Williams v. Green Bay & Western R.

147 F.2d 777, 1945 U.S. App. LEXIS 2195

• Court: Court of Appeals for the Second Circuit
• Decided: February 9, 1945
• Docket: No. 207
• Status: Published

Opinions

HUTCHESON, Circuit Judge.

Brought by appellants on behalf of themselves and other holders of Class B debentures¹ against appellee, a corporation organized and existing under the laws of Wisconsin, the suit sought judgment for $809,618.85 alleged to belong to the holders of the debentures as their share of the undistributed and withheld net earnings of defendant for the years 1924 to 1943, inclusive. It was alleged that the debentures constituted a fixed and binding contract for the appropriation and payment to the holdr ers, of the net earnings; that the provision ² requiring action by the directors was a mere formality; that during the years in question the net earnings applicable to Class B debentures had aggregated $1,649,618.15; that though in each year except the years 1932, 1933 and 1934, the defendant had distributed part of the applicable net earnings in the aggregate sum of $840,000, it had in each year withheld portions thereof and passed them to surplus; and that such sums, so wrongfully passed to surplus instead of being paid on the debentures, now aggregated the sum for which plaintiffs sued.

The defendant met the suit with two motions to dismiss. In one of them, the ground taken was lack of jurisdiction over the person of the defendant for want of proper service on it. In the other it was that, in the exercise of a sound discretion, jurisdiction of the action should not be assumed because its subject matter was concerned with the internal affairs of a corporation foreign to the state of suit.

Affidavits and counter affidavits having been filed and heard on the motions, the district judge, holding that the defendant was present in the district and was properly served, denied the first motion. Of the opinion though that the suit concerned the internal affairs of the defendant corporation and could be better tried in Wisconsin, the state of its incorporation, the district judge, on the authority of Rogers v. Guaranty Trust Co., 288 U.S. 123, 53 S.Ct. 295, 77 L.Ed. 652, 89 A.L.R. 720; Cohn v. Mishkoff-Costello Co., 256 N.Y. 102, 175 N.E. 529; Cohen v. American Window Glass Co., 2 Cir., 126 F.2d 111, exercised his discretion to dismiss the suit without prejudice to its being renewed in Wisconsin.

Appellants are here insisting that the doctrine of forum non conveniens, on which the dismissal was based, was not properly applied, that discretion was abused in dismissing the suit, and, because it was, the judgment must be reversed. We do not think so.

If we could agree with appellants’ assumption that the suit involved nothing except a claim upon a liquidated demand, that in short the contract of the Class B debentures operated of itself to set apart and appropriate each year to those debentures ■the specific sums plaintiffs sue for, and that the fixing and declaration of the amounts by the Directors was a mere formality, we should agree that jurisdiction ought not to have been declined. But we think it clear that this is an over-simplified view of what the debentures intended to, and did, provide. The provision for declaration and payment of sums due annually under the debentures, as well as the long continued practice under it for the many years in question, leave in no doubt, we think, that before any sums became due and payable under the debentures, corporate action had to be taken to fix and determine them. Instead of carrying a fixed rate of interest, the debentures promised, in lieu thereof, a contingent portion of the annual net earnings, this interest to- be ascertained, fixed and declared in each year by the directors. According to the claim, the directors in each of the years but three fixed and declared, and the appellee paid the amounts determined to be due. If, therefore, support were needed for the view that the provision in the debentures, that the sums, if any, due were to be fixed and declared by the directors, meant just that, the long practise in accordance therewith and the long acquiescence of the debenture holders in that practise would provide it. The question before us is not one of jurisdiction but one of the exercise of judgment as to which would be the most convenient forum. In the circumstances this case provides, it seems quite clear to us that in declining jurisdiction and remitting the parties to that of Wisconsin, where both corporation and directors can be sued and all matters governing the rights of the corporation and the holders of its securities can be determined under the laws of that state, the court used, it did not abuse, its discretion. Its order dismissing the action without prejudice to the right to renew it in Wisconsin is accordingly affirmed.

1 This is the form of the debenture sued on:

UNITED STATES OF AMERICA GREEN BAY AND WESTERN RAILROAD COMPANY STATE OF WISCONSIN

$1000. No.....

CLASS B DEBENTURE The Green Bay & Western Railroad Company hereby certifies that this is one of a series of Seven thousand of its Class B Debentures in the sum of One Thousand Dollars each, aggregating in all the sum of Seven Million Dollars, which sum of One Thousand Dollars will be payable to the bearer hereof, or if registered, to the person appearing on the books of the said Company as the last registered owner hereof, only in the event of a sale or reorganization of the Railroad and property of said Company, and then only out of any net proceeds of such sale or reorganization which may remain after payment of any liens and charges upon such railroad or property, and after payment of Six hundred thousand Dollars to the holders of a series of debentures known as Class A, issued or to be issued by said Company, and the sum of Two Million, five hundred thousand Dollars to and among the stockholders of said Company. Any such net proceeds remaining after such payments shall be distributed pro rata to and among the holders of this series of Class B Debentures. The said Railroad Company Hereby Covenants and Agrees that no mortgage shall at any time be placed upon its railroad and'other property, nor shall the same be leased or sold without the consent of the holders of seventy five per cent of the capital stock outstanding at the time of such mortgage lease or sale. The said Railroad Company Hereby Agrees that until such payment, the holders of this Series of Debentures shall in lieu of interest thereon participate in the distribution of annual net income to the following extent, viz., — So much of the annual net earnings of the said Company in any years as would be applicable to the payment of dividends on stock shall be applied as follows, viz.,—

To the holders of Class A Debentures per cent upon the face value thereof, or if such annual net earnings are insufficient ■for the payment of the same, then all such net earnings shall be distributed pro rata among the holders of said Class A Debentures. • After the payment of 2% per cent upon the face value of Class A Debentures, the stockholders. of the Company are entitled to receive the balance of such net earnings until 2% percent shall have been paid out of the same upon the par value of the said stock, and all surplus net earnings then remaining shall be paid to the holders of Class A Debentures and of the stock pro rata until five per cent shall have been paid upon the face value of said Debentures and upon the par of said stock for such year, and any surplus net earnings arising in such year which may then remain shall be paid to and distributed among the holders of Class B Debentures pro rata. None of such payments shall be cumulative. The amounts, if any, payable upon this series of debentures out of the net earnings in any year, will be fixed and declared by the Board of Directors on or before the first day of February, in the following year, and when so declared, any amount payable hereon will be paid at the office or agency of the Company in the City of New York on or before the first day of March, in such year to the holder of this debenture, upon its production at such offico or agency in order that such payment may be stamped hereon; or, if registered, payment will be made by check mailed to the person appearing on the books of this company as the registered owner hereof at the last address furnished by him to this company. This debenture shall pass by delivery unless registered on the books of the Company at its office or agency in the City of New York, and when so registered, and registry noted hereon, title thereto shall pass only by assignment executed by the last registered owner and noted on such register. This instrument shall not lie valid for any purpose unless authenticated by the signature of the Farmers’ Loan and Trust Company to the certificate endorsed hereon.

2 “The amounts, if any, payable upon the debentures out of the net earnings in any year will be fixed and declared by the Board of Directors on or before the first day of February in the following year, and when so declared any amount payable will be paid at the office or agency of the company in New York on or before the first day of March in each year to the holder of the debentures.”