Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Overfield v. Pennroad Corp.

December 28, 1944

OVERFIELD ET AL.
v.
PENNROAD CORPORATION ET AL. (THREE CASES); WEIGLE ET AL. V. SAME (THREE CASES).



Appeal from the District Court of the United States for the Eastern District of Pennsylvania; George A. Welsh, Judge.

Author: Goodrich

Before BIGGS, JONES, and GOODRICH, Circuit Judges.

GOODRICH, Circuit Judge.

These actions were brought for an accounting and other relief against the Pennsylvania Railroad and certain individual defendants. The plaintiffs are shareholders of the Pennroad Corporation and have been joined in these actions by other shareholders as intervenors. The defendants are the Pennsylvania Railroad and certain individuals (or their personal representatives) who were directors or officers of the Pennsylvania Railroad Company and/or the Pennroad Corporation. The District Judge gave judgment in favor of the individual defendants for the reason that the suit was barred by lapse of time. He gave judgment in favor of the plaintiffs against the Pennsylvania Railroad, but not to the extent claimed by the plaintiffs. Both sides have appealed.

We consider first the problems arising out of the general question whether the liability of individual and corporate defendants is barred by lapse of time. The transactions of which the plaintiffs complained are eight in number and began in June, 1929, with the Detroit, Toledo & Ironton purchase. It has been found as a fact, and not disputed by either party, that "Neither of these suits was brought within six years after the commission of any act complained of."

The individual defendants in their respective pleadings pleaded limitations generally as well as laches and nonconcealment. The corporate defendant pleaded laches on the part of the plaintiffs in a sufficient fashion to permit the defense under any application of this doctrine.

The first problem is the orientation of this case into the law applicable in federal court. Federal jurisdiction is invoked solely on account of diversity of citizenship; there is no independent federal question involved in the plaintiffs' claims. If all the operative facts had occurred in Pennsylvania and the actions were of a type formerly cognizable on the law side of the federal court there is no doubt that the Pennsylvania statute of limitations would control as to their timeliness. The same is true where, upon local facts, an action formerly cognizable in equity, is brought in federal court and the local statute is applicable to local suits in equity. Where the suit is brought in equity and is not in aid or support of a legal right, the jurisdiction on the equity side is said to be "exclusive" and the limitation period applicable is determined by the doctrine of laches as applied in federal courts, assuming that there is no local statute applicable to suits in equity. Where, however, the jurisdiction of equity is "concurrent" with that at law or the suit is brought in aid of a legal right, the state statute of limitations applicable to legal remedies and rights will be applied in the equity suit. With these propositions which have been recently enunciated by the Supreme Court in Russell v. Todd, 1940, 309 U.S. 280, 60 S. Ct. 527, 84 L. Ed. 754, before us, their application to the present litigation will be discussed.*fn1

The problem of the individual defendants will first be considered. It is not necessary in this aspect of the case to separate these individuals with regard to their length of service with the Pennsylvania Railroad, the dates of their respective deaths, or any other matter which might distinguish individual cases. The sole question is based on the facts as above stated. They are immune from suit by reason of lapse of time.

The Pennsylvania Act of March 28, 1867, P.L. 48,*fn2 provides that " * * * no suit, at law or in equity, shall be brought or maintained against any stockholder or director in any corporation * * * to charge him * * * with any neglect of duty as such stockholder or director, except within six years after * * * the commission of such act of negligence by such stockholder or director." The trial judge applied this statute in favor of the individual defendants. The plaintiffs say this is error because, while the statute sounds in terms of "neglect of duty" the present action is based on fraud and this particular statute is, therefore, inapplicable.

Fraud in the sense of conscious misstatement or other deliberate misrepresentation is clearly negatived by the findings made by the trial judge. He found the lack of moral culpability on the part of the directors. "The findings of fact and conclusions of law in this case," he said, "in no way cast any improper reflection on the personal honor and integrity of the defendants." [42 F.Supp. 586, 629] The plaintiffs do not dispute this statement, which while not made as a formal finding of fact was submitted as such finding pursuant to a direction by this Court at the conclusion of the argument to list findings of fact, either from the opinion or formally made.

This rather sweeping statement is buttressed by others more specific which, while not agreed to by plaintiffs, are not seriously attacked in argument. Thus, the judge found: "Here again it may be conceded that the directors acted conscientiously and without deliberate fraud or any intent to benefit themselves." "It is believed that they acted honestly and conscientiously and that there was no element of fraudulent intent or bad faith on the part of any of the persons involved, and that their default resulted from a misconception of their fiduciary position and primary duties." " * * * the directors, who are men of unimpeachable character and integrity, acting in the interest of serving their companies, have misconceived their duties * * * ." "Their breach of duty and abuse of fiduciary obligations did not involve intentional moral delinquency." At the trial of the case only one of the individuals named as defendants was available as a witness. One was too ill to testify; the rest were dead. With the one exception noted, their own story of the conduct of events which led to this litigation was, therefore, not heard. Yet in their absence the findings of the trial judge upon the subject of personal culpability went the whole way to absolve them.The plaintiffs have not shown us and we cannot find that the findings of the trial court were clearly erroneous.

Moral fraud is thus clearly eliminated. We think it does not clear the view of the case to speak of what happened as "constructive" fraud. If the descriptive adjective means anything it means that something less than fraud is going to be called fraud so as to attribute to it the same consequence as that applicable to fraudulent conduct. If directors violate their duty to the corporation on whose board they sit we do not need to resort to fictitious allegations of fraud to hold them liable. They are responsible for the neglect of fiduciary duty. That we think is the substance of plaintiffs' charges against these individual defendants and that was the way it was regarded by the trial judge as shown in the excerpts from his findings of fact, above quoted. That neglect of duty is squarely covered by the terms of the Act of 1867 and the directors in this case fairly come within it.

This conclusion is fortified by the Pennsylvania decisions under this statute and the general statute of limitations. The Pennsylvania court has, in a case where the plaintiffs charged direct misappropriation of corporate funds by the managers of a railroad company, seemingly applied the six year limitation period of the Act of 1867 to an action brought against the directors after the expiration of that time by a shareholder. Link v. McLeod, 1900, 194 Pa. 566, 45 A. 340. The authority of the case is not quite complete since it does not appear in the opinion of the lower court, adopted by the Supreme Court, which statute was relied upon.*fn3

This decision was cited in a recent Pennsylvania case upon the subject, decided since this cause was submitted. Ebbert v. Plymouth Oil Co., 1943, 348 Pa. 129, 34 A.2d 493.*fn4 This, too, was an action by a shareholder suing in equity to compel a restoration to a corporation (also a Delaware corporation) of a sum of money plaintiff alleged to have been improperly expended by the corporation directors for a purpose for which corporate funds should not have been spent. The impropriety of the expenditure charged was so serious as to amount to a charge of misappropriation comparable to that in Link v. McLeod. Mr. Justice Horace Stern, writing the opinion for the Supreme Court of Pennsylvania, cited that decision and said in accepting that case as a precedent: "it would follow that the Act of 1867 is applicable to the present proceedings."*fn5 Then he went on to say that it is well established that equity will frequently adopt and apply the statute of limitations which controls analogous proceedings at law. One of those cases is where an accounting is sought, that being the case of concurrent equitable jurisdiction only. From that he concluded that whether the Act of 1867 was considered applicable to the then case ex proprio vigore, or that the general six year limitation should be adopted by way of analogy to proceedings at law, the result was the same. The six year limitation was applicable. The applicability of the general state of limitations to the defendants is discussed below, in connection with the limitations defense of the Pennsylvania Railroad. As shown there, we find it also applicable.

The words of the Pennsylvania statute, the findings as to the conduct of the directors of Pennroad and the application of the statute of limitations by the Pennsylvania courts clearly leave the directors free from liability in this litigation, except for the question of concealment. This will be considered later.

We turn now to the question whether the defense of lapse of time should be applied in favor of the Pennsylvania Railroad. Here the problem is whether the Pennsylvania general statute of limitations*fn6 limiting the time for bringing an action to six years is applicable or whether the plaintiffs are to be barred, if at all, by the general equitable doctrine of laches. If the general doctrine of laches governs, then we must examine the facts to see whether they make out such undue delay as to bar the plaintiffs because of the probable prejudice to the defendants through lapse of time. If the general statute applies, either of its own force or because equity adopts it as conclusive on delay, which would be the case if the equity jurisdiction here is concurrent with that at law, or in aid of a legal right, then no examination of facts is necessary.

The claims asserted in this case are claims by the corporation, Pennroad, against others who under the theory of the complaints have done things to the injury of Pennroad. The individual shareholder of Pennroad is concerned only because he has an interest in the corporate enterprise, not through any individual claim of his own against those who, by their wrongs, injure the corporation of which he is a member. What was claimed here was the failure of the directors of the Pennroad corporation to do their duty as such directors and the participation in their breach of duty by the corporate defendant, the Pennsylvania Railroad, whom they also served. For this claim an action at law could have been brought had the appropriate officers of Pennroad, through corporate action, desired to bring it.*fn7 The fact that an accounting was asked for in addition to money damages would not have changed the action at law to one cognizable exclusively in equity. Equity jurisdiction, where an accounting is sought from one who has breached a fiduciary duty, such as that owed by a corporate director, is concurrent with that at law.*fn8 The shareholder gets into the litigation only by a derivative suit. The right being enforced is that of the corporation of which he is a member. He gets into court because he shows that the corporation, through its appropriate officers, neglects or refuses to enforce rights belonging to the corporation, the enforcement of which will, of course, be to the advantage of all the shareholders. The proposition is carefully stated by Pomeroy*fn9 as follows:

"The stockholder does not bring such a suit because his rights have been directly violated, or because the cause of action is his, or because he is entitled to the relief sought; he is permitted to sue in this manner simply in order to set in motion the judicial machinery of the court. The stockholder, either individually or as the representative of the class, may commence the suit, and may prosecute it to judgment; but in every other respect the action is the ordinary one brought by the corporation, it is maintained directly for the benefit of the corporation, and the final relief, when obtained, belongs to the corporation, and not to the stockholder-plaintiff. The corporation is, therefore, an indispensably necessary party, not simply on the general principles of equity pleading in order that it may be bound by the decree, but in order that the relief, when granted, may be awarded to it, as a party to the record, by the decree. This view completely answers the objections which are sometimes raised in suits of this class, that the plaintiff has no interest in the subject-matter of the controversy nor in the relief. In fact, the plaintiff has no such direct interest; the defendant corporation alone has a direct interest; the plaintiff is permitted, notwithstanding his want of interest, to maintain the action solely to prevent an otherwise complete failure of justice."

The findings of the trial judge with respect to the unwillingness of the directors of Pennroad to enforce its alleged legal rights are sufficient to justify the resort to equity in a stockholder derivative suit.*fn10 But the fact that the share-holder gets into the litigation through a bill in equity does not change the fact that the right to be enforced is the legal right of the corporation.*fn11 We have then a situation where equity is resorted to merely as a means of enforcing a legal claim. The description usually given is that this is a situation where the jurisdiction of equity is concurrent. The jurisdiction is concurrent, although equity is resorted to as a means of putting the machinery in motion and although, also, the relief given by an equity court may in a given case be more complete and satisfactory than that afforded through a judgment at law.*fn12

Now what is the situation with regard to the application of a statute of limitations where a suit of this kind is in equity, but where the jurisdiction of equity is concurrent? In so far as that situation is governed by state decisions the Pennsylvania rule, fully and broadly discussed in the recent decision of Mr. Justice Stern in Ebbert v. Plymouth Oil Co., already referred to, is perfectly clear. If the case is one of concurrent equity jurisdiction, as the Pennsylvania court held it was, the statute that bars the legal right bars recovery upon it in an action at law or a suit in equity. This last discussion of the matter by the Pennsylvania Supreme Court*fn13 leaves no doubt upon that point.

When we turn to the authorities generally we find the same rule established by the overwhelming weight of decision.*fn14 We shall not discuss the cases in detail but point out that one case directly on the point is that of this Circuit in Kelly v. Dolan, 3 Cir., 1916, 233 F. 635, 639, 640. The Court said: "But, assuming for the present purpose that equity had jurisdiction to litigate this claim [neglect of duty by directors] at the instance of a stockholder, it is manifest that such jurisdiction is concurrent with that of a court of law to litigate the claim at the instance of the receiver, and, being concurrent, the claim is barred in equity by the statute of limitations. * * * To hold otherwise would be to aid a plaintiff to evade a statute by going on the equity instead of the law side of a court." Thus, whether we look to the Pennsylvania authority or to the weight of legal opinion generally the same result is reached. The case is one of concurrent equity jurisdiction; the statute which bars the enforcement of the legal right at the suit of the corporation for mismanagement or breach of duty, bars it in equity at the instance of a shareholder. Obviously, this same bar protects the directors of the Pennsylvania Railroad in this case, even though the Act of 1867 had not, itself, given them immunity from suit. The conclusion is clear then, that unless there was something to toll the running of the statute, plaintiffs are barred from recovery both against the corporate defendant as well as the individual directors.

We turn, therefore, to the remaining question of whether the running of the statute was tolled. Fraud in the moral sense, that is conscious misstatements of facts, may be dismissed from consideration. Obviously, the corporation, itself, could make no statements except through the individuals who were its spokesmen and the nature of their conduct so far as it concerns personal honesty has already been disposed of in the discussion of the findings made by the trial judge on that point. Whatever effect the existence of actual fraud might have upon the running of the statute does not call for consideration here.

The plaintiffs say, however, that there was concealment and such concealment as would toll the running of the statute under Pennsylvania law.We are confronted at the outset, however, with the proposition, laid down over and over again in the Pennsylvania decisions*fn15 that the concealment which tolls the statute must be an affirmative, independent act of concealment; mere silence or nondisclosure, even by corporate officials is not enough. The time at which it takes place is immaterial whether before, contemporaneous with or subsequent to the act complained of. But independent act, "affirmative efforts to divert, mislead, or prevent discovery"*fn16 there must be. We do not see here any such conduct independent of the very things about which the plaintiffs complain. The plaintiffs complain of investments and say that they were made with an eye not to Pennroad's interest, but that of the Pennsylvania Railroad. But the sum and substance of that complaint is a series of transactions which alone make up the gravamen of the alleged offenses. We see no independent acts, designed to "divert, mislead, or prevent discovery", unless they be found in the facts and circumstances under which the Pennroad venture was launched. Those facts and circumstances and the subsequent conduct of the Pennroad directors do not bear out plaintiffs' charge of concealment. Let us look for a moment at the facts surrounding the inception of the Pennroad venture.

The whole matter had been discussed by Pennsylvania Railroad people prior to the spring of 1929. As part of the Pennroad promotion, a letter signed by W. W. Atterbury, President of the Pennsylvania Railroad, was sent to 157,000 shareholders of that company on April, 24, 1929 and written on the letterhead of the Pennsylvania Railroad. It contained the following paragraph:

"Your Directors have given earnest consideration to recent developments in the field of transportation, and have reached the conclusion that it will be of material advantage to this Company and its stockholders, for the stockholders to unite in establishing a corporation so organized that it may make investments and take advantage of opportunities on a much broader basis than is possible under the limited powers of a railroad company. Your Directors are of the opinion that such an independent instrumentality is needed to protect your interests and those of your Company."

Simultaneously, there went through the mails a letter of the same date upon the letterhead of the Pennroad Corporation, which had then been formed, signed by that corporation through its President, H. H. Lee, making the offer of share subscriptions, naming the first board of directors of Pennroad and calling attention to the fact that seven of them were members of the board of directors of the Pennsylvania Railroad.*fn17 This letter also informed prospective subscribers that all of the common stock was being placed in a voting trust for ten years. Both of these letters were sent to the then shareholders of the Pennsylvania Railroad and their right to subscribe for shares in the new Pennroad venture was based upon their holdings of record in the Pennsylvania Railroad.

When Pennroad was incorporated its charter, paragraph 7 of article 8 provided that "Except as may be required by law, the Corporation shall not be required to make public in any manner, to its stockholders or otherwise, any statement concerning its assets, liabilities or earnings; * * * ." A similar provision was also contained in section 7 of article VII of the by-laws. Both of these documents, of course, are matters of public record. Subscribers bought and received voting trust certificates not share certificates. The plaintiffs talk about the manner of the initiation of the venture as concealment aforehand. This presupposes that the directors of Pennroad and Pennsylvania had a premeditated scheme to organize Pennroad as a sham corporation to fleece its shareholders and to hide what they intended to do by a skillfully drawn charter, bylaws, and other corporate forms. However, the findings as to the personal integrity of the individual defendants, the substantial sums invested by the latter and their friends in Pennroad certificates, and the publicity attending the Pennroad transactions, as developed further in this opinion, negative the notion that such was the purpose underlying the charter and by-law provisions.The prospective subscribers knew the relation of the venture to the interests of the Pennsylvania Railroad. They were written to as shareholders of that railroad in the first instance. The very name of the corporation carried a suggestion of its affiliation with the Pennsylvania Railroad.*fn18 In fact, the plaintiffs have averred in their complaints that they made their purchases in reliance on the letters of April 24th, describing the Pennroad-Pennsylvania relationship. The Pennsylvania people were, obviously, in charge of a venture to which they, the subscribers, were told they were entitled to no information except as provided by law. Nor did the plaintiffs seek information about the affairs of the corporation into which they had bought from directors or other corporate officers.*fn19

Not only is there an absence of affirmative acts of concealment, but the directors did disclose the transactions complained of. Many years before this action was brought, the plaintiffs received a great deal of information, even though they were in no legal position to require its production. During the period when Pennroad was making its purchase of shares of other corporations its management did not disclose to its shareholders or the public the fact of such purchases.Its explanation is that such information would have been harmful to its own shareholders by increasing the price which Pennroad would have had to pay for the stock it was buying.Whether that was so or not, it is undisputed that beginning with 1930 various reports to Pennroad's shareholders disclosed the list of all of its holdings, the price at which they were purchased and, in case the shares had an established market value, the then selling price.*fn20 Indeed, some reports set out in disheartening detail the long lists of securities purchased at the 1929 market prices and footed the total purchase cost comparing it with the sadly shrunken values as of the date of the report. These reports not only went to shareholders but were given to the usual publication media which carry financial news and to the daily press. Facts concerning the Pennroad venture were brought to light in the Splawn report and Pecora investigation by Congressional committees in 1931 and 1932. The trial court found that there was no evidence that the plaintiffs actually knew the facts disclosed by these investigations. Whether they did or not they are matters of general public information. Courts can and do take judicial notice of such Congressional proceedings*fn21 and the existence of facts disclosed by them is certainly relevant on any question of concealment. Finally, in 1932, a suit was filed in the Delaware Court of Chancery, by a Pennroad shareholder, complaining generally on charges similar to those made in this action.

To conclude, therefore, on this point: there was not only no concealment, but there was in fact a much fuller disclosure than the corporation and directors were obligated by their agreement with the subscribers to make.

The plaintiffs claim that, in any event, the running of the statute was tolled by a suit covering the same causes of action in general terms filed in the Delaware Court of Chancery, by another shareholder, Perrine, in 1932. This action is still pending, it not even having come to trial. This contention is not pertinent here.

The applicable statute of limitations is that of Pennsylvania.*fn22 If the action is barred by the Pennsylvania statute of limitations, no action can be maintained in Pennsylvania, even though the action is not barred elsewhere.*fn23 Suit must be brought in Pennsylvania before the Pennsylvania statute has run. A suit in another state can no more toll the Pennsylvania statute, applicable to suits in Pennsylvania, than an unexpired claim under the statute of another state can operate to lift the Pennsylvania bar in Pennsylvania courts. " * * * it would be impossible to contend successfully for the proposition, that a suit commenced in another state would take a case out of the statute of limitations of Massachusetts, in an action pending here." Mr. Justice Story in Delaplaine v. Crowninshield, C.C.D. Mass. 1824, 7 Fed. Cas. No. 3,756.*fn24 This situation is significantly different from the case where suit is started in Pennsylvania and thus tolls the Pennsylvania statute. Then it is possible that the Pennsylvania statute would be tolled as to all shareholders subsequently asserting the same claims.*fn25 The Delaware suit does not toll the running of the Pennsylvania statute.

Certain subordinate arguments have been made in connection with the tolling of the statute. These have been examined and carefully considered. We think there is no merit in them nor is there anything to be gained by elaborate elucidation of the obvious.

In this discussion we have endeavored to refrain carefully from passing any opinion upon the merits of the plaintiffs' claims. As was pointed out at the beginning, the suits are in federal court purely upon grounds of diversity. It is our obligation to apply the state law where applicable and this we have done. The result is the clear conclusion that the actions in Pennsylvania were brought too late.

The judgment of the District Court in favor of the individual defendants is affirmed; the judgment of the District Court against the Pennsylvania Railroad Company is reversed and the case remanded with directions to enter judgment in its favor.

JONES, Circuit Judge (concurring).

I fully concur in the opinion for the Court but, in view of the dissent, I am constrained to add to the debate.

Before the matters of complaint can become appropriate for treatment or discussion on their merits, we first have the duty of ascertaining the pertinent law and of following it accordingly. I pass, therefore, immediately to a consideration of the controlling law.

Federal jurisdiction of the instant cases rests solely on the ground of diversity of citizenship. The applicable law, therefore, is the law of the State local to the situs of the District Court. The rule of Erie Railroad Co. v. Tompkins, 304 U.S. 64, 78, 58 S. Ct. 817, 82 L. Ed. 1188, 114 A.L.R. 1487, is equally pertinent to federal court equity suits where jurisdiction depends on diversity of citizenship. Ruhlin v. New York Life Insurance Co., 304 U.S. 202, 205, 58 S. Ct. 860, 82 L. Ed. 1290. Furthermore, a federal court, so bound, must follow the local rule of conflicts as well. See Klaxon Company v. Stentor Electric Manufacturing Co., Inc., 313 U.S. 487, 496, 61 S. Ct. 1020, 85 L. Ed. 1477. So far, there would seem to be no disagreement among the members of this Court. The difference of opinion arises with regard to what law a Pennsylvania court would apply, directly or by reference, were the suits on trial in a court of that State. I think the answer is peculiarly forsworn for us by our earlier decision in Overfield v. Pennroad Corporation et al., 3 Cir., 113 F.2d 6.

When the Overfield case was here before on the plaintiff's appeal from the District Court's dismissal of her suit for want of jurisdiction, we reversed and reinstated the bill, for further proceedings. In reversing, we necessarily had to pass upon each of the reasons assigned by the defendants in support of their motion to dismiss, whether or not the court below had done so. One of those reasons was (113 F.2d at page 9) that the District Court lacked jurisdiction "because the present action involves the internal affairs and management of a Delaware corporation not transacting business in the Commonwealth of Pennsylvania or the Eastern District thereof [the situs of the District Court]."

Upon resorting to Pennsylvania law, we held that the suit did "not involve the management or control of the internal affairs of Pennroad, the foreign corporation" and that "The relief sought is the imposition of liability upon the Pennsylvania Railroad Company and former directors of Pennroad for alleged wrongdoing and an accounting by the railroad to Pennroad for consequent losses." Accordingly, we overruled the defendants' plea of no jurisdiction on the authority of Loan Society v. Eavenson, 241 Pa. 65, 88 A. 295.

Such being the situation, it cannot be said under any Pennsylvania rule that a court of that State, having taken jurisdiction of the causes, would make reference to and apply the law of the State of the foreign corporation's domicil for the adjudication of the rights of the parties if they were before a court of Pennsylvania. Obviously, if the law of the foreign corporation's domicil were pertinent, because the suit involved the management of the internal affairs of the corporation, then, the case would not present a right ordinarily cognizable in a court of Pennsylvania. Thompson v. Southern Connellsville Coke Co., 269 Pa. 500, 112 A. 533. We must, therefore, either apply the law applicable to the instant suits as a Pennsylvania court would do or else we deny the basis for a cause of action cognizable under the law of that State.

That the matters of complaint averred by the plaintiffs would be adjudged in Pennsylvania according to the law of torts, I think the Eavenson case makes plain. That suit was "a proceeding to compel the defendants to account for losses sustained by the corporation by reason of their negligent and fraudulent acts * * * while they were acting in their official capacity as directors." Any investigation into the management of the affairs of the corporation was necessary only "to establish the tortious acts of the defendants" for which reparation was sought. See the Eavenson case, supra, 241 Pa. at page 69, 88 A. at page 296.

Whether the tort law to be applied in the instant cases is to be found directly from Pennsylvania's own rules or by reference to the law of other States, in accordance with Pennsylvania's rule of conflicts, depends, in the first instance, on the place of the commission of the alleged wrongs. If, perchance, they were perpetrated in as many different States as the dissent suggests, then, conceivably, Pennsylvania in order to avoid a confusion of standards or because of uncertainty as to the place of the wrongs might apply its own law. After all, "the extent to which [a state] shall apply in its own courts a rule of law of another state is itself a question of local law of the forum." Magnolia Petroleum Co. v. Hunt, 320 U.S. 430, 445, 64 S. Ct. 208, 216, 150 A.L.R. 413. But, from whatever source Pennsylvania would derive the law applicable to the instant suits, none of it would come from the law of Delaware where, undeniably, none of the alleged wrongs can be said to have been committed.

So far as I am aware, Pennsylvania has no rule which would require a court of that State in a trial for a tort (whether on the court's law or equity side), to apply the law of the domicil of the aggrieved foreign corporation by or in behalf of which the suit was brought. Nor do I think that any of the Pennsylvania cases cited in the dissent suggests to the contrary. In any event, whether a Pennsylvania court would derive the pertinent law directly from that State's own substantive rules or, by reference, from the law of another State, it would be Pennsylvania law none the less, when applied, and the question still remains whether a Pennsylvania court is required, merely because a claimant is of foreign domicil, to afford its facilities for the litigation of a claim which the State's statutes of limitation denounce as stale.

It seems plain (and I do not understand the dissent to dispute) that a Pennsylvania court would be under the duty of applying that State's statutes of limitation, when interposed, to suits for causes such as are pleaded in the instant cases. That is so whether the suits be brought on the court's law or equity side, the jurisdiction of equity for the purpose being concurrent. See cases cited in majority opinion. A federal court, bound to follow the law of the State, could hardly do otherwise. If a cause of action becomes cognizable in a federal court sitting in Pennsylvania, because it would be likewise cognizable in a court of that State, but the federal suit is to be relieved of the impediments which a Pennsylvania court would be bound to enforce, if pleaded, then a right under Pennsylvania law will be accorded to federal court litigants in that State which they would not enjoy in a court of the State. Such a result, if effected, would constitute an unwarranted impairment of the rule of Erie Railroad Co. v. Tompkins.

Wherein then is the escape from the barrier of the pleaded limitations? It is suggested that it lies in the fact that the instant suits are in equity in a federal court. But, as already noted, the rule of Erie Railroad Co. v. Tompkins extends to suits in equity in federal courts when their jurisdiction depends upon diversity of citizenship. Ruhlin v. New York Life Insurance Co., supra. In any event, the suggested immunity in a federal equity court from the bar of limitations to be found in otherwise applicable local law is by no means absolute. The recent case of York v. Guaranty Trust Co. of New York, 2 Cir., 143 F.2d 503, which the dissent cites and relies upon, expressly recognizes (143 F.2d at page 527) that applicable local statutes of limitation have been enforced by federal courts, sitting in equity in diversity cases, where "either (a) there was no showing whatever of any inequitable conduct of the defendant accounting for plaintiff's ignorance of his rights or (b) the plaintiff, after becoming aware of his rights, slept on them." Not one, but both, of the specified contingencies were present here as the indisputable facts of these cases make plain.

The absence of any disqualifying concealment is fully treated with in the majority opinion. I shall not, therefore, duplicate the discussion. It may be pointed out, however, that the pertinent inquiry upon a search for concealment is not bounded by how much could have been told Pennroad's stockholders but by how much the directors were under a legal duty to disclose to them.There is hardly a definable limit to what an outraged imagination, sprung from a chastened hindsight, may not later suggest as having been appropriate matter for prior disclosure. It should also be borne in mind that, according to the trial court's undisputed findings, not a single one of the present plaintiffs or intervenors ever demanded any information of Pennroad or of its directors and, of course, no information was refused them, as the trial court also found.

But, it is said that even if the instant suits are subject to Pennsylvania's statutes of limitation, the Overfield suit was filed timely. In the light of the record now before us, I utterly fail to see any basis for that statement. Not once, but three times, the trial court separately affirmed that "Neither of these suits was brought within six years after the commission of the acts complained of." And, in a fourth instance, the trial court found to the same effect, but in affirmative language, as follows: "Each suit was begun more than six years after the acts of which plaintiffs complain had occurred." Nor have I been able to discover, from an examination of the voluminous record and briefs, where those findings are disputed by anyone.

The fact that the Overfield suit, which complained only of the National Freight Company transaction, was filed within one day of six years from the time of the action taken by Pennroad's directors looking to the disposition of Pennroad's interest in the National Freight Company did not serve to toll the statute. The matter of complaint in respect of the National Freight Company is not the directors' sale of it but their investing Pennroad's money in it which, in its entirety, happened more than six years prior to the filing of the Overfield suit. So that, even if the seven other separate matters of complaint, which the Weigle suit first brought upon the record well over six years after their occurrence, could legally be tacked on to the National Freight Company transaction of the Overfield complaint as constituting similar overt acts of one continuing conspiracy, the suits would still be outlawed, for the earliest of them was not brought within six years of the happening of any of the matters complained of.

The validity of the reasoning of the majority opinion and the legal merit of the disposition which this Court now makes of the instant appeals seem to me to stand unimpaired.

GOODRICH, Circuit Judge, agrees with this ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.