also filed a motion to quash subpoenas, pursuant to Rule 45(d)(2). The plaintiff countered with a motion for sanctions and for leave to file a supplemental complaint; he was then met by defendants' motion to dismiss plaintiff's action. Thus the matter rests.
On this motion to dismiss, it is incumbent upon us now to determine the question of jurisdiction before proceeding with other aspects of the case. Allied Poultry Processors Company v. Polin, 134 F. Supp. 278, 279 (D.Del.1963). It is initially suggested that we do not have jurisdiction over the subject matter because the action does not arise under the Constitution, laws or treaties of the United States as required by 28 U.S.C. § 1331(a).
Plaintiff, as owner of 103 shares of stock in defendant, The Merchants National Bank, instituted this action on behalf of himself and derivatively on behalf of the bank alleging the following facts: The bank is a National Bank organized and existing under the National Bank Act. Prior to January 23, 1968, he was a director of said bank, the other directors being all of the individual defendants. On December 30, 1967, the bank issued its notice of annual meeting of stockholders to be held on January 23, 1968, together with a proxy statement issued by order of the Board of Directors noting that it was the intention of the persons named in the proxy to vote for the election of a board of directors which included plaintiff. Enclosed with each statement was a proxy wherein appointees represented that they would vote stock in accordance with power granted by shareholders either for or against election of seven persons listed in the proxy statement one of whom was the plaintiff. Proxy holders obtained sufficient proxies to assure election of plaintiff, but by order of the individual defendants and contrary to the representations made in the proxy statement and the proxy itself, they voted for other directors and the plaintiff was defeated for office. In effect, it is alleged that the election of the board of directors was accomplished through the circulation of a false and misleading proxy statement by those advising of the purpose of the election. The setting aside of the election of defendant directors, a declaration voiding the election, and damages are sought by the plaintiff.
National banks are citizens of the states in which they are respectively located. Mercantile National Bank at Dallas v. Langdeau, 371 U.S. 555, 566, 83 S. Ct. 520, 9 L. Ed. 2d 523 (1963) and jurisdiction cannot be assumed unless a federal question is involved. Continental National Bank of Memphis v. Buford, 191 U.S. 119, 124, 24 S. Ct. 54, 48 L. Ed. 119 (1903).
The plaintiff contends that the pertinent part of the National Bank Act, 12 U.S.C. § 61
providing for the election of directors establishes an area conferring jurisdiction upon the federal courts. It is our opinion that questions concerning the election of directors of a national bank are subject to the jurisdiction of federal courts. To the same effect, see Wahyou v. Central Valley National Bank, 361 F.2d 755, 757 (9th Cir. 1966), wherein an injunction was granted prohibiting a board of directors of a national bank from exercising the duties of their office.
Defendants further argue that the required $10,000 jurisdictional amount under 28 U.S.C. § 1331(a) is not present. The thrust of this contention is that the only damage to plaintiff by reason of his failure to be elected is the $2000 director's fee that he would be paid. This reasoning is fallacious. If successful, the amount claimed to be recoverable might include director's fees improperly paid by the bank to the six individual defendants; costs and expenses of the election having a suggested monetary value of $15,000. We will also accept the statement of plaintiff's attorney that Twardzik is the owner of 103 shares of the Bank's stock having an aggregate worth of $46,765. We therefore resolve, from the pleadings and averments taken together, that the jurisdictional amount is present. Cf. Stern v. South Chester Tube Co., 390 U.S. 606, 88 S. Ct. 1332, 20 L. Ed. 2d 177 (1968).
Defendant further maintains that the action should be dismissed because of the failure of plaintiff first to present this question to the Comptroller of the Currency in compliance with the provisions of 12 U.S.C. § 1818(b)(2).
Plaintiff by affidavit attached to his "Memoranda Contra Defendants' Motion to Dismiss" avers that notice of the question was presented and that the Comptroller was familiar with the matter, having been contacted by management, and that he refused to take any position. The purpose of the requirement of notice has been accomplished and invalidates defendants' contention.
The view that it is only those who executed the proxies that can complain of the action of the proxyholder is offered by the defendants as a reason to dismiss the action. In support thereof they cite the cases of Stockholders Committee for Better Management of Erie Technological Products, Inc. v. Erie Tech. Prod., Inc., 248 F. Supp. 380, 384 (W.D.Pa.1965) and Commonwealth ex rel. Laughlin v. Green, 351 Pa. 170, 177, 40 A.2d 492 (1945). These two cases do not involve federal law. Stockholders Committee, supra, is a diversity shareholder's action involving the question of the extent to which the directors and majority shareholders of a Pennsylvania corporation may legally diminish the right of cumulative voting. Citing Laughlin, supra, the court stated that in the proxy solicitation contest it found nothing more than an expression of opinion; further holding that if misrepresentation did exist it would give a cause of action only to such shareholders who gave proxies to defendants in reliance upon the false misrepresentation to their injury. Yet, Laughlin at 177, 40 A.2d at 495, reads as follows: "If proxies were obtained by fraudulent methods they might be held to be null and void, at least on the complaint of stockholders who gave them in reliance on the statements made in the course of solicitation". There is no expression limiting the right to bring a cause of action to persons who gave proxies. Having previously concluded that this case presents a federal question, we are also of the opinion that a stockholder who alleges damage as a result of deceptive proxy solicitation has the right to seek relief in a federal court.
This conclusion is compelled by J. I. Case Co. v. Borak, 377 U.S. 426, 84 S. Ct. 1555, 12 L. Ed. 2d 423 (1964). There the Supreme Court was confronted by an action brought by a stockholder on behalf of respondent and other shareholders. He averred that a merger was effected through the circulation of a false and misleading proxy statement by those proposing the merger. In holding that the action was proper the Court states: at 427, 84 S. Ct. at 1560,
The injury which a stockholder suffers from corporate action pursuant to a deceptive proxy solicitation ordinarily flows from the damage done the corporation, rather than from the damage inflicted directly upon the stockholder. The damage suffered results not from the deceit practiced on him alone but rather from the deceit practiced on the stockholders as a group. To told that derivative actions are not within the sweep of the section would therefore be tantamount to a denial of private relief.