Court Opinion

ID: 9446878
Source: CourtListenerOpinion
Date Created: 2023-08-03 22:20:23.525011+00
Date Added: 2024-06-11T17:30:48.837028
License: Public Domain

MOORE, Circuit Judge
(dissenting).
For many years, particularly in the Southern District and to some extent in other large metropolitan areas, one of the principal causes of trial calendar delays has been the time consumed by the trial of the protracted case, namely, a case which would require trial time of a judge of three to eight months. There have been protracted conferences by Bench and Bar as to ways and means of remedying the situation. Some results have been achieved by merely putting these cases to one side but the backlog nevertheless remains.
As is so frequently the case with procedural reforms, they come long after the need therefor has arisen. One of the reforms finally enacted was the adoption of the só-called Interlocutory Appeals Statute (28 U.S.C.A. § 1292(b)). This statute Was intended to give to the trial judge who is charged with the responsibility of facing a future burdened by one of these protracted eases discretion in sending some important phase of the case which might materially advance the ultimate termination of the litigation to an appellate court for review. In this case the trial court, recognizing that his decision “enables a relatively small stockholder interest to plunge two large corporations into inevitably long and expensive litigation which, should this determination be erroneous, would result in a futile waste of time and money by both the plaintiffs and the defendants,” has granted a certificate in which he says the order involves “a controlling question of law as to which there is substantial ground for difference of opinion” and that “an immediate appeal from the order may materially advance the ultimate termination of the litigation;”. Such a certification, in my opinion, is entitled to great weight and should not be rejected unless it is apparent on the face that the considerations which prompted the trial court to issue it have no basis in law or fact. It certainly cannot be said that this new statute has opened the floodgates to needless appeals because thus far a bare trickle of interlocutory appeals has flowed into the stream of appellate litigation. Nor should it be the role of appellate courts judicially to nullify, in effect, the statute without at least giving it a fair trial to see whether the beneficial purpose for which it was enacted may not result in the disposition or the material shortening of the long case. Surely no better example of the type of case which moved the supporters of the statute to action can be found than in that here presented. (See House Report No. 1667, 85 Cong. 2d Sess., pp. 1, 2; Senate Report No. 2434, 85 Cong. 2d Sess., pp. 3, 4.) Milbert v. Bison Laboratories, 3 Cir., 1958, 260 F.2d 431, does not apply because the sole *199basis of the decision was the failure of the district court judge to make the certificate and the failure of counsel to apply for permission to appeal within 10 days. The two reports of House and Senate from which quotations were made indicate that this might well be the type of case to which the interlocutory appeals section should apply because they refer to “protracted and expensive litigation,” “long drawn out cases” and cases where a long trial would be necessary for the determination of liability or damages upon a decision overruling a defense going to the right to maintain the action. Certainly it will be too late so far as time and expense are concerned at the end of any hearing on the merits to determine that the plaintiffs had no right to bring this action.
Consideration must now be given to the substantive law involved. It is a fundamental principle of corporate law that the management of a corporation is vested in its directors. No individual stockholder is empowered to take over the reins of corporate management. There are certain circumstances, however, which permit a stockholder in a derivative capacity to sue on behalf of his corporation. Before this radical step is permitted certain definite facts must be alleged and proved. Thus, if the directors are personally guilty of misfeasance or malfeasance so that a suit should be instigated against them by the corporation for damages, it would be but natural that they would not be likely to authorize a suit against themselves. Upon such allegations a stockholder would be justified in seeking to represent the corporation. However, this is by no means the situation here. When analyzed it appears that there is no charge whatsoever in the complaint that the directors or any of them have personally profited at the expense of the corporation or that the proposed derivative stockholders suit seeks damages from or even names any director of General Motors as a defendant. There is no showing as to the names of any of the directors of General Motors, their business affiliations, their connection, if any, with the defendant du Pont, or the circumstances under which they were elected directors. There is no allegation that any one of the directors is beholden to du Pont in a business way or personal way. The only allegation is that du Pont owned approximately 23% of the outstanding common stock of General Motors, followed by the allegation that by reason of this fact “du Pont’s stock interest in General Motors exerted a potent influence on the affairs of General Motors, promoted the acts and transactions herein alleged, and induced General Motors to participate therein.” There is the further allegation that “defendant du Pont had working control (sometimes hereinafter referred to as ‘control’) over General Motors, which permitted it to nominate and elect and/or dominate and control the majority of the Board of Directors and/or officers of said corporation, and to select and/or dominate and control a large part of the personnel of said corporation concerned with the acts and transactions herein alleged, to determine a large part of said corporation’s policies including those relating to said acts and transactions, and to cause General Motors to participate in said acts and transactions.” There is no allegation that any demand was made upon “the managing directors or trustees,” namely, the Board of Directors but only an allegation that no demand had been made on the body of stockholders of General Motors. This failure is attempted to be excused by alleging that if the majority of stockholders had demanded that suit be brought it would not have been honored by General Motors Board of Directors. No facts in support of such allegation are set forth. There is no presumption in corporate law that the mere holding of 23% of stock in another corporation is sufficient to justify a stockholder in imposing upon the corporation the burdens and expenses of a protracted law suit against the 23% stockholder. However, the least that should be done here before isolating some trial judge for a period of many months *200to try such case as there may be is to make sure that at the outset this time and effort will not be wasted.
From a procedural point of view the plaintiffs quite apart from the ultimate merits of the suit itself should be required to substantiate the allegations that the 23% du Pont stock interest was responsible for all of the so-called domination and control alleged in paragraph 7 of the complaint. These plaintiffs holding a small amount of stock, as the trial judge said, have no right to “plunge two large corporations into inevitably long and expensive litigation” unless they can establish this right at the threshold. It is not too much to ask these plaintiffs to make specific charges and to prove them rather than to create a new principle of corporate law that the ownership of less than 25% of the stock is to be an irrebuttable presumption of domination and control. The question before the court below goes far beyond “the mere form of plaintiffs’ allegations” (as says the majority) and deals with the allegations essential to entitle these plaintiffs to proceed. However, the merits of the question are not, and should not be, before the court on this application. Enough appears both from the trial court’s certification and from the legal issues involved to entitle the appeal to be heard on the merits. I find it quite inappropriate to suggest that, were the majority of the stockholders to ratify action properly taken, minority shareholders would be compelled to get around this difficulty and “to shift slightly the legal theories on which they rely so as to raise charges of fraud, waste of corporate assets, or the like” (see majority opinion). It scarcely behooves the courts to suggest to litigants that they can satisfy pleading formalities merely by alleging fraud and waste. More seemly would it be to require (as does the law) that fraud charges (if the facts support them) be made as a prerequisite to bringing the action. At least then the party alleging fraud will be under the burden of proving it. Nor is there any presumption that every major antitrust case “is almost sure to result in stockholder attack.” This practice may develop if the legal requirements for bringing such suits are abolished but every governmental attack upon alleged monopoly does not carry with it the presumption of director or stockholder wrongdoing.
The court below relied on Delaware and Hudson Co. v. Albany and Susquehanna Railroad Co., 1909, 213 U.S. 435, 29 S.Ct. 540, 544, 53 L.Ed. 862, saying, “The facts here presented are governed by the ruling in the Delaware case * * * ” A reading of that case shows that the directors and executive officers of both companies were virtually the same. The Supreme Court said that “The situation was unique” and that “Rule 94 is intended to have practical operation, and to have that it must, as to its requirements, be given such play as to fit the conditions of different cases.” Furthermore the case came before the court after a final money decree. The Delaware case stands upon its own facts leaving other cases to be judged upon theirs.
In Cohen v. Industrial Finance Corporation, D.C., 44 F.Supp. 491, 493, the defendant corporation was the majority stockholder and as the court said the facts showing director domination were “pleaded with considerable particularity.” The same is true in Winkelman v. General Motors Corporation, D.C., 44 F. Supp. 960, 1022. There 22 out of 27 members of the Board were named as defendants. The court said “Directors could not be expected to sue themselves, on behalf of the Corporation, with any enthusiasm.” In Citrin v. Greater New York Industries, D.C., 79 F.Supp. 692, the allegations claimed that all members of the Board had participated in the acts complained of. This court said quite recently in Cathedral Estates v. Taft Realty Corporation, 2 Cir., 1955, 228 F.2d 85, 88, that demand on the directors or shareholders need not be made when it would be futile but also added that it need not be made “where the directors and controlling shareholders are anta go-*201nistic, adversely interested, or involved in the transactions attacked.” At least the complaint there alleged that no demand was made “for the reason that the individual defendants whose acts are complained of control Taft Realty and it would be futile to ask them to sue themselves.” Smith v. Sperling, 1957, 354 U.S. 91, 77 S.Ct. 1112, 1 L.Ed.2d 1205, involved the question of jurisdiction, although even there there were facts which showed that the defendant sought to be sued, namely, United States Pictures, Inc., was the corporation of the son-in-law of a director of Warner Bros. Thus in these cases far more is alleged than in the present complaint. Nor is it any answer to say that curative allegations could be made. The whole point of forcing a plaintiff to make an allegation sufficient in law is to force him to prove it if he is to prevail.
I would grant the motion for leave to appeal.