Bangor Punta Operations v. Bangor & Aroostook R., 417 U.S. 703 (1974)
Bangor Punta Operations, Inc. v. Bangor & Aroostook Railroad Co.
No. 73-718
Argued April 15, 1974
Decided June 19, 1974
417 U.S. 703
CERTIORARI TO THE UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
Syllabus
In 1964, petitioner Bangor Punta Corp. (Bangor Punta), through its wholly owned subsidiary, petitioner Bangor Punta Operations, Inc., acquired 9.3% of the outstanding stock of respondent Bangor & Aroostook Railroad Co. (BAR), a Maine railroad, by purchasing all the assets of BAR’s holding company, Bangor & Aroostook Corp. (B&A). From 1964 to 1969, Bangor Punta controlled and directed BAR. In 1969, Bangor Punta, again through its subsidiary, sold all its BAR stock to Amoskeag Co., which then assumed responsibility for BAR’s management and later acquired additional shares to give it 99% ownership of the outstanding stock. In 1971, BAR and its subsidiary filed an action against Bangor Punta and its subsidiary, alleging various acts of corporate mismanagement of BAR during the period of control from 1960 through 1967 by Bangor Punta and B&A, and seeking damages for violations of the federal antitrust and securities laws, the Maine Public Utilities Act, and the common law of Maine. The District Court first noted that Amoskeag would be the principal beneficiary of any recovery, and was thus the real party in interest, and that, since Amoskeag had acquired its BAR stock long after the alleged wrongs had occurred, any recovery by it would be a windfall. The District Court then dismissed the action on the ground that, since Amoskeag would have been barred from maintaining a shareholder derivative action due to its failure to satisfy the "contemporaneous ownership" requirement of both Fed.Rule Civ.Proc. 23.1(1), and state law, equitable principles precluded the use of the corporate fiction to evade that requirement. The Court of Appeals reversed primarily on the ground that, in view of BAR’s status as a "public" or "quasi-public" corporation and the important nature of the services it provides, any recovery by BAR would also inure to the public’s benefit, a factor the court found to be sufficient to support a corporate cause of action and to render any windfall to Amoskeag irrelevant.
Held:
1. The equitable principles that a stockholder, who has purchased all or substantially all the shares of a corporation from a vendor at a fair price, may not seek to have the corporation recover against that vendor for prior corporate mismanagement, and that the corporate entity may be disregarded if equity so demands, preclude respondent corporations from maintaining the action under either the federal antitrust and securities laws or state law. Pp. 710-713.
(a) Amoskeag, having purchased 98.3% of the stock of BAR from Bangor Punta and alleging no fraud, would have no standing in equity to maintain this action for alleged corporate mismanagement. Home Fire Insurance Co. v. Barber, 67 Neb. 644, 93 N.W. 1024. Pp. 711-712; 713-714.
(b) As the principal beneficiary of any recovery and itself estopped from complaining of petitioners’ alleged wrongs, Amoskeag cannot avoid the command of equity through the guise of proceeding in the name of respondent corporations which it owns and controls. Pp. 711-712; 713-714.
2. The Court of Appeals’ assumption that any recovery would necessarily benefit the public is unwarranted, and also overlooks the fact that Amoskeag, the actual beneficiary of any recovery, would be unjustly enriched, since it has sustained no injury. Neither the federal antitrust and securities laws nor the applicable state laws contemplate a windfall recovery by Amoskeag in these circumstances. Pp. 714-716.
3. Deterrence of railroad mismanagement is not, in itself, a sufficient ground for allowing respondents to recover. If such deterrence were the only objective, it would suffice if any plaintiff were willing to file a complaint, and no injury or violation of a legal duty to the particular plaintiff would have to be alleged. P. 717.
482 F.2d 865, reversed.
POWELL, J., delivered the opinion of the Court, in which BURGER, C.J., and STEWART, BLACKMUN, and REHNQUIST, JJ., joined. MARSHALL, J., filed a dissenting opinion, in which DOUGLAS, BRENNAN, and WHITE, JJ., joined, post, p. 719.