The opinion of the court was delivered by: TYLER
Plaintiff Lee National Corporation ("Lee") moves for summary judgment under Rule 56, Fed. R. Civ. P., for the payment of dividends which it claims as a record stockholder of defendant, Kansas City Southern Industries, Inc. ("KCSI"). KCSI opposes the motion for summary judgment and also moves under 28 U.S.C. § 1404(a) to transfer the action to the Western District of Missouri, where KCSI has filed an interpleader action to determine the proper claimant to the disputed dividends.
These motions are brought amid a struggle for influence in the affairs of KCSI, which has generated a mass of litigative activity to be briefly outlined as background. On the same day that KCSI filed its interpleader action, it brought another suit against Lee in the Western District of Missouri, Civil Action No. 17852-1, seeking injunctive relief and damages for Lee's alleged violations of the Investment Company Act of 1940, the Securities Exchange Act of 1934 and the Communications Act of 1934. On February 2, 1970, Lee moved to dismiss KCSI's interpleader claims in Missouri. On March 4, 1970, KCSI moved to consolidate those two actions in the Western District of Missouri. No determination of these actions or motions has been brought to my attention.
On March 13, 1970, the Missouri Public Service Commission ordered the parties to show cause why Lee's acquisition of KCSI capital stock without the approval of the Missouri Public Service Commission should not be declared void under V.A.M.S. § 387.260, R.S. Mo., 1959. A hearing was set for April 23, 1970. No determination by the Commission has been brought to my attention.
There is active litigation between the parties in yet a third federal district court. On December 10, 1969, Lee filed suit in the District of Delaware, Civil Action 3823, attacking various activities of KCSI under the 1934 Securities Exchange Act. On the same day Lee moved the district court in Delaware to enjoin the non-interpleader litigation in Missouri, Civil Action No. 17852-1. That motion was denied on January 6, 1970. Lee National Corporation v. Deramus, 313 F. Supp. 224 (D. Del. 1970).
This court granted Lee's request for a stockholders list in an action it brought against KCSI in this district earlier this year. In re Lee National Corp. v. KCSI, 70 Civ. 854 (S.D.N.Y. March 20, 1970).
I turn first to the motion to transfer this suit to the District Court for the Western District of Missouri. In the stockholder action I held that there was jurisdiction over the parties in this forum. The question is now a more refined one: does the Western District of Missouri hold the balance of advantage over this forum as the better arena in which to test the present claims? In order to prevail on the motion for transfer, the moving defendant must show that the weight of convenience for litigation and the interests of justice are in favor of the proposed forum. 28 U.S.C. § 1404(a), Cressman v. United Airlines, Inc., 158 F. Supp. 404 (S.D.N.Y. 1958). KCSI seeks to do that by raising a defense to the claims of Lee which involves possible violations of the 1940 Investment Company Act by Lee and further points out that those claims are part of the interpleader action presently pending in the Missouri court. If this defense were tried out, it would raise questions of Lee's activities and behavior. Lee is a New Yorkbased corporation. On the traditional considerations of the availability of witnesses and records, the Western District of Missouri appears to have no advantage over the Southern District of New York. Having already determined that KCSI is present in this judicial district, I find that no marked gain in convenience to the parties would be achieved by transfer to Missouri. Further, since I have studied the papers and arguments of the parties, I believe there is no likelihood of speedier disposition of this matter if it is transferred to Missouri. Thus, consideration of the traditional standards would lead me to deny the motion to transfer.
This web of litigative activity, however, is not a suit cut from the traditional fabric. The fact that one action pending in Missouri is an interpleader suit makes the transfer motion more than an issue of forum non conveniens and raises problems that are most clearly seen if the issue of summary judgment, to which I now turn, is first explored.
Lee has bought 20% of the common stock of KCSI and a portion of KCSI's preferred stock. According to the affidavit of Irvine O. Hockaday, Jr., VicePresident of KCSI, at the point when Lee had acquired nearly 13% of KCSI's capital stock, KCSI became concerned that there were substantial questions about Lee's status under the 1940 Investment Company Act which could expose KCSI to claims arising under that Act. Without exploring the precise nature of KCSI's concerns, it is sufficient to know that KCSI thought Lee might have violated the terms of the 1940 Act and that, on looking at § 47 of the Act, 15 U.S.C. § 80a-46,
KCSI felt that the purchases of KCSI stock made by Lee might be void. Therefore, despite the fact that Lee was carried as owner of the shares on the transfer books of KCSI, KCSI thought Lee might not be the legal owner of the shares. With these concerns, KCSI segregated the shares attributed to Lee on its books and, at the declaration of a dividend in late 1969, refused to pay any part of it directly to Lee.
Instead of payment, KCSI commenced the interpleader suit in the District Court in Missouri described above.
KCSI had similar fears about possible claims against it arising under a Missouri statute. The statute regulates the purchase of railroad company stock and, when the regulatory provisions are violated, commands that:
"Every contract, assignment, transfer or agreement for transfer of any stock by or through any person or corporation to any corporation, in violation of any provision of this chapter, shall be void and of no effect, and no such transfer or assignment shall be made upon the books of any such railroad corporation * * * or shall be recognized as effective for any purpose." V.A.M.S. 387.260(3).
KCSI contends that Lee's activities may be in violation of the Missouri statute and that its purchases may be void. Thus by a line of reasoning parallel to that dealing with the 1940 Investment Company Act, KCSI contends that it is entitled to adjudication of this issue, now before the Missouri Public Service Commission, before payment of dividends can be required.
In the case at bar, Lee bases its action on the amended bylaws of KCSI which govern transfer of shares and the management of the transfer books.
Lee further relies on a section of the Delaware Code, the state of KCSI's incorporation, which states that
"Prior to due presentment for registration of transfer of a security in registered form the issuer or indenture trustee may treat the registered owner as the person exclusively entitled to vote, to receive notifications and otherwise to exercise all the ...