Swanson v. Traer

LOCATION: Kingsley Books, Inc.

DECIDED BY: Warren Court (1957-1958)
LOWER COURT: United States Court of Appeals for the Seventh Circuit

CITATION: 354 US 114 (1957)
ARGUED: Mar 27, 1957
DECIDED: Jun 10, 1957

Facts of the case


Media for Swanson v. Traer

Audio Transcription for Oral Argument - March 27, 1957 (Part 1) in Swanson v. Traer

Audio Transcription for Oral Argument - March 27, 1957 (Part 2) in Swanson v. Traer

Earl Warren:

Mr. Baker you may proceed.

James E. S. Baker:

Thank you, sir.

I think that it might be a good point of departure for this after recess just to briefly state what the Court of Appeals said if the rule was that they were applying.

And they said that the test is whether there's a collision between the personal interest of those in control of the corporation and the interest of the corporation itself in the subject matter in the suit.

Such antagonism may appear from the relationship of those in control of the corporation to the defendants or by the words or acts of those in control, which as a matter of fact, proven attitude antagonistic to the suit.

That's on the last page practically of the record.

That's the test the Court of Appeals said they were applying.

Now, this -- this corporation doesn't fall within either of those circumstances, controlled by the real defendants is not alleged and sometimes referred to in a case as domination or in antagonistic hands.

And it is in a case where the corporation has taken sides with the real defendant, become partners in litigation with the real defendants, actively participating in the defense in such manner that the Court can conclude that the corporation is in antagonistic hands with respect to the basic controversy.

Now, in the Court of Appeals, in its opinion and I believe our brief also amply demonstrate that no hostility or antagonism was alleged or shown.

The complaint doesn't allege facts which charge that the people were in control.

Now, referring to the complaint here, he referred -- Mr. Doyle did on his argument to the fact that there was a statement about hostile hands.

I'd like to read just a very short excerpt from the complaint.

It's from paragraph 4 (a).

It starts at the bottom of page 6 of the record, the last sentence, “A stockholder's resolution directing the bringing of suit would be futile, since the control of such action would be in hostile hands for the reason that the officers and directors and counsel for the Railway Company have indicated as plaintiffs are informed and believed that they do not believe this suit should be brought and they would refuse to bring it.”

In other words, the complaint says that the action be in hostile hands because the directors have indicated they'd refused to bring a suit.

All that --

Earl Warren:

Well, what is wrong with that, if you please?

James E. S. Baker:

Well, the Court of Appeals treated this as a -- a mere conclusory allegation --

Earl Warren:

All right.

James E. S. Baker:

-- and it said that the plaintiffs must state facts in their complaint, which lend credence to the statement that the action would be in hostile hands.

Hugo L. Black:

Suppose there had been affidavit attached, three affidavits attached about people who said they knew it.

They talked to them and they had said they would not file a suit that should not be filed, would that be enough?

James E. S. Baker:

Well we didn't -- we had precisely that, sir.

We had an affidavit of Mr. Busch that -- the general counsel of the corporation.

He made a statement in the District Court and he filed an affidavit.

He -- and he made a statement in the Court of Appeals, which were cited at great length, the reasons why the corporation had refused to commence the suit.

Those are the reasons that the plaintiff should have put in its complaint but didn't and Mr. Busch supplied those by affidavit.

Now --

Hugo L. Black:

You would -- you would say that that affidavit wouldn't be sufficient then because it failed to show sufficient facts to indicate that the directors were not exercising an honest judgment?