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Matthies v. Seymour Manufacturing Co.

decided: September 9, 1959.


Author: Lumbard

Before HINCKS, LUMBARD and WATERMAN, Circuit Judges.

LUMBARD, Circuit Judge.

These are consolidated appeals, permitted by us under 28 U.S.C. ยง 1292(b), from the Connecticut District Court's denial of motions to dismiss a class action against the present and former trustees of two Connecticut trusts and the attorneys who rendered services to the trusts, and to dismiss a derivative action against the directors of several related corporations whose stock was held by the trusts. Judge Smith sustained the actions against a variety of attacks upon jurisdiction of the parties and subject matter as well as against claims of collusion to create federal jurisdiction, but in the view we take of these cases the question determining our decision is whether George Matthies, the only named plaintiff in each action, was properly regarded as entitled to maintain class actions on behalf of the beneficiaries of both trusts.

We hold that the class of beneficiaries of these trusts is so small and so readily available for actual joinder that the maintenance of a representative action is not justified under the provisions of Rule 23(e) of the Federal Rules of Civil Procedure as to numerosity and impracticability,*fn1 Because we also hold that the actual or representative joinder of all the beneficiaries of these trusts was required by the nature of the dominant claims asserted in the complaints, and because it appears from the record that the joinder of any other beneficiary as a party plaintiff will destroy the requisite diversity of citizenship, we reverse the orders of the district court in both actions and order the actions dismissed.

The relevant facts are fully and fairly stated in the opinion below, D.C.D.Conn. 1958, 23 F.R.D. 64, and accordingly we repeat only those which are essential to our disposition.

Both of the trusts concerned in these actions are testamentary trusts administered in Connecticut. They were created by the wills of a husband and wife, George E. and Annie W. Matthies, whose wills were probated in 1922 and 1939 respectively. The trusts will hereafter be referred to as the George and Annie trusts. The trusts are subject to the jurisdiction of the probate courts of Connecticut, where annual accountings have regularly been had in the Probate Court of Derby, Connecticut.*fn2

For purposes of this decision the following summary of facts regarding these trusts is sufficient. Under the provisions of the George trust, Bernard and Katherine, the children of George and Annie, and the father and aunt of the plaintiff, are life tenants, and their lineals are remaindermen. Under the basic provisions of the Annie trust the same is true, except that in default of lineals of either at the death of the surviving life tenant, Annie's trust provides for a remainder to her "next of kin then surviving."

Katherine, a life tenant, is childless and unmarried. Bernard, the other life tenant, is married and has five children, who in turn have a total of seven minor children. Annie's sister, Ruth Wooster, is still living and her deceased sister, Clara Wooster Merrill, is survived by two children, four grandchildren, and thirteen great-grandchildren, so that there are twenty living persons, some of whom, as the district court stated, may ultimately be ascertained to have a remote contingent remainder interest in the trust under the limitation to next of kin.

The gist of the trust action is to achieve (1) removal of the present trustees, (2) appointment of a temporary receiver, (3) appointment of new trustees, (4) accounting by the trustees and others who allegedly participated with them in frauds upon the beneficiaries, (5) injunctive relief against the employment by trustees of allegedly fraudulently procured decrees of the probate court approving their annual accountings, (6) declaration of constructive trusts as to property allegedly misappropriated by former trustees, (7) restoration to the trusts of property wrongfully transferred therefrom, and (8) general equitable relief.

In the derivative action on behalf of the Seymour Manufacturing Co., a Connecticut corporation, much of whose stock is held by the trusts, the complaint alleges a conspiracy among certain of the defendants including the trustees, who are also directors and who also hold stock individually, to defraud Seymour and a subsidiary Delaware corporation dissolved in 1957, Batiscan Corp.*fn3 The primary relief sought is a money judgment of $7,500,000.

The plaintiff, George C. Matthies, is a citizen of California. He is a son of Bernard, a life tenant and a nephew of Katherine, the other life tenant. All other actual or possible beneficiaries of the George trust are citizens of Connecticut except plaintiff's minor daughter. As to the Annie trust, all potential plaintiffs are Connecticut citizens again excepting the plaintiff's minor daughter and the members of the Merrill line. The defendant trustees and attorneys are, with one exception, citizens of Connecticut.

The Trust Action

We turn at once to the matter which we hold to be dispositive of the entire appeal, namely, whether this action may be maintained as a class action on behalf of the beneficiaries of the Annie Matthies and George Matthies trusts.

If such a representative action is inappropriate, then the result must be that the action is not maintainable at all in a federal court, since at least some of the other beneficiaries of each trust would then have to be joined, and because the record discloses that the joinder of any of them except plaintiff's California daughter would destroy complete diversity. Strawbridge v. Curtiss, 1806, 3 Cranch 267, 2 L. Ed. 435.

Defendants contend as to the action on behalf of the beneficiaries of the Annie trust that the descendants of Clara Wooster Merrill, the deceased sister of Annie, are not and cannot be beneficiaries of the trust. They claim that as a matter of Connecticut law the Merrills have no interest whatsoever because the class of "next of kin" of Annie must be determined as of the time of the death of Annie (excluding prior takers under the will, in this case Annie's son and daughter, Bernard and Katherine, who are the life tenants) and for the Merrills to be of that class Annie's death would have to occur when Clara was still alive, and that the gift to Clara, Annie's deceased sister, has failed by virtue of her death. Plaintiffs contend however that under Connecticut law the next of kin under Annie's will would not be determined until the death of the survivor of the life tenants, so that Ruth Wooster and the Merrills are persons who may ultimately be determined to be contingent remaindermen.

Judge Smith determined this question in plaintiff's favor, and we think that he was correct. See Union & New Haven Trust Co. v. Ackerman, 1932, 114 Conn. 152, 160, 158 A. 224. But at most, the conclusion of a federal court on a question such as this can only be a prediction of what the Connecticut courts would do if the question of the interest possessed by the Merrills must ultimately be decided. See New Britain Trust Co. v. Stanley, 1941, 128 Conn. 386, 23 A.2d 142. For present purposes it is enough to justify the inclusion of the Merrills among the potential beneficiaries of the Annie trust that there is a very substantial likelihood that the Connecticut courts would hold that they have the interest which the plaintiff now asserts for them. The essential purpose of the applicable rule which the district court properly followed requires all the beneficiaries of a trust to be joined in an action by any one of them against the trustees to restore the corpus of the trust, see e. g., Franz v. Buder, 8 Cir., 1926, 11 F.2d 854, certiorari denied 1927, 273 U.S. 756, 47 S. Ct. 459, 71 L. Ed. 876; Young v. Powell, 5 Cir., 179 F.2d 147, certiorari denied 1950, 339 U.S. 948, 70 S. Ct. 804, 94 L. Ed. 1362, in order to avoid the unfair repetition of actions against the defendant trustees which could result from individual relitigation by each successive beneficiary if the first plaintiff lost. See Note, 71 Harv.L.Rev. 874, 881 & nn. 27, 32 (1958). It is consistent with this purpose to consider the Merrills as potential next of kin under Annie's will in the circumstances of this case.

Defendants assert here, as they did below, that even if under Annie's disposition the Merrills are potentially beneficiaries of the trust, they now have at most an expectation of becoming members of the class of "next of kin" which is now a class of unascertained persons, when its membership is ascertained upon the termination of the second life estate without lineal descendants of either life tenant, and that therefore it was improper for Judge Smith to have counted the Merrills and Ruth Wooster, Annie's surviving sister, individually for purposes of deciding whether the action meets the numerosity and impracticability requirements of Rule 23(a). The defendants assert that there was no need to resort to a class action: that the potential members of the class of next of kin could and should have been considered separately from the class action; that ...

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