Court Opinion

ID: 9638353
Source: CourtListenerOpinion
Date Created: 2023-08-22 15:41:57.724352+00
Date Added: 2024-06-11T18:10:05.955149
License: Public Domain

FRANK, 'Circuit Judge
(dissenting).
1. As my colleagues’ opinion shows, there are now pending in the court below two stockholders’ derivative suits against the defendants, based on the same claim, and asking the same .relief, i. e., the Mottolese suit and the earlier Martini suit.1 Plaintiff moved to consolidate those two suits, but one of the defendants successfully opposed that motion. Since, however, a stay of the Mottolese suit will be academic unless the Martini suit is also stayed, I take it that my colleagues are, in effect, directing Judge Bondy to stay the Martini suit. I shall therefore discuss the decision as if it involved a stay of the Martini suit.
The Martini suit was begun on July 21, 1947, less than three weeks after the first state-court suit was brought (July 2, 1947), and when no others were pending. At that time, no steps of any significance had been 'taken in the state-court suit, so that, practically, the situation was the same as if the Martini suit had been begun a day after the state-court suit. Since the Martini suit began, there have been merely pleading maneuvers in the consolidated state-court suit; so far as the record here shows, the pleadings there have not yet been settled and the case is far from being ready for trial.2
*305Thus the legal issue here boils down to this: A plaintiff begins an in personam suit in the state court in New York City against some defendants. The next day, another in personam suit, on the same claim against the same defendants,3 is brought, under the diversity clause, in the federal district court in the same city. Has the federal district court, on these facts alone, discretion, on defendant’s motion, to grant a stay of the federal suit, at a time when the state-court suit is not yet ready for trial? My colleagues say that it does, although they concede that the stay will kill off the federal suit for all practical purposes (excepting only, under a condition now prescribed by my colleagues, the limited purpose of affording plaintiff aid in discovering some evidence for use in the state-court suit).
That decision goes a long way towards wiping out a substantial part of the diversity of citizenship jurisdiction of the federal courts, a jurisdiction with roots deep in our national history, a jurisdiction conferred because of a highly cherished policy. My colleagues’ decision is without precedent in any decisions of the Supreme Court or of any circuit court (including this court). Indeed, it is directly against the teaching of all such decisions including one rendered by my colleagues i. e., Krauss Bros. Lumber Co. v. Louis Bossert & Sons, 2 Cir., 62 F.2d 1004, 1006.
In support of their ruling, my colleagues rely on (1) the doctrine of forum non conveniens and (2) that of multiplicity of suits. Combining these doctrines, they conclude that merely the inconvenience to defendants of possibly defending two actions, one in a federal and one in a state court in the same city, suffices to justify staying the federal action, unless the plaintiff shows that that inconvenience to the defendants is outweighed by disadvantages to him which will flow from the stay. Thus my colleagues put on the plaintiff the burden of showing why his federal suit should not be stayed. The Supreme Court, I think, has decided that precisely the contrary is the applicable rule.
In Landis v. North American Company, 299 U.S. 248, 255-256, 57 S.Ct. 163, 166, 81 L.Ed. 153, the Court said that “the suppliant for a stay must make out a clear case of hardship or inequity in being required to go forward. * * * ” And there — although both suits were in the federal courts —the Supreme Court sanctioned a stay only because the issue was one of “extraordinary public moment.” Even so, said the court, “the burden of making out the justice and wisdom of a departure from the beaten track lay heavily” on the defendant seeking the stay. In Meredith v. City of Winter Haven, 320 U.S. 228, 234-235, 64 S.Ct. 7, 11, 88 L.Ed. 9, the Court said: “The diversity jurisdiction was not conferred for the benefit of the federal courts or to serve their convenience. Its purpose was generally to afford to suitors an opportunity in such cases, at their option, to assert their rights in the federal rather than in the state courts. In the absence of some recognized public policy or defined principle guiding the exercise of the jurisdiction conferred, which would in exceptional cases warrant its non-exercise, it has from the first been deemed to be the duty of the federal courts, if their jurisdiction is properly invoked, to decide questions of state law whenever necessary to the rendition of a judgment. Commonwealth Trust Co. v. Bradford, 297 U.S. 613, 618, 56 S.Ct. 600, 601, 80 L.Ed. 920; Risty v. Chicago, R. I. & P. Ry. Co., 270 U.S. 378, 387, 46 S.Ct. 236, 240, 70 L.Ed. 641; Kline v. Burke Construction Co., 260 U.S. 226, 234-235, 43 S.Ct. 79, 82, 83, 67 L.Ed. 226, 24 A.L.R. 1077; McClellan v. Carland, 217 U.S. 268, *306281-282, 30 S.Ct. 501, 504, 505, 54 L.Ed. 762. When such exceptional circumstances are not present, denial of that opportunity by the federal courts merely because the answers to the questions of state law are difficult or uncertain or have not yet been given by the highest court of the state, would thwart the purpose of the jurisdictional act.” See also Commonwealth Trust Co. v. Bradford, 297 U.S. 613, 56 S.Ct. 600, 80 L.Ed. 920; Princess Lida v. Thompson, 305 U.S. 456, 465-467, 59 S.Ct. 275, 83 L.Ed. 285, cf. Propper v. Clark, 69 S.Ct. 1333. In many cases, the federal circuit courts have held that federal diversity suits may not be stayed in favor of pending state-court suits, where the facts were like (or stronger than) those before us here. See, e. g., Krauss Bros. Lumber Co. v. Louis Bossert & Sons, 2 Cir., 62 F.2d 1004, 1006; North Woods Club v. Raymond, 6 Cir., 54 F.2d 1017, 1018; Miami County Nat. Bank v. Bancroft, 10 Cir., 121 F.2d 921, 924; Asiatic Petroleum Corp. v. Italia Societa, etc., 3 Cir., 119 F.2d 610, 613; General Outdoor Advertising Co. v. Williams, 1 Cir., 12 F.2d 773; Consumers Gas Co. v. Quinby, 7 Cir., 137 F. 882, 893; Barber Asphalt Paving Co. v. Morris, 8 Cir., 132 F. 945; Defiance Water Co. v. City of Defiance, C.C.Ohio, 100 F. 178.4
As I read those Supreme Court and circuit court decisions, they come to this: (1) Presumptively a plaintiff has a right to maintain a federal diversity suit, notwithstanding an earlier state suit; (2) in very exceptional circumstances, however, the federal trial judge has discretion to grant a stay; (3) a defendant who asks a stay has a heavy' burden of showing that such exceptional circumstances exist.
It is true, as my colleagues say, that since McClellan v. Carland, 217 U.S. 268, 30 S.Ct. 501, 54 L.Ed. 762, the Supreme Court has held that a stay of the federal suit is proper where the circumstances are exceptional. The exceptional circumstances recognized up to and including the most recent Supreme Court decisions are the following, enumerated by Judge Hand: (a) a critical issue in the federal action is the proper construction of a state constitution or statute (but cf. Propper v. Clark, supra, as to a state statute); (b) the state provides an adequate administrative procedure; (c) the federal suit seeks a declaratory judgment and a state suit is pending which presents the same issues; (d) the federal suit involves interference in the “internal affairs” of a foreign corporation (but cf. Koster v. Lumberman’s Mutual Co., 330 U.S. 518 at page 527, 67 S.Ct. 828, 91 L.Ed. 1067). There are in the instant case no exceptional circumstances the same as or remotely resembling any of those thus heretofore recognized.
The sole fact to which my colleagues point as “exceptional” here is that the state suit commenced first. But never has that fact been regarded as enough. Whenever it has been urged as a ground for a stay, the upper federal courts have rejected it. See, e. g., Great North Woods Club v. Raymond, 6 Cir., 54 F.2d 1017; Krauss Bros. Lumber Co. v. Louis Bossert & Sons, 2 Cir., 62 F.2d 1004; Premier Malt Products Co. v. G. A. Ackerman Printing Co., 7 Cir., 24 F.2d 89; Byrd-Frost, Inc. v. Elder, 5 Cir., 93 F.2d 30; General Outdoor Advertising Co. v. Williams, 1 Cir., 12 F.2d 773; W. Reeves Lumber Co. v. Leavenworth, 5 Cir., 248 F. 686; Holmes County v. Burton Const. Co., 5 Cir., 272 F. 565; Boston & M. R. R. v. Dutille, 1 Cir., 289 F. 321; Barber Asphalt Paving Co. v. Morris, 8 Cir., 132 F. 945, 948-949; Consumers Gas Co. v. Quinby, 7 Cir., 137 F. 882, 893; cf. Commonwealth Trust Co. v. Bradford, 297 U.S. 613, 56 S.Ct. 600, 80 L.Ed. 920; Grubb v. Public Utilities Comm., 281 U.S. 470, 476, 50 S.Ct. 374, 74 L.Ed. 972.
Of particular interest is Krauss Bros. Lumber Co. v. Louis Bossert & Sons, 2 Cir., 62 F.2d 1004, 1006. There the plaintiff had begun a suit in the state court some six months before he began the federal suit. The state suit was at issue and on the trial calendar when defendant asked a stay of the federal suit.4 5 Yet Judge Learned Hand, with Judge Swan’s concurrence, *307refused to abate the federal suit. That decision was rendered in 1933.6 My colleagues point to no intervening decisions of this court or of the Supreme Court to explain their shift of position. True, since that date there have been decisions holding that unusual facts do permit the exercise of discretion in staying such a federal action; but, I repeat, there has been no intimation that the mere chronological priority of the state action is enough. The doctrine of Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487, will not serve as an explanátion, in the light of Meredith v. City of Winter Haven, supra; cf. Propper v. Clark, 69 S.Ct. 1333.
Neither of the two decisions in other circuits cited by my colleagues employed or even discussed any distinction between a case where the state-court action is begun before and one where it is brought after the federal action: (1) In In re President and Fellows of Harvard College, 1 Cir., 149 F.2d 69, the court held the stay improper because the circumstances were not exceptional; there is nothing in the opinion indicating that the decision would have been otherwise if the state suit had been begun first. Significantly, the court, after citing with approval Great North Woods Club v. Raymond, 6 Cir., 54 F.2d 1017 — a case where the state-court suit was prior in time — said: “The later decision in Eric R. Co. v. Tompkins, supra, has not weakened the authority of McClellan v. Carland, which was cited with approval in Meredith v. Winter Haven, supra (320 U.S. 228 at page 234).” [149 F.2d 73.]
(2) In Butler v. Judge, 9 Cir., 116 F.2d 1013, 1015, the two suits were not of the ordinary in personam type but involved the quieting of title to specific property. While the rationale of that decision is not entirely clear to me, the court did not suggest that it would have stayed the action if it had not involved specific property. Whether or not that decision was sound, it does not support my colleagues’ position.
I cannot agree with my colleagues that the stay here can be brought within the forum non conveniens doctrine. I think that it is one thing (1) to dismiss a federal suit because of the serious “inconveniences which may arise from compelling a defendant to stand trial at a distance from the place where the transactions have occurred” (when, be it noted, the plaintiff can begin again in the federal court in another district) and quite another thing (2) to arrest a federal diversity suit because it. will require the defendant “to defend another action on the same claim”- — where both actions are brought in the very same place. To treat (1) and (2) identically, as my colleagues do, is, I say, to shift to the plaintiff the burden of proving that the stay is improper. , In Gulf Oil Corp. v. Gilbert, 330 U.S. 501; 67 S.Ct. 839, 843, 91 L.Ed. 1055, the Court said, as to the rationale of forum non conveniens: “There is a local interest in having localized controversies; decided at ho-me.” 7 That rationale has no pertinence in this case.
Nor can I agree that the multiplicity-of-suits doctrine is applicable. There is now but one suit pending in the state court. There are two in the federal court, only because (as earlier noted) one of the defendants successfully opposed plaintiff’s motion to consolidate the Mottolese and Martini suits; as they ought now be consolidated, and are not thanks solely to a defendant’s objection, we should treat the case as if there were but one state and one federal action. The pendency of but a single other suit would, at best, be a slim basis for invoking the multiplicity doctrine. More to the point, it has never been invoked in a context such as that here. If there is the requisite “multiplicity” here, there was fully as much “multiplicity” in the Krauss Bros, case, supra, where the state suit was set for trial but my colleagues refused to abate the later federal suit. And what of the cases cited above where other circuits have ruled similarly?
2. Even assuming, arguendo, that plaintiff has the burden my colleagues put upon him, I think he has borne it. For he has pointed to the notorious fact that, in the *308New York courts, the procedure for examination before trial is far less satisfactory than in a federal court. Not only have learned commentators so explained,7a but so also has an official New York body, the Judicial Council; for several years the Council has unsuccessfully urged legislation to remedy some of those glaring defects of the state procedure, defects which have caused much litigation.8 The defects are most notable in the First Department, where the state-court suit against the defendants here is pending.
Among the weaknesses of the state procedure is this: A pre-trial examination is allowed only on an affirmative showing that each item of the examination is “material and necessary”;9 under the Federal Rules the deponent may be examined regarding any matter “relevant to the subject matter involved in the pending action,” a phrase which has not received any restrictive interpretations similar to those given by the New York courts to the word “necessary.” In a suit like this, where it is likely that none of the relevant facts are within the personal knowledge of the stockholder plaintiffs, full examination before trial is vital.10
On these facts alone, I think the stay should have been denied (especially as the plaintiff has stated her willingness to stipulate that there will be no duplication of pre-trial testimony in the state and federal courts). Moreover, in the state court, many interlocutory appeals are permitted, as a matter of right,11 so that the course of an action there is far more cumbersome. Illustrative is the fact that, in the very state suit here, there has already been an interlocutory appeal from an order denying motions to dismiss the complaint. As experience shows, the delays resulting from such appeals12 will in all probability more than offset any delay in the federal suit due to the crowded docket in the Southern District of New York.13
It is also pertinent that the state law does not guarantee as complete protection as the federal to the stockholders who do not be*309come parties to the action. Rule 23(c) of the Federal Rules of Civil Procedure expressly requires that before a derivative action in the federal court can be dismissed or compromised, notice of the proposed dismissal or compromise shall be given to all stockholders in such manner as the court directs. In the New York courts, on the other hand, while the compromise or dismissal is subject to the judg-e’s approval, there is no law requiring13a notice to the stockholders who have not appeared in the action. This is most important, for the compromise of the suit will generally bar ■subsequent derivative actions on the sanie facts, and if the stockholders are not notified of the settlement, they may lose their rights without ever having known of them.
Instead of concluding that, all else aside, •the procedural disadvantages in the state court rendered it clearly an abuse of the trial judge’s discretion to stay this suit, my colleagues resort to a roundabout technique to bolster his order. They say that the order may stand on the basis of a condition not imposed by the trial judge, i. e., that the defendants in the state court consent to the use in that suit of any answers to pretrial questions properly put to the defendants in the federal suit. Thus the sole remaining purpose of the federal suit is to aid in discovery of facts for use in the state court. This is a novel suggestion. Indeed, whenever it has appeared to a district judge that the sole purpose of a federal suit was to aid discovery of evidence for use in a state suit-, discovery has been denied. DeSeversky v. Republic Aviation Corp., D.C., 2 F.R.D. 183; Empire Liquor Corp. v. Gibson Distilling Co., D.C., 2 F.R.D. 247; Bachrach v. General Investment Corp., D.C., 31 F.Supp. 84; Snap Lite Corp. v. Stewart Warner Corp., D.C., 40 F.Supp. 776.
However that may be, the condition imposed by my colleagues, if satisfied, will not cure the defects in the state procedure: (1) It will not preclude many interlocutory appeals as of right by the defendants in the state suit. (2) It will not ensure notice to all stockholders of a settlement. (3) Most important, it will not give plaintiff the same freedom he would have in the federal court to examine, before trial, persons other than defendants in the federal suit. A plaintiff in the state court is in that respect particularly hamstrung; in general, he can there, before trial, examine such persons only by demonstrating that they will not be available as witnesses at the trial.
Consider, then, the complications which may ensue. If the plaintiff desires to examine before trial any non-defendants who will be available at the trial, he will have to apply to the federal district court; presumably that court will permit such examination on condition that the defendants in the state suit consent that the testimony of such non-defendants may (if relevant) be used in thát suit. Thus the intertwining of the two suits will yield more complications than would occur if the federal action were allowed to continue wholly unrestricted.
This also should be noted: There are some persons who are defendants in the state suit but not in the federal suit. As to them, my colleagues’ condition will leave plaintiff hampered. For pre-trial examination of those persons, since they are not parties to the federal suit, will be governed by the narrower state rules as to non-parties, whereas, were the federal suit to continue unrestricted, those persons could be examined freely.
My colleagues indicate that, after all, no harm is done to plaintiff by the stay because he can at any time apply for its modification, if the state suit is delayed or the stay becomes more oppressive than it now is. In the Landis case, the Court answered a similar suggestion by saying that “to drive a plaintiff to that course is to make him shoulder a burden that should be carried by” the defendant asking the stay, and that an improper order “is not to be up*310held * * * because conceivably the court that made it may be persuaded at a later time to undo what it has done.”14
I think we should direct that the motion for a stay' be denied and that this action be consolidated with the pending Martini action.

 As my colleagues’ opinion states, the Martini suit -was a consolidation of two suits originally brought by Turner; but he later dropped out, and the consolidated suit was continued by Martini, who was an intervenor.

 The original state-court'action, Waterman Corporation v. Johnston, was commenced in the Supreme Court, New York County, on July 2, 1947. Similar suits were filed by other stockholders, and the actions in the state court were consolidated on November 28, .1947. The plaintiffs made a motion therein, returnable on May 28, 1948, for the appointment of a receiver and for injunctive relief. On September 16, 1948, — Misc. —, 85 N.Y.S.2d 462, Mr. Justice Pécora denied for the time being the appointment of a receiver, but enjoined the officers and directors of San-Nap-Pak from taking any acts other than in the normal course of the corporation’s business. An order to that effect was entered October 11, 1948. *305Meanwhile, on July 2, 1948 the plaintiffs moved for leave to bring in additional parties defendant and to serve a supplemental complaint. This motion was granted on September' IS, 1948. On January 10, 1949 various motions addressed to the sufficiency of the complaint were denied by Mr. Justice Uder. This decision was appealed to the Appellate Division, First Department, which on April 12, 1949, 275 App.Div. 106, 87 N.Y.S.2d 467, rendered an opinion dismissing two causes of action as to certain defendants, with leave to the plaintiffs to amend.

 In the consolidated state-court suit, there are some defendants who are not defendants in the federal court.

 See also cases cited in 1 C.J. 87 note 22; 1 C.J.S., Abatement and Revival, § 67, page 101 note 85.

 These record facts were set forth in detail in defendant’s brief in that case.

 Seo remarks by Judge L. Hand, in Bryant v. Atlantic Coast Line Co., 2 Cir., 92 F.2d 569, 571 decided in .1937.

 gee also Koster v. Lumberman’s Mutual Insurance Co., 330 U.S. 518, 524-526, 67 S.Ct. 828, 91 L.Ed. 1067.

 See, e.g., Saxe, Examinations Before Trial in New York, 36 Law Lib.J. (1943) 112.
Compare the remarks of Mr. Justice Lumbard in Peyton v. Coulson, 190 Misc. 754, 74 N.Y.S.2d 730, 732: “This case is an illustration of the need for revision ■of the antiquated New York law respecting examinations before trial. These litigants have been required to add three applications to an already congested motion calendar in order to obtain relief which would be available under the more efficient Federal Rules of Civil Procedure without any application to the court * * *.”
See also Tremblay v. Lyon, 176 Misc. 906, 29 N.Y.S.2d 336, 340, where, in denying plaintiff the right to examine defendant before trial, the court said: “Under the new Federal Rules of Civil Procedure, Rules 26 and 30, 28 U.S.C. A. following section 723c, such an examination would be granted as of course.”

 See New York Judicial Council, 8th Annual Report (1941) 361-377.

 New York Civil Practice Act, § 288 provides: “Any party to an action in a court of record may cause to be taken by deposition, before trial, his own testimony or that of any other party which is material and necessary in the prosecution or defense ok'the action. * * * Any party to such an action also may cause to be so taken the testimony of any other person, which is material and necessary, where such person is about to depart from the state, or is without the state, or resides at a greater distance from the place of trial than one hundred miles, or is so sick of infirm as to afford reasonable grounds of belief that he will not be able to attend the trial, or other special circumstances render it proper that his deposition should be taken.”

 See Hornstein, Legal Controls for Intracorporate Abuse, 41 Col.L.Rev. (1941) 405, 416-422.

 N. Y. C. P. A. § 609. I favor amendments to the federal statutes allowing many kinds of interlocutory appeals within the discretion of the upper courts.

 For a convincing brief picture of the dilatory character of such appeals, see the annotations to Sections 588, 589 and 609 of the New York Civil Practice Act.

 Apart from the argument of delay, that condition of the docket deserves no consideration here. Congress did not say that the right to prosecute a federal diversity of citizenship suit should depend on the number of district judges available. The problem of a paucity of district judges should be met directly — by asking Congress to authorize the appointment of more judges in the Southern District. A bill to that effect is now pending. I sincerely hope it passes *309promptly, in order to relieve the overworked trial judges, whose tasks are more complex and arduous than those of the circuit judges. But there is nothing to commend eiforts to reduce work through emasculating interpretations of the judicial code.

 Rule 8 of the New York Rules of Civil Practice authorizes, but does not require, such notice.

 299 U.S. at page 257, 57 S.Ct. 163, 81 L.Ed. 153.