The opinion of the court was delivered by: DAWSON
The complaint in this action is one by a trustee in a Chapter X Reorganization against certain former directors and officers of the Debtor and against certain individuals and corporations who are alleged to have received money from the Debtor. 11 U.S.C.A. § 501 et seq. The complaint sets forth twelve separate causes of action against one or more of the defendants. The defendants named in the action are twenty-five former directors and officers of the Debtor, eleven partners of a stock brokerage firm doing business under the name of Hardy & Co. (two of whom were also directors of the Debtor), two partners of a law firm doing business under the name of Crisona Brothers (one of whom was also a director of the Debtor) and five corporations with which the Debtor formerly did business.
Motions have been made to dismiss each cause of action on the ground that it fails to state a claim sufficient to constitute a cause of action, and with respect to some of the causes of action a motion has been made for judgment on the pleadings. In addition, motions have been addressed to certain causes of action on the ground that they are barred by the statute of limitations.
Defendants Marqusee, Lewis, Fried and Roome have, in addition, moved for an order striking certain allegations from the complaint and for a more definite statement of certain claims. So much of this motion as seeks this relief is denied. So much of the motions as seek judgment on the pleadings are denied. Such motions may be made only after the pleadings are closed. Rule 12(c), Fed.R.Civ.P., 28 U.S.C.A.
The complaint in this action is of the type that might be denominated as an 'epithetical pleading' where vague and general accusations are sought to be substituted for statements of circumstances or facts which would lead to a conclusion of legal wrongdoing. Plaintiff seeks to justify the pleading on the ground that all that is required in a complaint, under the modern Federal Rules is a 'short and plain statement of the claim.' Fed.R.Civ.P. rule 8(a)(2). If by 'claim' is meant merely the assertion of a demand for relief the plaintiff might be correct, but not even the most advanced advocates of simplified pleadings have gone that far.
Under the language of the Rules the claim must show 'that the pleader is entitled to relief.' A claim may not therefore consist merely of a demand for relief or conclusory allegations of wrongdoing but it must contain a statement of such circumstances or facts as would lead to the legal conclusion that the plaintiff is 'entitled' to that relief. This means that on the basis of the factual allegations of the complaint and the most favorable inferences to be made therefrom the Court must be able to see that a legal claim exists on which a remedy may be had.
Most courts have followed this view of a complaint on motions to dismiss without much discussion. If important elements of fact were missing from the allegations of the complaint, and the most favorable inferences to be made therefrom, they have dismissed the complaint or required that the plaintiff plead again. See, e.g., Subin v. Goldsmith, 2 Cir., 1955, 224 F.2d 753; Citrin v. Greater New York Industries, D.C.S.D.N.Y.1948, 79 F.Supp. 692; Schaefer v. Macri, 9 Cir., 1952, 196 F.2d 162; Patten v. Dennis, 9 Cir., 1943, 134 F.2d 137; Patrick v. Beasley, D.C.S.D.N.Y.1953, 15 F.R.D. 204. Other courts have been far more explicit in requiring that sufficient ultimate facts be alleged, however briefly and conclusorily, from which the court may see that a claim for relief exists. Foley-Carter Ins. Co. v. Commonwealth Life Ins. Co., 5 Cir., 1942, 128 F.2d 718; Dyer v. Gallagher, 6 Cir., 1953, 203 F.2d 477; Sheridan-Wyoming Coal Co. v. Krug, 1948, 83 U.S.App.D.C. 162, 168 F.2d 557; Voliva v. Bennett, 5 Cir., 1953, 201 F.2d 434; Eli E. Albert, Inc., v. Dun & Bradstreet, Inc., D.C.S.D.N.Y.1950, 91 F.Supp. 283; Daves v. Hawaiian Dredging Co., D.C.D.Hawaii 1953, 114 F.Supp. 643; Fleming v. Dierks Lumber & Coal Co., D.C. W.D.Ark.1941, 39 F.Supp. 237; McJunkin v. Richfield Oil Corp., D.C.N.D.Cal.1940, 33 F.Supp. 466; Whitman Co. v. Universal Oil Prod. Co., D.C.D.Del.1954, 125 F.Supp. 137; Cohen v. Beneficial Industrial Loan Corp., D.C.D.N.J.1946 69 F.Supp. 297; Zimmerman v. National Dairy Prod. Corp., D.C.S.D.N.Y.1939, 30 F.Supp. 438; Washburn v. Moorman Mfg. Co., D.C.S.D.Cal.1938, 25 F.Supp. 546. See also Gold Seal Co. v. Weeks, 1954, 93 U.S.App.D.C. 249, 209 F.2d 802; De Loach v. Crowley's, Inc., 5 Cir., 1942, 128 F.2d 378; Callaway v. Hamilton National Bank, 1952, 90 U.S.App.D.C. 228, 195 F.2d 556, 559.
Federal Rule 8 does not in terms require that facts be stated. However,
'* * * the pleading must still state a 'cause of action' in the sense that it must show 'that the pleader is entitled to relief'; it is not enough to indicate merely that the plaintiff has a grievance, but sufficient detail must be given so that the defendant, and the court, can obtain a fair idea of what the plaintiff is complaining, and can see that there is some legal basis for recovery.' 2 Moore, Federal Practice, Par. 8.13 at 1653 (2d Ed.); Eli E. Albert, Inc., v. Dun & Bradstreet, Inc., D.C.S.D.N.Y.1950, 91 F.Supp. 283.
The concept of a claim is still grounded on the presenting of a factual situation on the basis of which the law may grant a legal remedy. Gold Seal v. Weeks, 1954, 93 U.S.App.D.C. 249, 209 F.2d 802; Hurn v. Oursler, 1933, 289 U.S. 238, 246, 53 S. Ct. 586, 77 L. Ed. 1148; Patten v. Dennis, 9 Cir., 1943, 134 F.2d 137; Sidebotham v. Robison, 9 Cir., 1954, 216 F.2d 816, 831. See also Atwater v. North American Coal Corp., 2 Cir., 1940, 111 F.2d 125 (concurring opinion).
Judge Clark, whose contribution to the Federal Rules is such that the Bar will be forever indebted to him, points out that the Rule, although it does not force a pleader 'to allege all the fine details or to include a series of legal epithets or conclusions as to the defendant's conduct,' nevertheless requires 'the setting forth of the factual situation as a whole.' Simplified Pleading, Hon. Charles E. Clark, 1943, 2 F.R.D. 456, 457. In his textbook on pleading Judge Clark states, in discussing 'notice pleading:'
'* * * The prevailing idea at the present time is that notice should be given of all the operative facts going to make up the plaintiff's cause of action, except, of course, those which are presumed or may properly come from the other side * * *.' Clark, Code Pleading, 2d Ed. (1947) at page 240. See also Clark, Simplified Pleading, supra, at pages 460, 461.
Judge Clark's discussion of Federal Form 9 also illustrates the need for a statement of sufficient facts -- however brief or conclusory -- so that the court may see that a claim for relief exists. Clark, Code Pleading, at page 241; Clark, Simplified Pleading, 1942, 2 F.R.D. 461. See, also, Blum, Theory of Pleading, 47 Mich.L.Rev. 297, 332-339 (1949).
There can be no doubt that the modern Federal Rules of pleading have been seized upon by the careless and sloppy practitioner as an excuse for failing to think through in advance the nature of the action and the necessary facts he will have to establish to sustain his case.
Such a practitioner may think that if he files a complaint making conclusory allegations and merely asking for relief that is all that is required, and that somewhere along the line, during the course of pretrial proceedings, he will develop the theory and facts of his case. But the court may be met at the outset, as this one is, with defendants who urge that the plaintiff has not set forth a good claim, in that all of the allegations of the claim, even if admitted, do not show that plaintiff is entitled to relief. This then requires the Court to examine the allegations to see whether, in fact, they are such that, if taken as true, together with any inferences which may reasonably be drawn therefrom, the plaintiff may legally be entitled to the relief requested. In the present instance the complaint seems to be lacking the allegations that would be prerequisite to the assertion of valid claims.
There would seem to be less excuse than usual for a pleading of this type in an action brought by a trustee in a Chapter X Reorganization, for he does not have to await the filing of a complaint and the institution of discovery proceedings to get the facts on which to base his claims for recovery. A trustee has the power, under § 167 of the Bankruptcy Act, 11 U.S.C.A. § 567, to examine directors and officers of the Debtor and 'any other witnesses' concerning the conduct of the business of the Debtor. The scope of examination under this section is much broader than that of examination of a witness in a civil proceeding. In re Manufacturers Trading Corp., 6 Cir., 1952, 194 F.2d 961.
It may be assumed that the trustee has utilized the opportunities for ante litam discovery and that he had in his possession the facts on which he will seek to recover. In considering the several causes of action the Court will, therefore, assume that the facts, to the extent they are alleged therein, can be sustained at the trial, and will also have to assume that these are the facts on which the plaintiff seeks recovery in the particular claims set forth in the several causes of action.
With this background the Court will consider each cause of action to see if the claim therein is sufficient to justify the relief sought therein.
The first three causes of action allege essentially the following claims:
(1) The indentures securing certain prior lien bonds of the Debtor require the Debtor at all times to keep and maintain in good order and condition the cars and other rolling stock of Debtor, and to cause any such cars or other rolling stock as might be worn out, or destroyed or retired from service to be replaced promptly by other cars and rolling stock of at least the same value and capacity.
(2) That the Debtor had established a property amortization account and had deposited in the years 1948 to 1951 certain sums in this account for the purpose of enabling the Debtor to maintain and replace its cars and other rolling stock.
(3) That the directors named as defendants in these first three causes of action authorized the Debtor to expend sums of money for the purchase of the Adjustment Income Mortgage Bonds of the Company at a discount from the face value of these bonds and to purchase these bonds for the Debtor and charged these expenditures against the property amortization fund.
The first three causes of action seek to require these directors to repay to the Debtor the full amount expended by the Debtor for the purchase of ...