Hauer v. Bankers Trust New York Corp.

65 F.R.D. 1, 20 Fed. R. Serv. 2d 58, 1974 U.S. Dist. LEXIS 11656
CourtDistrict Court, E.D. Wisconsin
DecidedDecember 11, 1974
DocketNo. 74-C-146
StatusPublished
Cited by5 cases

This text of 65 F.R.D. 1 (Hauer v. Bankers Trust New York Corp.) is published on Counsel Stack Legal Research, covering District Court, E.D. Wisconsin primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Hauer v. Bankers Trust New York Corp., 65 F.R.D. 1, 20 Fed. R. Serv. 2d 58, 1974 U.S. Dist. LEXIS 11656 (E.D. Wis. 1974).

Opinion

DECISION and ORDER

MYRON L. GORDON, District Judge.

The defendants have filed several motions, pursuant to Rules 12(b)(6), 12 (b)(7), 12(e), 19 and 23, Federal Rules of Civil Procedure, directed toward claimed defects in the plaintiff’s amended complaint. One of the defendants’ motions under Rule 12(b)(6) is grounded on the proposition that the plaintiff lacks the capacity or standing to assert any of the claims of the amended complaint. I conclude that such motion should be treated as a motion for summary judgment pursuant to Rule 56, Federal Rules of Civil Procedure, and should be granted. Because of the disposition of the latter motion, the other motions need not be resolved.

The complaint asserts claims arising under both state and federal law. The complaint’s allegations as to state law relate to breach of contract, breach of fiduciary duty, common law fraud, common law conspiracy, violation of the Wisconsin and New York usury laws, and violation of Wisconsin antitrust statutes. The federal claims are based upon alleged violations of the Sherman Act, 15 U.S.C. §§ 1, 2 (1970), the Clayton Act, 15 U.S.C. §§ 12, 15, 22 and the usury proscription of the federal laws relating to national banks, 12 U.S.C. § 85.

According to ,|f 1.06 of the amended complaint, James A. Hauer brings this action on his own behalf, on behalf of Professional Investors Syndicate by virtue of his membership in that Wisconsin partnership and on behalf of Prem, Inc. “as one of its shareholders.” The undisputed facts, however, establish that Mr. Hauer does not really make any claim individually nor does he sue on behalf of Prem as a shareholder thereof. At page 2 of the plaintiff’s brief in opposition to the defendants’ motions, Mr. Hauer concedes that Professional Investors “is the sole shareholder of PREM, INC.,” while at page 4 of his brief the plaintiff states that Mr. Hauer “has not asserted a claim in his own behalf .■ . . . ” Thus, at best, Mr. Hauer asserts each claim on behalf of Professional Investors derivatively as a partner thereof or on behalf of Prem through . Professional Investors.

Because Mr. Hauer would be unable to assert a derivative action on behalf of Prem if he lacks capacity to assert the rights of Professional Investors, the central issue presented is whether Mr. Hauer can sue on behalf of Professional Investors even, assuming, for purposes of Rule 56, that he is a Professional Investors partner. I conclude that Wisconsin law regarding capacity to sue derivatively on- behalf of a partnership is applicable not only with respect to claims grounded in state law but also to those claims arising under federal law. I further conclude that Mr. Hauer lacks the capacity under Wisconsin law derivatively to assert the claims of Professional Investors.

The first question to be resolved is whether state or federal law should be applied to the question of Mr. Hauer’s capacity to sue derivatively on behalf of a partnership. Both parties to some extent seek the answer from the wording of Rule 23.1, Federal Rules of Civil Procedure.

Reliance on Rule 23.1 is misplaced. While explaining the reach of Rule 23, a predecessor of Rule 23.1, the Supreme Court in Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949), rejected the notion that the rule

“deals with the plaintiff’s right to maintain [a shareholder’s derivative [3]*3suit] in federal court and that therefore the subject is recognized as procedural and the federal rule alone prevails.” 337 U.S. at 556, 69 S.Ct. at 1230.

I note that insofar as Mr. Hauer asserts state claims on behalf of Professional Investors and Prem, jurisdiction is based on diversity of citizenship under 28 U.S.C. § 1332 (1970). Thus, the doctrine announced in Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), is applicable to guide the choice between state and federal law in view of the absence of a pertinent federal rule. See Hanna v. Plumer, 380 U.S. 460, 469-470, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965).

In my opinion, application of the Erie doctrine requires me to employ Wisconsin law to determine whether Mr. Hauer has the capacity to assert a derivative claim on behalf of Professional Investors. Cf. Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949). See also Rule 17(b), Federal Rules of Civil Procedure.

Erie, however, is germane only to the extent that state law claims are asserted and jurisdiction is thus based on diversity of citizenship. The question whether Mr. Hauer has the capacity to pursue claims based on federal law on behalf of Professional Investors and Prem is one within federal competence. Klebanow v. New York Produce Exchange, 344 F.2d 294, 296 (2d Cir. 1965). I conclude, nevertheless, that federal law should look to the law of the state creating the entity on whose behalf a derivative claim is asserted— in this case the law of Wisconsin.

Several reasons support utilization of Wisconsin law to resolve the issue of whether Mr. Hauer can derivatively assert claims arising under the federal antitrust and banking laws on behalf of the partnership of which he is a member.

A state has a strong interest in deciding who may assert the rights of a partnership, which is wholly a creature of the state. In reaching the conclusion that “the state has plenary power over [shareholder’s derivative suits],” the United States Supreme Court in Cohen v. Beneficial Industrial Loan Corp., supra, made the following observations, which I believe are also pertinent to partnerships and to derivative suits on their behalf:

“Whatever theory one may hold as to the nature of the corporate entity, it remains a wholly artificial creation whose internal relations between management and stockholders are dependent upon state law and may be subject to most complete and penetrating regulation, either by public authority or by some form of stockholder action.” 337 U.S. at 549, 69 S.Ct. at 1227.

I perceive no interest in uniformity arising from the policies behind the federal antitrust and banking laws allegedly violated in this case which would warrant bypassing the existing state law regarding who may assert partnership claims.

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65 F.R.D. 1, 20 Fed. R. Serv. 2d 58, 1974 U.S. Dist. LEXIS 11656, Counsel Stack Legal Research, https://law.counselstack.com/opinion/hauer-v-bankers-trust-new-york-corp-wied-1974.