benefit of the public rather than the 99% owner of the railroad stock. The plaintiff railroad "would be entitled to distribute the recovery in any lawful manner it may choose, even if such distribution resulted only in private enrichment." Id. at 715.
The Supreme Court determined that a recovery in the case must be denied in order to prevent unjust enrichment of Amoskeag, the railroad's 99% owner. It disposed of the Circuit Court's conclusion that a recovery should nevertheless be allowed as "a needed deterrent to mismanagement of railroads", Id. at 717, holding that such cannot be done when there has been no injury to the particular plaintiff. As stated by the Court in footnote 13, page 716, "But the statutory design has not been effectuated through the indiscriminate provision of causes of action to every citizen.", and referring to federal antitrust and securities statutes continued "these statutes create specifically defined legal duties to particular plaintiffs and vest the appropriate causes of action in them alone. Here, the statutorily designated plaintiffs are respondent corporations. But, as we have stated, these plaintiffs cannot maintain the present action because a recovery by Amoskeag would violate established principles of equity."
A major distinguishing characteristic of this important case as compared with the Crowell and Bristol cases sub judice, is that what the court said and what it did, was with respect to a situation where a stockholder's derivative action could not have been maintained because of its inability to satisfy the contemporaneous ownership requirement of Federal Rule of Civil Procedure 23.1(1), or of the law of Maine. In both the Bristol and Crowell cases, the plaintiffs have satisfied the requirements of the aforementioned federal rule and it is clear in these derivative actions that the captive corporation involved, the P&LE Railroad would, if recovery is allowed, not reap a windfall.
The 93% owner of P&LE Railroad stock, the Penn Central, which would, of course, also benefit from any recovery awarded P&LE Railroad is in an entirely different position than its 99% counterpart in the Bangor case. The Penn Central, in the process of reorganization, is subject to the control of court appointed trustees, and United States District Court Judge John P. Fullam. In such a situation it is quite apparent that bondholder and other creditors of the Penn Central, as well as the general public, and the P&LE Railroad, have interests which would best be served by allowing a corporate recovery. These legitimate interests would be completely ignored if the liability of the defendants be reduced to a prorata liability amounting to only 7% or less of the damage alleged to have been suffered by P&LE Railroad as a result of the alleged violations of the federal antitrust and securities laws.
The plaintiffs in the Bristol and Crowell cases, being proper representatives of the P&LE Railroad under Federal Rule 23.1(1), present perfect situations to illustrate the inappropriateness of invoking broad common law barriers to relief where a private suit serves important public purposes. Such important cases as Simpson v. Union Oil Co., 377 U.S. 13, 12 L. Ed. 2d 98, 84 S. Ct. 1051 (1964) and Kiefer-Stewart Co. v. Jos. E. Seagram & Sons, 340 U.S. 211, 95 L. Ed. 219, 71 S. Ct. 259 (1951) indicate the Supreme Court's recognition that "The purposes of the antitrust laws are best served by insuring that the private action will be an ever-present threat to deter anyone contemplating business behavior in violation of the antitrust laws." Perma Life Mufflers, Inc. v. International Parts Corp., supra, 392 U.S. at 139.
To state it differently, "private stockholders' actions of this sort 'involve corporate therapeutics' and furnish a benefit to all shareholders by providing an important means of enforcement of the . . . statute." Miller v. Electric Auto-Lite Co., 396 U.S. 375, 396, 24 L. Ed. 2d 593, 90 S. Ct. 616 (1970).
Finally, it should be observed that the function of the prorata recovery theory and the in pari delicto principle is identical, i.e., to prevent a wrongdoer from profiting by his own wrong. Since the Supreme Court of the United States has held in Perma Life Mufflers, Inc. v. International Parts Corp., supra, that the doctrine of in pari delicto is not a defense to antitrust actions, it having been earlier held that the common law defenses of laches, waiver and estoppel have no application in a federal antitrust action, South-East Coal Co. v. Consolidation Coal Co., 434 F.2d 767 (6th Cir. 1970), cert. denied, 402 U.S. 983, 29 L. Ed. 2d 149, 91 S. Ct. 1662 (1971), it would seem to follow that the prorata liability principle likewise has no application to antitrust or securities actions such as the Bristol and Crowell cases, so clearly distinguishable from the Bangor railroad case.
The Home Fire Insurance Co. v. Barber case, 67 Neb. 644, 93 N.W. 1024 (1903), relied upon by the majority of the court in the Bangor case is clearly distinguishable from the facts of the Crowell and Bristol cases, the cases at bar. In the Home Fire Insurance Co. case all of the shares of the plaintiff corporation had been acquired from the alleged wrongdoers after the alleged wrongful transactions had occurred. Accordingly, it was held that equitable principles precluded a recovery by the plaintiff corporation since none of its shareholders could complain of injury.
However, Dean Pound, in that case, did express an opinion with respect to a factual situation where as here in the Bristol and Crowell cases, there are minority stockholders who were such at the time of the alleged wrongful transactions. With respect to that situation an action by the corporation itself, would be appropriate for a full recovery (and a fortiori by minority stockholders in a derivative action on behalf of the corporation, if the directors turned down a request to seek relief). The court stated that a recovery could be had if any of the present shareholders "are entitled to complain of the acts of the defendant and of his past management of the company; for, if any of them are so entitled, there can be no doubt of the right and duty of the corporation to maintain this suit. It would be maintainable in such a case, even though the wrongdoers continued to be stockholders and would share in the proceeds." 67 Neb. at 665, 93 N.W. at 1028.
In Footnote 15, 417 U.S. at page 718 of the Bangor case the Court refers to the prorata recovery concept where there are qualified minority shareholders, but after stating that respondents had expressly disavowed any intent to obtain a prorata recovery on behalf of the 1% minority shareholders, concluded: "We therefore do not reach the question whether such a recovery would be appropriate."
The net result of the Bangor case, as far as a majority of the Court is concerned, is that no recovery can be had by a plaintiff corporation where the beneficiary of a recovery would be a corporation which had purchased 99% of the stock of the plaintiff corporation after the alleged wrongful transactions.
The majority opinion does not indicate what its conclusion would be in an entirely different situation, such as the present one where a beneficiary of any recovery would be a corporation which owned 93% of the stock during the time of the alleged wrongful transactions, and where the plaintiff, qualified minority stockholders, have brought a derivative action in behalf of the injured corporation, the P&LE Railroad.
In the very first paragraph of the majority opinion, on page 705, after pointing out that the shareholder presently in control of the railroad acquired 98.3% of the railroad shares from the former owners long after the alleged wrongs occurred, the Court then states: "We must decide whether equitable principles applicable under federal and state law preclude recovery by the railroad in these circumstances." (Emphasis supplied)
Research has revealed no Supreme Court case in which in a securities or antitrust case similar to the Bristol and Crowell cases, the Court has mandated a prorata recovery solution, or denied any recovery at all merely because it would also benefit the corporation which owns a majority of the stock of the injured corporation. Certainly a full recovery in the instant cases would be consistent with the views expressed by the four Justices in the dissenting opinion in the Bangor case, which views it is believed, would be shared by the majority where the beneficiary corporation owned its 93% interest prior to and during the allegedly illegal transactions, and where, as here, the action brought is a derivative action on behalf of the injured corporation.
Having reached the aforementioned conclusions, further discussion of the cases would seem to be no more productive than "bathing the goldfish".
The conclusion is, therefore, that the defendants' motion for pretrial determination limiting recovery to prorata recovery by certain shareholders and for other relief is denied.
AND NOW, this 6th day of December, 1974, in consideration of the motion of certain defendants for pretrial determination limiting recovery in this action to prorata recovery by certain shareholders and for other relief, in which other defendants have joined, the memoranda of law in support of and in opposition thereto and for the reasons given in the attached memorandum, it is hereby ORDERED that said motion is DENIED.
BY THE COURT:
James H. Gorbey, U.S. District Judge