RESPONDENT: Hilton Hotels Corporation
LOCATION: Juvenile Court
DOCKET NO.: 161
DECIDED BY: Warren Court (1965-1967)
LOWER COURT: United States Court of Appeals for the Seventh Circuit
CITATION: 383 US 363 (1966)
ARGUED: Jan 20, 1966
DECIDED: Mar 07, 1966
Facts of the case
Media for Surowitz v. Hilton Hotels Corporation
Audio Transcription for Oral Argument - January 20, 1966 in Surowitz v. Hilton Hotels Corporation
Richard F. Watt:
Mr. Justice Black, if the Court please.
This matter is before the Court in a writ of certiorari to the Court of Appeals for the Seventh Circuit, which in March of 1965 affirmed the dismissal of a stockholder's derivative suit which had been filed in the District Court for the Northern District of Illinois.
Very briefly stated, and I will come back in a moment to give more detail.
The ground for dismissal was that the plaintiff shareholder had filed a false verification required by Rule 23 (b) of the Federal Rule of Civil Procedure.
Federal Rule 23 (b) specifies that in derivative suits, the complaint shall be verified and it also specifies certain matters which shall be set out in the complaint.
The petitioner's view that this raises an important issue under the Federal Rules and one that goes far beyond the outcome of this particular case because it poses directly the question as to whether a procedural Rule can be used to impose upon admittedly a poorly educated and ignorant stockholder, a very substantial obstacles to her bringing a derivative suit where alleging misconduct on the part of officers and directors of the corporation in which she own stock.
The record is clear that the petitioner here is a foreign-born, ill-educated seamstress in her mid 60s.
As a matter of fact, the record on the deposition below indicate that she had difficulty in spelling her son-in-law's name, his name is Irving Brilliant.
The complaint here was filed in December of 1963.
It consists of 11 counts, eight of which alleged violations under the Securities Act of 1933 and the Securities of Exchange Act of 1934.
Very briefly, it charges that the officers and directors who are named as defendants, wrongfully and in violation of the Securities Act made used of the corporation for the purpose of purchasing shares of stock of the corporation and also, Hilton Credit Corporation and that included in the shares of stock which were purchased were very large amounts of shares from the officers and directors themselves with the result that approximately $12 million of Hilton Hotels Corporation funds that were used for this purchases.
Approximately $4,800,000, were used to purchase the shares of the officers and directors, and those funds were paid to those officers and directors for the purchase of their stock.
The complaint is filed, was signed by three attorneys and it was verified by Mrs. Surowitz in accordance with the provisions of Rule 23 (b).
She verified as true and correct, certain facts, very largely the facts of her stock ownership and the other facts which would indicate that she has standing or status to sue as a stockholder.
The balance that is the charges of wrongdoings were verified by her on information and belief.
Before answer was filed, the defendant moved to take Mrs. Surowitz's deposition.
Upon receipt of that notice, we appeared in Court and asked the District Court to postpone the taking of the deposition until the defendants had filed some pleadings or answers so that we would have a better idea as to what issues might be raised.
The District Court declined to postpone the deposition, and therefore, the deposition was taken in February of 1964 prior to any pleading having been filed by the defendants.
The deposition was concluded and on the same afternoon, at approximately 3:30, as counsel for the petitioner, we were served with notice that on the next morning, the defendants would appear before the district judge and present a written motion.
Now, the motion appears in the transcript of record at page 117.
In that motion, two grounds were asserted for dismissal.
One, that the pleading was a sham pleading; and secondly, that Mrs. Surowitz was not a proper party plaintiff.
The following morning, when we appeared in Court, the defendants filed an affidavit which indicated that the records of the corporation showed that she had not become a stockholder of record until October of 1963 and this was presumably the basis for asserting that she was not a proper party plaintiff because she did not have the contemporaneous stock ownership required by Rule 23 (b).
The district judge at that time initially was inclined to have the matter argued immediately but at our request, he gave us 15 days in which to file affidavits.
In response to the motion therefore, we filed two affidavits, the affidavit of Irving Brilliant, Mrs. Surowitz's son-in-law, and the affidavit of Walter Rockler, one of the attorneys.
The matter was argued later on March and the Court at the end argument announced the order would be one of dismissal.
Thereafter, at the Court's request, counsel for the defendants' prepared detailed and lengthy findings of fact and conclusions of law which were discussed in Court on March the 27th and the order of dismissal was actually entered on March 30, 1964.
In Mrs. Surowitz's deposition, she was able to testify that her son-in-law had purchased stock for her with her money and at one point, she indicated the stock was purchased in 1957.
That in late 1962 or early 1963, she received certain communications from Hilton Hotels Corporation turned them over to her son-in-law and in effect asked him what they were all about.
Now, later in March after a further discussion between Mrs. Surowitz and her son-in-law, he brought to her a letter of protest which is a document attached to the deposition.