Opinion ID: 1490531
Heading Depth: 1
Heading Rank: 4

Heading: The Law of New Jersey.

Text: Fourth. Since New Jersey law applies and since this court takes judicial notice of the law of New Jersey, the next question is, What is the law of New Jersey on the point involved? This question is more easily asked than answered, for we find some apparent contradictions in the New Jersey decisions. In Mateer v. New Jersey Telephone Co., 1927, 135 A. 663 a per curiam decision by the Supreme Court said that the complainant must show by legal evidence that he is a stockholder and that means that his status must appear on the books of the company. Apparently to the same effect is the language in Hodge v. United States Steel Corp., 1902, 64 N.J.Eq. 90, 53 A. 601, affirmed, 1903, 64 N.J.Eq. 807, 54 A. 1, 60 L.R.A. 742. But subsequent to the Hodge decision the problem was discussed in characteristically able fashion by Vice-Chancellor Pitney. He limited and distinguished the Hodge case and concluded that he was unable to perceive why a clear title to the shares of stock, with the immediate right to have the stock transferred on the books of the company, does not give the owner a right to the ear of this court to protect his interest in the corporation and its management. O'Connor v. International Silver Co., 1904, 68 N.J.Eq. 67, 59 A. 321, 324. The adjudication was affirmed by the Court of Errors and Appeals, 1905, 68 N.J.Eq. 680, 62 A. 408 for the reasons given by the Vice-Chancellor. The Mateer case may be distinguished on the basis that it was an action for a writ of mandamus. See the report of subsequent proceedings in Mateer v. New Jersey Telephone Co., 1927, 136 A. 317, 5 N.J. Misc. 261. The instant case involves an action which, under former practice, would have been brought on the equity side of the court. We conclude that under the law of New Jersey an equitable owner may bring an action such as this. [2] Plaintiff's allegation that she was the owner of 100 shares of stock of Indian Oil plus the papers submitted by her were sufficient to establish her right to maintain this action as against the affidavit submitted by the defendants, which proved only that she was not a shareholder of record. Fifth. This brings us to the last and perhaps the most difficult point in the case. Of what acts may the shareholder complain? Is she limited to those which have occurred since she became a shareholder or may her action reach those which took place before that time? At the argument the court was presented with a conflict between Delaware decisions which, it was said, adopted the latter view and the provisions of Rule 23(b) of the Federal Rules of Civil Procedure which require an averment that the plaintiff was a shareholder at the time of the transaction of which he complains   . This particular problem the court is not compelled to meet because we think that the plaintiff's rights here are not determined by the law of Delaware, where the action was brought in the federal District Court, but by the law of New Jersey, the state of incorporation. The right of a shareholder to object to conduct occurring in the operation of the corporate enterprise is determined by the law of the state of incorporation. This includes acts that are beyond the purposes of the corporation, acts which are prohibited either by the state of incorporation or by the state where the acts are to be performed and acts which are alleged to be beyond the authority of the officers or directors. Restatement, Conflict of Laws § 183, comment b. It is when we come to examine the law of New Jersey that the difficulty arises. In Pollitz v. Gould, 1911, 202 N.Y. 11, 94 N.E. 1088, 38 L.R.A.,N.S., 988, Ann.Cas. 1912D, 1098, the court cited Appelton v. American Malting Co., 1903, 65 N.J.Eq. 375, 54 A. 454 as committing New Jersey to the rule that a stockholder may complain of transactions occurring prior to his acquisition of the stock. We do not so read the Appelton case. In 13 Fletcher, Cyclopedia of the Law of Private Corporations § 5980, New Jersey is listed as a jurisdiction where a stockholder may sue, although he purchased his shares after the transaction complained of. But the cases cited do not sustain this conclusion. In Elkins v. Camden & Atlantic R. R., 1882, 36 N.J.Eq. 5 the appeal was to enjoin acts proposed to be taken by the corporation and although the shareholder purchased his stock after negotiations had commenced he was not complaining of any past actions. In Hodge v. United States Steel Corp., 1902, 64 N.J. Eq. 111, 53 A. 553 and in General Inv. Co. v. Bethlehem Steel Corp., 1917, 87 N.J.Eq. 234, 100 A. 347 the actions were not representative suits, but were actions brought by the shareholders to protect their own rights as shareholders. Indeed in the Hodge case the opinion particularly recognized that the question might be different if the suit were purely a representative one. Compare with the last two cases Hodge v. United States Steel Corp., 1902, 64 N.J. Eq. 90, 53 A. 601 and Trimble v. American Sugar Refining Company, 1901, 61 N.J.Eq. 340, 48 A. 912. The conclusion is that the point is not a settled one under the law of New Jersey. Under such circumstances the proper course seems to be to follow the rule laid down in Rule 23(b). The discussion of this Rule in Moore's Federal Practice indicates some considerable basis for argument that the rule is substantive in character. If it is, Moore states, It is subject to challenge in the Federal Courts in those states which have no such requirement   . Moore's Federal Practice, p. 2250 et seq. On this interesting point we express no opinion one way or the other. Until the state law is found to be in conflict it seems clearly the duty of a lower federal court to follow the rules which the Supreme Court has promulgated for its guidance. [3] We conclude, therefore, that the plaintiff may complain only of acts occurring subsequent to her becoming the owner of shares in the defendant company. The order of the District Court is reversed and the case is remanded, with directions that it be reinstated for further proceedings, not inconsistent with this opinion. JONES, Circuit Judge, concurs in the result.