Court Opinion

ID: 9446992
Source: CourtListenerOpinion
Date Created: 2023-08-03 22:23:01.75785+00
Date Added: 2024-06-11T17:30:51.856755
License: Public Domain

WATERMAN, Circuit Judge
(concurring in part and dissenting in part).
I concur in ordering that Case No. 25525, D.C.Conn. Civil No. 7304, the “trust action,” be dismissed.
*376I also agree that with respect to Case No. 25577 we need not consider the grounds urged upon us for reversal of the interlocutory injunction order of March 12, 1959, since that order was issued in Civil No. 7304 and our order directing that the complaint be dismissed in that action also disposes of the injunction appeal.
I differ from my colleagues in their disposition of Case No. 25524, D.C.Conn. Civil No. 7303, the stockholder’s action. In that action Judge Smith granted appellants’ motion to dismiss the complaint as to one defendant, the Seymour Corporation of Delaware. There is no appeal from this order. However, Judge Smith, though dismissing as to the corporation, retained in the case its liquidation trustees. I would affirm that order. I would also affirm Judge Smith in his denial of the motion to dismiss this stockholder’s derivative action as to the other defendants.
In view of the detailed opinion of the court below, Matthies v. Seymour Manufacturing Company, D.C.Conn.1958, 23 F.R.D. 64-101, I shall adopt as many short cuts as I can and avoid repetition where reference to that opinion will do as well. I disagree with my colleagues wherein they hold that for George Mat-thies to maintain this secondary action he must first establish his power to represent the trusts. Obviously the trustees who Matthies claims have unreasonably refused to sue represent the trusts and hold legal title to the substantial blocks of stock that the trusts own in the Seymour Manufacturing Company. I also disagree with the court below when it so held. 23 F.R.D. 64, 90, 91. Matthies claims that, predicated upon his status as a presumptive remainderman and beneficiary of the trusts he is an “equitable and beneficial” shareholder of the Seymour Manufacturing Company,1 and was such a shareholder during all the pertinent times that he alleges Seymour Manufacturing Company was mulcted and defrauded. It would clearly appear that his remainderman’s interest in the entire corpora of the trusts would be in excess of one million dollars, and that a substantial part of these corpora were these blocks of Seymour Manufacturing Company stock.
I do not find it necessary for Matthies to represent the trusts in the stockholder’s action, or to hold as does the court below that he could properly bring a class action for the trust beneficiaries. Nor do I agree with my colleagues that, whether he can do so or not in the state courts, he cannot do so in the U. S. District Court.
This action is brought to recover losses the corporation allegedly wrongfully sus*377tained through improper actions of its officers and directors. Whatever may be recovered on behalf of the corporation benefits the corporation’s treasury, and does not result in adding to the funds of the trusts, or in adding to the funds of George Matthies, except as the value of the corporate stock in Seymour held by the trusts may be enhanced by success of the suit. Plaintiff sues on behalf of himself and all other stockholders of Seymour Manufacturing Company, not on behalf of himself and his fellow beneficiaries of the Matthies trusts. Therefore the initial issue I find decisive here with reference to the defendants’ attack upon diversity jurisdiction is the issue the court below so adequately treated in the opinion below, 23 F.R.D. at pages 85-90: Did George Matthies stand in the position of a shareholder of the Seymour Manufacturing Company at the time of the events alleged in his complaint to have taken place ? My colleagues discuss that issue at the end of the majority opinion. They hold that a trust beneficiary in the position of George Mat-thies is not, within the meaning of Rule 23(b) a “shareholder” of a corporation whose corporate stock is held by the trustees of the trust, and hence he has no standing to so sue. I would hold the opposite. I do so on the opinion below, both because of the admirable presentation of the law on the point, but also for the sake of dissent brevity. It is my belief, however, that Judge Smith, having correctly decided (at pages 85-90) that George Matthies was a “shareholder” under Rule 23(b), should not have belabored a resolution (at pages 90-91) of whether the other beneficiaries of the Matthies Trusts were required to be joined with shareholder George as indispensable parties, or whether George was instituting a class action for his fellow-beneficiaries within the framework of a class action for all the stockholders of the Seymour Manufacturing Company, It was consistent, perhaps, with his approach to Civil Action No. 7304, the trust action, for him to have done so. And it is also consistent, perhaps, for the majority, here, since we have reversed the result in No. 7304, to hold that George had to show that he was the representative of the trusts and that the other beneficiaries of the trusts had to be joined.
In my belief, both the court below and my colleagues here err. Rule 23(a) and Rule 23(b) both codified the existing law at the time of the promulgation of the Rules of Civil Procedure. In Galdi v. Jones, 2 Cir., 1944, 141 F.2d 984, a case appealed from the District Court of Connecticut in which the facts and status of pleadings were not completely dissimilar from the situation in the case now before us, we pointed out, 141 F.2d 992, that F.R.Civ.P. 23(b) was in effect merely a continuation of former Equity Rule 27. We said: “The history of 23(b) makes it plain that the requirements of 23(a) — as to the existence of a numerous class, adequate representation of the class and the like — do not apply to such actions.” And we pointed out (footnote 3b, at page 992) that under Equity Rule 27 a single stockholder could sue without any such showing as is required by F.R.Civ.P. 23(a). And see also our affirmation of that position by Clark, C. J., in Goldstein v. Groesbeck, 2 Cir., 1944, 142 F.2d 422, 425, 154 A.L.R. 1285, certiorari denied 1944, 323 U.S. 737, 65 S.Ct. 36, 89 L.Ed. 590.
I would hold that plaintiff has the right under Rule 23(b) solely by himself, as a “shareholder” within the meaning of that rule, to maintain this secondary action as a shareholder of Seymour, irrespective of any other of his relationships. Granting the right to sue, clearly he may sue in the U. S. District Court2 *378since Matthies is undeniably a citizen of California. The defendants’ challenge to the district court’s diversity jurisdiction fails, therefore, unless this jurisdiction is obtained by collusion (23(b) (2)).
Briefly, I mention the other grounds advanced by defendants in support of their moves to dismiss the complaint. Of course such a discussion is unnecessary in the majority opinion.
Defendants maintain that the action is a collusive one, and the court below conducted a preliminary hearing thereon. I subscribe to the analysis of these claims by Judge Smith, 23 F.R.D. 64, 84, and would affirm his decision that the jurisdiction of his court was not sought col-lusively in the sense that Rule 23(b) (2) forbids collusion.
I would also affirm on the District Court opinion its resolution of the claim that plaintiff here has “unclean hands.” Nothing is to be gained by restating the specific allegations or elaborating upon the opinion with respect to them. However, it may not be amiss to comment my specific approval of the excellent discussion in the opinion below with respect to the extraordinary contention that a bona fide offer to compromise an about-to-be-entered lawsuit is blackmail when the offer seeks nothing more than the maximum relief prayed for in the complaint.
All other requirements of Rule 23(b) are fully complied with. The forty-five page complaint, in which there never is recourse to “upon information and belief,” is verified by oath, the complaint quite plainly shows that the trustees of' the Matthies trusts could have brought this derivative action on behalf of Seymour Manufacturing Company, and it is-equally plain that they would not do so. Hence it is my belief that it is equally plain, also, that this action ought in equity to be permitted to be brought by a remainderman who is the owner of an equitable and beneficial interest in the-stock.3
Therefore, I would remand No. 25524,. D.C.Conn. Civil No. 7303, to the district court for such further pleadings and such, further action there as may be appropriate.

. The interest of George Matthies in the trusts is found at 23 F.R.D. 64, 99. The George Matthies trust (Paragraph II of Complaint) has held 762 shares of The Seymour Manufacturing Company since 1922. It also held 889 shares of The Seymour Corporation of Delaware, a corporation since liquidated. The Annie Matthies trust (Comp. Ill) has held 2500 shares of The Seymour Manufacturing Company since 1939. There are 9852 issued and outstanding shares of Seymour of which the trusts hold 3262 (Comp. VII). Batiscan, not separately discussed in the dissent, is a wholly owned subsidiary of Seymour (Comp. VIII). George Matthies properly pursues the alleged wrongs committed against Batiscan as a “double derivative” action within his derivative action against the holding company. See 23 F.R.D. 64, 90. It would appear that on October 21, 1957 (Comp. XIV(6)) an individual defendant owned 10 shares, and that Bernard Matthies, father of the plaintiff, owned 1441 shares, and at no time throughout the years concerned had Bernard held less than 1400 shares (Comp. XV) and that the trustees of the Matthies trusts (Comp. XVII) through their holdings of 3262 shares of Seymour stock, being 37% of it, together with Union and New Haven Trust Company, holding 18% of the stock, controlled Seymour in February 1957 and blocked a move by Bernard Matthies for a special meeting. It is alleged that Seymour’s physical properties alone are in excess of $7,-000,000 and that it owns substantial other-property (Comp. VII). The complaint seeks, of course, to recover yet other properties allegedly wrongfully diverted from it.

. It should be noted that the Seymour Manufacturing Company is a Connecticut corporation, and that a stockholder’s suit brought for the purpose of asserting a corporate cause of action, i. e., a derivative suit, in legal effect is the corporation’s suit conducted by the stockholder who for the purposes of the suit is the corporation’s representative, and the corporation is, of course, an indispensable party to the litigation. Were the corporation here a party complainant, diversity would be destroyed. Historically, however, the corporation never is a party *378plaintiff even though the suit is brought for its benefit. It is a party defendant, is represented by different counsel than the complaining stockholder, and resists the action, as here. See Smith v. Sperling, 1957, 354 U.S. 91, 77 S.Ct. 1112, 1 L.Ed.2d 1205, and Swanson v. Traer, 1957, 354 U.S. 114, 77 S.Ct. 1116, 1 L.Ed.2d 1221, indicating that the corporation is to be joined as a defendant rather than as a plaintiff.

. Plaintiff alleges (Comp. VII) that:
“At all times herein mentioned since the death of the said settlor George E. Matthies on April 11, 1922, there has been, and there now is, vested in the plaintiff an equitable and beneficial interest in the said 762 shares of common stock of The Seymour Manufacturing Company included in the corpus of the said George E. Matthies Trust. At all times herein mentioned since the death
of the said Annie W. Matthies on November 22, 1939, there has been, and there now is, vested in the plaintiff an equitable and beneficial interest in the said 2500 shares of common stock of The Seymour Bianufacturing Company included in the corpus of the said Annie IV. Matthies Trust. The plaintiff George C. Matthies further alleges that he was-a beneficial and equitable shareholder of The Seymour Manufacturing Company at the time of each and every transaction of which he complains herein.”
And he alleges (Comp. XVIII) that he brings this suit
“as an equitable and beneficial stockholder of The Seymour Manufacturing Company in behalf of all stockholders in said corporation for the benefit of the said The Seymour Bianufacturing Company, and for the benefit of its wholly owned subsidiary Batiscan Company.”