Substance and Procedure in Federal Equity the Labor Injunction and Stockholders Suit Columbia Law...

8/12/2019 Substance and Procedure in Federal Equity the Labor Injunction and Stockholders Suit Columbia Law Review 1941

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"Substance" and "Procedure" in Federal Equity. The Labor Injunction and the Stockholder's

SuitSource: Columbia Law Review, Vol. 41, No. 1 (Jan., 1941), pp. 104-121Published by: Columbia Law Review Association, Inc.Stable URL: http://www.jstor.org/stable/1117208.

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104 COLUMBIA LAW REVIEWprotected by the Constitution. Viewed in this light, peaceful picketingis a publicity device, a method of giving expression to opinions on vitaleconomic, social, and political issues. It is an instrument whose aim isto convince the public that some wrong is being done which ought to berectified by the force of public opinion. As such, peaceful picketingcannot be restricted to any one group, but is to be regarded as a lawfulmeans of persuasion available to any person or group, provided thatthe matter in controversy is not of mere local or private concern, 96and that there are no factors involved which outweigh the public interestin free discussion.97

Substance and Procedure in Federal Equity-The LaborInjunction and the Stockholder's Suit

The existence of federal and state courts with partly concurrentjurisdiction has inevitably created problems in choice of law.' Priorto 1938 there had in the federal courts been substantial conformity tostate law in matters of procedure,2 and substantial autonomy in mat-ters of substantive law.Y Erie R. R. v. Totnpkins4and the new Federalplace, whatever coercive element is inherent therein is likely to disappear. At thatpoint, unless picketers can appeal successfully to the public sympathyor intelligence,their efforts will be wasted. The tendency would then be for that picketing nothaving a public appeal to disappearalso.' Thornhill v. Alabama,supra note 14, at 103.7In effect, this is to say that the fact that peaceful picketing is an exercise offree speech s sufficient ustification for whatever harm be done the picketed. Sothat if the purpose sought by the picketing party, when divorced from the incidentalharm caused to the one picketed, s not frowned upon by society, the picketing rightshould be protected. Lest this give the impression that the end justifies whatevermeans are used, bear in mind that peaceful picketing results in a battle for publicopinion, and that the picketer is by no means always the victor. The picketed oneshould be granted every fair means of peacefully fighting back. If he loses thebattle, because public opinion rules against him, he is not necessarily destroyedeconomically any more than the mass of employers defeated by labor strikes. Hehas, of course, lost a little of the individualism he formerly possessed, but thisis in line with the present-daysocial outlook.

' The problem arises in diversity of citizenship cases, and in the determinationof non-federalissues in cases in which jurisdiction is founded on the existence ofa federal question.2REV. STAT ? 914, 28 U. S. C. ? 724 (1934) providedfor conformity as nearas may be to state procedure. This statute did not apply to equity, in which thefederal courtsdevelopedan independentprocedure. Cf.REV. STAT. ?917 (1875), 28U. S. C. ? 720 (1934). Both of these statutes were repealedby the new Rules ofCivil Procedure. See 1 MOORE,FEDERAL PRACTICE (Perm. ed. 1938) ? 1.02.3 Swift v. Tyson, 16 Pet. 1 (U. S. 1891). State statutes, however, werebinding on the federal courts in cases at law [REV. STAT. ? 721 (1875), 28 U. S. C.?725 (1934)] and to a large extent in equity cases [see Mason v. United States,260 U. S. 545, 558-9 (1923). But see infra n. 19].4304 U. S. 64 (1938). A comprehensive ist of discussions of this decision iscontained n Hart, The Bwsinessof the Supreme Court at October Terms 1937 and1938 (1940) 53 HARV. L. REV. 579, 606.

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PROCEDURE IN FEDERAL EQUITY 105Rules5 have inverted this pattern by creating an independent body ofuniform federal procedural law, and by requiring adherence to the sub-stantive law of the states.

While a new and more rational order may thus have been created,only the outlines have been sketched in many areas. Yet awaiting defin-itive statement is the status of equity in the new pattern. There arisesalso the inquiry whether in creating the new order inconsistencieshave not resulted,6 for the constitutional basis of the Tompkins opin-ion jeopardizes not only existing federal legislation but even someof the simultaneously promulgated rules of procedure. Problemsof this nature arise from the restrictions on the power to issue in-junctions in labor disputes created by the Norris-La Gardia Act,7 andthe limitation imposed by Rule 23b of the Rules of Civil Procedureon the ability of a stockholder to bring a derivative action to redressinjuries suffered by his corporation.8Conformity to State Law in Matters of Equity.

The initial inquiry is whether Erie R. R. v. Tompkins applies toequity. If the decision is nothing more than a re-interpretation of theRules of Decisions Act,9 it would be merely persuasive in equity cases.'0But the opinion is rested on a constitutional basis'1 which should applyto both law and equity,'2 despite the seemingly restricted language used.13

5FED. RuLEs Civ. PROC., 28 U. S. C. following ? 723c (Supp. 1939), adoptedDec. 20, 1937,308 U. S. 645.The very adoptionof independentrules of procedureseems inconsistentwiththe ideal that different results shall not obtain merely because of the accident ofcitizenshipof the parties. See Note (1938) 38 COLUMBIA LAW REv. 579, 606. Itis significantthat Mr. Justice Brandeis, the writer of the opinion in the Tompkinscase, dissentedto the adoptionof the new rules. 308 U. S. at 647.'47 STAT. 70 (1932), 29 U. S. C. ? 101-113 (1934).828 U. S. C. following ? 723c (Supp. 1938).9REV. STAT. ?721 (1875), 28 U. S. C. ?725 (1934), supra n. 3. See Stone, J.,in Russell v. Todd, 309 U. S. 280, 287 (1940): The Rule of Decisions Act doesnot apply to equity. [It] applies only to the rules of decision in 'trials at commonlaw' . . . but appliesas well to rules establishedby judicial decisionin the states asthose establishedby statute. Erie R. Co. v. Tompkins .See Mason v. United States, 260 U. S. 545, 558-9 (1923).See 304 U. S. at 822: If only a question of statutory constructionwere in-volved, we shouldnot be prepared o abandona doctrineso widely appliedthrough-out the country. But the unconstitutionalityof the course pursuedhas now beenmade clear, and compels us to do so.12The basis for declaring Swift v. Tyson unconstitutionalwould seem to havebeen that Congress and the federal courts can derive no power to create rules ofsubstantivelaw from the grant of diversity jurisdiction. Cf. the quotationsfromJustices Field and Holmes, 304 U. S. at 78-80. Insofar as rules of equity are sub-stantive it is hard to see how federal power over them could be sustained underthis reasoning.'3Both Swift v. Tyson and Erie R. R. v. Tompkinsinvolved questionsof com-mon law. Mr. Justice Brandeis throughouthis opiniontalks of law and commonlaw (e.g. 304 U. S. at 74, id. at 78). The examples he gives of the evils the de-



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106 COLUMBIA LAW REVIEWThis view is borne out by a large number of cases holding that federalcourts are bound to follow state decisions not only on legal questionsarising in equity actions,'4 but also on questions purely equitable.'5

One exception has, however, been indicated: a right to equitable re-lief in the federal court will only be precluded by an adequate remedycision in the Tompkins case was intended to correct all involve commonlaw situa-tions. Id. at 75-6. The use of commonlaw might be thought to be in con-tradistinction o statute law, did he not refer to the power of Congress to declarerules of commonlaw applicable in a state . Id. at 78. Hence a verbal argumentcould be made that the Justice was carefully excluding equity from the scope of hisopinion. But nothing indicatesthat the Justice was making any attemptto use theterms in any precise, accurate, restrictive sense. Thus in Hinderliderv. La PlataCo., 304 U. S. 92, 110 (1938), in an opinion handeddown on the same day as theTompkins decision, Mr. Justice Brandeis refers to the question of apportionmentbetween two states of the waters of an interstate stream as one of federal com-mon law , even though the action was for an injunctionto protect equitablerights.Id. at 104.

14 Wichita Royalty Co. v. City Nat. Bank of Wichita Falls, 306 U. S. 103(1939) (Action to wind up bank; bank's liability for diverting trust funds totrustee's private account); Carter Oil Co. v. McQuigg, 112 F. (2d) 275 (C. C. A.7th, 1940) (action to enjoin interferencewith rights of lessee; natureof estate re-servedby lessor'sgrantor) ; ContinentalIll. Nat. Bank & Trust Co. v. City of Mid-dlesboro, 109 F.(2d) 960 (C. C. A. 6th, 1940) (action to enjoin city from requir-ing removal of telephone poles; issue: validity of franchise to defendant,and ofpurportedreservation n defendant'sdedicationof propertyto city) * Women's Cath-olic Order of F. v. Special School Dist., 105 F.(2d) 716 (C. C. A. 8th, 1939)(specific performance;validity of pledge of revenues by school district) * cf. In reShyvers, 33 F. Supp.643 (S. D. Cal. 1940) (bankruptcy; whether claimanthad alien). However, in Travelers' Mut. Casualty Ins. Co. v. Skeer, 24 F. Supp. 805,806 (N. D. Mo. 1938), it was said that the Tompkinscase did not apply to actionsin equitybecause all the proceedings n a court of equity are governedby the Con-stitutionand laws of the United States. The court seems to have placed its princi-ple reliance, however, on the theory that the issue in question,damages on an in-junction bond,was procedural. d. at 806. CompareMercantile CommerceB. & T.Co. v. S. E. Arkansas L. Dist., 106 F.(2d) 966 (C. C. A. 8th, 1938) (allowance ofattorney's fees held procedural). Contra: American OptometricAss'n v. Ritholz,101 F.(2d) 883 at 887 (C. C. A. 7th, 1939), cert. denied,307 U. S. 647 (1939)(same; actionat law, held substantive).15Cities Service Oil Co. v. Dunlop, 60 Sup. Ct. 201 (1940) (bill to removecloud on title; plaintiff pleads bona fide purchasein reliance on mistake in deed;burdenof proof of bona fides held not a question of practice in courts of equity ,but one relating to a substantialright ) ; Ruhlin v. N. Y. Life Ins. Co., 304 U. S.202 (1938) (action to rescind disability and double indemnityclauses of insurancepolicy; constructionof incontestabilityclause); Brun v. Hansen, 103 F. (2d) 685at 697-8,700 (C. C. A. 9th, 1939), cert. denied,308 U. S. 571 (1939) (whether con-veyance to be set aside,whether constructivetrust was proper remedyfor breachofadministrator's iduciaryduty.); Fidelity and GuaranteeFire Corp.v. Bilquist, 108F. (2d) 713 (C. C. A. 9th, 1940) (action to reform insurance policy; right toreformation); Boone v. Equitable Holding Co., 32 F. Supp. 896 (S. D. W. Va.1940) (action to set aside note on ground endorser incompetent; degree of proofof incompetency); see Prudential Ins. Co. of America v. Land Estates, Inc. 110F.(2d) 617 (C. C. A. 2d, 1940) (allowability of claim in receivership; state lawsaid to have governed prior to Erie R. R. v. Tompkins); Bryant v. Linn County,Ore., 27 F. Supp. 562, 564 (D. Ore. 1938) (whether trust ex maleficioarose; trustheld unenforceablebecause claim not reasonably made as provided in NationalBanking Act) ; Socony-VacuumOil Co. v. Rosen, 108 F.(2d) 632, 635 (C. C. A.6th, 1940) (what constitutesunfaircompetition; state and federal law the same).



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PROCEDURE IN FEDERAL EQUITY 107at law in the federal court.16 How far this exception will be extendedcannot as yet be foretold; the opinions of Mr. Justice Stone may betaken to suggest that whenever the issue is whether in any given in-stance a suit . . . is an appropriate one for the exercise of the extra-ordinary powers of a court of equity, ''7that is, where it relates to

equitable remedies,''l8 the federal courts need not follow state law. Ifthis is the position that the Court will adopt, then the Tompkins casehas not achieved full conformity in matters equitable. Previously, fed-eral courts refused to follow state statutes conferring equitable reme-dies while following those conferring equitable rights ;19 the Tomrp-kins case may merely have extended that dichotomy, with its attendantconfusion and inconsistencies of result,20 to judicial decisions.

The cases holding federal equity courts independent of state statutesin matters of equitable remedies seem to have been based primarilyon the need for preserving the constitutional right to a jury trial,21which was violated if a remedy obtainable only on the equity side ofthe court was given for a right whose violation was normally tried to ajury on the law side.22 With the adoption of the single form of ac-

1 Atlas Ins. Co. v. Southern Inc., 306 U. S. 563 (1939); see Russell v. Todd,309 U. S. 280, 286 (1940); cf. Sweeney v. PennsylvaniaDept. of Pub. AssistanceBd., 33 F. Supp. 587 (M. D. Pa. 1940).The Atlas case may simply exemplify the principle of City Bank Farmers'Trust Co. v. Schnader, 29 U. S. 24 (1934), infra note 26. But cf. Di Giovanni v.Camden Fire Ins. Assn., 296 U. S. 64 (1935). These cases may, however, standfor the broaderpropositionthat even where the state legal remedy is equally avail-able in the federal court, the question of its adequacy s one for independent ederaldetermination. Or they may stand for the even broader proposition that in everyinstancethe proprietyof granting equitableremedies is one for independent ederaldetermination. Under either of the latter interpretationsthey are subject to thecriticisms made in the ensuing text.1Atlas Ins. Co. v. Southern, Inc., 306 U. S. 563, 568 (1939).18Russell v. Todd, 309 U. S. 280,294 (1940). Mr. Justice Stone expressly leftthe question open. Compare Bruun v. Hanson, 103 F.(2d) 685 (C. C. A. 9th,1939) supra note 12, with Isaac v. Milton Mfg. Co., 33 F. Supp. 732 (M. D. Pa.1940) (whether receiver appointable; treated as question of provisional remedy;no state cases cited).1 See Notes (1932) 32 COLUMBIA LAW REV.688, (1936) 49 HARV. L. REV. 950,954 et seq., (1923) 33 YALE L. J. 193.20See Note (1932) 32 COLUMBIA LAW REV. 688, 698.See, e.g., Scott v. Nealy, 140 U. S. 106, 109-10 (1891). The precise meaningof the phrase equitableremedies s difficultto ascertain. In the ensuing discus-sion remedial will be used to refer to questionswhere the issue is: given a causeof action cognizableat law, will equitablerelief be granted? Substantive rules ofequity ( equitablerights ) will mean those which determine,not whether the caseis properly cognizable in equity rather than in law, but whether plaintiff, beingproperly in the equity court, has stated a meritorious cause of action. CompareWhitehead v. Shattuck, 138 U. S. 146 (1891), with Holland v. Challen, 110 U. S.15 (1884). See Pusey &Jones Co. v. Hanssen, 261 U. S. 491, 499 (1923).

22 Cf. Catesv. Allen, 149 U. S. 450, 459 (1893): . . . the fact that the chancerycourthas the powerto summona jury on occasion cannot be regardedas the equiv-alent of the right of trial by jury securedby the Seventh Amendment.



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108 COLUMBIA LAW REVIEWtion 23 the two sides of the court are abolished. Jury trials are to begranted whenever the parties would formerly have been entitled tothem,24but it would seem that the fact that equitable relief was askedneed not preclude the parties from obtaining a jury trial as of right.25Hence federal independence in granting or refusing equitable remediesis no longer required by the constitution. Save in certain exceptionalcases26 there seems no stronger reason to preserve federal independencein matters of equitable remedies than in any other type of question.The Constitutionalityof the Norris-La GuardiaAct.

The opinion in the Tompkins case did more than require federalcourts to follow state decisions; Congress has, according to Mr. JusticeBrandeis, no power to declare substantive rules of common law ap-

3 Rule 2, 28 U. S. C. following ? 723c (Supp. 1939).' Rule 38, ibid. On the question when a jury trial may be obtainedas of right,see 2 MOORE, FEDERAL PRACrICEPerm. ed. 1938) ? 38; Pike and Fischer, Pleadingsand Jury Rights in the New Federal Procedure (1940) 88 U. OFPA. L. REv.645;McCaskill, Jury Demands in the New Federal Procedure (1940) 88 U. OF PA. L.REv. 315.'Cf. Trittipo v. Morgan, 99 Ind. 269 (1884), granting a jury trial of a statu-tory bill to quiet title, brought by a plaintiff out of possession against a defendantin possession. A similar statute, on similar facts, has been held unenforceable na federal equity court since there was an adequate legal remedy in ejectment.Whitehead v. Shattuck, 138 U. S. 146 (1891).Rules 8(a) (3) and 18(b) authorizingrequestsfor a numberof differentkindsof relief in one action, and joinder of legal and equitablecauses of action, removeall impediments o the bringing of blended ctions, requesting equitable relief andrequiring adjudicationof legal rights. Thus a contract creditor'sbill to vacate afraudulent conveyance, formerly held unenforceable in the federal courts [Scottv. Neely, 140 U. S. 106 (1891); Cates v. Allen, 149 U. S. 450 (1893) ; cf. Pusey &Jones v. Hanssen, 261 U. S. 493 (1923)] is now specifically mentioned by Rule18(b) as an example of the type of joinder it permits. See 2 MooRE, EDERAL RO-CEDURE (1938) ? 18.03Normally the question whether a jury trial is to be granted will still dependon the kind of relief asked [cf. Pike and Fischer, op. cit. supra note 24, at 656],since the test is whether the action would formerly have been brought at law or inequity [see Grauman v. City Co. of N. Y., 31 F. Supp. 172, 174 (S. D. N. Y. 1939);Bellavance v. Plastic-Craft Novelty Co., 30 F. Supp. 37, 38 (D. Mass. 1939)].But the fact that the nature of the remedy asked is usually indicative of the exist-ence of a right to jury trial, does not negate the proposition that there is no longerany necessary relation between them such as to give rise to constitutional restric-tions on the powers of federal courts to follow state law as to the propriety ofgranting equitable remedies.'Cf. Matthews v. Rodgers, 284 U. S. 521 (1932), in which the federal courtrefused to enjoin enforcement of a state tax, although the injunctive remedy wasseemingly available in the state court. In such a case, reasons of comity dictatefederal abstention. See 284 U. S. at 525. And since the question concerns theremedy for the violation of rights guaranteed by the Federal Constitution, theexistence of an independent ederal rule is justified.A converse situation is suggested by City Bank Farmers' Trust Co. v.Schnader, 291 U. S. 24 (1934). There the state remedy was by an administrativeproceeding, not available in the federal court. Federal equitable relief was granted.A similar result would be justified today, it is submitted. The problem is unusual,since state legal remedies must normally be granted by federal courts under the



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PROCEDURE IN FEDERAL EQUITY 109plicable in a state.... 27 The dictum might appear in terms to excludeequity from the restriction imposed.28 But if the Tompkins opinionis to be applied to judicial decisions in equity, logic would seem to re-quire that the identity of treatment with law be made complete, and theopinion be applicable to federal statutes relating to equity as well as tolaw.

Assuming that Erie R. R. v. Tompkins restricts Congressional powerover substantive matters in equity, a serious question is raised as to theconstitutionality of the Norris-La Guardia Act,29 which restricts theTbmpkins case. But if for any reason it is impossible to give the state remedy,it seems fair to permit federal equitable remedies to be given, perhaps allowinga jury trial. Non-conformity in this instance is necessitated by the inability togive legal relief; the granting of equitable relief serves rather to minimize theeffects of non-conformity.27304 U. S. at 78. The statementappearsto be obiter dictum. Its correctnesshas been judicially questionedboth in the concurringopinion of Mr. Justice Reedin the Tompkins case, 304 U. S. at 89, and by Judge Magruderin Sampsonv. Chan-nell, 110 F.(2d) 754, 756-7 n. 4 (C. C. A. 1st, 1940). Mr. Justice Brandeis seemsto have assumed that he was merely restating the previously accepted law. See304 U. S. at 72. But, while no attempthad ever been made to assert a Congressionalauthority to enact substantiverules applicablein diversity cases, its existence hadalso never been deniedby the courts and had been persuasivelyasserted by at leastone text writer, GOODNOW, SOCIAL REFORM AND THE CONSTITUTION (1911) C. IV;see also WILLOUGHBY, CONSTITUTIONALLAW (2d ed. 1929) 1297-8. The principalargument lies in the analogy from admiralty,where a grant of judicial power hasbeen held to confer legislative power. In re Garnett, 141 U. S. 1 (1891) ; DetroitTrust Co. v. The Thomas Barlum, 293 U. S. 21 (1934). But that grant was ofexclusive power, [The Moses Taylor, 4 Wall. 411 (U. S. 1866)], and state legisla-tion has beenheld unenforceablen admiralty. [Southern Pacific Co. v. Jensen, 244U. S. 205 (1917). But cf. The Hamilton, 207 U. S. 398 (1907)]. Hence federallegislative authority was often the only one possible. Cf. The Lottawanna, 21Wall. 558, 576-7 (U. S. 1874).More importantas a predictionbasis, are political considerations. To sustainfederal legislative authority over substantivematters in diversity cases is no longervitally necessaryin order to permit needed social legislation, in view of the expan-sion of the commercepower. (Thus the Norris-La GuardiaAct can be partly sus-tained on other grounds, see infra p. 115.) Nor is it a convenient and practicalmethod of securing uniformity of commercial law. See the Tompkiniscase, 304U. S. at 74. [Compare he possibilitiesof a federal act applicableto interstatetrans-actions and an identicallyworded Uniform Act, and of such enabling provisionsasthe Miller-Tydings Amendment,50 STAT. 693 (1937), 15 U. S. C. ? 1 (Supp.1939)]. On the other hand the scope of such a power would be far greaterthan that wielded by the court under Suift v. Tyson, since local rules of propertywould not be exempt, and state statutes would be overriden. Hence it is to beanticipatedthat unless a strong social need arises, which is incapableof satisfac-tion by other methods, the Court would be reluctant to overturn Mr. JusticeBrandeis'dictum.' See supra note 13.947 STAT. 70 (1932), 29 U. S. C. ??101-113 (1934). Many provisions of theAct are not herein discussed Pt length. ?? 109, 110, 111, 112, and parts of ? 107deal with questionssuch as notice and hearing, findings of fact, jury trial, appeals,etc. These areclearlyprocedural nd raiseno problemunder Erie R. R. v. Tompkins.? 106 provides that no officeror member of an organizationmay be held liable foracts committed in the course of a labor dispute save on clear proof that he par-ticipated in, authorized or ratified such acts. The provision has been termed arule of evidence. See Sen. Rep. No. 163, 72d Cong., 1st Sess. (1932) 19-21;CinderellaTheater Co. v. Sign Writers' Local Union, 6 F. Supp. 164, 171 (E. D.



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110 COLUMBIA LAW REVIEWpower of federal courts to issue injunctions in labor disputes. The im-portant provisions for present purposes are those depriving the federalcourts of jurisdiction (1) to enjoin certain specified types of con-duct,30and (2) to enjoin any conduct unless certain facts are estab-lished.31 These provisions seem analytically to deal with equitableremedies; they do not deny the possible existence of a cause of actionin tort, but merely deny such a cause of action any equitable enforce-ment. Accordingly the provisions have, prior to Erie R. R. v. Tompkins,been held constitutional,32and retroactively applicable to a cause of ac-tion pending at the time of their passage.33 These cases would be con-Mich. 1934). Contra: Sen. Rep. No. 163, 72d Cong., 1st Sess. (1932) Part 2, 9-10.As such it would seem rationally capable of classification as procedural. SeeSampsonv. Channell, 110 F.(2d) 754, 756-7 n. 4 (C. C. A. 1st, 1940). Hence itsconstitutionalitycould be sustained. But it would not seem constitutionally appli-cable to cases arising in a state in which such an officer was made responsibleregardless of participation,authorization,or ratification.3?29 U. S. C. ? 104. The principalacts thus protected are (a) striking, (b)joining a labor union, (c) paying to or withholding from strikers any strike orunemploymentbenefits, (e) peaceful picketing, (f) assembling peaceably, (h)agreeing to do, or (i) urging others to do, any of these acts.The provision in ? 104(e) may be thought to be of only academic interest, inview of the Court'sdeclaration n Thornhill v. Alabama, 110 U. S. 88 (1940) thatthe right of peaceful picketing is guaranteed by the Constitution. See su?prap.93. But quaere whether the protectionaffordedby a Constitutional nterpretationwhich the Court is free to change is as great as that afforded by an explicitlyworded statute. Quaere also the extent to which the Thornhill case will increasethe occasions for the problemsof the present Note to arise by making possible re-moval on the ground of a federal question.=29 U. S. C. ? 107 (1934) deprives the court of jurisdiction to issue atemporaryor permanent njunction except after findings (a) that unlawful actshave been committed and will be continuedunless restrained; (b) that substantialand irreparable njury to complainant'sproperty will follow; (c) that as to eachitemof relief grantedgreater injury will be inflictedupon complainantby the denialof relief than will be inflicted upon defendantsby the granting of relief; (d) thatcomplainant has no adequate remedy at law; and (e) that the public officerscharged with the duty to protect complainant'spropertyare unableor unwilling tofurnish adequateprotection. This section, which also provides for notice, hear-ing, etc., was termed procedural n the committee reports. SEN. REP. No. 163,72d Cong., 1st Sess. (1932) 21-3; id. Part 2, 10-12. But obviouslyto requirecer-tain findingsto be made is to make the existence of facts upon which to base thosefindings a part of complainant'scause of action.See also ? 108providingthat no one may obtainan injunctionwho has failed toobserve his legal obligations in connectionwith the labor dispute, or to use everypossible means to settle it.' Levering & Garrigues Co. v. Morrin, 71 F. (2d) 284 (C. C. A. 2d, 1934)(?104); Lauf v. E. G. Shinner & Co., 303 U. S. 323 (1938) (? 107); UnitedElectric Coal Co. v. Rice, 80 F.(2d) 1 (C. C. A. 7th, 1935) (? 108). All of thesecases base their holdings on the power of Congress to define and limit the jurisdic-tion of the inferior federal courts, even though ? 108 is not worded in jurisdictionalterms. However, in the Levering case an alternativeground given for the holdingof constitutionalitywas that ? 104 was a limitation affecting remedy rather thanproperty rights, the court thereby distinguishingthe present provision from thatinvalidatedon due processgrounds in Truax v. Corrigan,257 U. S. 312 (1921) bymeans of the fact that the latter statute was therein construed to deny all remediesand therebylegalize picketing. 71 F.(2d) at 287.Levering & Garrigues Co. v. Morrin, 71 F. (2d) 284 (C. C. A. 2d, 1934)(? 104).



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PROCEDURE IN FEDERAL EQUITY 111sistent with a construction of the provisions as relating to federalpower,34 but other decisions seem clearly to treat them as relating toequitable remedies,35terming a dismissal for non-compliance therewithto be for want of equity, not want of power as a federal court,36andaccepting removal from a state court of a cause of action barred bythem.37

If federal legislative and judicial power over the propriety ofgranting equitable remedies is not foreclosed by the Tompkins case, noobjection to the constitutionality of these provisions arises. If, as seemsmore probable, the principle of the Tompkins case applies generally toequity, with a few small exceptions, analysis of these provisions asremedial is not expressive of legal consequences. It remains yet to askhow these provisions may and should be classified.

It would be hard to justify a classification as procedural. The Actseems to bear no intimate relation to the coherent system of procedurein federal courts, nor will it cause too serious difficulties to trial judgesto have to apply different rules when sitting in different states. Onthe other hand, while rights in the technical sense herein used are notaffected, the practical ability of a plaintiff to get relief is seriously af-fected by the Act. Possibly the most attractive argument for termingthe Act procedural is that a court should attempt to carry out to thefullest the expressed policy of Congress, and not to nullify it in whole orin part. That argument would be valid were the analytical classificationof the Act reasonably open to question.38 Since the Act does not seem

3 See infra n. 41 for an explanation of the use of this phrase.' See cases cited infra n. 35; also Levering & Garrigues Co. v. Morrin, 71F.(2d) 284, 287 (C. C. A. 2d, 1934) (? 104); Lauf v. E. G. Shinner Co., 303U. S. 323, 327 (1937) (? 107); Rohde v. Dighton, 27 F. Supp. 149, 150 (W. D.Mo. 1939) (? 107).'See S. S. Kresge Co. v. Amsler, 99 F.(2d) 503, 507 (C. C. A. 8th, 1938)(? 104); Grace Co. v. Williams, 96 F.(2d) 478, 480 (C. C. A. 8th, 1938) (? 107);Fehr Baking Co. v. Bakers' Union, 20 F. Supp. 691, 694 (W. D. La. 1937)(? 104 semble; held no labor dispute).3'Miller Parlor Furniture Co. v. Furniture Workers' Industrial Union, 8 F.Supp. 209 (D. N. J. 1934), (1934) 34 COLUMBIA LAW REV. 1552. Contra,Wucker Furniture Co. v. Furniture Salesmen's Union, 126 N. J. Eq. 145 (1939)(?? 104e, 107c, 107e). The decision of a state court on the right of removal is notconclusive; if the defendantfiles the record in the federal court the latter may en-join further proceedings in the state court [Madisonville Traction Co. v. St.Bernard Mining Co., 196 U. S. 239 (1905)], and even if the state court has beenpermitted to proceed to final judgment, its judgment may be reversed by the Su-preme Court [Baltimore and Ohio R. R. Co. v. Koontz, 104 U. S. 5 (1881)].' See Sampson v. Channell, 110 F. (2d) 754, 756-7 n. 4 (C. C. A. 1st, 1940),cert. denied, 60 Sup. Ct. 1099 (1940), wherein Judge Magruder observed that Con-gress' power over procedure would certainly include a power to include withinthe domain of 'procedure' subject-matter falling within the borderland betweensubstance and procedure, and rationally capable of classification within eithercategory. It may seem surprising that Congressional opinion should be givenweight on a matter of pure law. But since there are many situations which



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112 COLUMBIA LAW REVIEWsusceptible of classification as procedural, the argument is addressedrather to the wisdom of placing the Tompkinisdecision on a constitu-tional basis restrictive of federal legislative power.However, it may be possible to uphold the constitutionality of theseprovisions. Congress has undoubted power over the jurisdiction of thefederal courts.39 That power would seem to be exercisable so as towithdraw certain types of suits from the range of federal judicial cog-nizance,40leaving them to be tried exclusively in state courts. If theNorris-La Guardia Act could be construed as jurisdictional41the wholeproblem with which Erie R. R. v. Tomnpkins eals would be avoided. Forthe Tompkins case deals with a problem of choice of law, and that prob-lem cannot arise if the court refuses to take jurisdiction.

The question is, therefore, whether a jurisdictional construction ispermissible. The Act does not appear to deal with the question whethercases within its terms should be tried in state rather than in federalcourts; it seems rather to deprive the federal courts of the power togrant injunctive relief in cases properly before them. But this want ofpower to give an equitable remedy may perhaps justify a federal courtin refusing to take jurisdiction.

Cases dealing with state statutes in equity are informative on thispoint. While normally state statutes were applied by the federal equitycourt, an exception was made where the statute was thought to extend

equitable jurisdiction to issues previously tried as of right to a jury.42Where a substantially adequate remedy was available at law thecase was dismissed without prejudice to an action at law,43 or trans-do not fit any category by intrinsic compulsion, classification must often dependon considerations of policy, one of which is the general undesirability of declaringlegislation to be unconstitutional.'3 See Kline v. Burke Construction Co., 260 U. S. 226, 233 (1923).40Cf. McChesney v. Illinois Cent. R. R., 197 Fed. 85 (W. D. Ky. 1912), sus-taining the constitutionality of the provisions denying the right to remove causesbrought under the Federal Employers' Liability Act, 36 STAT. 291 (1910), 28U.S.C. ?71 (1934), 45 U. S.C. ?56 (1934).' In the ensuing discussion jurisdictional will be used to connote any situa-tion which will induce the federal courts to remand a removed action, or dismiss anoriginal one in such fashion that the dismissal will be res judicata only of the prop-osition that the case cannot be tried in the federal court. The term expresses thepresently relevant legal consequences of want of jurisdiction in the stricter senseof more orthodox usage, denoting a non-compliance with the REV. STAT. ? 24(1875), 28 U. S. C. ? 41 (1934) (relating to diversity of citizenship and the like),which will herein be referred to by the term federal power . Thus the legalconsequences described by this use of the term jurisdictional are consequenceswhich result from facts describable as want of federal power , but which mayalso result from other facts.

4' See supra n. 19.4'At the time when Cates v. Allen, infra n. 37, was decided, original actionsimproperly brought in equity were dismissed without prejudice to an action of law,e.g. Scott v. Nealy, 140 U. S. 106 (1891) * see Twist v. Prairie Oil Co., 274 U. S.684, 689 (1927). Rules 22 and 23 of the Equity Rules of 1912 provided for the freetransfer of such causes of action to the law side of the federal court.



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PROCEDURE IN FEDERAL EQUITY 113ferred to the law side of the court.44 But where the legal remedy in thefederal court was clearly inadequate, to transfer a removed case to thelaw side would result in depriving a litigant of effective redress. Facedwith this situation, the Court in Cates v. Allen remanded the case to thestate court, on the ground that it lacked jurisdiction.45

Subsequent cases appear to have adopted a different concept ofjurisdiction. Thus the objection that a cause of action was notproperly cognizable in equity was held waivable,46 while absence ofdiversity of citizenship, for example, is not.47 And it was held thatthe impropriety of granting equitable relief did not raise a jurisdic-tional issue within the meaning of a statute48providing for direct ap-peals to the Supreme Court on questions of jurisdiction. 49 As a re-

4'At the time of the decision in Cates v. Allen a case improperly removed intofederal equity could be transferred to the law side. Elliott v. Schuler, 50 Fed.454 (W. D. N. C. 1892); see Coosaw Min. Co. v. S. Carolina, 144 U. S. 550, 564(1891) ; cf. Ketchum v. Black River Lumber Co., 4 Fed. 139 (W. D. Wis. 1880).Where the case involved both legal and equitable causes of action it could be splitup and proceeded in in both sides of the court. Hunt v. Hollingsworth, 100 U. S.100 (1870) ; Fisk v. Union Pac. Ry. Co., 8 Blatchf. 299, Fed. Cas. No. 4,829(C. C. S. D. N. Y. 1871); La Mothe Mfg. Co. v. Nat'l Tub Works, 15 Blatchf.432, Fed. Cas. No. 8033 (C. C. S. D. N. Y. 1879); Perkins v. Hendrix, 23 Fed.418 (C. C. D. Mass. 1885); Lacroix v. Lyons, 27 Fed. 403 (C. C. E. D. La. 1886) ;cf. Levy v. Am. Cent. Ins. Co. [C. C. W. D. Tenn., unreported, discussed inWhittenton Mfg. Co. v. Memphis & Ohio River Packet Co., 19 Fed. 273, 276(C. C. W. D. Tenn. 1883)].'4149 U. S. 451 (1893). Cf. Rosenbaumv. Bauer, 120 U. S. 450 (1887), re-manding a removed action because of the federal court's inability to issue a writof mandamus.There may be some intimationin Twist v. Prairie Oil Co., 274 U. S. 684, 690(1927), that a court will remand a removed suit where it would have retainedone originally brought. Cf. Peters v. Equitable Life Ins. Co., 149 Fed. 290, 294(C. C. D. Mass. 1906). There are some pragmaticreasons for making such a dis-tinction, since a dismissal exposes plaintiff to the necessity of securing new serviceof process, and to the possibility that a statute of limitations has run, whereasremanddoes not. Compare he majority doctrinethat where [its jurisdiction is doubt-ful the federal court will remandrather than retain the case. Pabst v. RoxanaPetroleum Co., 30 F. (2d) 953 (S. D. Tex. 1929). Contra: Pierce v. Desmond,11 F.(2d) 327 (D. Minn. 1926).] But, save for the possible exercise of discretionin borderline cases, no reason is seen for a difference in treatment. The statuterefers in the same terms to original and removed cases, 18 STAT. 472 (1875), 28U. S.C. ?80 (1934).The emphasisin the discussion on removed cases does not, therefore, indicatethat removal jurisdiction is regarded as something unique. But for the presentpurpose the removal cases are more valuable because the issue of jurisdiction asbetween federal and state courts is clearly presented by the motion to remand,whereas a motion to dismiss in an original case may be based on any of a numberof grounds.' In re MetropolitanRailway Receivership,208 U. S. 90 (1098); see Pusey &Jones Co. v. Hanssen, 261 U. S. 491, 500 (1923); Twist v. Prairie Oil Co., 274U. S. 684, 691 (1927).'4Mansfield, Coldwater,and Lake Mich. R. R. v. Swan, 111 U. S. 379 (1894)(lack of diversity of citizenship).4 26 STAT. 827 (1891), repealed,43 STAT. '938 (1925).4 Smith v. McKay, 161 U. S. 355 (1896) (action to enjoin use of propertytilllicense fees therefor were paid,and for accounting) ; see Smith v. Apple, 264 U. S.274,278 (1924).



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114 COLUMBIA LAW REVIEWsult one judge has thought that Cates v. Allen has been overruled.50But these cases were dealing with wholly different issues; their onlyrelation to the problem of Cates v. Allen is that the result in each casewas expressed by the use of the same term. But that does not indicatethat the content of that term should be the same in each situation.5'In view of the growing movement to minimize and finally abolish therigid division between the law and equity side of the court,52it was ob-viously desirable to permit waiver of objections to the propriety oftrial in equity.53 The desirability of restricting the number ofcases directly appealable to a busy Supreme Court was equally clear.54Hence a narrow concept of jurisdiction was desirable. On the otherhand, to the extent that conformity with state statutory law was sought,an expansion of the concept of jurisdiction so as to permit remand inCates v. Allen afforded a means of minimizing the violence done tothat purpose by prevailing doctrines of federal equity jurisdiction.It would seem, therefore, that on the question of jurisdiction Catesv. Allen is still good law.55 Its value for the present discussion lies in

See Essenkay Corp.v. Mangel Stores Corp., 10 F. Supp. 50, 52 (S. D. N. Y.1932).That a question may be classified in one way for one purpose and in an-other way for anotherpurpose, see Cook, Substance and Procedure n Conflictof Laws (1933) 42 YALE L. J. 333 passim. Compare Sampson v. Channell, 110F.(2d) 754 (C. C. A. 1st, 1940), cert. denied, 60 Sup. Ct. 1099 (1940), holdingthat burdenof proof of contributorynegligence is substantive for purposes of de-terminingwhether the federal court should follow state law, but applyingthe staterule that for purposes of conflicts of laws it is procedural. But cf. Venner v.Great Northern Ry., 209 U. S. 24, 34 (1908), infra n. 55, in which a case holdingthat Equity Rule 94 (now 23b) did not raise a jurisdictional question so as topermit direct appeal was cited as authoritativethat a cause of action which failedto comply with Rule 94 was removable.'2Equity Rules 22 and 23 of the Rules of 1912, and 38 STAT. 956 (1915), 28U. S. C. ?? 397-8 (1934) provided for the free transfer of causes from law toequity or vice versa, for the trial by jury in the equity court of legal issues arisingin equity actions, and for the interposition of equitable defenses in legal actions.Rule 2 of the new Rules of Civil Procedure completes the process by providingfor one form of action, and Rules 38 and 39 provide for demand of jury trial inany action, and treat the failure to demandas a waiver.' The fact that the right to jury trial is waivable [REV.STAT. ?649 (1875),28 U. S. C. ? 773 (1934)] impelled strongly to this result. On remand of a caseimproperly tried in equity it would be tried in the same court, hence the onlyhardshipcreatedby its improper rial in equitywas the loss of the right to jury trial.Cf. 1 MOORE, FEDERAL PRACTICE (Perm. ed. 1938) 127.'Cf. FRANKFURTER AND LANDIS, BUSINESS OF THE SUPREME COURT (1928)254-73.

5 See Twist v. Prairie Oil Co., 274 U. S. 684, 690 (1927). But see Essen-kay Corp. v. Mangel Stores Corp., 10 F. Supp. 50, 51-52 (S. D. N. Y. 1932); cf.Venner v. Great Northern Ry., 209 U. S. 24 (1908). The Venner case pre-sents the strongest inconsistency with Cates v. Allen, since it in terms adoptsthe theory that, given diversity of citizenship and the requisite amount incontroversy, want of equity in the bill will not prevent removal. See 209 U. S.at 34-5. But the provision there in question seems to have been regardedby thecourt as a substantive rule. See infra note 57.On the question of equity jurisdiction the point decided has been renderedmoot by Rule 18b, see supra n. 25.



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PROCEDURE IN FEDERAL EQUITY 115its holding that, even though the statutory requirements for the existenceof federal judicial power are satisfied,56a federal court which is unableto give equitable relief may decline jurisdiction and leave the plaintifffree to obtain his more adequate relief in the state court.57 Cates v.Allen thus provides a persuasive analogy for construing as jurisdictionala federal statute restrictive of remedial powers.58 Since the jurisdic-tional construction of the provisions of the Norris-La Guardia Act thathave been under discussion is possible, the familiar rule that a statutewill if possible be construed so as to avoid unconstitutionality59wouldseem to require it.Stockholders Suits: Rule 23b.

A somewhat different problem is raised by Rule 23b of the Rules ofCivil Procedure,60 relating to stockholders' derivative actions. The rele-vant provisions require that plaintiff allege that he was a stockholderat the time of the injury complained of,61 and that demand was made on

' I.e. the requirements mposed by 28 U. S. C. ? 41, see supra n. 41.7 It is to be noted that the doctrine of Cates v. Allen does not apply in everycase in which the plaintiff can obtain relief in the state court, but only where thedifference between the two courts relates to a question of remedialpower. Thusdifferences of substantive law do not prevent removal Free v. Western UnionTelegraphCo., 122Fed. 309 (C. C. S. D. Iowa, 1903) (right to damages for mentalanguish); cf. Young v. Southern Pac. Ry. Co., 25 F. (2d) 630 (C. C. A. 2d, 1928)(action barredby laches in federal court; not in state court). Nor did differencesin procedureprevent removal if the case was capable of assimilation into one ofthe availableforms of suit at law or in equity. E.g., North Carolina Pub. Serv.Co. v. So. Power Co., 282 Fed. 837 (C. C. A. 4th, 1922); State of Washingtonex ret. City of Tacoma v. Tacoma Ry. & Power Co., 244 Fed. 989 (C. C. W. D.Wash. 1910) (mandamus); Postal Tel. Cable Co. v. Southern Ry. Co., 122 Fed.156 (C. C. W. D. N. Car. 1903) (condemnation); Chicago, M. & St. P. Ry. Co. v.Drainage Dist. No. 3, 253 Fed. 491 (S. D. Iowa 1917) ; People v. Burke, 141Misc. 663, 254 N. Y. Supp. 522 (Sup. Ct. Erie Co. 1931) (assessment); Harr v.Pioneer Mech. Corp., 1 F. Supp. 294 (S. D. N. Y. 1932) (declaratoryjudgment);McLaughlin v. Western Union Tel. Co., 7 F.(2d) 177 (E. D. La. 1925) (work-men's compensation). In general see Watkins, The Inadequacy of the FederalCourts as a Bar to the Removal of Suits from the State to the Federal Court(1922) 95 CENT. L. J. 312.

5 Cf. REV. STAT. ? 720, (1875), 28 U. S. C. ? 379 (1934), providingthat writsof injunction shall not be granted to stay proceedingsin state courts, which hasbeen held to preventremovalto the federal court [Lawrencev. Morgan'sR. R., 121U. S. 634 (1887) ; see Bondurantv. Watson, 103 U. S. 281, 288. But cf. Diggs andKeith v. Wolcott, 4 Cranch179 (U. S. 1807)], but not to presenta jurisdictionalissue within the meaning of the direct appealsstatute [Smith v. Apple, 264 U. S. 274(1924)].'Cf. Crowell v. Benson, 285 U. S. 22, at 62 (1931); see Ashwander v. Ten-nessee Valley Authority,297 U. S. 288, 348 (1936).' FED. RULES CIV. PROC., 28 U. S. C. following ? 723 (Supp. 1939). The ruleis substantiallythe same as Rule 27 of the Equity Rules of 1912, and Rule 94 ofthe Equity Rules of 1882. The latter in turn simply adopts in the form of a ruleof court the requirementslaid down in Hawes v. Oakland, 104 U. S. 450, 461(1881).

6 In ten or eleven states, including New York, New Jersey, Pennsyl-vania, Illinois, and perhaps Delaware, the rule is contrary. See Note (1938) 38



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116 COLUMBIA LAW REVIEWthe corporate directors and plaintiff's fellow-stockholders to secure thedesired action, or that such demand would have been futile.62 Analyzedsolely in terms of substance and procedure the rule seems clearly sub-stantive.63 The fact that the Supreme Court adopted it, as a rule notaffecting substantive rights, a few months before the decision in theTomspkins ase should have little weight,64 for it can hardly be regardedas a considered judgment on the point.65 Analytically the rule, as in-terpreted, creates conditions precedent to the existence of any cause ofaction on behalf of the plaintiff, and hence relates to substantive rights.Nor would procedural inconvenience be caused, or the integrated systemof federal procedure disrupted, by the application of state rules. Hencethe rule, as interpreted, should be deemed substantive, and thereforeunconstitutional.

Can the rule be sustained as jurisdictional? The political factswhich led to the adoption of the rule were clearly the frequent abuse ofstockholders' suits as a means of obtaining collusive access to the federalcourts, and thereby unduly burdening those courts.66 Insofar as theCOLUMBIA LAW REV. 1472, 1480; FLETCHER, CORPORATIONS (Perm. ed. 1932)? 5980 n. 12. Nine states apply the federal rule, id. ? 5981 n. 27.' This provision appears to embodythe law of all the states that have passedon the question, except that the requirementthat demand be made on the stock-holders may be more stringent under the federal rule. See 13 FLETCHER, CORPORA-TIONS (Perm. ed. 1932) ?? 5963, 5964, 5970.' Accord: Tunks, Categorization and Federalism: Substance and Pro-cedure After Erie Railroad v. Tompkins, (1939) 33 ILL. L. REV. 271, 287;Notes (1938) 38 COLUMBIA LAW REV. 1472, 1483-4, (1939) 37 MIcH. L. REV. 773,776. See Summers v. Hearst, 23 F. Supp. 986, 992 (S. D. N. Y., 1938). Twocases have appliedthe Rule without questioning its present validity. Isaac v. Mil-ton Mfg. Co., 33 F. Supp. 732 (M. D. Pa. 1940) (demand) Lynch v. Yonkers,Nat. B. T. Co., 3 Fed. Rules Serv. 23b, 1, Case 1, (S. D. N. Y. 1940) (owner-ship) ; Gallup v. Caldwell, 32 F. Supp. 711 (D. Del. 1940) (ownership).' Cf. (1940) 26 VA. L. REV.823. But see Summers v. Hearst, 25 F. Supp. 986,992 (S. D. N. Y. 1938).' Particularly in view of the fact that Rule 23b was simply a re-promulgationof an old rule, while many other rules were of great novelty and importance,doesit seem unlikely that great attention was paid to it. The lack of attentiongivenRule 23b in popular discussions of the new rules is indicative. See FEDERAL RULESOF CIVIL PROCEDURE,PROCEEDINGSOF INSTITUTES, WASHINGTON AND NEW YORK(1939) passim.Since Erie R. R. v. Tompkinshad not yet been decided when the rules werepromulgated t is unlikely that the problems it raised were clearly in the minds ofthe court, or at all in the minds of the members as the Advisory Committeewhichdraftedthe rules. It is significant that shortly after the Tompkins decision Chair-man Mitchell of the Advisory Committee reminded lawyers of the fact that someof the rules raised constitutional questions, and referred especially to Rule 23b.FEDERAL RULES OF CIVIL PROCEDURE,PROCEEDINGSOF INSTITUTES, WASHINGTONAND NEW YORK (1939) 227-8; id. Cleveland (1938) 184.The restriction in the enabling act, 48 STAT. 1064,28 U. S. C. ? 273b (1934)that the rules shall not affect substantive rights was of course in the minds ofCourtand committee. But it may be questionedwhether that restriction would haveany applicabilityto a rule which merely continuedin existence a long establishedpolicy of the federal courts. See PROCEEDINGS,CLEVELAND,supra, 265 (Dean, nowJudge, Clark).NSee Hawes v. Oakland,104 U. S. 450, 452-3 (1881).



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PROCEDURE IN FEDERAL EQUITY 117prevention of collusion is the rule's purpose it would seem jurisdictional.But the rule has also been justified as a means of preventing undue in-terference with the directors' discretion,67and as preventive of strikesuits.68 The cases fail to indicate which of these purposes is of primaryimportance,69but perhaps show a tendency towards treating the rule as ageneral principle of equity rather than a mere means of protecting thejurisdiction of the federal court.70

One test of the jurisdictional nature of the rule is its applicabilitytocases where there is no likelihood of collusion because the existence ofa federal question entitles the parties to a federal trial regardless of theircitizenship. The requirement of demand has been held applicable tosuch cases,7' but not that relating to stock ownership.72 It might bethought that the latter could therefore be regarded as jurisdictional,73

See id. at 454-7.6B See Boldenweck v. Bullis, 40 Colo. 253, 259, 90 Pac. 634, 636 (1907);Pitcher v. Lone Pine-Surprise Min. Co., 39 Wash. 608, 612, 81 Pac. 1047, 1049(1905).69 See Delaware & Hudson Co. v. Albany & SusquehannaR. R., 213 U. S. 435(1909) (demand): The rule is intended to secure the Federal courts from im-position upon their jurisdiction and to recognize the right of the corporatedirectoryto corporate control. Compare Quincy v. Steel, 120 U. S. 241, 244 (1887) (de-

mand, ownership; rule designed to prevent collusion) ; Huntington v. Palmer, 104U. S. 482, 484 (1881) (dismissed becauseplaintiff failed to repel the presumptionof collusion by showing proper demand on corporation) ; Doctor v. Harrington,196 U. S. 579, 585, 587 (1904) (demandbeing proved, the corporationneed not berealigned as a party plaintiff, so as to destroy diversity) ; with Dimpfell v. Ohio& M. R. R., 110 U. S. 209 (1884) (demand, ownership: demurrer sustained forwant of equity in the bill ) ; id. at 210 (ownership, court suggests suit whollyvexatious); Illinois Central Ry. v. Adams, 180 U. S. 28, 34 (1901) (provision in-volved not stated) ; Venner v. Great Northern Ry., 209 U. S. 24, 33-5 (1908)(ownership).70 Cf. Illinois Central Ry. v. Adams, 180 U. S. 28 (1901) (provision involvednot specified) holding that non-compliancewith the rule does not raise a jurisdic-

tional issue under the direct appeals statute; the existence of a federal questionwas an alternative ground for the holding. Subsequentcases seem to have takenthe appeal, Doctor v. Harrington, 196 U. S. 579 (1905) (demand) ; Del-aware & Hudson Co. v. Albany & Susquehanna R. R., 213 U. S. 435 (1909)(demand). But the Adams case was cited as controlling on the issue of jurisdic-tion in Venner v. Great Northern Ry., 209 U. S. 24, 34 (1908) (ownership). Itwas also cited with approvalin Employers' Corp. v. Bryant, 299 U. S. 374, 381 n.10 (1937), and Milwaukee Co. v. White Co., 296 U. S. 268, 272 (1935).See also Whittemore v. Amoskeag Bank, 134 U. S. 527, 529, 530 (1890) (pro-vision involved not stated; federal question) ; Taylor v. Holmes, 127 U. S. 489,494 (1888) (demand, semble ownership), referring to dismissals for non-com-pliance with the rule as being for want of equity.11Wathenv. Jackson Oil Co., 235 U. S. 635 (1915) ; Corbus v. Alaska Tread-well Gold Min. Co., 187 U. S. 455 (1907); see Hill v. Wallace, 259 U. S. 44, 62,74 (1922); Ashwanderv. Tennessee Valley Authority,297 U. S. 288, 318 (1936).72Jablowv. Agnew, 30 F. Supp. 718 (S. D. N. Y. 1940); Hand v. KansasCity Southern Ry., 55 F.(2d) 712 (S. D. N. Y. 1931); Lindsley v. Natural Car-bonic Gas Co., 162 Fed. 954 (C. C. S. D. N. Y. 1908); Ball v. Redland Ry.Co., 93 Fed. 513 (C. C. D. Vt. 1899).73A number of cases refuse to apply the rule to removed cases. Groel v.United Electric Co., 132 Fed. 252 (C. C. D. N. J. 1904) ; Earle v. Seattle L. S. &E. Ry. Co., 56 Fed. 909 (C. C. D. Wash. 1893) ; see Booth v. Greer Inv. Co., 52F.(2d) 857, 860 (N. D. Okla. 1931) Evans v. Union Pac. Ry. Co., 58 Fed. 497, 500



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118 COLUMBIA LAW REVIEWbut the Venner case, holding that non-compliance with the ownershipprovision is no ground for remanding a case removed from a courtwhich has no such provision, seems to prevent such a construction.74

The Venner case seems inconsistent with Cates v. Allen. But it waswell settled that differences in substantive law would not prevent re-moval,75and the Court in the Venner case seems to have treated the ruleas substantive. Moreover the Venner decision had an additional basis:a rule of court may not alter the constitutional and statutory jurisdictionof the courts.76In the cases so holding the rules invalidated were thoughtto conflict with statutory provisions.77 The provision in the enabling actthat the new rules shall supersede any prior statutes in conflict there-with78 might seem to obviate this objection. But it is highly doubtfulwhether an authorization to promulgate rules of procedure couldjustify a rule which deprived the district courts of power to hear aparticulartype of case. And Rule 82 specificallyprovides that the Rulesshall not be construed so as to affect the jurisdiction of the districtcourts . It may be possible to argue that jurisdiction as used in Rule82 is to be narrowly interpreted, as was jurisdiction in the direct ap-peals statute.79 But at the least serious doubt as to the validity of Rule(C. C. D. Colo. 1893). The federal courts of New York consistently apply theownership provision to removed case, although New York has no such rule.Watts v. Alexander Morrison & Co., 45 F.(2d) 969 (C. C. A. 2d, 1930); Robbinsv. Sperry Corp., 1 Fed. Rules Dec. 220 (S. D. N. Y. 1940); Jacobsen v. Gen-eral Motors Corp.,22 F. Supp. 255 (S. D. N. Y. 1938); Hitchings v. Cobalt Cen-tral Min. Co., 189 Fed. 241 (S. D. N. Y. 1910); Venner v. Great Northern Ry.Co., 153 Fed. 408 (S. D. N. Y. 1907), aff'd, 209 U. S. 24 (1908). But see Leov. Union Pac. Ry. Co., 17 Fed. 273, 274 (C. C. S. D. N. Y. 1883). It has beenthough that the applicationof the rule to removed cases indicated that its purposewas not to prevent collusion, since no question of collusion is raised in aremoved case. See Notes (1938) 38 COLUMBIA LAW REv. 1472, 1482, (1939)37 MICH. L. REv. 773, 775. But collusion while less easy, is yet a possi-ble evil in removed cases. The procedure would be simply for the cor-poration to get one of its stockholdersto sue in the state court, and then it andthe real party defendant would remove the cause. The defect of this procedurewould be that the corporation could not successfully remove unless the real de-fendantjoined in the removalpetition [cf. McNaul v. West Indian Securities Corp.,178 Fed. 308 (C. C. S. D. N. Y. 1910) ], since it would be difficultif not impossibleto establish a separable controversy between the stockholder and his corporation[cf. Campbellv. Milliken, 119 Fed. 981 (C. C. D. Colo. 1902)]. But consent of thereal defendantto trial in the federal court would in many cases not be difficult toget, cf. Hawes v. Oakland, 104 U. S. 450, 452 (1881).74Venner v. Great Northern Ry., 209 U. S. 24 (1908). Accord: Robbins v.Sperry Corp., 1 Fed. Rules Dec. 220 (S. D. N. Y. 1940).7 See supra note 57. It would be difficult to regard rule 23b as remedial; thestockholder's suit is normally the only method available to a stockholder of en-forcing the right of the corporation.71209 U. S. at 35.7Washington-Southern Co. v. Baltimore Co., 263 U. S. 629 (1924); Standishv. Gold Creek Mining Co., 92 F.(2d) 662 (C. C. A. 9th, 1937).78 8 STAT. 1064, 28 U. S. C. ? 723b (1934).79See supra p. 113. Insofar as a question of power is concerned, the argu-ment may have validity. That the court cannot by rule alter the power of federal



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PROCEDURE IN FEDERAL EQUITY 11923b would remain even if it were reconstrued to prevent the districtcourts from hearing causes in which the rule was not complied with.80It may be thought that the Tompkins case eliminates the need forprotection from collusion;81 but the convenience of the new federal pro-cedure,82and all those factors which induce litigants to prefer one judgeto another, might yet furnish an incentive to the attempted acquisitionof federal jurisdiction. Perhaps that purpose can be served adequatelyby another provision in Rule 23b, requiring a sworn allegation that thesuit is not a collusive attempt to acquire federal jurisdiction.83 If not,another alternative may be available. A federal court has the power tocompel realignment of the parties to an action according to the real na-ture of their interest therein,84in order to determine whether the casetruly involves a controversy between citizens of different states. Itwould seem permissible for the Court to promulgate a rule requiringalignment of the corporation as a party plaintiff where the stockholderhad acquired his stock after the commission of the injury for which heseeks redress, or had failed to make proper demand on the directors and

courts to hear cases would seem obvious. But a court has, to some extent, theability to refuse to exercise a jurisdiction which it possesses. Hence it wouldseem permissiblefor the Supreme Court to instruct the district courts to exercisetheir power to refuse jurisdiction in these cases.This ability to decline jurisdictionhas been recognizedby the Supreme Court incases involving foreign corporations [Rogers v. Guaranty Trust Co., 288 U. S.123 (1933)] and in cases involving possible interference with the exercise of stateadministrativepolicy [Pennsylvania v. Williams, 294 U. S. 176 (1935)]. But cf.Doyle v. Northern Pac. Ry. Co., 55 F.(2d) 708 (D. Minn. 1932) ; see (1933) 33COLUMBIA LAW REv. 922; (1933) 46 HARV. L. REV. 520. Cates v. Allen may bethought to be another instance in which judicial discretion of this nature was ex-ercised. Compare Peters v. Equit. Life Ins. Co., 149 Fed. 290 (C. C. D. Mass.1906). However, it is to be noted that in Cates v. Allen, and in the proposalthathas been made with referenceto the Norris-La GuardiaAct, there was involved arestrictionon the power of the federal court to give relief which was imposed byan authority (Constitution,federal statute) capable of imposing a jurisdictionallimitation in the strict sense; the only question before the Court was whether thatrestriction was to be construedto have jurisdictionalconsequences.On the interpretationof Rule 82 the analogy from the direct appeals statuteis weak. That statute, and the rule with regard to waiver, had nothing to dowith the questionwhether the case should be heard in the federal court. The samecould hardly be said of Rule 82.'Such a constructionwould necessitate an overruling of the Venner case, andof expressions in numerousother opinions. But it would seem preferableto over-rule some of the cases construinga rule, rather than declare the rule itself invalid.

8 See Tunks, op. cit. supra note 63, at 287; Note (1938) 38 COLUMBIA LAWREV. 1472, 1484.E.g., the broad scope of pretrial discovery would almost certainly be desiredby plaintiff and might be desiredby both litigants. In general see Pike and Willis,FederalDeposition-DiscoveryProcedure (1938) 38 COLUMBIA LAW REV. 1179,1436.' This provisionhas been held jurisdictionalfor purposesof the direct appealsstatute, City of Chicagov. Mills, 204 U. S. 321 (1907). But cf. AmericanCreosoteWorks v. Powell, 298 Fed. 417 (C. C. A. 5th, 1924).8'Dawson v. ColumbiaTrust Co., 197 U. S. 178 (1905); Removal Cases, 100U. S. 457 (1879).



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120 COLUMBIA LAW REVIEWstockholders. By such realignment collusive attempts to secure diver-sity of citizenship would be rendered unavailing. Yet the regulation ofthe proper alignment of the parties to a controversy could, it would seem,be regarded as procedural, and therefore within the rule-making powerof the Court.85Conclusion

The foregoing discussion will indicate that the problems raisedby Erie Ry. v. Tompkins need not always be resolved in terms of sub-stance and procedure. The desirability of the jurisdictional solutionherein suggested has yet to be considered. It might be thoughtthat it is really a means of restoring to Congress and the federalcourts the power over matters of substance that the Tompkins de-cision professed to take from them.86 But the power herein sug-gested is merely a power to refuse the aid of the federal courtsin enforcing rights given by state law; the dismissal or remand bythe federal court, being on jurisdictional grounds, will not prevent suitby the same parties on the same cause of action in the state court.87Hence the federal courts will not be creating legally binding rules, andthe evil of different results depending on the accident of citizenship isnot resurrected.

'In determiningwhether diversity of citizenshipexists the court may realignthe parties according to their real interest in the controversy. Removal Cases,100 U. S. 457 (1879). The Venner case held that noncompliancewith Rule 23b(then Rule 94) would not justify such realignment. But the only authority citedwas Doctor v. Harrington, 196 U. S. 579 (1904), a case refusing to realign theparties on the ground that the rule had been complied with. It would thereforeseem open to the Court to overrule the Venner case on this point.A rule such as that suggested would not seem open to attack as affectingthejurisdiction of the federal courts within the meaningof Rule 82. Rule 82 does notmeanthat whether a case will be heard in the federal court is unaffectedby the newrules; e.g. Rule 18 permitting joinder of claims formerly not joinable makes itpossible to aggregate those claims in order to abtain the requisite amount in con-troversy. CashmereValley Bank v. Pacific Fruit and Prod. Co. Inc., 33 F. Supp.946 (1940). Compare Rule 18b, leading to a result contrary to that of Cates v.A11en, upra n. 25 and p. 113. Similarly Rule 14a has resulted in an extension ofthe permissible scope of third party interpleader. See Note (1940) 53 HARV.L.REv. 449, 455. Since no conflict with a jurisdictional statute is apparent [cf.PROCEEDINGS,CLEVELAND,supra n. 65, p. 356] it would seem open to the Courtto define the circumstancesunder which realignmentis necessaryin order to carryout the purpose of the constitutional and statutory requirementof diversity ofcitizenship., See Powell, Some Aspects of AmericanConstituftional aw (1940) 53 HARV.L. REv. 529, 541.'Apparently a dismissal under the present rule is res judicata. CompareRobbinsv. Sperry Corp., 1 Fed. Rules Dec. 220 (S. D. N. Y. 1940), refusing topermit remand and refusing to allow plaintiff to discontinue,and dismissing fornon-compliancewith Rule 23b. This questionwas argued as a result of an attemptby the unsuccessful plaintiff in Frankenstein v. Anaconda Copper Min. Co., 6F. Supp. 569 (S. D. N. Y. 1934) to resue in the state court, but no reporteddecisionwas handeddown.



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PROCEDURE IN FEDERAL EQUITY 121In one respect the use of the jurisdictional construction serves to

decrease federal power. For by declining jurisdiction of a case, thefederal court renders it impossible for federal procedure to be applied inthat case. This is of great importance under the Norris-La GuardiaAct, for if the federal court were to decline jurisdiction because the casefell within the provisions previously discussed, the defendant would bedenied the very important procedural safeguards contained in other pro-visions of the Act.88 It must further be rememberedthat the Tompkinscase has not deprived federal courts of all power over substantive law;where state decisions on the point being decided are contradictory ornonexistent the federal court may well exercise a directing influence onthe development of the state law.89 To decline jurisdiction destroys thispossibility.

Whether these considerations outweigh the desirable ends to beserved by the use of a jurisdictional construction are questions of policyto be determined in the light of the particular circumstances of eachsituation in which the question arises. But at least the construction doesobviate the anomaly of requiring the federal courts to enforce rulesof law which Congress deems contrary to public policy. And by per-mitting an expression of Congressional policy, it permits that policy tohave possible persuasive influence on the legislative policies of the sev-eral states.90

8829 U. S. C. ?? 107, 109, 110, 111, 112.S See Notes (1938) 47 YALE L. J. 1336,1349; id., 1351. In view of the Thorit-hill decision, supra n. 30, it may be that the struggle to establish the right ofpeaceful picketing will in future center in the realm of proceduralguarantees tomake effective the now-establishedsubstantiveprinciples. In this event the resultof declaring the provisions herein discussed to be jurisdictional would be un-desirableto labor, in whose interests the Act was passed; quaere whether a courtwould be justified in declaring these provisionsunconstitutionalon the ground thatsuch a holding was more consistent with the legislative purposethan would be thealternative jurisdictional construction.' See for instancethe great numberof statutes, exactly or substantiallyfollow-ing the wording of the Norris-La Guardia Act, which were enacted immediatelyafter its passage. COLO.TAT. ANN. (Michie, 1935) c. 97, ? 76; Idaho Laws of1933, c. 215; IND. STAT. ANN. (Baldwin, 1934) ? 501 et seq.; MINN. STAT. ANN.(Mason, Supp. 1940) ? 4260; Utah Rev. STAT. ANN. (Supp. 1939) ? 49-2A; cf.WYo. REV. STAT. ANN. (Courtright, Supp. 1940) ? 63-201 et seq. (all passed in1933); LA. GEN. STAT. ANN. ??4379-5 et seq. (Dart., 1939) (passed in 1934);MD. ANN. CODE (Flack, Supp. 1939) art. 100, ??64-76; N. Y. C. P. A. ? 876-a;N. Dak. Laws of 1935, c. 247; cf. MASS. ANN. Laws (Supp. 1940) ?4620 (allpassed in 1935); PA. STAT.ANN. (Purdon Supp. 1939) tit. 43, ? 206a; (passedin 1937), CONN. GEN. STAT. (Supp. 1939) c. 309a (passed in 1939). Three stateshad such statutes prior to Mar. 26, 1932, the date of enactmentof the Norris-LaGuardia Act. ARIZ. REV. CODE ANN. Struckmeyer, 1928 ch. 92 ?4266 et seq.(passed in 1928) ; Wis. STAT. ? 103.51et seq., (passed in 1931, reenacted n 1935)cf. ORE. CODE ANN. ?? 49-901 et seq., (passed in 1930).

Substance and Procedure in Federal Equity the Labor Injunction and Stockholders Suit Columbia Law...

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