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ROGERS v. AMERICAN CAN CO.

September 27, 1960

Alexander ROGERS, Plaintiff,
v.
AMERICAN CAN CO. et al., Defendants



The opinion of the court was delivered by: HARTSHORNE

Plaintiff, Alexander Rogers, a stockholder of Metal & Thermit Corporation (hereinafter called M & T), brings a derivative action on behalf of M & T against American Can Co. (hereinafter called Canco) and eight of twelve directors of M & T, some of whom are connected with Canco. M & T is also named as a defendant inasmuch as it has been unable to independently pursue this suit on its own behalf, and so that it will be a party to the action and subject to any orders of the Court as a result thereof. No relief is sought against M & T, but solely against the named directors and Conco. The relief sought is both injunctive to prevent continuation of alleged antitrust violations, and for treble damages, the action being instituted under Sections 4 and 16 of the Clayton Act, 15 U.S.C.A. §§ 15 and 26, the jurisdictional sections. Violations of the antitrust laws are alleged under Sections 1 and 2 of the Sherman Act and 7 and 8 of the Clayton Act, 15 U.S.C.A. §§ 1, 2, 18 and 19. The sole basis for jurisdiction in this Court is therefore exclusively by virtue of the Federal antitrust laws. Defendants presently move for dismissal of the complaint for failure to state a claim upon which relief can be granted, F.R.Civ.P. 12(b)(6), 28 U.S.C. and for summary judgment under F.R.C.P. 56 for lack of standing to sue on the basis of the established facts.

This litigation has a past history which is material to the determination of the motions presently before the Court. In 1957 plaintiff filed suit in this Court seeking relief similar to what he now seeks but this Court dismissed without prejudice that earlier action on February 24, 1958, for failure on the part of the plaintiff to comply with F.R.C.P. 23(b), in that plaintiff did not submit to the stockholders for their consideration the facts upon which this suit is based. Immediately thereafter plaintiff submitted to the management of M & T a resolution asking that the stockholders approve a suit by M & T against Canco and eight named directors and included a statement in support thereof. A proxy battle followed in which the management opposed the resolution, with the support of Canco, a substantial shareholder of M & T, while plaintiff, who also was a substantial shareholder, sought its approval. Of 799,012 shares entitled to vote, 766,276 were represented at the annual meeting. By a vote of 579,945 to 185,731, the Rogers proposal was defeated. Included in that vote were Canco's 178,261 shares, which were voted in opposition to the Rogers proposal, but not until after it was apparent that an independent majority of the shareholders had already cast their ballots to defeat the proposal. Eliminating both the Canco and individual director defendants' stock interests, and the Rogers interests, there was nevertheless more than a majority of all eligible voting stock which voted against the Rogers proposal.

 Thereafter plaintiff reinstituted his antitrust derivative suit and, after an amendment of the complaint, defendants made the motions now before the Court. In the amended complaint plaintiff alleged intimidation of the stockholders when they voted against his proposal. Since the complaint was verified on information and belief, this Court ordered a preliminary hearing on the question of intimidation, because, if intimidation were in fact proven, the stockholder vote, of such importance otherwise, would have been a nullity. Plaintiff, by order of the Court, was directed to produce evidence in the form of depositions, in support of his allegation of intimidation. Plaintiff failed to submit clear evidence in that regard and has admitted his inability to support such an allegation. This resulted in the exclusion of paragraph 29(j) of the amended complaint (the intimidation allegation) from consideration on these defendants' present motions.

 M & T is a corporation organized under the laws of the State of New Jersey and among its activities is the purchase and detinning of tin plate scrap, the sale of such detinned steel scrap to steel manufacturers and the sale or use of the tin recovered in the detinning process. Canco is the principal supplier of tin plate scrap to M & T.

 Plaintiff contends that this action is brought on behalf of M & T, to liberate M & T from the illegal control exerted over it by the various defendants. Plaintiff further alleges past and prospective injury to M & T from the actions of the defendants. In paragraphs 30(a) through 30(e) of his amended complaint plaintiff sets forth the alleged injury to M & T that has resulted from these actions of the defendants. Such injury allegedly precludes M & T from actively competing in the open market for the purchase of tin plate scrap and also has caused the arbitrary fixing of prices by Canco, preventing M & T from seeking a more competitive price on the open market. Plaintiff clearly indicates that the injuries that M & T suffers, and for which he sues derivatively, and that the acts complained of which have produced these injuries, not only occurred in the past but have continued up until the filing of the complaint, and their harm to M & T through the violation of the antitrust laws will continue into the foreseeable future.

 Defendants move for a dismissal under F.R.C.P. 12(b)(6) on the theory that a suit under the antitrust laws requires proof of injury to the plaintiff and that, since M & T is named as a defendant it is an impossibility for M & T to claim that it is injuring itself. Secondly, defendants contend that the shareholder vote not to bring suit against the defendants Canco and the eight directors is a bar to the derivative suit, in that the decision of the shareholders amounted to an expression of business judgment not to involve the corporation in protracted litigation.

 As to defendants' first contention, the readily apparent answer is that the complaint does not allege that M & T is willfully injuring itself. In paragraph 8(j) of the amended complaint it is stated that the reason M & T is named as a defendant is that it is unable to express its independent will to join as a plaintiff, due to the control exerted over it by the other defendants. Thus, as in other derivative suits, M & T, for whose benefit the action is brought is named as a nominal defendant only, not injuring itself or anybody else.

 Plaintiff alleges in his amended complaint injury to M & T and such allegations must be deemed to be true for purposes of this motion. Thus the requirement of injury or threatened injury to the beneficial plaintiff is satisfactorily set forth. In Gomberg v. Midvale Co., D.C.E.D.Pa.1955, 157 F.Supp. 132, the only injury complained of was possible liability of the corporation, for whose benefit the suit was brought, in a future action against it for antitrust violations. In his opinion Judge Ganey, at page 142, summed up the requisite allegation of injury necessary to maintain a suit under the Clayton Act:

 'In sum the injury which the laws envision is the injury to the economy of the plaintiff, by virtue of restrictions of trade or something that proximately flows from it, in the competitive field in which it is engaged when the illegal act is committed.'

 That is exactly what plaintiff alleges here. To prove such injury may indeed be a formidable hurdle to negotiate, but that does not bar the plaintiff at this stage of the proceedings. See also Conference of Studio Unions v. Loew's Inc., 9 Cir., 1951, 193 F.2d 51, 54 and 55, certiorari denied 1952, 342 U.S. 919, 72 S. Ct. 367, 96 L. Ed. 687; Beegle v. Thomson, 7 Cir., 1943, 138 F.2d 875, 881.

 Defendants raise the point that in reality this is an intracorporate dispute based upon an alleged breach of fiduciary duty owed by directors, officers and stockholders to the corporation, and as such is not properly cognizable by this Court, which has jurisdiction here solely under the antitrust laws. While it is true that certain allegations in this case reflect a theory of breach of fiduciary duty, the acts complained of are stated to be antitrust violations and it is these alleged violations for which relief is sought. It may very well be that plaintiff could have brought an action in a State court for breach of fiduciary duty, but that fact should not bar him here when he alleges antitrust law violations. Indeed, any derivative suit which involves antitrust violations almost necessarily must involve some breach of fiduciary duty or mismanagement by officers or directors, since they have guided the corporation into activities which violate the law, or at the very least, have acquiesced in such conduct.

 The case of Meyer v. Kansas City Southern Railway Co., 2 Cir., 1936, 84 F.2d 411, certiorari denied 1936, 299 U.S. 607, 57 S. Ct. 233, 81 L. Ed. 448 is cited by the defendants to support their contention in this regard. Meyer no longer appears to be controlling, even in the Second Circuit, in view of the recent case of Fanchon & Marco v. Paramount Pictures, 2 Cir., 1953, 202 F.2d 731, 36 A.L.R.2d 1336. At any rate, Meyer attempted to base jurisdiction on the then 28 U.S.C.A. § 41 *fn1" on the grounds that the relief sought depended on the construction of Federal laws. Jurisdiction was not based on the Clayton Act, as here. Thus the Court said that a breach of fiduciary duty issue could be dealt with quite apart from the fact that such breach involved the antitrust laws. The Court therefore held that no jurisdiction under 28 U.S.C.A. § 41 existed, since a determination of antitrust violations was not necessarily involved.

 Furthermore, though it is true that in dictum the Court referred to Fleitmann v. Welsbach Street Lighting Co., 1916, 240 U.S. 27, 36 S. Ct. 233, 60 L. Ed. 505 and United Copper Securities Co. v. Amalgamated Copper Co., 1917, 244 U.S. 261, 37 S. Ct. 509, 61 L. Ed. 1119 indicating that a derivative suit, being equitable in nature, would not lie for an antitrust treble damage suit, then on the law side, the joinder of law and equity under the F.R.C.P., particularly Rule 2, would appear to have erased this old procedural bar. Fanchon, supra; Ramsburg v. American Investment Co. of Illinois, 7 Cir., 1950, 231 F.2d 333; Schechtman v. Wolfson, 2 Cir., 1957, 244 F.2d 537; Kogan v. Schenley Industries, D.C.D.Del. 1956, 20 F.R.D. 4; and Gomberg, supra. Judge Clark, in particular in Fanchon, illustrates ...


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