, respectively, may be restored to their rights as owners of stock in the National Steel & Wire Company for the purposes of this suit, and that defendant Huntington may be decreed to account and pay over to plaintiffs, respectively, the entire amounts which they invested in their respective holdings of stock in the National Steel & Wire Company, and for other equitable relief.
The following facts are alleged in the bill:
Plaintiffs own shares in the National Steel & Wire Company, and all except one own securities of the National Consolidated Wire & Cable Company. Some bought prior to 1001; others-in 1001, 1905, and 1900. The National Steel & Wire Company, called the holding corporation, was organized about February 4, 1902; its only source of income being from the operations of certain subsidiary companies. A balance sheet of the books of the holding company for the period from July 1, 1903, to March 31, 1904, showed a surplus in favor of the company, whereas in truth this apparent surplus was fictitious and the liabilities were in fact largely in excess of the assets of the corporation, as the directors knew. Details of the bill show suppression of the fact of hypothecations, pledges, and of certain guaranties of obligations which were outstanding and unpaid, losses in business, and insolvency in April, 1901. Notwithstanding this condition of insolvency, on or before April 1, 1901, and from and after January 13, 1903, the directors had caused dividends to he paid on the preferred stock of the holding corporation. About April, 1904, Huntington and Webster entered into a plan and agreement to promote the sale of stock of the holding corporation in order to carry on the business and to provide funds to pay themselves an agreed price for their interest in a subsidiary corporation, the Safety Insulated Wire & Cable Company. The scheme was that balance sheets and reports should be issued showing that the holding corporation was the absolute owner of the shares of stock of the subsidiary companies and that dividends should be continued, notwithstanding the condition of insolvency. In aid of the plan, about May 17, 1904, Huntington was appointed by the directors of the holding company a managing director, and on May 19, 1901, a voting trust to continue for three years from September 1, 1904, was authorized by the board of directors of the holding company. The trustees under this voting trust were defendants Huntington. Mills, and Monroe. Under' the voting trust the trustees a greed to inform the stockholders of the condition of the corporation, of its business and its progress; Plaintiffs, relying upon the representations contained in the voting trust agreement and upon the well-known financial reputation and business experience of the trustees, surrendered their respective certificates of stock and all their rights represented by the stock, including the right to vote for three years from September 1, 1904.
But the defendant Huntington failed to inform the stockholders of the true condition of affairs and as managing director participated in the declaration of dividends, although the corporation was insolvent, and thereby falsely represented that the corporation was not insolvent, and took part generally in the doings under the plan agreed upon with Webster.
The voting trust is charged to have been contrived by Huntington and Webster to aid them in preventing the plaintiffs, stockholders in the holding corporation, from learning the true condition of their company and to enable Huntington, as a voting trustee, to approve on behalf of plaintiffs of his and Webster's doings by voting stock in favor of resolutions validating what had ibeen done. Huntington and Webster dominated and controlled the .board of directors of the holding company and subsequent, to April 30, 1904, controlled a large majority of the stock of the Safety Insulated Wire & Cable Company, a subsidiary company, for which they paid $15 a share but which they sold to the holding company at $70 a share, and in that way Huntington and Webster claimed to be creditors of the holding company in a large sum, so that the holding company became indebted to Huntington and Webster in large sums, as evidenced by notes of the holding company secretly secured by stock of the subsidiary company as collateral, in violation of the charter and by-laws of the holding company
Thereafter, in execution of the scheme charged, Huntington and others, constituting the executive committee of the holding company, issued false reports for distribution in promoting stock sales, and in 1901 1905, and 1900 fraudulently represented to plaintiffs that the corporation was earning dividends and was a great success, and did other tilings which induced some of the plaintiffs to moke further investments and to turn over their rights under the voting trust agreement heretofore referred to.
Plaintiffs say that Huntington and Webster, knowing that the holding company could not continue to carry on its business, about February, 1906, organized the National Consolidated Wire & Cable Company for the purpose, among others, of taking over the securities of the holding company and issuing its own securities in exchange therefor. This new corporation was organized with dummy officers and directors and has transacted no business except on January 15, 1906, when the dummy board authorized an issue of 18,000,000 of bonds secured by preferred stock of the holding company. Huntington and Webster, keeping up the purpose of having plaintiffs remain ignorant of the real facts, issued reports of the holding company and of the National [Consolidated Wire & Cable Company for the year ending June 30, 1906, fraudulently representing that the business of the holding company was more than satisfactory and that it owned certain subsidiary campanies. Thereafter receivers were appointed for certain of the subsidiary companies and for the holding corporation. Plaintiffs say that they were deluded by the course of misrepresentation and deceit on the part of Huntington down to the time when receivers were appointed.
The bill was dismissed for lack of equity and because of multifariousness. Plaintiffs appeal.
Isaac W. Dyer, of Portland, Me., Bristol & White, of New Haven, Conn., Frederick H. Siggin, and Carl W. Smith, for appellants..
Beventritt, Cook & Nathan, of New York City (Walter C. Noyes and Alfred A. Cook, both of New York City, of counsel), for appellee Huntington.
Before COXF, ROGERS, and HUNT, Circuit Judges.
For other eases see same topic & § number in Dec. & Am. Digs. 1907 to áate, & Rep’r Indexes

Opinion:
HUNT, Circuit Judge
(after stating the facts as above). At the outset it is to be noted that one of the plaintiffs, Herbert Francis Smith, alleges that he bought shares in the National Steel & Wire Company in 1905, and that he is "still" the owner of the same number of shares that he bought in the holding corporation. It is true that in a subsequent paragraph of the complaint there is an allegation that "all" of the plaintiffs were induced to surrender their certificates of stock and right of voting the same in the holding company to the voting trustees and to convert their holdings into the securities of the National Consolidated Wire & Cable Company. Nevertheless, under the special averment as to Smithj he should be judged as a stockholder in the original holding company and not asking to be restored to the position of stockholder in the holding corporation.
The suit is not brought by plaintiffs in behalf of themselves and all other stockholders in the holding company who may desire to become parties plaintiff thereto; nor are plaintiffs suing in behalf of the corporation, which is not even a party to the bill. The real object of the suit is to recover the amounts which plaintiffs respectively invested in their respective holdings in the holding company, and in order to get their money they ask the court to remove such impediments as plaintiffs think will be necessary to have removed before they can recover.
The conspiracy charged was a continuing one initiated by arrangement with agents in England whereby stock sales were to be promoted in order to raise money to carry on the business of the holding company and to provide money for paying the defendant Huntington and one Webster an agreed price for their interest in a certain one of the subsidiary corporations, and continued always with the purpose of stock selling even until the plaintiffs had converted their stock into securities of the National Consolidated Wire & Cable Company. Reduced to a few words, this was the scheme charged: The conspirators persuaded certain of the plaintiffs as investors to come into the holding company, and when they had been drawn in they deceived them, as well as others who had already bought stock, as to the affairs of their corporation and misled them to such an extent as to induce them to surrender the control of their stock to the conspirators who, by the exercise of such control, carried on the scheme and were enabled to manipulate the concerns of the holding corporation and further deceive plaintiffs to their damage, even in some instances inducing them to invest more money, so that finally they were left with stock in a corporation much impoverished by wrongs of the conspirators.^
Now from such a position plaintiffs wish to be relieved by some decree which will compel defendant Huntington to pay back to them the amounts paid by them respectively for their stock. They want to get out whole. It appearing, however, that some of the plaintiffs bought their stock prior to the 1st of April, 1904, which was before the origin of the conspiracy charged, clearly such persons, in the first instance at least, were not drawn in by the acts of any combination as charged. As to them the conspirators' wrongs consisted in having persuaded them to enter into the voting trust and thereafter in having deceived them concerning corporate affairs and in having acted as charged under the voting trust. Such persons could not herein recover the amounts paid for their stock upon the ground of false representations made before they bought shares. The relief they ask is plainly based upon a different state of facts from that relied on by those who came in because of fraudulent representations. May the two groups nevertheless unite in one bill claiming relief in equity because all went into the voting trust agreement and were victimized by the acts done by defendant Huntington, and this irrespective of the time when they obtained their shares? In other words, may the bill be sustained in equity as stating grounds for a return of the money paid? We think not, and for these reasons:
The object of the complaint being a recovery of damages specifically named to be the respective sums put in by plaintiffs respectively, an accounting is wholly unnecessary. Nor is it at all necessary that the votes of the trustees under the voting trust should be set aside, or that any conversion of the stock of the holding company be canceled, for if defendant Huntington was guilty of the frauds charged by plaintiffs in fraudulently misrepresenting things after plaintiffs became stockholders, and they relied upon the false representations, each of the plaintiffs can recover damages upon the ground of fraud and his remedy at law is full and adequate. U. S. v. Bitter Root Development Co., 200 U. S. 451, 26 Sup. Ct. 318, 50 L. Ed. 550; Buzard v. Houston, 119 U. S. 347, 7 Sup. Ct. 249, 30 L. Ed. 451. Upon a trial at law for fraud defendant Huntington could not successfully defend upon the ground that the voting trust and his acts' thereunder relieved him, or that any plaintiff's rights were affected by the con-
version of his shares into securities of the consolidated company. The mere charges of fraud will not give equity jurisdiction; nor will averments of conspiracy and violation of trust authorize a court of equity to take jurisdiction when the gist of the action is one arising in tort for which a defendant is liable in damages where the damages can be just as readily ascertained at law as in equity. The familiar rule is well stated in Hipp v. Babin, 19 How. 271, 15 L. Ed. 633:
"Wherever a court of law is competent to take cognizance of a right, and has power to proceed to a judgment which affords a plain, adequate, and complete remedy without the aid of a court of equity, the plaintiff must proceed at law, because the defendant has a constitutional right to a trial by jury."' Hoot v. Railway Co., 105 U. S. 189, 26 L. Ed. 975; Scott v. Neely, 140 U. S. 106, 11 Sup. Ct. 712, 35 L. Ed. 358; Cates v. Allen, 149 U. S. 451, 13 Sup. Ct. 883, 977, 37 L. Ed. 804; Walker v. Railway Co., 165 U. S. 593, 17 Sup. Ct. 421, 41 L. Ed. 837; American Publishing Co. v. Fisher, 166 U. S. 464, 17 Sup. Ct. 618, 41 L. Ed. 1079.
.The latest expression of the Supreme Court is to be found in Curriden v. Middleton et al., 232 U. S. 633, 34 Sup. Ct. 458, 58 L. Ed. 765, decided March 16, 1914.
Having shown that an action at law will give to any one of the plaintiffs all the relief that he is entitled to, each plhintiff may for himself begin an action; and, as the defendant Huntington does not ask the court to retain jurisdiction in order to save him from many suits, upon what principle can plaintiffs invoke equity? Not that if plaintiffs sued at law separate actions would have to be instituted, for there is in the action no class, and no representatives of a class are-affected.
It is said that, inasmuch as there are 38 plaintiffs and practically the same evidence wohld have to be produced 38 times with the same questions of law to be determined, the remedy at law would not be as-practical and efficient as this single suit. Along this line-argument is-made that plaintiffs should be properly joined in equity to avoid a multiplicity of suits, and authorities are cited sustaining the rule that Pomeroy lays down in his text (section 245, Pomeroy's Equity Jurisprudence) to the effect that where a number of persons have separate- and individual claims and rights of action against the same party, but all arise from some common cause, are governed by the same legal rule, and involve similar facts, and the whole matter may. be settled in a single suit brought by all these persons uniting as plaintiffs, or one-of the persons suing on behalf of the others, or even by one person, suing for himself alone, equity will take jurisdiction. But an examination of the authorities convinces us that a mere community of interest in matters of law and fact does not make it admissible to bring all plaintiffs- into one suit in equity in order to avoid a multiplicity of actions.
In Tribette v. Railroad Co., 70 Miss. 182, 12 South. 32, 19 L. R. A. 660, 35 Am. St. Rep. 642, the court said that it never could be established on authority "that a defendant sued for damages by a dozen different plaintiffs, who have no community of interest or tie or connection between them, except that each suffered by the same act, may bring them all before a court of chancery in one suit, and deny them their right to prosecute their actions separately at law, as begun by them." And the court said further, if Pomeroy's test be maintained, in a -hundred actions for damages arising out of the wreck of a railroad train in some of which executors or administrators, or parents and children, might sue for the death of a passenger, and in others claim might be made for divers injuries, all of such numerous plaintiffs having a community of interest in the questions of fact and law, claiming because of the same occurrence, depending on the very same evidence, and seeking the same kind of relief, could be brought before a court of equity in one suit to avoid a'multiplicity of suits.
The Mississippi case was 'commented on in Southern Steel Co. v. Hopkins, 157 Ala. 175, 47 South. 274, 20 R. R. A. (N. S.) 848, 131 Am. St. Rep. 20, 16 Ann. Cas. 690. In the Alabama case the facts were that 110 persons lost their lives in an explosion in a mine owned by the Southern Steel Company; 110 separate suits were filed by their representatives to recover damages for alleged negligence by the owner of the mine. The corporation, alleging that it had a perfect defense applicable alike to all the suits, filed a bill to enjoin the actions at law until such defense could be determined. Thus the question of jurisdiction was raised, and the court held that, independent of special grounds for proceeding in equity, jurisdiction would be assumed to prevent a multiplicity of suits by settling in a single casca right or transaction which at law involved the trial of numerous cases, entailing loss of time and perhaps ruin in costs. The principle upon which the court sustained the right for equitable interference to avoid a multiplicity of suits was that, where numerous parties are jointly and severally claiming against one, and the same title or 'right of defense will be called in question and will be determinative of the issues for or against all, equity will interpose to avoid a multiplicity of suits and there need be no aid by way of independent equity. The court adverted to the case of Tribette v. Railroad Co. as being directly opposed to the views being expressed. But the Supreme Court of Alabama afterwards in the same case on a second appeal (Southern Steel Co. v. Hopkins, 174 Ala. 465, 57 South. 11, 40 L. R. A. [N. S.] 464) reversed the decision just referred to after stating the question involved in the following manner:
•'Has a court of equity jurisdiction to enjoin numerous tort actions, brought by different plaintiffs against the same defendant, when there is merely a community of interest in the questions of law and of fact involved, and no common title, no community of interest or of right, in the subject-matter?"
The court discussed the text of Pomeroy and noticed that the Tribette Case has been followed by Bliss on Code Pleading, § 76, Beach on Injunctions, § 543, and High on Injunctions, § 65a, calling attention also to the fact that in the last edition of Pomeroy two new sections are added (section 251% and section 251%), wherein the author is regarded as modifying the views be had expressed in the original text upon which the plaintiffs in the present case rely. The court well states that the distinction between a community of interest in the subject-matter which will support the jurisdiction of chancery to prevent a multiplicity of suits and the common interest in questions of law and of fact which will not support it is illustrated in the Tribette Case and is said to be a right enjoyed in common with all the parties and in such manner that the invasion of the right of one is an invasion of the right of all, such as a right of common fishery.
In the Turner Case, 135 Ala. 73, 33 South. 132, the court says that:
"It would seem to be an elementary and fundamental proposition tbat a party who seeks to come into equity must himself have an equity, or he cannot maintain a bill. The wholly fortuitous, accidental, and collateral fact that numerous other persons have like, but entirely independent, • legal rights, estates, or defenses cannot upon any conceivable principle invest him with any right, legal or equitable, and that his rights whatever they may be, are precisely the same as if no other person had similar rights."
The mere fact that a defendant has committed a tort by which he injured one or a hundred parties cannot give him 'an equity to prevent each and every one of the parties so injured from maintaining an action against him to recover damages. If there had been a combination or conspiracy between such numerous parties to vex and harass the complainant by numerous suits, then he would have an equity to enjoin their prosecution, but the mere fact that his tort has injured a hundred persons and that it will save him and the court time and lessen the expense of. the litigation does not give him any equity to come into a court of chancery to enjoin or prevent a multiplicity of suits. We do not find anything in Hale v. Allinon, 188 U. S. 56, 23 Sup. Ct. 244, 47 L. Ed. 380, in conflict with this statement of the rule.
It was said by Mr. Justice Peckham in Equitable Life Assurance Society v. Brown, 213 U. S. 25, 29 Sup. Ct. 404, 53 L. Ed. 682, that it does not rest'with complainant to urge as a foundation for his suit that a defendant may thereby be saved a multiplicity of suits by other parties when the defendant raises no objection to such possible suits and urges no such ground for jurisdiction in equity of the complain- ' ants' suit. Boise Artesian Water Co. v. Boise City, 213 U. S. 276, 29 Sup. Ct. 426, 53 L. Ed. 796; Vandalia Coal Co. v. Lawson, 43 Ind. App. 226, 87 N. E. 47; Cumberland Telephone Co. v. Williamson, 101 Miss. 1, 57 South. 559; Illinois Central v. Baker, 155 Ky. 512, 159 S. W. 1169. It follows that the holding of the District Court that the plaintiffs showed no ground for equitable relief must be affirmed.
It being our conclusion, however,-that there is a legal cause of action stated in the complaint, plaintiffs should not be turned out of court, but each should be permitted to alter the complaint by adopting such parts thereof as he may be able to utilize as a basis for his complaint at law. The essentials of the present pleading may be adopted under the suggestion just made. Such a practice does not depart from the text'or spirit of equity rule 22 (198 Fed. xxiv, 115 C. C. A. xxiv). Cherokee Nation v. Kansas Ry. Co., 135 U. S. 641, 651, 10 Sup. Ct.. 965, 34 L. Ed. 295; Schurmeier v. Connecticut Mutual Life Insurance Co., 171 Fed. 1, 96 C. C. A. 107; Dancel v. Goodyear Shoe Machinery Co., 144 Fed. 679, 75 C. C. A. 481; U. S. Bank v. Lyon County, 48 Fed. 632.
The order dismissing the bill is reversed, and the cause is remanded, with directions to transfer the case to the law docket and to permit the filing of an altered complaint by each of the plaintiffs.