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Gallup v. Caldwell

May 21, 1941

GALLUP
v.
CALDWELL ET AL.



Appeal from the District Court of the United States for the District of Delaware; John P. Nields, Judge.

Author: Goodrich

Before MARIS, JONES, and GOODRICH, Circuit Judges.

GOODRICH, Circuit Judge.

This action was instituted by Bella Gallup, a resident of New York, as a shareholder of the Indian Territory Illuminating Oil Company, a New Jersey corporation, to recover for the company damages resulting from an alleged waste of its assets and earnings. Indian Oil, two parent corporations and several directors were joined as defendants. The complaint described various methods allegedly employed by the defendants to divert the assets of Indian Oil over a period of years beginning with 1930. Certain acts were alleged to have taken place in November of 1937, April of 1939, and one practice complained of was alleged to be continuing at the time the complaint was filed, August 16, 1939. It was averred that the plaintiff was a shareholder of Indian Oil at the time of the transactions complained of, but in pargraph 16(c), which complained of certain specific transactions, plaintiff stated that she did not know whether or not those transactions took place prior to the time that she became a shareholder. The corporate defendants filed motions for a more definite statement or for a bill of particulars with respect to parts of the complaint and to dismiss paragraph 16(c) as not complying with Rule 23(b) of the Rules of Civil Procedure, 28 U.S.C.A. following section 723c.*fn1 Thereafter the plaintiff filed a motion for discovery and leave to take depositions.

Upon the hearing on these motions the defendants submitted an affidavit dated December 13, 1939, by the assistant secretary of Indian Oil that no stock of the company stood of record in the name of BellaGallup or Bella Gallup Freedman or Bertha Freedman. Thereafter the plaintiff filed an affidavit stating that she had been the owner of 100 shares of stock in the company from April 27, 1937 "continuously to date" and in support thereof submitted photostatic copies of a confirmation slip and a letter from Ira Haupt & Co., brokers, showing the purchase for the account of Bertha Freedman of 100 shares of Indian Oil and stating that certificates therefor, registered in brokers' names, had been delivered to the purchaser. Photostatic copies of these certificates, which had been endorsed in blank (two on November 27, 1936, and one on May 5, 1937) were also submitted. In her affidavit plaintiff swore that the account at Ira Haupt & Co., although carried for "reasons of convenience" in the name of her daughter, Bertha Freedman, was her account and that the securities were at all times her property. Attached was a photostatic copy of an affidavit by Bertha Freedman confirming this statement.

The court below, D.C., 32 F.Supp. 711, 713, filed an opinion stating that it could not "find that plaintiff was the owner of stock of Indian Company at the time of the grievances complained of or, in fact, at any time." Plaintiff's petition for a hearing on the question of her stock ownership was denied and the court entered an order dismissing the complaint. Plaintiff thereupon appealed to this court.

The case presents several problems, not all of which were raised at the argument, and some of which appear to us in a different fashion than they apparently did to counsel for either side, or the court below. To their consideration we pass.

Speaking Motion.

First. We are met at the outset by the question whether it was proper for the court below to make a preliminary investigation, which carried it outside of the pleadings, as to the plaintiff's stock ownership. It is to be noted that the question involved is not one going to the jurisdiction of the court. Venner v. Great Northern Ry., 1908, 209 U.S. 24, 28 S. Ct. 328, 52 L. Ed. 666; compare McNutt v. General Motors Acceptance Corp., 1936, 298 U.S. 178, 56 S. Ct. 780, 80 L. Ed. 1135; KVOS, Inc. v. Associated Press, 1936, 299 U.S. 269, 57 S. Ct. 197, 81 L. Ed. 183; Central Mexico Light & Power Co. v. Munch, 2 Cir., 1940, 116 F.2d 85. The problem which, restated, is whether the Federal Rules of Civil Procedure countenance a "speaking" motion to dismiss, has been much discussed since the adoption of the Rules. Each side of the question has drawn to it distinguished proponents. Their arguments and reasons are collected in a note in 9 Geo.Wash.L.Rev. 174 (Dec. 1940). We think that such procedure should be permitted especially in the kind of situation here presented. See 1 Moore's Federal Practice 645. Despite plaintiff's allegation of stock ownership it is clear that she was not a stockholder whose ownership was registered on the books of the corporation at the time suit was instituted. If record ownership is a prerequisite to the right to bring this action, then it is expedient that the point be decided preliminarily. The alternative would be to sanction discovery and perhaps other pre-trial proceedings likely to be exceedingly burdensome upon both parties only to have the case ultimately dismissed at the trial because of the plaintiff's inability to prove a fundamental but initial point. This would not only be a needless waste of the court's time but it would run counter to the mandate of Rule 1 that the Rules "be construed to secure the just, speedy, and inexpensive determination of every action."

In so holding, we do not indicate that disputed questions of fact involved in the merits of claim or defense may necessarily be fought out as preliminary issues raised upon motions. The affidavits filed by the parties here raised no fact controversy, but a question of law. No problem arising out of a possible claim to jury trial is involved. The question of law thus raised is the next point for consideration.

Second. Does the applicable law require that the plaintiff be a stockholder of record? It is established that this plaintiff was not registered shareholder, at the time the action was begun. The question is not merely a procedural one, such as whether an action may be maintained by the real party in interest who is not the owner of a legal title (Goodrich, Conflict of Laws, 2d Ed. 1938, 191), but the substantive one whether one who is not a shareholder of record may assert shareholder's rights either on behalf of or against the corporation. That is a question of the law of New Jersey, the state under the law of which this company was incorporated. Section 182 of the Restatement of Conflict of Laws provides that "Whether a person is a sareholder or other member of a corporation is determined by the law of the state of incorporation".

Preliminarily we must determine whether that law is known to us.

Judicial Notice.

Third. The rule is well established that federal courts in exercising original jurisdiction take judicial notice of the law of every state.Thus in Owings v. Hull, 9 Pet. 607, 624, 625, 9 L. Ed. 246 Justice Story said: "The circuit courts of the United States are created by congress, not for the purpose of administering the local law of a single state alone, but to administer the laws of all the states in the Union, in cases to which they respectively apply. The judicial power conferred on the general government, by the constitution, extends to many cases arising under the laws of the different states. And this court is called upon, in the exercise of its appellate jurisdiction, constantly to take notice of and administer the jurisprudence of all the states. That jurisprudence is, then, in no just sense, a foreign jurisprudence, to be proved in the courts of the United States, by ...


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