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SALE v. PITTSBURGH STEEL CO.

October 20, 1944

SALE
v.
PITTSBURGH STEEL CO. et al.



The opinion of the court was delivered by: SCHOONMAKER

This is an action by plaintiff, a citizen of New York, and also a stockholder of Pittsburgh Steel Company, against that Company and other defendants named, in which plaintiff asks for an injunction restraining defendants: (1) From entering into any further contracts or transactions with any corporation or companies owned or controlled by defendant J. H. Hillman, Jr.; and (2) enjoining such officers and directors of Pittsburgh Steel Company as are interested in other companies which compete with, or which have contracts, dealings or transactions with defendant Pittsburgh Steel Company, from continuing to act as such officers and directors. The plaintiff further asks the court to rescind and set aside: (1) An exchange of stock of Pittsburgh Steel Company for stock of National Supply Company; (2) to set aside and rescind contracts of August 14, 1940, wherein Pittsburgh Steel Company advanced to Hillman Coal & Coke Company approximately $369,750, and to direct the repayment of that sum to Pittsburgh Steel Company; (3) to cancel and set aside all management contracts entered into by Pittsburgh Steel Company, and any of defendant companies providing for the management of the mining operations of Pittsburgh Steel Company; and (4) for other relief not necessary to mention.

The various defendants made motions to dismiss the complaint under the provisions of Rule 12(b) of the Rules of Civil Procedure, 28 U.S.C.A. following section 723c, which we will now consider.

 Among the motions to dismiss were those filed by defendants Henry J. Miller, Frank F. Brooks, Charles E. Beeson, W. Edgar Reed, S. N. Hutchison, Jr., Theodore W. Friend, Joseph H. Carter, Albion Bindley, John U. Anderson, and W. G. Sutherland. At argument, their counsel did not press these motions, and they will be denied.

 The motions to dismiss as to defendants W. Vance Harper, W. H. Rowe, Jr., H. Bacon Collamore, and Harold F. Reindel, on account of improper venue, were admitted by plaintiff's counsel to be valid. An order will be made granting these motions.

 The plaintiff is resisting the motions to dismiss of J. Milton Hughes and Henry A. Roemer, residents of Ohio, who were served with process in this District. Plaintiff contends that this court has jurisdiction over these defendants by virtue of the provisions of Section 51 of the Judicial Code, 28 U.S.C.A. § 112, the pertinent part of which reads as follows:

 "* * * but where the jurisdiction is founded only on the fact that where the action is between citizens of different States, suit shall be brought only in the district of the residence of either the plaintiff or the defendant; except that suit by a stockholder on behalf of a corporation may be brought in any district in which suit against the defendant or defendants in said stockholders' action, other than said corporation, might have been brought by such corporation and process in such cases may be served upon such corporation in any district wherein such corporation resides or may be found."

 In our opinion, this statute does not support plaintiff's contention. Plaintiff's right to sue is limited by this statute to districts where the corporation might have sued the defendants. The Pittsburgh Steel Company could not have sued all the defendants in the United States District Court of this District, because some of the defendants are residents of this District, and the requisite diversity of citizenship would be lacking as to those who are residents of this District. It is plain that all the defendants must be non-residents in order to satisfy the requirement of diversity of citizenship. See Camp v. Gress, 250 U.S. 308, 314, 39 S. Ct. 478, 63 L. Ed. 997. We therefore conclude that the motions of defendants Hughes and Roemer must be granted.

 Defendants Hillman Gas Coal Company, Hillman Coal & Coke Company, Pittsburgh Coke & Iron Company, J.H. Hillman & Sons Company, Emerald Coal & Coke Company, J. H. Hillman, Jr., Richard M. Marshall, W. L. Affelder, and D. G. Sisterson, filed a motion to dismiss this action. In this motion they assign four reasons for the granting of the motion; but on argument they pressed only the fourth reason, which is as follows:

 "4. The complaint fails to aver, as required by Rule 23(b) of the Rules of Civil Procedure, that the plaintiff was a shareholder at the time of the transactions of which she complains or that her shares thereafter devolved on her by operation of law."

 This rule provides that plaintiff, in secondary actions by stockholders "shall aver that the plaintiff was a shareholder at the time of the transaction of which he complains or that his share thereafter devolved on him by operation of law."

 The complaint in this case (Par. 9) avers that plaintiff, on or about March 31, 1938, acquired ten shares of preferred stock of Pittsburgh Steel Company; and that in September 1939 she acquired fifty shares of the common stock of that Company; and that she is, and at all times since said date has been, the owner and holder of such stock. That averment, in our judgment, meets the requirement of Rule 23(b).

 The conspiracy charged is stated in Paragraph 47 of the complaint, as follows:

 "47. J. H. Hillman, Jr., one of within defendants, at the times hereinafter mentioned has conspired and connived with the other defendants within named to utilize the power of their offices as directors and officers of Pittsburgh Steel Company and exercise their control over the business of Pittsburgh Steel Company in such manner as to enable the said J. H. Hillman, Jr. and the aforesaid companies which he controls and controlled as aforesaid, in fraud and derogation of the rights and interests of holders of stock of the Pittsburgh Steel Company, unlawfully to divert and appropriate its assets to and thereby unjustly enrich themselves at the expense of said Pittsburgh Steel Company by means of contracts and transactions between said Pittsburgh Steel Company on the one hand and on the other the said companies controlled by said J. H. Hillman, Jr. as aforesaid, whereunder the said J. H. Hillman, Jr., and the said companies under his control as aforesaid ...


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