Surowitz v. Hilton Hotels Corporation

PETITIONER:Surowitz
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

Question

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.

Richard F. Watt:

And in that letter of protest which she signed, stated that she opposed as improper the two stock purchase transactions which I have mentioned.

In the summer of 1963, the dividend on Hilton Hotels Corporation was passed.

She again spoke to her son-in-law.

He advised her that he was looking into the matter and it was of the opinion that certain officers and directors had acted improperly.

Subsequently, in December, the son-in-law brought the complaint to her which had been prepared by counsel in Chicago.

He read and explained it to her, and following that, she signed the verification.

The deposition also indicates and we do not dispute this at all that so far as her ability to explain or answer the basis for the complaint in the sense of articulating the facts or the basis for certain allegations, she was unable to do that.

She answered repeatedly that she did not know.

She could not say it on her own words.

She did not understand.

She didn’t know.

She left it to her son-in-law.

She also stated, however, that she knew that her stock was not right and that she indicated that when the complaint was brought to her after these previous discussions that I’ve indicated following her son-in-law’s explanation, she signed it.

The affidavits of Mr. Brilliant and Mr. Rockler indicate, it seem to me beyond question that before this complaint was prepared and filed, a very substantial amount of investigatory in research work had been done both by Mr. Brilliant and by Mr. Rockler and his associates in Chicago.

A great deal of effort was made to go to records, to track down transactions, to look at financial statements and so on, and those are set out in some detail.

Mr. Brilliant also states in his affidavit that when he presented the complaint to his mother-in-law, Mrs. Surowitz, he told her that it represented the result of work that he had done and that the attorney in Chicago had done, and that it was his opinion that it was soundly based.

I think it is important to note in this connection that Mr. Brilliant himself has legal training.

He has acted as an investment counselor for a number of years and it is quite clear from the record, that since 1957 in connection with the small investment she has made, Mrs. Surowitz has relied upon her son-in-law for his recommendations and for his judgment.

Now, the Court of Appeals in affirming, held at the verification was false and it held that it was false because in her deposition, Mrs. Surowitz indicated that she lacked requisite knowledge and understanding to know what she was verified.

The actual words of the Court which I think are significant for purposes of the issue now here at the — at record 237, the Court said, she lacked completely — she completely lacked any knowledge of the basis of the complaint at the time when she signed the same and swore to the verity thereof.

At the bottom of 235 and 36, the Court said that the verification requirement, that is Rule 23 (b), is designed to compel a plaintiff to begin such suit with sufficient knowledge of facts and information to show by his verification that there is a substantial basis to support the complaint which she made.

It is our view that this is not a proper interpretation of Rule 23 (b) and that the decision of the Court of Appeals should be reversed, primarily for two reasons.

Rule 23 (b) is a procedural Rule.

We believe that should be liberally construed particularly in light of the important public policy considerations where it’s in — where — which is in — which are involved in causes of action arising under the Securities Act and the intent of Congress that stockholders would act in effect as ancillary enforcers of those Acts.

Secondly, we believe that if one studies the history of Rule 23 (b).

It is quite clear that its principle purpose was to prevent collusive resort to the federal courts and that it was not intended and no Court has held that it was intended to impose a kind of comprehension test upon a plaintiff stockholder before that stockholder would have a right as the instigator to bring a corporate cause of action to Court.

Very briefly, let me indicate why in the context of the facts here, we believe the public policy considerations are significant.

It is no longer the case in this country that stocks are held only by a relatively limited class of persons.

All the statistics indicate that stock ownership is becoming much more widespread.

Significantly enough, the largest single group of stockowners in the United States today are housewives and unemployed women.

Richard F. Watt:

Elderly women, in particular, hold substantial bodies and quantities of stock.

The Securities Act, if one looks to the legislative history, were particularly designed to protect unknowledgeable, and gullible, and uninformed, and uneducated individuals who might invest in the stock market.

Consequently to Rule — to construe Rule 23 (b), as a qualification upon the comprehension of a stockholder before that stockholder can bring a derivative suit is very likely to bar the very individual sought to be protected by the Securities Act.

Now, from coming to the courts at all with complaints based upon alleged wrongdoing by corporate officers and directors.

Abe Fortas:

Does 23 (b) require verification by the plaintiff?

Richard F. Watt:

It does not in so many words, Your Honor.

There is no definitive holding on that point by this Court and as a matter of fact, there is a decision by the Court of Appeals for the Seventh Circuit which we did not cite in our brief which cast serious doubt upon the right of anyone other than the plaintiff himself could verify.

That is Consumers Gas Trust Company versus Quimby, it’s found at 137 Federal 882.

Abe Fortas:

So, you did not cite that in here?

Richard F. Watt:

We did not sir.

Abe Fortas:

What?

Richard F. Watt:

882, 137 Federal 882 but we would say to do that question —

Abe Fortas:

137 Federal?

Richard F. Watt:

Federal.

Abe Fortas:

That’s a second?

Richard F. Watt:

No, sir.

This is a 1905 case.

Abe Fortas:

But apart from that 1905 decision, you know of anything else that —

Richard F. Watt:

There has been some District Court cases which have held that in attorney may verify.

Abe Fortas:

A 1905 decision wouldn’t be construing this Rule?

Richard F. Watt:

It was construing the old Equity Rule 94 which was the predecessor of Rule 23 (b).

94 became Equity Rule 27 and Rule 23 (b) is modeled very closely after that.

We would say in response to that that since the principle purpose of Rule 23 (b) and old Equity Rule 94 was to guarantee to the federal courts that their jurisdiction was not being invoked collusively by an arrangement between the corporation and the stockholder in order to obtain the requisite diversity of citizenship that the plaintiff himself, the stockholder, is the individual most likely to have knowledge of specific facts which would demonstrate the facts non-collusive character at present.

He would know best when he acquired the stock.

Abe Fortas:

We have verification by counsel that might have some meaning even in the context of this Rule, don’t you agree with that?

Richard F. Watt:

Yes, it might, Your Honor, but under those circumstances, that if in any case counsel might verify then Rule 23 (b) and the derivative case would add absolutely nothing to Rule 11.

Because under Rule 11, counsel is required to certify to the best of his knowledge information and belief, the case is soundly grounded.

Abe Fortas:

Well, it’s a little more to 23 (b) than that as I read it.

The other thing if you have the time, I wish you would help — help me, if you will too, by pointing out in what respects the affidavit of Mrs. Surowitz is in conflict with her deposition.

I don’t want to interrupt your argument but I would like to know that and I take it from what you do, I correctly understand in what you said earlier that her deposition is not in conflict with the — the specific affirmations and after being made under 23 (b) subparagraphs 1 and 2?

Richard F. Watt:

Only in one respect and that is when she was asked whether what fact she had supporting the allegation that this was not a collusive suit.

She indicated that she did not understand the question.

However, she did testify that she did not know any of the defendants, had not had any conversations with any of the defendants, and no conversations with any of the defendants had been reported to her which would the facts justifying the collusion — a conclusion of lack of collusion but she stated she did not understand the question.

That is not so novel, as a matter of fact, because there’s one of the early Rule 94 cases in which the largest single stockholder, The People’s Gas Light and Coke Company in Chicago, when asked on deposition whether the suit was collusive, initially, said that he understood but it was not and then stated that he did not understand the question.

Abe Fortas:

Sometimes we have difficulty within ourselves.

Richard F. Watt:

I think it is rather difficult concept to understand as a matter of fact.

Abe Fortas:

But if you do get time, I’d like to know —

Richard F. Watt:

I shall, Your Honor.

Abe Fortas:

— the specs generally in which the affidavit is contradicted.

Richard F. Watt:

It would be our position that the problem, a plaintiff stockholder and particularly a small plaintiff stockholder faces in bringing a derivative suit are sufficiently difficult without imposing in a further test which we do not believe is required by the history and purpose of Rule 23 (b).

Hugo L. Black:

(Inaudible)

Richard F. Watt:

I think the case is hold, in effect, Mr. Justice Black, that a derivative suit by a stockholder is by that circumstance on behalf of all similarly situated stockholders who might have a right to assert that the corporation should have sued against wrongdoing on the part of officers and directors.

Hugo L. Black:

(Inaudible)

Richard F. Watt:

I can’t specifically point any at the moment but I know that there are indications that where at one stockholder brings a derivative suit, it has a class suit aspect to it.

Hugo L. Black:

(Inaudible)

Richard F. Watt:

That’s —

Hugo L. Black:

(Inaudible)

Richard F. Watt:

I don’t believe there is, Your Honor.

Hugo L. Black:

(Inaudible)

Byron R. White:

For the class for the corporation?

Richard F. Watt:

It is for the corporation and the cases hold that the corporation is an indispensable party because any recovery will accrue to the corporation.

That is correct.

Hugo L. Black:

Where the (Inaudible) affidavit relates to class action?

Richard F. Watt:

No, it does not, Your Honor.

Rule 23 (b) is a derivative or secondary cause of action by a stockholder where the corporation itself has not asserted the cause of action.

And that must be verified according to Rule 23 (b) and that prove back to —

Hugo L. Black:

I look at the Rule (Inaudible) statute?

Richard F. Watt:

We held our Rule 23 (b) Your Honor set out at the end of our brief at page 58 and it is described as an action brought to enforce a secondary right on the part of one or more shareholders in an association and so on because the association refuses to enforce the rights which may properly be asserted by it.

We have argued in our brief that the principal purpose of Rule 23 (b) was to prevent collusive resort to the federal court.

And if one reads Hawes versus Oakland which was decided in 1882, it is quite clear that the Court felt that many corporations not desiring for one reason or another to go into the state courts and not wishing to have their causes of action tried as ordinary actions at law would seek out a friendly stockholder, have that stockholder who have the requisite diversity of citizenship, initiate a proceeding in the federal court which by that circumstance would be a suit in equity.

Richard F. Watt:

The doctrine goes back to an 1856 decision of this Court, Dodge versus Woolsey and in Dodge versus Woolsey, the concept of the derivative suit by a stockholder asserting a cause of action which the corporation would not assert was established.

But when one reads Dodge versus Woolsey, it is clear that the argument was made there that collusion existed and the Court decided that there was not evidence of collusion.

But the dissenting justices stated quite clearly in Dodge versus Woolsey that this practice would open up the federal courts two collusively sought jurisdiction.

And that apparently is what happened because when the Court reviewed the matter in Hawes versus Oakland, it said that the Dodge versus Woolsey doctrine had been abused in this fashion and it therefore sought to close the door.

The corporations are ranging through friendly stockholders to obtain federal jurisdiction in this fashion.

We say that it is — that is its principal purpose.

I think —

Richard F. Watt:

There were —

— the language goes beyond that, isn’t it?

Richard F. Watt:

The language goes beyond that Mr. Justice Harlan in the sense that I think there are certain basic elements of equity which are also in the Rule.

The concept that someone should not bring a suit of this kind if he did not have stock at the time of the transactions complained of, that has a thrust against the collusive suit problem but it probably goes beyond that.

We would conceive that certainly.

There are decisions since then in which it is asserted that one of the purpose of the Rule was to bar strike suits, to bar speculation and litigation, to bar purchase claimants from being brought into the courts.

But even if one assumes that there are these additional reasons beyond the principle one which I have asserted, I cannot see how those reasons justify the interpretation of Rule 23 (b) as it is been made by the Court of Appeals below.

It’s obvious that if someone is a professional strike suiter or if an attorney is a specialist in what might be described the bringing of strike suit.

All he needs to do is to find the stockholder who can recite well what the stockholder is told.

Now, the fact that a stockholder can be posed well and articulate what the attorney has told him is certainly no guarantee that that individual is not a strike suiter.

Abe Fortas:

Well —

Richard F. Watt:

On the other side of the coin, the fact that a person is unable to articulate certain things does not remember what was told to him or her is no sign that that individual is a strike suiter.

Abe Fortas:

Well, let’s — let’s assume now that the this is — that the plaintiff here had verified this compliant and without qualification and let — let assume that from deposition, it appears that the plaintiff had no knowledge whatsoever of the facts to its plaintiffs for.

Now, and — now, what is the remedy for that or is it your position that that should be overlooked completely?

Richard F. Watt:

No.

Abe Fortas:

Is there any remedy other than striking the complaint?

Richard F. Watt:

I think the clearest example of the kind of situation that you have reference to Mr. Justice Fortas is in Freeman versus Kirby which is one of the cases that we cited on our brief.

And there were two cases that arose out of the same general Alleghany Corporation litigation in the Southern District of New York, Murchison versus Kirby which we believe sustains the position that we assert here, and it’s the other case Freeman versus Kirby in which it was clear that the stockholder had no contact whatsoever with the lawyer at all.

All that the lawyer had sought out a stockholder and in which the lawyer himself had virtually no information except a memorandum on which to base the facts which he set forth in the pleading and under those circumstances, it would held that the attorney had violated the Rule 11.

Now, the Murchison case which we contend is extremely close to the situation here.Mr. Murchison, the plaintiff on deposition was asked questions endeavoring to ascertain what facts he had supporting certain allegation, questions which from the decision appeared within quite similar to questions posed to Mrs. Surowitz here.

Obviously, a man with many investment experiences so he was able to answer it but what is significant is that he stated that this information was general that he relied upon his attorneys that he asked his attorneys whether they thought they could make a case out of this and they assured him that they could.

It was asserted there that the violation of Rule 11 was due to the fact that the attorneys had knowingly procured a false verification by their client, Mr. Murchison.

As a matter of fact, when this motion was first presented in the District Court when it was asserted that this was a sham pleading that Mrs. Surowitz’s was pleading with the sham pleading, it certainly appeared to us now that this was a Rule 11 charge because there is no other place than the Federal Rules where the term sham pleading appears except in Rule 11.

Richard F. Watt:

It is now been turned about by the District Court and the Court of Appeals always though the thrust of the motion was it — it was the motion to dismiss for a false verification.

Abe Fortas:

What about that?

It is a motion that dismissed the false verification that what — assuming that the deposition demonstrates that the verification was false.

What is the remedy for that other than dismissal?

Richard F. Watt:

If a party in litigation has in that fashion abused the processes of the Court, that party should be punished but I do not think that here, the remedy is dismissal of the case where it is used for purposes of punishment and we would go back to the line of cases that beginning with Hobby versus Elliot and down to the more recent cases in this Court which indicate that there is a real due process problem.

If dismissal under Rule 41 (b) is used as it needs in punishing a litigant.

There must be a basis for assuming that the misconduct by the litigant justifies the presumption that the merits are against the litigant and that instance accordingly dismissed under Rule 41 (b).

But if it is a means of punishment for wrongdoing, then it is depriving the litigant of substantive rights and this Court has indicated that the — that ordinarily, that will not be permitted.

Abe Fortas:

Is there anything in the record to indicate like counsel for Mrs. Surowitz did not — after the ruling he had file another complaint, was a statute verified by counsel.

Was there a statute of limitation is problem or something of that sort?

Richard F. Watt:

No, there was not, Your Honor.

Now the problem quite succinctly was this.

We obviously could not seek out another plaintiff.

Mr. Brilliant owned shares only in a fiduciary capacity.

His wife who own shares was a chronically ill woman.

It was our position that an important issue was raised.

We were not completely certain that any difect — defect might be cured by somebody else’s verifying to the reason that I have stated.

And furthermore, the District Court was inclined to dismiss by charging the counsel had violated the Rule — a local rule, Rule 39.

But we were therefore in a position in which an appeal from our standpoint was essential.

We felt that this issue mainly the use of Rule 23 (b) in the fashion that was used here was one that should be brought up and determined.

And that was the reason that we acted as we get through.

Now, finally if I might very briefly call the Court’s attention to one argument made which I would like to comment on.

Namely, that Mr. Rockler’s affidavit cannot be possibly suffice us a verification, because of the reservation at the end of it which appears at the record 143.

I think it is quite clear that that reservation is an order to safeguard the attorney client privilege and the work product of the attorney but Mr. Rockler clearly states, under oath, in that affidavit that in his view the case is soundly grounded and that the proof will establish the essential veracity of the facts alleged.

If there is a defect in the verification, It would be our position that the Court is entitled to search the record to see if the defect is made up anywhere in the same as the Court may search the record to see at a possible defect and allegation of citizenship is made elsewhere — made up elsewhere in the record.

So that whether Mr. Rockler’s ver — affidavit was labeled a verification or not, it serves the essential purpose of assuring to the Court that there is a basis for the allegation.

Abe Fortas:

And you assume there that 23 (b) can be satisfied by verification counsel, don’t you?

Richard F. Watt:

We are in dilemma.

If it cannot be satisfied by the verification of counsel, obviously, then the suggestions that have been made elsewhere during the course of this case would not have enabled us to remedy the defect.

If it can be made up or if it can be verified by someone else then we believe that the affidavit of Mr. Rockler served the purpose.

Richard F. Watt:

I would like to call the Court’s attention to one comment that has appeared on the decision in the Court of Appeals.

It should appear after our brief was filed in Volume 40 of the New York University Law Review at page 978.

My knowledge that is the only comment it has appeared.

(Inaudible)

Richard F. Watt:

40 New York University Law Review, 978.

Hugo L. Black:

Mr. Block.

Samuel W. Block:

Mr. Justice Black, may it please the Court.

The action of the Court of Appeals in affirming the order of dismissal entered by the district judge, does not affect the vitality of the cause of action which the plaintiff here sought to enforce.

For that cause of action belongs to the corporation.

Any corporate cause of action still exists and in fact is the subject of a suit which is presently pending in the State of Delaware which is referred to at footnote at page 61of our brief, the blue brief which was filed on behalf of the individual respondents.

As a matter of fact, the action of the Court of Appeals does not affect even the right of the plaintiff here, Mrs. Surowitz, to participate in any judgment which might be recovered in said other action as a shareholder.

The only result of the order which is here appealable is the action of the verifier of this derivative complaint who filed the false affidavit in purported compliance with Rule 23 (b), perpetrated a fraud on the Court and failed to comply with the Rules of — Federal Rules of Civil Procedure governing derivative action and then refused to take advantage of the invitations to cure those defects and comply with the rules.

What were the invitations?

Samuel W. Block:

Your Honor, starting with the 15 days which were provided by the original order of the Court to file any documents which were considered necessary.

Then there are references in our brief to the specific suggestions of the court below of the District Court at — to the plaintiffs, then plaintiffs, now, petitioner’s counsel to file a proper affidavit and a verification sought by someone who knew the facts which were being verified or obtain another plaintiff because by that time it was clear that Mr. Brilliant who had filed this affidavit without in any way verifying by oath the truth of the allegation, but that Mr. Brilliant was a shareholder in his own right or as a trustee or represented family members of his family who were stockholders.

Now, the specific statements of the Court are set forth at pages 19 and 20 of the blue brief of — the brief of the individual respondents.

It was further pointed out at the time of the argument on the findings and conclusions that the petitioner — that the plaintiff had not asked for leave to file a substitute verification for an amended complaint.

That was the finding and there was a conclusion that the verification of this complaint is false and sham and the compliant must be strict since the plaintiff has not sought leave to substitute any other verification or filed an amended complaint, the action will be dismissed and the counsel for the plaintiff did not accept in any way to that finding or to that conclusion.

Hugo L. Black:

What is the proof that the complaint was false?

Samuel W. Block:

The — there is no evidence that the compliant is false, Your Honor, because that was not before the Court.

The verification was false —

Hugo L. Black:

What did he (Inaudible)

Samuel W. Block:

Your Honor, I think that she had to swear to the complaint, to the allegations of the complaint.

Now, —

Hugo L. Black:

That’s (Inaudible) shareholder under the Rule.

Samuel W. Block:

That’s contemporaneous shareholder.

Hugo L. Black:

(Inaudible)

Samuel W. Block:

That’s correct Your Honor.

Hugo L. Black:

The Court find it (Inaudible)

Samuel W. Block:

No, Your Honor.

Hugo L. Black:

Has there been any indication of a collusive action?

Samuel W. Block:

No, Your Honor.

Hugo L. Black:

And what’s false with that?

Samuel W. Block:

Because the —

Hugo L. Black:

But was she required to swear?

Samuel W. Block:

The Rule 23 (b) goes on to say after those two statements or let’s say rather, it begins I saying the complaint in a derivative action shall be verified by oath and shall avert the two specific allegations to which are —

Hugo L. Black:

It was verified by oath if the plaintiff will avert?

Samuel W. Block:

The complaint was verified by oath and it contained other and necessary averment, Your Honor.It would be essential —

Hugo L. Black:

But the rule said (Inaudible)

Samuel W. Block:

No, it goes beyond that and says the complaint shall set forth with particularity and then the demands for corporate redress.

Then acceptance, I believe.

Hugo L. Black:

The plaintiff was set forth with particularities but that’s the compliant?

Samuel W. Block:

That’s right, Your Honor.

Hugo L. Black:

The Rule imposed it on the present facts (Inaudible) that that person is incompetent and if the complaint is not collusive and if those two things are those that sworn it, how can it be dismissed without showing that it follows in saying it was not collusive?

Samuel W. Block:

Because, Your Honor, the affidavit went on and as the respondents here —

Hugo L. Black:

Affidavit went on but all that was required were those two things.

Samuel W. Block:

No, Your Honor.

If the affidavit had been limited to just the two allegations, the contemporaneous shareholding and lack of collusion, there would not have been — first of all, there would not have been the necessary averment of attempt to obtain corporate redress which the Rule goes on to say, must be set forth at particular —

Hugo L. Black:

Wasn’t there a finding that she did not assume to get corporate redress?

Samuel W. Block:

No, Your Honor.

There was no finding to that effect and —

Hugo L. Black:

Was there any evidence on that?

Samuel W. Block:

Her — she was asked what protest she had made and she was unable to answer anything about that.

Hugo L. Black:

Any other affidavit shows?

Samuel W. Block:

Whether there been a protest with a letter which had been presented to her by her son-in-law, Mr. Brilliant, to — in which she protested against the —

Hugo L. Black:

Who did she protested to?

Samuel W. Block:

To the corporation.

Hugo L. Black:

So that so far as what the rules require is three things if you say is clear there’s no evidence that anyone of them was false?

Samuel W. Block:

Well, Your Honor, there is the —

Hugo L. Black:

(Voice Overlap)

Samuel W. Block:

No!

There is no evidence that those three things were false.

But if those three had been the only allegations of the compliant, it still would have not be a satisfaction —

Hugo L. Black:

But the Rule doesn’t say anymore than that if you’re just going all the rules, don’t you have to be governed by the Rule and keep within its boundaries?

Samuel W. Block:

No, Your Honor.

That the Rules says it must be —

Hugo L. Black:

Unless you’re going on some kind of (Inaudible) trial in the Court to punish her for some kind of affidavit?

Samuel W. Block:

Well, I think there is basic — the right and I suggest to this Court, the duty of a Court to take action where there has been this attempted fraud where a woman has been induced to sign an affidavit about which she knew nothing.

But we —

Hugo L. Black:

We knew she had thought, that she had been told that she’s going to lose the money on that stock.

It’s nothing going to happen but why would she do it?

Samuel W. Block:

You can’t go — you really can’t go much beyond the fact that she knew she had stock, Your Honor.

And she said the stock wasn’t right.

But the wrong which are set forth in this complaint were absolutely essential in order to state a cause of action.

If a complaint was filed and all it stated Your Honor was contemporaneous stock ownership, lack of collusion, and attempts to obtain corporate redress without alleging the wrong.

It would not be a complaint.

The —

Hugo L. Black:

But it wasn’t dismissed for being an inadequate complaint?

Samuel W. Block:

It was dismissed because the affidavit which went to the entire complaint, she listed 33 specific paragraphs which she said she knew of her own knowledge to be true and all of the risk of these — I — almost a hundred pages I think the complaint is.

Complaint, she knew to be true on information which she believes to be true.

Abe Fortas:

Although, may I ask you a question about that Mr. Block.

The affidavit is divided into two parts for any medical purposes.

One is the plaintiffs are consistent with the plaintiff averments without the qualification and those are specifically enumerated paragraphs.

Two is a — the clarification relating to the balance of the complaint which is on information and belief, am I correct?

Samuel W. Block:

That’s right.

Abe Fortas:

Now, my question I had hoped your — that Mr. Watt could get around of the defendant because of shortness of time.

My question to you is this, is it or is it not true that all of the provisions in the complaint which plaintiff verified of our own knowledge were linked to the statutory and rather formal matters?

Samuel W. Block:

I think Your Honor that it can be so argued —

Abe Fortas:

I’m not arguing.

I’m trying to find out the fact.

Samuel W. Block:

Well —

Abe Fortas:

I’m not interested in making an argument one way or the other.

Samuel W. Block:

I think that the question of control which is directly contained in the formal allegation with respect to attempts to obtain corporate redress, although, she said she had knowledge of that, she did not.

Abe Fortas:

That she had what?

Samuel W. Block:

She did not — I’m sorry.

That she did not know this of her own knowledge.

The fact that the corporation was under the control —

Abe Fortas:

Let me ask you the question in different way.

As to each of these specific matters in the verification to which plaintiff had tested of her knowledge as to each of those or as to any of those, is there a contradiction in the deposition taken from Mrs. Surowitz or does the — or does the contradictory matter relate in turning to the matters as to which — which she verified on information and belief?

Samuel W. Block:

The allegation with respect to corporate control in the — being in the hands of these defendants is something she testified she — she forted and with which she testified to she didn’t know anything about it.

Abe Fortas:

Is there anything else?

Samuel W. Block:

I don’t recall any at this moment, Your Honor.

Abe Fortas:

Generally speaking plaintiffs can’t really testify as to matters of control of corporation on the basis of their own information, isn’t that right?

Samuel W. Block:

Well —

Abe Fortas:

Right now.

Samuel W. Block:

— I think that’s correct.

Abe Fortas:

Now second, so where we are now is that the contradiction between the deposition and the affidavit relates to matters which are set forth in the affidavit on information and belief, alright.

Now, did I correctly remember that the Court of Appeals said that those matters which the plaintiffs had tested on information and belief were false or improper because the deposition shows that the plaintiff did not have a general understanding of the foundation of the complaint?

Is that the basis of the decision below?

Samuel W. Block:

Your Honor, I — I submit that the basis of the decision is that the affidavit which was filed here was false.

Not that this plaintiff had to have knowledge of any specific fact but that she sworn under oath that she had information as to certain facts and belief in those facts which she did not have.

Abe Fortas:

Now, do you have any on the brief, any references to cases which construe the meaning and the — of an attestation on information and belief?

Samuel W. Block:

No, Your Honor.

Abe Fortas:

And the degree of knowledge that a — an affiant has to have to support a — an attestation on information and belief?

Samuel W. Block:

No.

No, we do not because there was no degree of knowledge whatsoever.

Abe Fortas:

But if —

Samuel W. Block:

Absolutely not.

Abe Fortas:

Well, the cases might exist regardless of that.

I don’t know of cases on that and I was wondering whether you could help me.

Abe Fortas:

So that what we have here, one view of the case of this case is a question as to the degree of information necessary in a plaintiff who brings a representative action at the purposes of Rule 23 (b), degree of the information if the plaintiff has to have in order to support a verification of the complaint under 23 (b).

Samuel W. Block:

I respectfully suggest that the issue is, if I may change it slightly the question of whether the verifier must have that degree of information and the degree of legal.

Byron R. White:

(Inaudible)

William J. Brennan, Jr.:

Just that.

Byron R. White:

(Inaudible)

Do you say that did not (Inaudible)

Samuel W. Block:

No, Your Honor.

No, I think that that —

Byron R. White:

Would you accept that?

Samuel W. Block:

We would accept that verification if when you went to the plaintiff and if she signed the verification.

Byron R. White:

At least she knows as to the very fact itself and she doesn’t understand (Inaudible) or have been through?

(Inaudible)

Samuel W. Block:

No, I don’t think that would be sufficient, Your Honor.

No, I don’t.

I think that if the lawyer —

Byron R. White:

(Inaudible)

Samuel W. Block:

Well, Your Honor, I don’t think we need to go nearly that far.

Byron R. White:

So do you think we’re wrong?

Samuel W. Block:

You still have it.

Byron R. White:

(Inaudible)

Samuel W. Block:

This case stops far short of that.

I think anyone of these instances when you have a rule some cases are one side of a line and some on the other.

In this case, it was not an affidavit that this is what my lawyer told me.

This was an affidavit of what I knew for 33 paragraphs, what I, the plaintiffs, knew and —

Byron R. White:

(Inaudible)

Samuel W. Block:

Well, I think that — that the counsel for the petitioner is quite correct when he says that the Rule 11, after the Rule 11 certification covers what the lawyer said.

The lawyer must go beyond that Your Honor and provide that degree of verification by vote which Rule 23 required.

And I would like to point —

Byron R. White:

(Inaudible) that any part of (Inaudible)

Samuel W. Block:

No, Your Honor.

Byron R. White:

Doesn’t he — (Inaudible)

Samuel W. Block:

And we —

Byron R. White:

(Inaudible)

Samuel W. Block:

— and we have the same set of facts that we — here have where she had no knowledge, information, and belief or knowledge at all.

Byron R. White:

Did you ask her, did the government asked her or her lawyers (Inaudible)

Samuel W. Block:

You cannot tell that from the deposition, Your Honor.

She — she said —

Byron R. White:

Oh!

You can’t but how can (Inaudible) allegation at all?

Samuel W. Block:

Because she said she did have knowledge in one and information and belief as to the rest.

Byron R. White:

(Inaudible)

Samuel W. Block:

No, Your Honor.

Because we had a rule —

Byron R. White:

(Inaudible)

Samuel W. Block:

Well, there is a rule of law which we cite in our brief that if you state under oath something to be true which you do not know to be true, that is in law fault.

Byron R. White:

(Inaudible)

Samuel W. Block:

No, Your Honor.

That would be equally applicable to those where she has said I have information and belief as to these allegations and had not —

Byron R. White:

(Inaudible)

Abe Fortas:

Mr. Block, I don’t what to press this beyond reason but I think that it may be helpful to us.

If you would turn on to page 236 of the transcript of record, that is the opinion of the Court of Appeals, in the last sentence of the first full paragraph containing, But if the verification provision of the Rule has have any real meaning?

As the Court of Appeals goes on to say it requires that a plaintiff etcetera must have general knowledge of the wrongful acts which he alleges as a foundation for his complaint.

Do you see where I’m reading?

Samuel W. Block:

No, I don’t, Your Honor.

Abe Fortas:

Page 236 of the record.

The record, page 236 of the transcript of record, that’s your brief.

Samuel W. Block:

I have.

Now, if I can’t — I have the page Your Honor.

I just don’t have exactly where you’re reading from.

Abe Fortas:

It’s page 236 of the transcript of record in this case.

Samuel W. Block:

The last sentence of the first full paragraph.

Would Your Honor read it again?

Abe Fortas:

I’ll read it perhaps you could follow verbally.

This is from the Court of Appeals’ opinion.

But if the verification provision of the Rule is to have any real meaning, it requires that a plaintiff must have knowledge of his own position and relationship to the suit, of the official identity of the parties against whom suit is brought.

And in this is what I want to ask you about, And that the plaintiff must have a general knowledge of the wrongful acts which he alleges as a foundation for his complaint.

Now, is that the summon substance of the position that you would take in response to Justice White’s questions.

Samuel W. Block:

When —

Abe Fortas:

And where a plaintiff makes an allegation on information — makes clarification on information and belief that the plaintiff must have general knowledge of wrongful acts which she alleges as a foundation for the complaint.

Samuel W. Block:

Where the plaintiff has verified, yes.

Abe Fortas:

Now, suppose plaintiff does not verify but his counsel verifies.

Do you concede that that is a verification that satisfies 23 (b)?

Samuel W. Block:

If it is verification without any qualification.

Abe Fortas:

By counsel?

Samuel W. Block:

By counsel.

Abe Fortas:

Well, counsel — you know as — as I know, do you probably know better than I do that can make the verification without any qualification, do you mean that?

Samuel W. Block:

I mean without the qualification that was in Mr. Rockler’s affidavit here but in which he said, I make this solely for the purpose of meeting a mid state under something like that and I reserve all the attorney client privileges and the —

Abe Fortas:

I get your point.

But in the case then where the plaintiff for good reason or bad reason the error or misadventure verifies that, you’re saying that there would be an inquiry under plaintiff’s knowledge of the substance of the complaint even if it’s an accounting case or what not and that unless the plaintiff can show a general knowledge of the wrongful acts, if the plaintiff has made verification on information and belief, the complaint is to restrict her.

That’s the position.

Samuel W. Block:

That’s right.

And Your Honor, there is — the very good reason for that.

The derivative action in which these verifications are required has been referred to as having peculiarities by this Court.

It is a — it’s a different breed really of lawsuits because it requires the individual to take over as it were the control from the Court — from the elected corporate managers.

Now, there must be, we respectfully suggests, some assurance that that kind of taking over of corporate control is based upon the allegations of wrongdoing which someone, some person, responsible is willing to verify under oath.

And that is why the answer to the question about whether if it’s a verification must there be that general knowledge.

You — the person who is saying, I’m going to take over this cause of action, must be willing to say, I feel these are responsible allegation.

I’d like to follow up just to make sure I understood your answer to Justice Fortas.

If this — if this verification as she made it, modified only by it being all on information and beliefs been cited by Mr. Brilliant or Mr. Rockler without any other qualification, you would say that satisfied 23 (b)?

Samuel W. Block:

Yes.

Samuel W. Block:

Because I think that that you would have a responsible person who would make the affidavit and it would not be the basic fraud on the Court.

There would not be the concern for what here appears, I respectfully suggest, to be a kind of trafficking in litigation which is deprived by the earliest of the cases.

I mean what the thing in reverse which is perhaps like Justice White was asking you.

Suppose in this verification by period said, I have no personal knowledge leading out to stock ownership.

I have no personal knowledge or any of these facts.

I do not understand that anything about the basis of my cause of action except that everything I have said here has been given me by my lawyer and in my own confidence with my understanding with the investigation.

Would that —

Samuel W. Block:

I think —

Would that have been alright?

Samuel W. Block:

No, Your Honor.

I think once again, you would not have had the degree of responsibility for the charges that is required.

There is no restriction as has been suggested by counsel for the petition on the use of a procedural rule to impose on an uneducated plaintiff a very substantial obstacle to bringing a derivative suit.

This could have been verified by anyone with knowledge of the facts that were — that were alleged on knowledge to be in the knowledge of affiant or on information and belief as to those others.

The legal flow here is that someone procured this plaintiff to execute this false affidavit.

Abe Fortas:

It’s the third time you said that sir, and I wonder if you really want to use those words.

Samuel W. Block:

The false affidavit?

Abe Fortas:

No, the procurement.

Samuel W. Block:

Well, we don’t know.

All you can —

Abe Fortas:

Well, there’s nothing in this record on to that —

Samuel W. Block:

Well, there’s an affidavit by Mr. Brilliant that he — and I want to — want to be sure I have the exact, that he would look into the facts and decide what should be done.

Abe Fortas:

Oh.

Samuel W. Block:

And then there the steps from that point forward.

Hugo L. Black:

I notice that it have been, you may say that two people came to — I told them — gone into this matter first and then one of them read the complaint to the alleged, Brilliant, who’s Brilliant?

Samuel W. Block:

Brilliant was her son-in-law who was a lawyer, graduate lawyer.

He had master’s —

Hugo L. Black:

But he owns stock?

Samuel W. Block:

He own stocks.

Yes, Your Honor.

Hugo L. Black:

Who’s the other man?

Samuel W. Block:

The other man was her attorney — one of her attorneys, Mr. Rockler.

Hugo L. Black:

May I ask you, you’ve read what is the matter here and I got a good deal of idea out of it, (Inaudible) picture of this opinion, how long do you think it would take him to educate her up to the position (Inaudible) that she could have understood all of these things and you say you have the (Inaudible)

Samuel W. Block:

No, Your Honor.

I don’t know how long it would have taken.

It may have taken — it may have been impossible but it —

Hugo L. Black:

Suppose it was impossible.

Samuel W. Block:

Then Mr. Brilliant could have executed an honest affidavit.

Hugo L. Black:

Do you think that it had been alright for someone else to decide for her to make her affidavit?

Samuel W. Block:

Yes, sir.

Yes, Mr. Justice Black.

How long (Inaudible)

Samuel W. Block:

Because his affidavit is — it’s absolutely without mention of the truth of the allegations of the complaint any of them.

The only fact he swears to is that, I told Mrs. Surowitz that we have done this.

He — and I don’t — whether it is clarified, I can’t tell but at least it appears to me that they drawn so that he does not say under the necessary oath that these facts are either true or I believed to be true.

Hugo L. Black:

(Inaudible)

Samuel W. Block:

No, but the paragraph in which that appears Your Honor reads, I told her that the charges in the complaint reflected the investigation and study of Mr. Rockler and myself and that in my opinion, the charges of wrong doing was soundly based.

He is swearing that he told her this and I don’t question it.

I have no way of questioning that that is true or is not true.

But he does not say that under oath, he says that the charges were true.

He merely says under oath, I told her, that in my opinion, the charges of wrong doing was soundly based.

Hugo L. Black:

All of this was based on — on the conclusion of the Court, she was guilty of perjury, isn’t it?

Samuel W. Block:

I don’t know that we go that far, Your Honor.

Hugo L. Black:

That this is false —

Samuel W. Block:

Its a false affidavit, yes.

Hugo L. Black:

And if I assume by that — does it show or does it have enough to get the jury to convict her of perjury?

That would be by a state prosecution?

Samuel W. Block:

I don’t know that sir.

I can’t answer that question.

Thank you.

May I ask you a question before you sit down.

Among the invitations that you suggested — that you stated that the District Court had given you a remedy, this which you claim as a defect, was it specifically suggested that the — a new complaints with an affidavit by counsel would suffice to cure this alleged defect?

Samuel W. Block:

The —

I did —

Samuel W. Block:

— questions were made at the trial level that the — that Mr. Brilliant who was himself have substantial stockholder could have executed the complaint as a duly qualified —

Now, that’s a different question.

That’s a different question.

I’m not asking you that.

The concession that you made now or at least to your — I don’t call it a concession, your agreement that if this affidavit that this verification had been made by Mr. Brilliant without qualification as it other than information and belief that that would suffice, was that opportunity given by the District Court?

I didn’t see it in the record and I rather assume it was not because the Court of Appeals seems to say in its opinion that it doesn’t pass on the question as to whether or not an affidavit by counsel would have suffice?

Samuel W. Block:

I don’t think that there was ever —

That your position is clear on that now as what I was anxious to get that that would suffice.

Samuel W. Block:

Yes, because as the trial court said, all I want is an affiant or a plaintiff who knows what she said she knew.

Yes.

That’s not quite for something that as I assume in the colloquy we’ve had.

Samuel W. Block:

Well, if there’s no limitation on who the affiant might be, Mr. Justice Harlan.

It doesn’t say that it has to be —

Now, the Court of Appeals didn’t read it that way as supporting an opportunity that it did not pass.

It is expressly reserved, did it not, the question that whether an affidavit by counsel satisfied 23 (b)?

Samuel W. Block:

Yes, because that was never presented to her.

There was never an opportunity for that issue because they kept the false affidavit before the Court.

Hugo L. Black:

They did present the affidavit.

Samuel W. Block:

Limited in each instance, Your Honor — Mr. Justice Black.

Hugo L. Black:

Limited, though saying what they believe those bases were truth?

Samuel W. Block:

Not Mr. Brilliant.

Mr. Brilliant does not say that.

Hugo L. Black:

What about the others?

Samuel W. Block:

Mr. Rockler said he believed that it would be true but he made it for a limited purpose and without —

Hugo L. Black:

Whatever (Voice Overlap) or had if before him, and in the face of it, if he hadn’t found that punishable by something, he gave the maximum punishment possible, didn’t he?

He dismissed the case with perjury.

Samuel W. Block:

Well, Your Honor I think that raises another question which will — have not reached.What (Voice Overlap) —

Hugo L. Black:

That’s in this case.

Samuel W. Block:

That the — the order of dismissal is with perjury but it does not affect the cause of action.

Hugo L. Black:

Just to think their right to (Inaudible)

Samuel W. Block:

That’s right.

Hugo L. Black:

I believe your time is up.