Substance and Procedure in Federal Equity The Labor Injunction and Stockholders Suit Columbia Law Review 1941

"Substance" and "Procedure" in Federal Equity.
The Labor Injunction and the Stockholder's

Suit
Source: Columbia Law Review, Vol. 41, No. 1 (Jan., 1941), pp. 104-121
Published by: Columbia Law Review Association, Inc.
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104 COLUMBIA LAW REVIEW
protected by the Constitution. Viewed in this light, peaceful picketing
is a publicity device, a method of giving expression to opinions on vital
economic, social, and political issues. It is an instrument whose aim is
to convince the public that some wrong is being done which ought to be
rectified by the force of public opinion. As such, peaceful picketing
cannot be restricted to any one group, but is to be regarded as a lawful
means of persuasion available to any person or group, provided that
the matter in controversy is not "of mere local or private concern,"96
and that there are no factors involved which outweigh the public interest
in free discussion.97
"Substance" and "Procedure" in Federal Equity-The Labor
Injunction and the Stockholder's Suit
The existence of federal and state courts with partly concurrent
jurisdiction has inevitably created problems in choice of law.' Prior
to 1938 there had in the federal courts been substantial conformity to
state law in matters of procedure,2 and substantial autonomy in mat-
ters of substantive law.Y" Erie R. R. v.
Totnpkins4
and the new Federal
place, whatever coercive element is inherent therein is likely to disappear. At that
point, unless picketers can appeal successfully to the public sympathy or intelligence,
their efforts will be wasted. The tendency would then be for that picketing not
having a public appeal to disappear also.
'
Thornhill v. Alabama, supra note 14, at 103.
7 In effect, this is to say that the fact that peaceful picketing is an exercise of
"free speech" is sufficient justification for whatever harm be done the picketed. So
that if the purpose sought by the picketing party, when divorced from the incidental
harm caused to the one picketed, is not frowned upon by society, the picketing right
should be protected. Lest this give the impression that the end justifies whatever
means are used, bear in mind that peaceful picketing results in a battle for public
opinion, and that the picketer is by no means always the victor. The picketed one
should be granted every fair means of peacefully fighting back. If he loses the
battle, because public opinion rules against him, he is not necessarily destroyed
economically any more than the mass of employers defeated by labor strikes. He
has, of course, lost a little of the individualism he formerly possessed, but this
is in line with the present-day social outlook.
'
The problem arises in diversity of citizenship cases, and in the determination
of non-federal issues in cases in which
jurisdiction is founded on the existence of
a federal question.
2REV. STAT ? 914, 28 U. S. C. ? 724 (1934) provided for conformity "as near
as may be" to state procedure. This statute did not apply to equity, in which the
federal courts developed an independent procedure. Cf. REV. STAT. ? 917 (1875), 28
U. S. C. ? 720 (1934). Both of these statutes were repealed by the new Rules of
Civil Procedure. See 1 MOORE, FEDERAL PRACTICE (Perm. ed. 1938) ? 1.02.
3 Swift v. Tyson, 16 Pet. 1 (U. S. 1891). State statutes, however, were
binding on the federal courts in cases at law [REV. STAT. ? 721 (1875), 28 U. S. C.
? 725
(1934)]
and to a large extent in equity cases [see Mason v. United States,
260 U. S. 545, 558-9 (1923). But see infra n. 19].
4304 U. S. 64 (1938). A comprehensive list of discussions of this decision is
contained in Hart, The Bwsiness of the Supreme Court at October Terms 1937 and
1938 (1940) 53 HARV. L. REV. 579, 606.
PROCEDURE IN FEDERAL EQUITY 105
Rules5 have inverted this pattern by creating an independent body of
uniform federal procedural law, and by requiring adherence to the sub-
stantive law of the states.
While a new and more rational order may thus have been created,
only the outlines have been sketched in many areas. Yet awaiting defin-
itive statement is the status of equity in the new pattern. There arises
also the inquiry whether in creating the new order inconsistencies
have not resulted,6 for the constitutional basis of the Tompkins opin-
ion jeopardizes not only existing federal legislation but even some
of the simultaneously promulgated rules of "procedure." Problems
of this nature arise from the restrictions on the power to issue in-
junctions in labor disputes created by the Norris-La Gardia Act,7 and
the limitation imposed by Rule 23b of the Rules of Civil Procedure
on the ability of a stockholder to bring a derivative action to redress
injuries suffered by his corporation.8
Conformity to State Law in Matters of Equity.
The initial inquiry is whether Erie R. R. v. Tompkins applies to
equity. If the decision is nothing more than a re-interpretation of the
Rules of Decisions Act,9 it would be merely persuasive in equity cases.'0
But the opinion is rested on a constitutional basis'1 which should apply
to both law and equity,'2 despite the seemingly restricted language used.13
5FED. RuLEs Civ. PROC., 28 U. S. C. following ? 723c (Supp. 1939),
adopted
Dec. 20, 1937, 308 U. S. 645.
The very adoption of independent rules of procedure seems inconsistent with
the ideal that different results shall not obtain merely because of the accident of
citizenship of the parties. See Note (1938) 38 COLUMBIA LAW REv. 579,
606. It
is significant that Mr. Justice Brandeis, the writer of the opinion in the Tompkins
case, dissented to the adoption of the new rules. 308 U. S. at 647.
'47 STAT. 70 (1932), 29 U. S. C. ? 101-113 (1934).
828 U. S. C. following ? 723c (Supp. 1938).
9REV. STAT. ?721 (1875), 28 U. S. C. ?725 (1934),
supra n. 3. See Stone,
J.,
in Russell v. Todd, 309 U. S. 280, 287 (1940): "The Rule of Decisions Act does
not apply to equity. [It] applies only to the rules of decision in 'trials at common
law' . . . but applies as well to rules established by judicial decision in the states as
those established by statute. Erie R. Co. v. Tompkins
.
See Mason v. United States, 260 U. S. 545, 558-9 (1923).
" See 304 U. S. at 822: "If only a question of statutory construction were in-
volved, we should not be prepared to abandon a doctrine so widely applied through-
out the country. But the unconstitutionality of the course pursued has now been
made clear, and compels us to do so."
12 The basis for declaring Swift v. Tyson unconstitutional would seem to have
been that Congress and the federal courts can derive no power to create rules of
substantive law from the grant of diversity jurisdiction. Cf. the quotations from
Justices Field and Holmes, 304 U. S. at 78-80. Insofar as rules of equity
are sub-
stantive it is hard to see how federal power over them could be sustained under
this reasoning.
'3 Both Swift v. Tyson and Erie R. R. v. Tompkins
involved questions of com-
mon law. Mr. Justice Brandeis throughout his opinion talks of "law" and "common
law" (e.g. 304 U. S. at 74, id. at 78). The examples he gives of the evils the de-
This view is borne out by a large number of cases holding that federal
courts are bound to follow state decisions not only on legal questions
arising in equity actions,'4 but also on questions purely equitable.'5
One exception has, however, been indicated: a right to equitable re-
lief in the federal court will only be precluded by an adequate remedy
cision in the Tompkins case was intended to correct all involve common law situa-
tions. Id. at 75-6. The use of "common law" might be thought to be in con-
tradistinction to statute law, did he not refer to the power of Congress to "declare
rules of common law applicable in a state". Id. at 78. Hence a verbal argument
could be made that the Justice was carefully excluding equity from the scope of his
opinion. But nothing indicates that the Justice was making any attempt to use the
terms in any precise, accurate, restrictive sense. Thus in Hinderlider v. La Plata
Co., 304 U. S. 92, 110 (1938), in an opinion handed down on the same day as the
Tompkins decision, Mr. Justice Brandeis refers to the question of apportionment
between two states of the waters of an interstate stream as one of "federal com-
mon law", even though the action was for an injunction to protect "equitable rights."
Id. at 104.
14 Wichita Royalty Co. v. City Nat. Bank of Wichita Falls, 306 U. S. 103
(1939) (Action to wind up bank; bank's liability for diverting trust funds to
trustee's private account); Carter Oil Co. v. McQuigg, 112 F. (2d) 275 (C. C. A.
7th, 1940) (action to enjoin interference with rights of lessee; nature of estate re-
served by lessor's grantor) ; Continental Ill. Nat. Bank & Trust Co. v. City of Mid-
dlesboro, 109 F.(2d) 960 (C. C. A. 6th, 1940) (action to enjoin city from requir-
ing removal of telephone poles; issue: validity of franchise to defendant, and of
purported reservation in defendant's dedication of property to city) * Women's Cath-
olic Order of F. v. Special School Dist., 105 F.(2d) 716 (C. C. A. 8th, 1939)
(specific performance; validity of pledge of revenues by school district) * cf. In re
Shyvers, 33 F. Supp. 643 (S. D. Cal. 1940) (bankruptcy; whether claimant had a
lien). However, in Travelers' Mut. Casualty Ins. Co. v. Skeer, 24 F. Supp. 805,
806 (N. D. Mo. 1938), it was said that the Tompkins case did not apply to actions
in equity because "all the proceedings in a court of equity are governed by the Con-
stitution and laws of the United States." The court seems to have placed its princi-
ple reliance, however, on the theory that the issue in question, damages on an in-
junction bond, was procedural. Id. at 806. Compare Mercantile Commerce B. & T.
Co. v. S. E. Arkansas L. Dist., 106 F.(2d) 966 (C. C. A. 8th, 1938) (allowance of
attorney's fees held procedural). Contra: American Optometric Ass'n v. Ritholz,
101 F.(2d) 883 at 887 (C. C. A. 7th, 1939), cert. denied, 307 U. S. 647 (1939)
(same; action at law, held substantive).
15Cities Service Oil Co. v. Dunlop, 60 Sup. Ct. 201 (1940) (bill to remove
cloud on title; plaintiff pleads bona fide purchase in reliance on mistake in deed;
burden of proof of bona fides held not a question "of practice in courts of equity",
but one relating to "a substantial right") ; Ruhlin v. N. Y. Life Ins. Co., 304 U. S.
202 (1938) (action to rescind disability and double indemnity clauses of insurance
policy; construction of incontestability clause);
Brun v. Hansen, 103 F. (2d) 685
at 697-8, 700 (C. C. A. 9th, 1939),
cert. denied, 308 U. S. 571 (1939) (whether
con-
veyance to be set aside, whether constructive trust was proper remedy for breach of
administrator's fiduciary duty.); Fidelity and Guarantee Fire Corp. v. Bilquist, 108
F. (2d) 713 (C. C. A. 9th, 1940) (action to reform insurance policy; right to
reformation); Boone v. Equitable Holding Co., 32 F. Supp. 896 (S. D. W. Va.
1940) (action to set aside note on ground endorser incompetent; degree of proof
of incompetency);
see Prudential Ins. Co. of America v. Land Estates, Inc. 110
F.(2d) 617 (C. C. A. 2d, 1940) (allowability of claim in receivership; state law
said to have governed prior to Erie R. R. v. Tompkins); Bryant v. Linn County,
Ore., 27 F. Supp. 562, 564 (D. Ore. 1938) (whether trust ex maleficio arose; trust
held unenforceable because claim not reasonably made as provided in National
Banking Act) ; Socony-Vacuum Oil Co. v. Rosen, 108 F.(2d) 632, 635 (C. C. A.
6th, 1940) (what constitutes unfair competition; state and federal law the same).
at law in the federal court.16 How far this exception will be extended
cannot as yet be foretold; the opinions of Mr. Justice Stone may be
taken to suggest that whenever the issue is whether "in any given in-
stance a suit . . . is an appropriate one for the exercise of the extra-
ordinary powers of a court of equity,"''7 that is, where it relates to
"equitable remedies,''l8 the federal courts need not follow state law. If
this is the position that the Court will adopt, then the Tompkins case
has not achieved full conformity in matters equitable. Previously, fed-
eral courts refused to follow state statutes conferring "equitable reme-
dies" while following those conferring "equitable rights" ;19 the Tomrp-
kins case may merely have extended that dichotomy, with its attendant
confusion and inconsistencies of result,20 to judicial decisions.
The cases holding federal equity courts independent of state statutes
in matters of "equitable remedies" seem to have been based primarily
on the need for preserving the constitutional right to a jury trial,21
which was violated if a remedy obtainable only on the equity side of
the court was given for a right whose violation was normally tried to a
jury on the law side.22 With the adoption of the "single form of ac-
1"Atlas Ins. Co. v. Southern Inc., 306 U. S. 563 (1939); see Russell v. Todd,
309 U. S. 280, 286 (1940); cf. Sweeney v. Pennsylvania Dept. of Pub. Assistance
Bd., 33 F. Supp. 587 (M. D. Pa. 1940).
The Atlas case may simply exemplify the principle of City Bank Farmers'
Trust Co. v. Schnader, 29 U. S. 24 (1934), infra note 26. But cf. Di Giovanni v.
Camden Fire Ins. Assn., 296 U. S. 64 (1935). These cases may, however, stand
for the broader proposition that even where the state legal remedy is equally avail-
able in the federal court, the question of its adequacy is one for independent federal
determination. Or they may stand for the even broader proposition that in every
instance the propriety of granting equitable remedies is one for independent federal
determination. Under either of the latter interpretations they are subject to the
criticisms made in the ensuing text.
1Atlas Ins. Co. v. Southern, Inc., 306 U. S. 563, 568 (1939).
18 Russell v. Todd, 309 U. S. 280, 294 (1940). Mr. Justice Stone expressly left
the question open. Compare Bruun v. Hanson, 103 F.(2d) 685 (C. C. A. 9th,
1939) supra note 12, with Isaac v. Milton Mfg. Co., 33 F. Supp. 732 (M. D. Pa.
1940) (whether receiver appointable; treated as question of provisional remedy;
no state cases cited).
1
See Notes (1932) 32 COLUMBIA LAW REV. 688, (1936) 49 HARV. L. REV. 950,
954 et seq., (1923) 33 YALE L. J. 193.
20
See Note (1932) 32 COLUMBIA LAW REV. 688, 698.
See, e.g., Scott v. Nealy,
140 U. S. 106, 109-10 (1891). The
precise meaning
of the phrase "equitable remedies" is difficult to ascertain. In the ensuing discus-
sion "remedial" will be used to refer to questions where the issue is: given a cause
of action cognizable at law, will equitable relief be granted? "Substantive" rules of
equity ("equitable rights") will mean those which determine, not whether the case
is properly cognizable in equity rather than in law, but whether plaintiff, being
properly in the equity court, has stated a meritorious cause of action. Compare
Whitehead v. Shattuck, 138 U. S. 146 (1891), with Holland v. Challen, 110 U. S.
15 (1884). See Pusey & Jones Co. v. Hanssen, 261 U. S. 491, 499 (1923).
22 Cf. Cates v. Allen, 149 U. S. 450, 459 (1893): ". . . the fact that the chancery
court has the power to summon a jury on occasion cannot be regarded as the equiv-
alent of the right of trial by jury secured by the Seventh Amendment."
tion"23 the two sides of the court are abolished. Jury trials are to be
granted whenever the parties would formerly have been entitled to
them,24 but it would seem that the fact that equitable relief was asked
need not preclude the parties from obtaining a jury trial as of right.25
Hence federal independence in granting or refusing equitable remedies
is no longer required by the constitution. Save in certain exceptional
cases26 there seems no stronger reason to preserve federal independence
in matters of equitable remedies than in any other type of question.
The Constitutionality of the Norris-La Guardia Act.
The opinion in the Tompkins case did more than require federal
courts to follow state decisions; Congress has, according to Mr. Justice
Brandeis, no "power to declare substantive rules of common law ap-
3 Rule 2, 28 U. S. C. following ? 723c (Supp. 1939).
'
Rule 38, ibid. On the question when a jury trial may be obtained as of right,
see 2 MOORE, FEDERAL PRACrICE (Perm. ed. 1938) ? 38; Pike and Fischer, Pleadings
and Jury Rights in the New Federal Procedure (1940) 88 U. OF PA. L. REv. 645;
McCaskill, Jury Demands in the New Federal Procedure (1940) 88 U. OF PA. L.
REv. 315.
'Cf. Trittipo v. Morgan, 99 Ind. 269 (1884), granting a jury trial of a statu-
tory bill to quiet title, brought by a plaintiff out of possession against a defendant
in possession. A similar statute, on similar facts, has been held unenforceable in
a federal equity court since there was an adequate legal remedy in ej ectment.
Whitehead v. Shattuck, 138 U. S. 146 (1891).
Rules 8(a) (3) and 18(b) authorizing requests for a number of different kinds
of relief in one action, and joinder of legal and equitable causes of action, remove
all impediments to the bringing of "blended" actions, requesting equitable relief and
requiring adjudication of legal rights. Thus a contract creditor's bill to vacate a
fraudulent conveyance, formerly held unenforceable in the federal courts [Scott
v. Neely, 140 U. S. 106 (1891); Cates v. Allen, 149 U. S. 450 (1893) ; cf. Pusey &
Jones v. Hanssen, 261 U. S. 493 (1923)] is now specifically mentioned by Rule
18(b) as an example of the type of joinder it permits. See 2 MooRE, FEDERAL PRO-
CEDURE (1938) ? 18.03
Normally the question whether a jury trial is to be granted will still depend
on the kind of relief asked [cf. Pike and Fischer, op. cit. supra note 24, at 656],
since the test is whether the action would formerly have been brought at law or in
equity [see Grauman v. City Co. of N. Y., 31 F. Supp. 172, 174 (S. D. N. Y. 1939);
Bellavance v. Plastic-Craft Novelty Co., 30 F. Supp. 37, 38 (D. Mass. 1939)].
But the fact that the nature of the remedy asked is usually indicative of the exist-
ence of a right to jury trial, does not negate the proposition that there is no longer
any necessary relation between them such as to give rise to constitutional restric-
tions on the powers of federal courts to follow state law as to the propriety of
granting equitable remedies.
'Cf. Matthews v. Rodgers, 284 U. S. 521 (1932), in which the federal court
refused to enjoin enforcement of a state tax, although the injunctive remedy was
seemingly available in the state court. In such a case, reasons of comity dictate
federal abstention. See 284 U. S. at 525. And since the question concerns the
remedy for the violation of rights guaranteed by the Federal Constitution, the
existence of an independent federal rule is justified.
A converse situation is suggested by City Bank Farmers' Trust Co. v.
Schnader, 291 U. S. 24 (1934). There the state remedy was by an administrative
proceeding, not available in the federal court. Federal equitable relief was granted.
A similar result would be justified today, it is submitted. The problem is unusual,
since state legal remedies must normally be granted by federal courts under the
plicable in a state...."27 The dictum might appear in terms to exclude
equity from the restriction imposed.28 But if the Tompkins opinion
is to be applied to judicial decisions in equity, logic would seem to re-
quire that the identity of treatment with law be made complete, and the
opinion be applicable to federal statutes relating to equity as well as to
law.
Assuming that Erie R. R. v. Tompkins restricts Congressional power
over substantive matters in equity, a serious question is raised as to the
constitutionality of the Norris-La Guardia Act,29 which restricts the
Tbmpkins case. But if for any reason it is impossible to give the state remedy,
it seems fair to permit federal equitable remedies to be given, perhaps allowing
a jury trial. Non-conformity in this instance is necessitated by the inability to
give legal relief; the granting of equitable relief serves rather to minimize the
effects of non-conformity.
27304 U. S. at 78. The statement appears to be obiter dictum. Its correctness
has been judicially questioned both in the concurring opinion of Mr. Justice Reed
in the Tompkins case, 304 U. S. at 89, and by Judge Magruder in Sampson v. Chan-
nell, 110 F.(2d) 754, 756-7 n. 4 (C. C. A. 1st, 1940). Mr. Justice Brandeis seems
to have assumed that he was merely restating the previously accepted law. See
304 U. S. at 72. But, while no attempt had ever been made to assert a Congressional
authority to enact substantive rules applicable in diversity cases, its existence had
also never been denied by the courts and had been persuasively asserted by at least
one text writer, GOODNOW, SOCIAL REFORM AND THE CONSTITUTION (1911) C. IV;
see also WILLOUGHBY, CONSTITUTIONAL LAW (2d ed. 1929) 1297-8. The principal
argument lies in the analogy from admiralty, where a grant of judicial power has
been held to confer legislative power. In re Garnett, 141 U. S. 1 (1891) ; Detroit
Trust Co. v. The Thomas Barlum, 293 U. S. 21 (1934). But that grant was of
exclusive power, [The Moses Taylor, 4 Wall. 411 (U. S. 1866)],
and state legisla-
tion has been held unenforceable in admiralty. [Southern Pacific Co. v. Jensen, 244
U. S. 205 (1917). But cf. The Hamilton, 207 U. S. 398 (1907)]. Hence federal
legislative authority was often the only one possible. Cf. The Lottawanna, 21
Wall. 558, 576-7 (U. S. 1874).
More important as a prediction basis, are political considerations. To sustain
federal legislative authority over substantive matters in diversity cases is no longer
vitally necessary in order to permit needed social legislation, in view of the expan-
sion of the commerce power. (Thus the Norris-La Guardia Act can be partly sus-
tained on other grounds, see infra p. 115.) Nor is it a convenient and practical
method of securing uniformity of commercial law. See the Tompkinis case, 304
U. S. at 74. [Compare the possibilities of a federal act applicable to interstate trans-
actions and an identically worded Uniform Act, and of such enabling provisions as
the Miller-Tydings Amendment, 50 STAT. 693 (1937), 15 U. S. C. ? 1 (Supp.
1939) ].
On the other hand the scope of such a power would be far greater
than that wielded by the court under Suift v. Tyson, since local rules of property
would not be exempt, and state statutes would be overriden. Hence it is to be
anticipated that unless a strong social need arises, which is incapable of satisfac-
tion by other methods, the Court would be reluctant to overturn Mr. Justice
Brandeis' dictum.
'
See supra note 13.
947 STAT. 70 (1932), 29 U. S. C. ?? 101-113 (1934). Many provisions of the
Act are not herein discussed Pt length. ?? 109, 110, 111, 112, and parts of ? 107
deal with questions such as notice and hearing, findings of fact, jury trial, appeals,
etc. These are clearly procedural and raise no problem under Erie R. R. v. Tompkins.
? 106 provides that no officer or member of an organization may be held liable for
acts committed in the course of a labor dispute save on clear proof that he par-
ticipated in, authorized or ratified such acts. The provision has been termed a
rule of evidence. See Sen. Rep. No. 163, 72d Cong., 1st Sess. (1932) 19-21;
Cinderella Theater Co. v. Sign Writers' Local Union, 6 F. Supp. 164, 171 (E. D.
power of federal courts to issue injunctions in labor disputes. The im-
portant provisions for present purposes are those depriving the federal
courts of "jurisdiction" (1) to enjoin certain specified types of con-
duct,30 and (2) to enjoin any conduct unless certain facts are estab-
lished.31 These provisions seem analytically to deal with equitable
remedies; they do not deny the possible existence of a cause of action
in tort, but merely deny such a cause of action any equitable enforce-
ment. Accordingly the provisions have, prior to Erie R. R. v. Tompkins,
been held constitutional,32 and retroactively applicable to a cause of ac-
tion pending at the time of their passage.33 These cases would be con-
Mich. 1934). Contra: Sen. Rep. No. 163, 72d Cong., 1st Sess. (1932) Part 2, 9-10.
As such it would seem "rationally capable of classification" as procedural. See
Sampson v. Channell, 110 F.(2d) 754, 756-7 n. 4 (C. C. A. 1st, 1940). Hence its
constitutionality could be sustained. But it would not seem constitutionally appli-
cable to cases arising in a state in which such an officer was made responsible
regardless of participation, authorization, or ratification.
3?29 U. S. C. ? 104. The principal acts thus protected are (a) striking, (b)
joining a labor union, (c) paying to or withholding from strikers any strike or
unemployment benefits, (e) peaceful picketing, (f) assembling peaceably, (h)
agreeing to do, or (i) urging others to do, any of these acts.
The provision in ? 104(e) may be thought to be of only academic interest, in
view of the Court's declaration in Thornhill v. Alabama, 110 U. S. 88 (1940) that
the right of peaceful picketing is guaranteed by the Constitution. See su?pra p.
93. But quaere whether the protection afforded by a Constitutional interpretation
which the Court is free to change is as great as that afforded by an explicitly
worded statute. Quaere also the extent to which the Thornhill case will increase
the occasions for the problems of the present Note to arise by making possible re-
moval on the ground of a federal question.
=
29 U. S. C. ? 107 (1934) deprives the court of "jurisdiction" to issue a
temporary or permanent injunction except after findings "(a) that unlawful acts
have been committed and will be continued unless restrained; (b) that substantial
and irreparable injury to complainant's property will follow; (c) that as to each
item of relief granted greater injury will be inflicted upon complainant by the denial
of relief than will be inflicted upon defendants by the granting of relief; (d) that
complainant has no adequate remedy at law; and (e) that the public officers
charged with the duty to protect complainant's property are unable or unwilling to
furnish adequate protection." This section, which also provides for notice, hear-
ing, etc., was termed "procedural" in the committee reports. SEN. REP. No. 163,
72d Cong., 1st Sess. (1932) 21-3; id. Part 2, 10-12. But obviously to require cer-
tain findings to be made is to make the existence of facts upon which to base those
findings a part of complainant's cause of action.
See also ? 108 providing that no one may obtain an injunction who has failed to
observe his legal obligations in connection with the labor dispute, or to use every
possible means to settle it.
'
Levering & Garrigues Co. v. Morrin, 71 F. (2d) 284 (C. C. A. 2d, 1934)
(? 104); Lauf v. E. G. Shinner & Co., 303 U. S. 323 (1938) (? 107); United
Electric Coal Co. v. Rice, 80 F.(2d) 1 (C. C. A. 7th, 1935) (? 108). All of these
cases base their holdings on the power of Congress to define and limit the jurisdic-
tion of the inferior federal courts, even though ? 108 is not worded in jurisdictional
terms. However, in the Levering case an alternative ground given for the holding
of constitutionality was that ? 104 was "a limitation affecting remedy rather than
property rights," the court thereby distinguishing the present provision from that
invalidated on due process grounds in Truax v. Corrigan, 257 U. S. 312 (1921) by
means of the fact that the latter statute was therein construed to deny all remedies
and thereby legalize picketing. 71 F.(2d) at 287.
Levering & Garrigues Co. v. Morrin, 71 F. (2d) 284 (C. C. A. 2d, 1934)
(? 104).
sistent with a construction of the provisions as relating to federal
power,34 but other decisions seem clearly to treat them as relating to
equitable remedies,35 terming a dismissal for non-compliance therewith
to be for want of equity, not want of power as a federal court,36 and
accepting removal from a state court of a cause of action barred by
them.37
If federal legislative and judicial power over the propriety of
granting equitable remedies is not foreclosed by the Tompkins case, no
objection to the constitutionality of these provisions arises. If, as seems
more probable, the principle of the Tompkins case applies generally to
equity, with a few small exceptions, analysis of these provisions as
remedial is not expressive of legal consequences. It remains yet to ask
how these provisions may and should be classified.
It would be hard to justify a classification as procedural. The Act
seems to bear no intimate relation to the coherent system of procedure
in federal courts, nor will it cause too serious difficulties to trial judges
to have to apply different rules when sitting in different states. On
the other hand, while "rights" in the technical sense herein used are not
affected, the practical ability of a plaintiff to get relief is seriously af-
fected by the Act. Possibly the most attractive argument for terming
the Act procedural is that a court should attempt to carry out to the
fullest the expressed policy of Congress, and not to nullify it in whole or
in part. That argument would be valid were the analytical classification
of the Act reasonably open to question.38 Since the Act does not seem
3 See infra n. 41 for an explanation of the use of this phrase.
'
See cases cited infra n. 35; also Levering & Garrigues Co. v. Morrin, 71
F.(2d) 284, 287 (C. C. A. 2d, 1934)
(?
104); Lauf v. E. G. Shinner Co., 303
U. S. 323, 327 (1937) (? 107); Rohde v. Dighton, 27 F. Supp. 149, 150 (W. D.
Mo.
1939) (? 107).
'See S. S. Kresge Co. v. Amsler, 99 F.(2d) 503, 507 (C. C. A. 8th, 1938)
(? 104); Grace Co. v. Williams, 96 F.(2d) 478, 480 (C. C. A. 8th, 1938) (? 107)
;
Fehr Baking Co. v. Bakers' Union, 20 F. Supp. 691, 694 (W. D. La.
1937)
(? 104 semble; held no labor dispute).
3' Miller Parlor Furniture Co. v. Furniture Workers' Industrial Union, 8 F.
Supp. 209 (D. N. J. 1934), (1934) 34 COLUMBIA LAW REV. 1552. Contra,
Wucker Furniture Co. v. Furniture Salesmen's Union, 126 N. J. Eq. 145 (1939)
(?? 104e, 107c, 107e). The decision of a state court on the right of removal is not
conclusive; if the defendant files the record in the federal court the latter may en-
join further proceedings in the state court [Madisonville Traction Co. v. St.
Bernard Mining Co., 196 U. S. 239 (1905)], and even if the state court has been
permitted to proceed to final judgment, its judgment may be reversed by the Su-
preme Court [Baltimore and Ohio R. R. Co. v. Koontz, 104 U. S. 5 (1881)].
'
See Sampson v. Channell, 110 F. (2d) 754, 756-7 n. 4 (C. C. A. 1st, 1940),
cert. denied, 60 Sup. Ct. 1099 (1940), wherein Judge Magruder observed that Con-
gress' power over procedure "would certainly include a power to include within
the domain of 'procedure' subj ect-matter falling within the borderland between
substance and procedure, and rationally capable of classification within either
category." It may seem surprising that Congressional opinion should be given
weight on a matter of "pure law." But since there are many situations which
susceptible of classification as procedural, the argument is addressed
rather to the wisdom of placing the Tompkinis decision on a constitu-
tional basis restrictive of federal legislative power.
However, it may be possible to uphold the constitutionality of these
provisions. Congress has undoubted power over the jurisdiction of the
federal courts.39 That power would seem to be exercisable so as to
withdraw certain types of suits from the range of federal judicial cog-
nizance,40 leaving them to be tried exclusively in state courts. If the
Norris-La Guardia Act could be construed as jurisdictional41 the whole
problem with which Erie R. R. v. Tomnpkins deals would be avoided. For
the Tompkins case deals with a problem of choice of law, and that prob-
lem cannot arise if the court refuses to take jurisdiction.
The question is, therefore, whether a jurisdictional construction is
permissible. The Act does not appear to deal with the question whether
cases within its terms should be tried in state rather than in federal
courts; it seems rather to deprive the federal courts of the power to
grant injunctive relief in cases properly before them. But this want of
power to give an equitable remedy may perhaps justify a federal court
in refusing to take jurisdiction.
Cases dealing with state statutes in equity are informative on this
point. While normally state statutes were applied by the federal equity
court, an exception was made where the statute was thought to extend
"equitable jurisdiction" to issues previously tried as of right to a jury.42
Where a substantially adequate remedy was available at law the
case was dismissed without prejudice to an action at law,43 or trans-
do not fit any category by "intrinsic compulsion," classification must often depend
on considerations of policy, one of which is the general undesirability of declaring
legislation to be unconstitutional.
'3 See Kline v. Burke Construction Co., 260 U. S. 226, 233 (1923).
40Cf. McChesney v. Illinois Cent. R. R., 197 Fed. 85 (W. D. Ky. 1912), sus-
taining the constitutionality of the provisions denying the right to remove causes
brought under the Federal Employers' Liability Act, 36 STAT. 291 (1910), 28
U.S.C. ?71 (1934), 45 U. S.C. ?56 (1934).
'
In the ensuing discussion "jurisdictional" will be used to connote any situa-
tion which will induce the federal courts to remand a removed action, or dismiss an
original one in such fashion that the dismissal will be res judicata only of the prop-
osition that the case cannot be tried in the federal court. The term expresses the
presently relevant legal consequences of want of "jurisdiction" in the stricter sense
of more orthodox usage, denoting a non-compliance with the REV. STAT. ? 24
(1875), 28 U. S. C. ? 41 (1934) (relating to diversity of citizenship and the like),
which will herein be referred to by the term "federal power". Thus the legal
consequences described by this use of the term "jurisdictional" are consequences
which result from facts describable as "want of federal power", but which may
also result from other facts.
4' See supra n. 19.
4'At the time when Cates v. Allen, infra n. 37, was decided, original actions
improperly brought in equity were dismissed without prejudice to an action of law,
e.g. Scott v. Nealy, 140 U. S. 106 (1891) * see Twist v. Prairie Oil Co., 274 U. S.
684, 689 (1927). Rules 22 and 23 of the Equity Rules of 1912 provided for the free
transfer of such causes of action to the law side of the federal court.
f erred to the law side of the court.44 But where the legal remedy in the
federal court was clearly inadequate, to transfer a removed case to the
law side would result in depriving a litigant of effective redress. Faced
with this situation, the Court in Cates v. Allen remanded the case to the
state court, on the ground that it lacked jurisdiction.45
Subsequent cases appear to have adopted a different concept of
"jurisdiction." Thus the objection that a cause of action was not
properly cognizable in equity was held waivable,46 while absence of
diversity of citizenship, for example, is not.47 And it was held that
the impropriety of granting equitable relief did not raise a "jurisdic-
tional" issue within the meaning of a statute48 providing for direct ap-
peals to the Supreme Court on questions of "jurisdiction."49 As a re-
4'At the time of the decision in Cates v. Allen a case improperly removed into
federal equity could be transferred to the law side. Elliott v. Schuler, 50 Fed.
454 (W. D. N. C. 1892); see Coosaw Min. Co. v. S. Carolina, 144 U. S. 550, 564
(1891) ; cf. Ketchum v. Black River Lumber Co., 4 Fed. 139 (W. D. Wis. 1880).
Where the case involved both legal and equitable causes of action it could be split
up and proceeded in in both sides of the court. Hunt v. Hollingsworth, 100 U. S.
100 (1870) ; Fisk v. Union Pac. Ry. Co., 8 Blatchf. 299, Fed. Cas. No. 4,829
(C. C. S. D. N. Y. 1871); La Mothe Mfg. Co. v. Nat'l Tub Works, 15 Blatchf.
432, Fed. Cas. No. 8033 (C. C. S. D. N. Y. 1879); Perkins v. Hendrix, 23 Fed.
418 (C. C. D. Mass. 1885); Lacroix v. Lyons, 27 Fed. 403 (C. C. E. D. La. 1886) ;
cf. Levy v. Am. Cent. Ins. Co. [C. C. W. D. Tenn., unreported, discussed in
Whittenton Mfg. Co. v. Memphis & Ohio River Packet Co., 19 Fed. 273, 276
(C. C. W. D. Tenn. 1883)].
'4149 U. S. 451 (1893). Cf. Rosenbaum v. Bauer, 120 U. S. 450 (1887), re-
manding a removed action because of the federal court's inability to issue a writ
of mandamus.
There may be some intimation in Twist v. Prairie Oil Co., 274 U. S. 684, 690
(1927), that a court will remand a removed suit where it would have retained
one originally brought. Cf. Peters v. Equitable Life Ins. Co., 149 Fed. 290, 294
(C. C. D. Mass. 1906). There are some pragmatic reasons for making such a dis-
tinction, since a dismissal exposes plaintiff to the necessity of securing new service
of process, and to the possibility that a statute of limitations has run, whereas
remand does not. Compare the majority doctrine that where [its jurisdiction is doubt-
ful the federal court will remand rather than retain the case. Pabst v. Roxana
Petroleum Co., 30 F. (2d) 953 (S. D. Tex. 1929). Contra: Pierce v. Desmond,
11 F.(2d) 327 (D. Minn. 1926).] But, save for the possible exercise of discretion
in borderline cases, no reason is seen for a difference in treatment. The statute
refers in the same terms to original and removed cases, 18 STAT. 472 (1875), 28
U. S.C. ?80 (1934).
The emphasis in the discussion on removed cases does not, therefore, indicate
that removal jurisdiction is regarded as something unique. But for the present
purpose the removal cases are more valuable because the issue of jurisdiction as
between federal and state courts is clearly presented by the motion to remand,
whereas a motion to dismiss in an original case may be based on any of a number
of grounds.
'
In re Metropolitan Railway Receivership, 208 U. S. 90 (1098); see Pusey &
Jones Co. v. Hanssen, 261 U. S. 491, 500 (1923); Twist v. Prairie Oil Co., 274
U. S. 684, 691 (1927).
'4Mansfield, Coldwater, and Lake Mich. R. R. v. Swan, 111 U. S. 379 (1894)
(lack of diversity of citizenship).
4 26 STAT. 827 (1891), repealed, 43 STAT. '938 (1925).
4 Smith v. McKay, 161 U. S. 355
(1896) (action
to
enjoin
use of
property
till
license fees therefor were paid, and for accounting) ; see Smith v. Apple, 264 U. S.
274, 278 (1924).
sult one judge has thought that Cates v. Allen has been overruled.50
But these cases were dealing with wholly different issues; their only
relation to the problem of Cates v. Allen is that the result in each case
was expressed by the use of the same term. But that does not indicate
that the content of that term should be the same in each situation.5'
In view of the growing movement to minimize and finally abolish the
rigid division between the law and equity side of the court,52 it was ob-
viously desirable to permit waiver of objections to the propriety of
trial in equity.53 The desirability of restricting the number of
cases directly appealable to a busy Supreme Court was equally clear.54
Hence a narrow concept of "jurisdiction" was desirable. On the other
hand, to the extent that conformity with state statutory law was sought,
an expansion of the concept of jurisdiction so as to permit remand in
Cates v. Allen afforded a means of minimizing the violence done to
that purpose by prevailing doctrines of federal equity jurisdiction.
It would seem, therefore, that on the question of jurisdiction Cates
v. Allen is still good law.55 Its value for the present discussion lies in
See Essenkay Corp. v. Mangel Stores Corp., 10 F. Supp. 50, 52 (S. D. N. Y.
1932).
"
That a question may be classified in one way for one purpose and in an-
other way for another purpose, see Cook, "Substance" and "Procedure" in Conflict
of Laws (1933) 42 YALE L. J. 333
passim. Compare Sampson v. Channell, 110
F.(2d) 754 (C. C. A. 1st, 1940), cert. denied, 60 Sup. Ct. 1099 (1940), holding
that burden of proof of contributory negligence is substantive for purposes of de-
termining whether the federal court should follow state law, but applying the state
rule that for purposes of conflicts of laws it is procedural. But cf. Venner v.
Great Northern Ry., 209 U. S. 24, 34 (1908), infra n. 55, in which a case holding
that Equity Rule 94 (now 23b) did not raise a jurisdictional question so as to
permit direct appeal was cited as authoritative that a cause of action which failed
to comply with Rule 94 was removable.
'2Equity Rules 22 and 23 of the Rules of 1912, and 38 STAT. 956 (1915), 28
U. S. C. ?? 397-8 (1934) provided for the free transfer of causes from law to
equity or vice versa, for the trial by jury in the equity court of legal issues arising
in equity actions, and for the interposition of equitable defenses in legal actions.
Rule 2 of the new Rules of Civil Procedure completes the process by providing
for "one form of action," and Rules 38 and 39 provide for demand of jury trial in
any action, and treat the failure to demand as a waiver.
'
The fact that the right to jury trial is waivable [REV. STAT. ? 649 (1875),
28 U. S. C. ? 773 (1934)] impelled strongly to this result. On remand of a case
improperly tried in equity it would be tried in the same court, hence the only
hardship created by its improper trial in equity was the loss of the right to jury trial.
Cf. 1 MOORE, FEDERAL PRACTICE (Perm. ed. 1938) 127.
'Cf. FRANKFURTER AND LANDIS, BUSINESS OF THE SUPREME COURT (1928)
254-73.
5 See Twist v. Prairie Oil Co., 274 U. S. 684, 690 (1927). But see Essen-
kay Corp. v. Mangel Stores Corp., 10 F. Supp. 50, 51-52 (S. D. N. Y. 1932); cf.
Venner v. Great Northern Ry., 209 U. S. 24 (1908). The Venner case pre-
sents the strongest inconsistency with Cates v. Allen, since it in terms adopts
the theory that, given diversity of citizenship and the requisite amount in
controversy, want of equity in the bill will not prevent removal. See 209 U. S.
at 34-5. But the provision there in question seems to have been regarded by the
court as a substantive rule. See infra note 57.
On the question of equity jurisdiction the point decided has been rendered
moot by Rule 18b, see supra n. 25.
its holding that, even though the statutory requirements for the existence
of federal judicial power are satisfied,56 a federal court which is unable
to give equitable relief may decline jurisdiction and leave the plaintiff
free to obtain his more adequate relief in the state court.57 Cates v.
Allen thus provides a persuasive analogy for construing as jurisdictional
a federal statute restrictive of remedial powers.58 Since the jurisdic-
tional construction of the provisions of the Norris-La Guardia Act that
have been under discussion is possible, the familiar rule that a statute
will if possible be construed so as to avoid unconstitutionality59 would
seem to require it.
Stockholders Suits: Rule 23b.
A somewhat different problem is raised by Rule 23b of the Rules of
Civil Procedure,60 relating to stockholders' derivative actions. The rele-
vant provisions require that plaintiff allege that he was a stockholder
at the time of the injury complained of,61 and that demand was made on
'
I.e. the requirements imposed by 28 U. S. C. ? 41, see
supra
n. 41.
7 It is to be noted that the doctrine of Cates v. Allen does not apply in every
case in which the plaintiff can obtain relief in the state court, but only where the
difference between the two courts relates to a question of remedial power. Thus
differences of substantive law do not prevent removal Free v. Western Union
Telegraph Co., 122 Fed. 309 (C. C. S. D. Iowa, 1903) (right to damages for mental
anguish); cf. Young v. Southern Pac. Ry. Co., 25 F. (2d) 630 (C. C. A. 2d, 1928)
(action barred by laches in federal court; not in state court). Nor did differences
in procedure prevent removal if the case was capable of assimilation into one of
the available forms of "suit at law or in equity." E.g., North Carolina Pub. Serv.
Co. v. So. Power Co., 282 Fed. 837 (C. C. A. 4th, 1922); State of Washington
ex ret. City of Tacoma v. Tacoma Ry. & Power Co., 244 Fed. 989 (C. C. W. D.
Wash. 1910) (mandamus); Postal Tel. Cable Co. v. Southern Ry. Co., 122 Fed.
156 (C. C. W. D. N. Car. 1903) (condemnation);
Chicago, M. & St. P. Ry. Co. v.
Drainage Dist. No. 3, 253 Fed. 491 (S. D. Iowa 1917) ; People v. Burke, 141
Misc. 663, 254 N. Y. Supp. 522 (Sup. Ct. Erie Co. 1931) (assessment) ;
Harr v.
Pioneer Mech. Corp., 1 F. Supp. 294 (S. D. N. Y. 1932) (declaratory judgment);
McLaughlin v. Western Union Tel. Co., 7 F.(2d) 177 (E. D. La. 1925) (work-
men's compensation). In general see Watkins, The Inadequacy of the Federal
Courts as a Bar to the Removal of Suits from the State to the Federal Court
(1922) 95 CENT. L. J. 312.
5 Cf. REV. STAT. ? 720, (1875), 28 U. S. C. ? 379 (1934), providing that "writs
of injunction
shall not be granted" to stay proceedings in state courts, which has
been held to prevent removal to the federal court [Lawrence v. Morgan's R. R., 121
U. S. 634 (1887) ; see Bondurant v. Watson, 103 U. S. 281, 288. But cf. Diggs and
Keith v. Wolcott, 4 Cranch 179 (U. S. 1807)], but not to present a "jurisdictional"
issue within the meaning of the direct appeals statute [Smith v. Apple, 264 U. S. 274
(1924)].
'Cf. Crowell v. Benson, 285 U. S. 22, at 62 (1931); see Ashwander v. Ten-
nessee Valley Authority, 297 U. S. 288, 348 (1936).
'
FED. RULES CIV. PROC., 28 U. S. C. following ? 723 (Supp. 1939). The rule
is substantially the same as Rule 27 of the Equity Rules of 1912, and Rule 94 of
the Equity Rules of 1882. The latter in turn simply adopts in the form of a rule
of court the requirements laid down in Hawes v. Oakland, 104 U. S. 450, 461
(1881).
6 In ten or eleven states, including New York, New Jersey, Pennsyl-
vania, Illinois, and perhaps Delaware, the rule is contrary. See Note (1938) 38
the corporate directors and plaintiff's fellow-stockholders to secure the
desired action, or that such demand would have been futile.62 Analyzed
solely in terms of substance and procedure the rule seems clearly sub-
stantive.63 The fact that the Supreme Court adopted it, as a rule not
affecting substantive rights, a few months before the decision in the
Tomspkins case should have little weight,64 for it can hardly be regarded
as a considered judgment on the point.65 Analytically the rule, as in-
terpreted, creates conditions precedent to the existence of any cause of
action on behalf of the plaintiff, and hence relates to substantive rights.
Nor would procedural inconvenience be caused, or the integrated system
of federal procedure disrupted, by the application of state rules. Hence
the rule, as interpreted, should be deemed substantive, and therefore
unconstitutional.
Can the rule be sustained as jurisdictional? The political facts
which led to the adoption of the rule were clearly the frequent abuse of
stockholders' suits as a means of obtaining collusive access to the federal
courts, and thereby unduly burdening those courts.66 Insofar as the
COLUMBIA LAW REV. 1472, 1480; FLETCHER, CORPORATIONS (Perm. ed. 1932)
? 5980 n. 12. Nine states apply the federal rule, id. ? 5981 n. 27.
'
This provision appears to embody the law of all the states that have passed
on the question, except that the requirement that demand be made on the stock-
holders may be more stringent under the federal rule. See 13 FLETCHER, CORPORA-
TIONS (Perm. ed. 1932) ?? 5963, 5964, 5970.
'
Accord: Tunks, Categorization and Federalism: "Substance" and "Pro-
cedure" After Erie Railroad v. Tompkins, (1939) 33 ILL. L. REV. 271,
287;
Notes (1938) 38 COLUMBIA LAW REV. 1472, 1483-4, (1939) 37 MIcH. L. REV. 773,
776. See Summers v. Hearst, 23 F. Supp. 986, 992 (S. D. N. Y., 1938). Two
cases have applied the Rule without questioning its present validity. Isaac v. Mil-
ton Mfg. Co., 33 F. Supp. 732 (M. D. Pa. 1940) (demand) Lynch v. Yonkers,
Nat. B. T. Co., 3 Fed. Rules Serv. 23b, 1, Case 1, (S. D. N. Y. 1940) (owner-
ship) ; Gallup v. Caldwell, 32 F. Supp. 711 (D. Del. 1940) (ownership).
'
Cf. (1940) 26 VA. L. REV. 823. But see Summers v. Hearst, 25 F. Supp. 986,
992 (S. D. N. Y. 1938).
'
Particularly in view of the fact that Rule 23b was simply a re-promulgation
of an old rule, while many other rules were of great novelty and importance, does
it seem unlikely that great attention was paid to it. The lack of attention given
Rule 23b in popular discussions of the new rules is indicative. See FEDERAL RULES
OF CIVIL PROCEDURE, PROCEEDINGS OF INSTITUTES, WASHINGTON AND NEW YORK
(1939) passim.
Since Erie R. R. v. Tompkins had not yet been decided when the rules were
promulgated it is unlikely that the problems it raised were clearly in the minds of
the court, or at all in the minds of the members as the Advisory Committee which
drafted the rules. It is significant that shortly after the Tompkins decision Chair-
man Mitchell of the Advisory Committee reminded lawyers of the fact that some
of the rules raised constitutional questions, and referred especially to Rule 23b.
FEDERAL RULES OF CIVIL PROCEDURE, PROCEEDINGS OF INSTITUTES, WASHINGTON
AND NEW YORK (1939) 227-8; id. Cleveland (1938) 184.
The restriction in the enabling act, 48 STAT. 1064, 28 U. S. C. ? 273b (1934)
that the rules shall not affect substantive rights was of course in the minds of
Court and committee. But it may be questioned whether that restriction would have
any applicability to a rule which merely continued in existence a long established
policy of the federal courts. See PROCEEDINGS, CLEVELAND, supra, 265 (Dean, now
Judge, Clark).
NSee Hawes v. Oakland, 104 U. S. 450, 452-3 (1881).
prevention of collusion is the rule's purpose it would seem jurisdictional.
But the rule has also been justified as a means of preventing undue in-
terference with the directors' discretion,67 and as preventive of "strike"
suits.68 The cases fail to indicate which of these purposes is of primary
importance,69 but perhaps show a tendency towards treating the rule as a
general principle of equity rather than a mere means of protecting the
jurisdiction of the federal court.70
One test of the jurisdictional nature of the rule is its applicability to
cases where there is no likelihood of collusion because the existence of
a federal question entitles the parties to a federal trial regardless of their
citizenship. The requirement of demand has been held applicable to
such cases,7' but not that relating to stock ownership.72 It might be
thought that the latter could therefore be regarded as jurisdictional,73
See id. at 454-7.
6B See Boldenweck v. Bullis, 40 Colo. 253, 259, 90 Pac. 634, 636 (1907);
Pitcher v. Lone Pine-Surprise Min. Co., 39 Wash. 608, 612, 81 Pac. 1047, 1049
(1905).
69 See Delaware & Hudson Co. v. Albany & Susquehanna R. R., 213 U. S. 435
(1909) (demand): The rule "is intended to secure the Federal courts from im-
position upon their jurisdiction and to recognize the right of the corporate directory
to corporate control." Compare Quincy v. Steel, 120 U. S. 241, 244 (1887) (de-
mand, ownership; rule designed to prevent collusion) ; Huntington v. Palmer, 104
U. S. 482, 484 (1881) (dismissed because plaintiff "failed to repel the presumption"
of collusion by showing proper demand on corporation) ; Doctor v.
Harrington,
196 U. S. 579, 585, 587 (1904) (demand being proved, the corporation need not be
realigned as a party plaintiff, so as to destroy diversity) ; with Dimpfell v. Ohio
& M. R. R., 110 U. S. 209 (1884) (demand, ownership: demurrer sustained "for
want of equity in the bill") ; id. at 210 (ownership, court suggests suit wholly
vexatious); Illinois Central Ry. v. Adams, 180 U. S. 28, 34 (1901) (provision in-
volved not stated) ; Venner v. Great Northern Ry., 209 U. S. 24, 33-5 (1908)
(ownership).
70 Cf. Illinois Central Ry. v. Adams, 180 U. S. 28 (1901) (provision involved
not specified) holding that non-compliance with the rule does not raise a jurisdic-
tional issue under the direct appeals statute; the existence of a federal question
was an alternative ground for the holding. Subsequent cases seem to have taken
the appeal, Doctor v. Harrington, 196 U. S. 579 (1905) (demand) ; Del-
aware & Hudson Co. v. Albany & Susquehanna R. R., 213 U. S. 435 (1909)
(demand). But the Adams case was cited as controlling on the issue of jurisdic-
tion in Venner v. Great Northern Ry., 209 U. S. 24, 34 (1908) (ownership). It
was also cited with approval in Employers' Corp. v. Bryant, 299 U. S. 374, 381 n.
10 (1937), and Milwaukee Co. v. White Co., 296 U. S. 268, 272 (1935).
See also Whittemore v. Amoskeag Bank, 134 U. S. 527, 529, 530 (1890) (pro-
vision involved not stated; federal question) ; Taylor v. Holmes, 127 U. S. 489,
494 (1888) (demand, semble ownership), referring to dismissals for non-com-
pliance with the rule as being for want of equity.
11Wathen v. Jackson Oil Co., 235 U. S. 635 (1915) ; Corbus v. Alaska Tread-
well Gold Min. Co., 187 U. S. 455 (1907); see Hill v. Wallace, 259 U. S. 44, 62,
74 (1922); Ashwander v. Tennessee Valley Authority, 297 U. S. 288, 318 (1936).
72Jablow v. Agnew, 30 F. Supp. 718 (S. D. N. Y. 1940); Hand v. Kansas
City Southern Ry., 55 F.(2d) 712 (S. D. N. Y. 1931); Lindsley v. Natural Car-
bonic Gas Co., 162 Fed. 954 (C. C. S. D. N. Y. 1908); Ball v. Redland Ry.
Co., 93 Fed. 513 (C. C. D. Vt. 1899).
73A number of cases refuse to apply the rule to removed cases. Groel v.
United Electric Co., 132 Fed. 252 (C. C. D. N. J. 1904) ; Earle v. Seattle L. S. &
E. Ry. Co., 56 Fed. 909 (C. C. D. Wash. 1893) ; see Booth v. Greer Inv. Co.,
52
F.(2d) 857, 860 (N. D. Okla. 1931) Evans v. Union Pac. Ry. Co., 58 Fed.
497, 500
but the Venner case, holding that non-compliance with the ownership
provision is no ground for remanding a case removed from a court
which has no such provision, seems to prevent such a construction.74
The Venner case seems inconsistent with Cates v. Allen. But it was
well settled that differences in substantive law would not prevent re-
moval,75 and the Court in the Venner case seems to have treated the rule
as substantive. Moreover the Venner decision had an additional basis:
a rule of court may not alter the constitutional and statutory jurisdiction
of the courts.76 In the cases so holding the rules invalidated were thought
to conflict with statutory provisions.77 The provision in the enabling act
that the new rules shall supersede any prior statutes in conflict there-
with78 might seem to obviate this objection. But it is highly doubtful
whether an authorization to promulgate rules of "procedure" could
justify a rule which deprived the district courts of power to hear a
particular type of case. And Rule 82 specifically provides that the Rules
shall not be construed so as to "affect the jurisdiction of the district
courts". It may be possible to argue that "jurisdiction" as used in Rule
82 is to be narrowly interpreted, as was "jurisdiction" in the direct ap-
peals statute.79 But at the least serious doubt as to the validity of Rule
(C. C. D. Colo. 1893). The federal courts of New York consistently apply the
ownership provision to removed case, although New York has no such rule.
Watts v. Alexander Morrison & Co., 45 F.(2d) 969 (C. C. A. 2d, 1930); Robbins
v. Sperry Corp., 1 Fed. Rules Dec. 220 (S. D. N. Y. 1940); Jacobsen v. Gen-
eral Motors Corp., 22 F. Supp. 255 (S. D. N. Y. 1938); Hitchings v. Cobalt Cen-
tral Min. Co., 189 Fed. 241 (S. D. N. Y. 1910); Venner v. Great Northern Ry.
Co., 153 Fed. 408 (S. D. N. Y. 1907), aff'd, 209 U. S. 24 (1908). But see Leo
v. Union Pac. Ry. Co., 17 Fed. 273, 274 (C. C. S. D. N. Y. 1883). It has been
though that the application of the rule to removed cases indicated that its purpose
was not to prevent collusion, since no question of collusion is raised in a
removed case. See Notes (1938) 38 COLUMBIA LAW REv. 1472, 1482, (1939)
37 MICH. L. REv. 773, 775. But collusion while less easy, is yet a possi-
ble evil in removed cases. The procedure would be simply for the cor-
poration to get one of its stockholders to sue in the state court, and then it and
the real party defendant would remove the cause. The defect of this procedure
would be that the corporation could not successfully remove unless the real de-
fendant joined in the removal petition [cf. McNaul v. West Indian Securities Corp.,
178 Fed. 308 (C. C. S. D. N. Y. 1910) ], since it would be difficult if not impossible
to establish a separable controversy between the stockholder and his corporation
[cf. Campbell v. Milliken, 119 Fed. 981 (C. C. D. Colo. 1902)]. But consent of the
real defendant to trial in the federal court would in many cases not be difficult to
get, cf. Hawes v. Oakland, 104 U. S. 450, 452 (1881).
74Venner v. Great Northern Ry., 209 U. S. 24 (1908). Accord: Robbins v.
Sperry Corp., 1 Fed. Rules Dec. 220 (S. D. N. Y. 1940).
7 See supra note 57. It would be difficult to regard rule 23b as remedial; the
stockholder's suit is normally the only method available to a stockholder of en-
forcing the right of the corporation.
71
209 U. S. at 35.
7Washington-Southern Co. v. Baltimore Co., 263 U. S. 629 (1924); Standish
v. Gold Creek Mining Co., 92 F.(2d) 662 (C. C. A. 9th, 1937).
78 48 STAT. 1064, 28 U. S. C. ? 723b (1934).
79See supra p. 113. Insofar as a question of power is concerned, the argu-
ment may have validity. That the court cannot by rule alter the power of federal
23b would remain even if it were reconstrued to prevent the district
courts from hearing causes in which the rule was not complied with.80
It may be thought that the Tompkins case eliminates the need for
protection from collusion;81 but the convenience of the new federal pro-
cedure,82 and all those factors which induce litigants to prefer one judge
to another, might yet furnish an incentive to the attempted acquisition
of federal jurisdiction. Perhaps that purpose can be served adequately
by another provision in Rule 23b, requiring a sworn allegation that the
suit is not a collusive attempt to acquire federal jurisdiction.83 If not,
another alternative may be available. A federal court has the power to
compel realignment of the parties to an action according to the real na-
ture of their interest therein,84 in order to determine whether the case
truly involves a controversy between citizens of different states. It
would seem permissible for the Court to promulgate a rule requiring
alignment of the corporation as a party plaintiff where the stockholder
had acquired his stock after the commission of the injury for which he
seeks redress, or had failed to make proper demand on the directors and
courts to hear cases would seem obvious. But a court has, to some extent, the
ability to refuse to exercise a jurisdiction which it possesses. Hence it would
seem permissible for the Supreme Court to instruct the district courts to exercise
their power to refuse jurisdiction in these cases.
This ability to decline jurisdiction has been recognized by the Supreme Court in
cases involving foreign corporations [Rogers v. Guaranty Trust Co., 288 U. S.
123
(1933)]
and in cases involving possible interference with the exercise of state
administrative policy [Pennsylvania v. Williams, 294 U. S. 176 (1935)]. But cf.
Doyle v. Northern Pac. Ry. Co., 55 F.(2d) 708 (D. Minn. 1932) ;
see (1933) 33
COLUMBIA LAW REv. 922; (1933) 46 HARV. L. REV. 520. Cates v. Allen may be
thought to be another instance in which judicial discretion of this nature was ex-
ercised. Compare Peters v. Equit. Life Ins. Co., 149 Fed. 290 (C. C. D. Mass.
1906). However, it is to be noted that in Cates v. Allen, and in the proposal that
has been made with reference to the Norris-La Guardia Act, there was involved a
restriction on the power of the federal court to give relief which was imposed by
an authority (Constitution, federal statute) capable of imposing a "jurisdictional"
limitation in the strict sense; the only question before the Court was whether that
restriction was to be construed to have jurisdictional consequences.
On the interpretation of Rule 82 the analogy from the direct appeals statute
is weak. That statute, and the rule with regard to waiver, had nothing to do
with the question whether the case should be heard in the federal court. The same
could hardly be said of Rule 82.
"'
Such a construction would necessitate an overruling of the Venner case, and
of expressions in numerous other opinions. But it would seem preferable to over-
rule some of the cases construing a rule, rather than declare the rule itself invalid.
8 See Tunks, op. cit. supra note 63, at 287; Note (1938) 38 COLUMBIA LAW
REV. 1472, 1484.
"
E.g., the broad scope of pretrial discovery would almost certainly be desired
by plaintiff and might be desired by both litigants. In general see Pike and Willis,
Federal Deposition-Discovery Procedure (1938) 38 COLUMBIA LAW REV. 1179, 1436.
'
This provision has been held jurisdictional for purposes of the direct appeals
statute, City of Chicago v. Mills, 204 U. S. 321 (1907). But cf. American Creosote
Works v. Powell, 298 Fed. 417 (C. C. A. 5th, 1924).
8'Dawson v. Columbia Trust Co., 197 U. S. 178 (1905); Removal Cases, 100
U. S. 457 (1879).
stockholders. By such realignment collusive attempts to secure diver-
sity of citizenship would be rendered unavailing. Yet the
regulation of
the proper alignment of the parties to a controversy could, it would seem,
be regarded as procedural, and therefore within the rule-making power
of the Court.85
Conclusion
The foregoing discussion will indicate that the problems raised
by Erie Ry. v. Tompkins need not always be resolved in terms of sub-
stance and procedure. The desirability of the jurisdictional solution
herein suggested has yet to be considered. It might be thought
that it is really a means of restoring to Congress and the federal
courts the power over matters of substance that the Tompkins de-
cision professed to take from them.86 But the power herein sug-
gested is merely a power to refuse the aid of the federal courts
in enforcing rights given by state law; the dismissal or remand by
the federal court, being on jurisdictional grounds, will not prevent suit
by the same parties on the same cause of action in the state court.87
Hence the federal courts will not be creating legally binding rules, and
the evil of different results depending on the accident of citizenship is
not resurrected.
'In determining whether diversity of citizenship exists the court may realign
the parties according to their real interest in the controversy. Removal Cases,
100 U. S. 457 (1879). The Venner case held that noncompliance with Rule 23b
(then Rule 94) would not justify such realignment. But the only authority cited
was Doctor v. Harrington, 196 U. S. 579 (1904), a case refusing to realign the
parties on the ground that the rule had been complied with. It would therefore
seem open to the Court to overrule the Venner case on this point.
A rule such as that suggested would not seem open to attack as "affecting the
jurisdiction" of the federal courts within the meaning of Rule 82. Rule 82 does not
mean that whether a case will be heard in the federal court is unaffected by the new
rules; e.g. Rule 18 permitting joinder of claims formerly not joinable makes it
possible to aggregate those claims in order to abtain the requisite amount in con-
troversy. Cashmere Valley Bank v. Pacific Fruit and Prod. Co. Inc., 33 F. Supp.
946 (1940). Compare Rule 18b, leading to a result contrary to that of Cates v.
A11en, supra n. 25 and p. 113. Similarly Rule 14a has resulted in an extension of
the permissible scope of third
party interpleader. See Note
(1940) 53 HARV. L.
REv. 449, 455. Since no conflict with a jurisdictional statute is apparent [cf.
PROCEEDINGS, CLEVELAND, supra n. 65, p.
356] it would seem open to the Court
to define the circumstances under which realignment is necessary in order to carry
out the purpose of the constitutional and statutory requirement of diversity of
citizenship.
,
See Powell, Some Aspects of American Constituftional Law (1940) 53 HARV.
L. REv.
529, 541.
'Apparently a dismissal under the present rule is res judicata. Compare
Robbins v. Sperry Corp., 1 Fed. Rules Dec. 220 (S. D. N. Y. 1940), refusing to
permit remand and refusing to allow plaintiff to discontinue, and dismissing for
non-compliance with Rule 23b. This question was argued as a result of an attempt
by the unsuccessful plaintiff in Frankenstein v. Anaconda Copper Min. Co., 6
F. Supp. 569 (S. D. N. Y. 1934) to resue in the state court, but no reported
decision was handed down.
In one respect the use of the jurisdictional construction serves to
decrease federal power. For by declining jurisdiction of a case, the
federal court renders it impossible for federal procedure to be applied in
that case. This is of great importance under the Norris-La Guardia
Act, for if the federal court were to decline jurisdiction because the case
fell within the provisions previously discussed, the defendant would be
denied the very important procedural safeguards contained in other pro-
visions of the Act.88 It must further be remembered that the Tompkins
case has not deprived federal courts of all power over substantive law;
where state decisions on the point being decided are contradictory or
nonexistent the federal court may well exercise a directing influence on
the development of the state law.89 To decline jurisdiction destroys this
possibility.
Whether these considerations outweigh the desirable ends to be
served by the use of a jurisdictional construction are questions of policy
to be determined in the light of the particular circumstances of each
situation in which the question arises. But at least the construction does
obviate the anomaly of requiring the federal courts to enforce rules
of law which Congress deems contrary to public policy. And by per-
mitting an expression of Congressional policy, it permits that policy to
have possible persuasive influence on the legislative policies of the sev-
eral states.90
8829 U. S. C. ?? 107, 109, 110, 111, 112.
S See Notes (1938) 47 YALE L. J. 1336, 1349; id., 1351. In view of the Thorit-
hill decision, supra
n. 30, it may be that the struggle to establish the right
of
peaceful picketing will in future center in the realm of procedural guarantees to
make effective the now-established substantive principles. In this event the result
of declaring the provisions herein discussed to be "jurisdictional" would be un-
desirable to labor, in whose interests the Act was passed; quaere whether a court
would be justified in declaring these provisions
unconstitutional on the ground
that
such a holding was more consistent with the legislative purpose than would be the
alternative "jurisdictional" construction.
'
See for instance the great number of statutes, exactly or substantially follow-
ing the wording of the Norris-La Guardia Act, which were enacted immediately
after its passage. COLO. STAT. ANN. (Michie, 1935) c. 97, ? 76; Idaho Laws of
1933, c. 215; IND. STAT. ANN. (Baldwin, 1934) ? 501 et seq.; MINN. STAT. ANN.
(Mason, Supp. 1940) ? 4260; Utah Rev. STAT. ANN. (Supp. 1939) ? 49-2A; cf.
WYo. REV. STAT. ANN. (Courtright, Supp. 1940) ? 63-201 et seq. (all passed in
1933) ; LA. GEN. STAT. ANN. ?? 4379-5 et seq. (Dart., 1939) (passed in 1934);
MD. ANN. CODE (Flack, Supp. 1939) art. 100, ?? 64-76;
N. Y. C. P. A. ? 876-a;
N. Dak. Laws of 1935, c. 247; cf. MASS. ANN. Laws (Supp. 1940) ? 4620 (all
passed in 1935); PA. STAT. ANN. (Purdon Supp. 1939) tit. 43, ? 206a; (passed
in 1937), CONN. GEN. STAT. (Supp. 1939) c. 309a (passed in 1939). Three states
had such statutes prior to Mar. 26, 1932, the date of enactment of the Norris-La
Guardia Act. ARIZ. REV. CODE ANN. Struckmeyer, 1928 ch. 92 ?4266 et seq.
(passed in 1928) ; Wis. STAT. ? 103.51 et seq., (passed in 1931, reenacted in 1935)
cf. ORE. CODE ANN. ?? 49-901 et seq., (passed in 1930).

Substance and Procedure in Federal Equity The Labor Injunction and Stockholders Suit Columbia Law Review 1941

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Substance and Procedure in Federal Equity The Labor Injunction and Stockholders Suit Columbia Law Review 1941

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"Substance" and "Procedure" in Federal Equity.

The Labor Injunction and the Stockholder's

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