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HALL v. AMERICAN CONE & PRETZEL CO.

April 1, 1947

HALL et al.
v.
AMERICAN CONE & PRETZEL CO. et al.



The opinion of the court was delivered by: KIRKPATRICK

The defendants have filed motions to dismiss and sever the complaint and for a more definite statement.

 I am satisfied that each of the counts sufficiently states a cause of action upon which relief can be granted and that, without further particularization, they sufficiently apprise the defendants of its nature.

 The important question is whether the action involves such a degree of interference with the internal affairs and management of a foreign corporation that this Court should decline to exercise its jurisdiction.

 The complaint contains nine counts each of which deals with separate transactions, not directly related to one another but all alleged to be manifestations of a general plan and course of conduct on the part of the defendants in which they used their corporate offices and the company itself for their own personal profit.

 The third and eighth counts attack the legality of two consummated plans of recapitalization of the company, the first in 1924 and the second in 1944. The prayers for relief based on these two counts ask for the complete nullification of the very substantial alterations of the company's charter by which each of the two reorganizations was accomplished and a return to the status quo ante, with the object of restoring the first preferred stockholders to all the rights which they had prior to the reorganizations, including par value, accumulated dividends and guarantee and redemption fund rights.

 The remaining counts seek accounting and reimbursement by the individual defendants for alleged wrongs done the company and its stockholders, ouster of officers and directors, election of new officials, appropriate injunctions and the appointment of a receiver and accountants for the company and the allied corporations, if needed.

 In Williams et al. v. Green Bay & Western R. Co., 326 U.S. 549, 66 S. Ct. 284, 287, the Supreme Court considered fully the general principles governing the question here presented. Without attempting a complete analysis of the opinion (almost all of which has a bearing upon the present problem), the gist of it is that the mere fact that a suit concerns the internal affairs of a foreign corporation is not decisive and does not of itself require the court to decline to take the case. On the contrary, the Supreme Court fully recognizes throughout the opinion that the rule of forum non conveniens means no more than that the circumstances of a particular case may be such that it could be better tried in the state of incorporation and if so that it is the duty of the court to decline to hear it, otherwise it may, in its discretion, entertain it.

 The opinion refers to a number of factors which the court must consider in determining whether to exercise its discretion, among which are mentioned the possible vexatious or oppressive result of a suit away from the domicile of the defendant and the difficulty of the court's making its decree effective, because of its limited territorial jurisdiction, all of which the Court summed up as follows: 'The relief sought against a foreign corporation may be so extensive or call for such detailed and continuing supervision that the matter could be more efficiently handled nearer home.'

 Efficiency of handling involves administering the remedy as well as establishing the right. In the Green Bay case, supra, the relief asked for was nothing more than a money judgment against the corporation. The Court assumed for the purpose of the decision that the ascertainment of the amount of the judgment would necessitate a review of the discretion of the directors of the corporation in withholding certain payments out of profits and, of course, that would involve the internal affairs of the company. Pointing out that many types of actions against foreign corporations involve in a sense its internal affairs, Mr. Justice Douglas said, 'The point is that, however this suit be viewed, the relief sought is not of such a character as to suggest that the federal court of New York would be so handicapped that it should remit the parties to Wisconsin.'

 In the present case the third and eighth counts go far beyond matters of management, policy and discretionary acts of officers. The entire corporate structure is attacked and the relief sought (practically a new charter for the company) could not be accorded without the most complete, drastic and thorough-going interference with its internal affairs imaginable. Without stressing the difficulties which might arise in compelling administrative action by the officials of the State of West Virginia necessary to accomplish the result desired, it seems plain from the nature of the issue and of the relief sought that this Court must decline to exercise its jurisdiction, so far as these two counts are concerned.

 In the remaining seven counts, the interference with the internal affairs of the company is so much less in degree and the relief asked is so different in kind that they must be considered in an entirely different category. As to them, unless this Court is bound by the law of the State of Pennsylvania (a point to be discussed later), considerations such as those which caused the Supreme Court in the Green Bay case to direct the Court to take jurisdiction, are all in favor of this Court's doing so. There is no difficulty about an appropriate remedy if the plaintiff establishes his case. An accounting, a money judgment and restitution, all can be readily obtained by a decree enforceable against the individual defendants. The authorities cited with approval in the footnote of the Green Bay opinion put a rather heavy burden on the party seeking to persuade the court to hold its hand. 'The inconvenience, then, must amount to actual hardship, and this must be regarded as a condition sine qua non of success in putting forward a defense of forum non conveniens. For the general rule is that a court possessing jurisdiction must exercise it unless the reasons to the contrary are clear and cogent.' In the present case, except as to the third and eighth counts, it is the reasons for, rather than those against, exercising jurisdiction which are clear and cogent.

 The principal plant and business office of the company is and always has been in the Eastern District of Pennsylvania. Only the minimum acts necessary to keep the corporation alive are performed in West Virginia. The primary bank account of the company is kept in this district. The transfer books, minute books and main official records are kept here. Directors' and stockholders' meetings have usually been held here. The bulk of the trading in the company's stock has been carried on in the over-the-counter market in Philadelphia. Dividend checks are mailed from Philadelphia. The majority of the Board of Directors has always consisted of residents of Philadelphia. Three of the five directors, including the one alleged to have been the controlling stockholder throughout, are residents of Philadelphia. These facts leave little doubt as to where the balance of convenience lies. In addition, only one or two of the defendants are residents of West Virginia and this fact raises the doubt whether, if suit on these counts had to be brought in West Virginia, there might not be such difficulty in subjecting the majority of the defendants to process as to leave the plaintiff practically remediless.

 These seven counts, then, come fairly within the scope of the decision in the Green Bay case, supra, holding that such a suit is ...


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