1. In a suit in a federal court for equitable relief in
protection of legal rights growing out of an unlawful transfer of
stock by a corporation, the state laws defining those rights are
the rules of decision. P.
311 U. S.
236.
2. A rule announced and applied by state courts as the law of
the State, though not passed on by the highest state court, may not
be rejected by a federal court because it thinks that the rule is
unsound in principle or that another is preferable. P.
311 U. S.
236.
Page 311 U. S. 224
3. In deciding local questions it is the duty of the federal
court to ascertain from all available data what the state law is
and apply it, however superior a different rule may appear from the
viewpoint of general law and however much the state rule may have
departed from prior decisions of the federal courts. P.
311 U. S.
237.
4. Where an intermediate state appellate court rests its
considered judgment upon the rule of law which it announces, that
is a datum for ascertaining state law which is not to be
disregarded by a federal court unless it is convinced by other
persuasive data that the highest court of the State would decide
otherwise. P.
311 U. S.
237.
This is the more so where, as in this case, the highest state
court has refused to review the lower court's decision, rendered in
one phase of the very litigation which is being prosecuted by the
same parties before the federal court.
5. The Ohio County Court of Appeals, by a judgment which the
Supreme Court of the State declined to review, decided that an
action against a corporation for damages resulting from its issue
of a certificate for shares of its stock in the name of one who was
a life tenant of the stock, without disclosing on the face of the
certificate that the stockholder was a life tenant or the interest
of the remaindermen, followed by a wrongful transfer of the stock
to a third person, was premature because no demand had been made on
the corporation to reinstate the plaintiffs' rights in the stock
and because the corporation had not refused this in advance of the
suit. In a second suit brought in the federal court after a
sufficient demand had been made, in which the same plaintiffs
sought equitable relief and damages from the same corporation, the
Circuit Court of Appeals, declining to follow the ruling of the
state Court of Appeals, held that a demand was not essential --
that the cause of action accrued when the stock was issued to the
life tenant and, counting from that time, was barred by a statute
of limitations, or laches.
Held:
(1) No reason appears for supposing that, if the second suit had
been brought in a state court, the state Court of Appeals would
depart from its previous ruling or that the Supreme Court of the
State would grant the review which it withheld before. P.
311 U. S.
238.
(2) The law thus announced and applied by the state Court of
Appeals is the law of the State, applicable to a case between the
same parties in the federal court, and the federal court is not
free to apply a different rule, however desirable it may believe it
to be,
Page 311 U. S. 225
and even though it may think that the state Supreme Court may
establish a different rule in some future litigation. P.
311 U. S.
238.
(3) Since the cause of action under the Ohio law did not arise
until demand, which was either when the suit was brought in the
state court or when the formal demand was made, the statute of
limitations did not begin to run until one or the other of those
dates. P.
311 U. S.
238.
(4) No special circumstances are shown effective under Ohio law
to limit the time of demand or shorten the statutory period after
demand; the findings of the District Court that the plaintiffs were
not estopped or guilty of laches were supported by evidence and
should not be disturbed. P.
311 U. S.
239.
108 F.2d 347 reversed.
Certiorari, 310 U.S. 618, to review a decree of the Circuit
Court of Appeals which (upon separate appeals by the petitioners
and respondent here, but on a single record) reversed a decree of
the District Court requiring the respondent corporation to procure
shares of its common stock to be held in a trust during the life of
a decedent's widow and to be ultimately distributed to
remaindermen, as directed by the will. Jurisdiction was by
diversity of citizenship.
Page 311 U. S. 231
MR. JUSTICE STONE delivered the opinion of the Court.
The Circuit Court of Appeals in this case, in which jurisdiction
rests exclusively on diversity of citizenship, declined to follow
the ruling in
West v. American Telephone & Telegraph
Co., 54 Ohio App. 369, 7 N.E.2d 805, 7 Ohio Opinions 363, of
the Cuyahoga County Court of Appeals, an intermediate appellate
court of Ohio. The question for decision is whether, in refusing to
follow the rule of law announced by the state court, the court
below failed to apply state law within the requirement of § 34 of
the Judiciary Act of 1789 and of our decision in
Erie Railroad
Co. v. Tompkins, 304 U. S. 64.
In 1926, an Ohio decedent, domiciled at death in Cuyahoga
County, bequeathed his estate, including ninety-two shares of the
common stock of respondent, to his widow for life, with remainder
to petitioners, the sons of decedent's first wife, who was the
sister of his widow. February 2, 1927, the widow tendered to
respondent, for transfer, certificates for the ninety-two shares of
stock standing in decedent's name, each endorsed with an assignment
of the shares evidenced by the certificate, to the widow, signed in
her name as executrix of decedent's estate. Accompanying the
certificate were duly attested documents as follows: a copy of
decedent's will, a certificate
Page 311 U. S. 232
of the Cuyahoga County Probate Court of the qualification of the
widow as executrix under the will; copy of an application of the
executrix for the distribution in kind of the estate, consisting of
specified corporate stocks including the ninety-two shares of
respondent's stock, with the appended consent of petitioners to the
distribution in kind, and a copy of the journal of the probate
court showing that it had granted the application and ordered the
distribution.
Thereupon, respondent issued a new certificate for the
ninety-two shares in the name of the widow which did not disclose
her limited interest as life tenant or that of petitioners as
remaindermen. October 31, 1929, the widow endorsed and delivered
the certificate as collateral security for her brokerage account to
a stockbroker to whom respondent issued a new certificate in his
name as stockholder on November 4, 1929. In March, 1934,
petitioners first learned of this disposition of the shares by the
widow, and, in June, 1934, brought suit against respondent in the
Cuyahoga County Court of Common Pleas, seeking recovery of damages
for the wrongful transfer of the shares. In addition to defenses on
the merits, respondent set up the Ohio four-year statute of
limitations. After a trial on the merits, the trial court gave
judgment for petitioners, which the Cuyahoga County Court of
Appeals reversed. The state Supreme Court denied petitioners'
motion to require the court of appeals to certify its record to the
Supreme Court for review because of "probable error" in the case,
after which the Court of Common Pleas entered "final judgment
against appellees [petitioners here] and in favor of appellant
[respondent here]" upon the mandate of the Court of Appeals
stating
"the judgment of the Court of Common Pleas is reversed for
reasons stated in opinion on file and final judgment is hereby
rendered for appellant,
Page 311 U. S. 233
no error appearing in the record."
The opinion of the appellate court was not filed but copies were
furnished counsel and it appears of record.
The state court of appeals held that, upon the tender for
transfer of the certificates of stock by the executrix, it was the
duty of respondent to issue a new certificate showing on its face
the respective interests of the life tenant and of the petitioners
as remaindermen; that the transfer of the shares by respondent to
the broker without the endorsement of the certificate by
petitioners was unauthorized and wrongful; that the unlawful
disposition of the stock by the life tenant did not terminate the
life interest or accelerate the rights of the remaindermen, but
that the refusal of respondent after demand by petitioner to
recognize and reestablish petitioners' rights in the stock, or
other stock of equal par value, was a conversion of it entitling
petitioners to damages to the extent of the value of their interest
in the stock or to a decree of restitution directing respondent to
issue a new certificate for the ninety-two shares in such manner as
would protect the respective interests of all parties.
Construing the relevant provisions of the Ohio Uniform Stock
Transfer Act (Ohio G.C., §§ 8673-1 to 22), the court held that, as
a prerequisite to recovery for conversion of petitioners' interest
in the stock, it was necessary that respondent repudiate
petitioners' title and that the petitioners should allege and prove
that respondent had refused to recognize petitioners' right in the
stock and to issue an appropriate certificate for it. As petitioner
had failed to allege or prove any demand on respondent or any
refusal by it in advance of suit to recognize petitioners' rights
or to issue an appropriate certificate, the court directed judgment
for respondent in conformity to its mandate.
On June 18, 1937, following the denial of petitioners' motion by
the state Supreme Court, in January, 1937,
Page 311 U. S. 234
petitioners made demand on respondent, the sufficiency of which
is not questioned, to restore to petitioners their rights in the
shares, and on July 14, 1937, petitioners brought the present suit
in the federal district court for Northern Ohio. The bill of
complaint, after alleging the facts already mentioned which the
state court had found to establish the wrongful transfer of the
stock by respondent and after reciting the course and results of
the litigation in the state courts and the demand on respondent,
set up petitioners' right to relief according to the decisions of
the state courts and prayed judgment that respondent issue to
petitioners a certificate for the ninety-two shares of stock and
for back dividends with interest, and damages, and generally for
other relief.
The trial court found that the cause of action did not accrue
until the demand made upon respondent; that suit was not barred by
the prior adjudication in the state court, since that suit, in
which no demand was alleged or proved, was on a different cause of
action from that now asserted; that it was not barred by
limitations or laches, and that the remainder interests had not
been accelerated by the wrongful disposition and transfer of the
stock. It accordingly decreed that respondent procure, by purchase
or otherwise, nine-two shares of its common stock, issue a
certificate for it to a trustee, which was directed to hold the
stock during the lifetime of the widow for the benefit of
respondent and, upon her death, to make distribution of it to the
remaindermen as directed by the will.
The Court of Appeals for the Sixth Circuit dismissed the appeal
of petitioners raising questions not now material, and, on the
appeal of the respondent, reversed the decree of the district
court, 108 F.2d 347. It held, contrary to the ruling of the state
court, that demand upon respondent was not prerequisite to the
accrual of petitioners' cause of action, and that petitioners'
right of recovery
Page 311 U. S. 235
was barred by limitations and laches. We granted certiorari, 310
U.S. 618, upon a petition which set up that the Court of Appeals
had erroneously failed to apply the Ohio law with respect to the
necessity for a demand as defined by the state court of appeals in
the litigation between the present parties, and that the court
below had erroneously applied the Ohio rule of limitations and of
laches, all questions of public importance concerning the
interrelation of state and federal courts.
The court below thought that demand was not an essential part of
the cause of action where the suit was brought by remaindermen not
entitled to possession of the stock certificate, consequently that
the district court had erred in following the ruling of the state
court of appeals, and that both had misconstrued and misapplied an
earlier decision of the court below in
American Steel Foundries
v. Hunt, 79 F.2d 558, where demand was held to be prerequisite
to a suit brought by one who had acquired shares by purchase but
had failed to present the endorsed certificate to the corporation
for transfer before bringing suit. It cited decisions of similar
purport by the Ohio Supreme Court, but recognized that the only
Ohio case passing upon the question whether demand is prerequisite
to suit in the case of a remainderman is the decision of the state
court of appeals in
West v. American Telephone & Telegraph
Co., supra. It held that it was not bound to follow the
decision of an intermediate appellate court of the state, and so
was free to adopt and apply what it considered to be the better
rule that demand is unnecessary and consequently is not a part of
the petitioners' cause of action. From this it concluded that the
cause of action, which it thought had accrued in 1927, when the
stock certificate was issued to the life tenant, was barred by the
four-year statute of limitations applicable to causes of action
"for an injury to the rights of the plaintiff not arising on
contract . . . ,"
Page 311 U. S. 236
§ 11224 Ohio G.C., or by laches if demand were necessary.
Since the equitable relief sought in this suit is predicated
upon petitioners' legal rights growing out of respondent's unlawful
transfer of the stock to the assignee of the life tenant, the state
"laws" which, by § 34 of the Judiciary Act of 1789, c. 20, 28
U.S.C. § 725, are made the "rules of decision in trials at common
law" define the nature and extent of petitioners' right.
See
Russell v. Todd, 309 U. S. 280,
309 U. S. 289.
And the rules of decision established by judicial decisions of
state courts are "laws" as well as those prescribed by statute.
Erie Railroad Co. v. Tompkins, supra, 304 U. S. 78.
True, as was intimated in the
Erie Railroad case, the
highest court of the state is the final arbiter of what is state
law. When it has spoken, its pronouncement is to be accepted by
federal courts as defining state law unless it has later given
clear and persuasive indication that its pronouncement will be
modified, limited or restricted.
See Wichita Royalty Co. v.
City National Bank of Wichita Falls, 306 U.
S. 103,
306 U. S. 107.
But the obvious purpose of § 34 of the Judiciary Act is to avoid
the maintenance within a state of two divergent or conflicting
systems of law, one to be applied in the state courts, the other to
be availed of in the federal courts, only in case of diversity of
citizenship. That object would be thwarted if the federal courts
were free to choose their own rules of decision whenever the
highest court of the state has not spoken.
A state is not without law save as its highest court has
declared it. There are many rules of decision commonly accepted and
acted upon by the bar and inferior courts which are nevertheless
laws of the state although the highest court of the state has never
passed upon them. In those circumstances, a federal court is not
free to reject the state rule merely because it has not received
the sanction of the highest state court, even though it
Page 311 U. S. 237
thinks the rule is unsound in principle or that another is
preferable. State law is to be applied in the federal, as well as
the state, courts, and it is the duty of the former in every case
to ascertain from all the available data what the state law is and
apply it, rather than to prescribe a different rule, however
superior it may appear from the viewpoint of "general law" and
however much the state rule may have departed from prior decisions
of the federal courts.
See Erie Railroad Co. v. Tompkins,
supra, 304 U. S. 78;
Russell v. Todd, supra, 309 U. S.
293.
Where an intermediate appellate state court rests its considered
judgment upon the rule of law which it announces, that is a datum
for ascertaining state law which is not to be disregarded by a
federal court unless it is convinced by other persuasive data that
the highest court of the state would decide otherwise.
Six
Companies of California v. Joint Highway District, ante, p.
311 U. S. 180;
Fidelity Union Trust Co. v. Field, ante, p.
311 U. S. 169.
Cf. Graham v. White-Phillips Co., 296 U. S.
27;
Wichita Royalty Co. v. City National Bank,
supra, p.
311 U. S. 107;
Russell v. Todd, supra. This is the more so where, as in
this case, the highest court has refused to review the lower
court's decision rendered in one phase of the very litigation which
is now prosecuted by the same parties before the federal court.
True, some other court of appeals of Ohio may, in some other case,
arrive at a different conclusion, and the Supreme Court of Ohio,
notwithstanding its refusal to review the state decision against
the petitioner, may hold itself free to modify or reject the ruling
thus announced.
Village of Brewster v. Hill, 128 Ohio St.
343, 353, 190 N.E. 766. [
Footnote
1] Even though it is arguable
Page 311 U. S. 238
that the Supreme Court of Ohio will, at some later time, modify
the rule of the
West case, whether that will ever happen
remains a matter of conjecture. In the meantime, the state law
applicable to these parties and in this case has been
authoritatively declared by the highest state court in which a
decision could be had. If the present suit had been brought in the
Cuyahoga county court, no reason is advanced for supposing that the
Cuyahoga court of appeals would depart from its previous ruling or
that the Supreme Court of the state would grant the review which it
withheld before. We think that the law thus announced and applied
is the law of the state applicable in the same case and to the same
parties in the federal court, and that the federal court is not
free to apply a different rule, however desirable it may believe it
to be, and even though it may think that the state Supreme Court
may establish a different rule in some future litigation.
Whether the state court of appeals in the first suit defined the
cause of action as arising out of the failure of respondent to
describe correctly the interests of the parties in the certificate
issued to the widow in 1927, or out of the wrongful transfer in
1929, is immaterial to the question of the period of limitation. In
either case, since the cause of action under the Ohio law did not
arise until demand which was either on June 2, 1934, when the suit
was brought in the state court, or June 18, 1937, when the formal
demand was made, the statute of limitations did not begin to run
until one or the other of those dates.
See Keithler v.
Foster, 22 Ohio St. 27.
Page 311 U. S. 239
It is unnecessary to decide whether, as petitioners contend, the
suit was on contract or statutory liability to which the six-year
statute applies, § 11222, Ohio G.C., or "for the recovery of
personal property, or for taking or detaining it," in which case
the cause of action is not deemed to accrue "until the wrongdoer is
discovered . . ." § 11224, Ohio G.C.,
see Cleveland & M.
Railroad Co. v. Robbins, 35 Ohio St. 483, 502, or whether as
the court below held the cause of action was "for an injury to the
rights of the plaintiff not arising on contract . . . ," in which
case the statute runs from the date of the injury when demand is
not required. § 11224, Ohio G.C. For, in any event, since under
Ohio law no cause of action arose until demand was made, the
four-year period would run either from the date of the first suit,
or from that of the formal demand, and had not expired on July 14,
1937, when the present suit was commenced in the district
court.
The court below also held that, if demand were to be deemed a
prerequisite to suit, petitioners were barred by their "unnecessary
delay" in making it, citing
Keither v. Foster, supra, for
the proposition that demand must be made within four years after
the cause arose (1927 or 1929), the time limited by the statute for
bringing an action if no demand were necessary. But the Supreme
Court in that case thought it correct to apply the rule relied upon
by the circuit court of appeals only when "no cause for delay can
be shown."
Cf. Stearns v. Hibben Dry Goods Co., 11 Ohio
C.C. (N.S.), 553, 31 Ohio C.C. 270;
aff'd, 84 Ohio St.
470, 95 N.E. 1157. Here, no special circumstances are shown for
limiting the time of demand or shortening the statutory period
after demand. [
Footnote 2] Both
the state court and the district court
Page 311 U. S. 240
in this case have ruled that petitioners are not estopped by
their consent to distribution which both courts interpreted as a
consent only to a lawful distribution by a lawful procedure. The
district court also found that the evidence relied upon to show
lack of diligence on the part of petitioners in prosecuting
inquiries which would have disclosed the unlawful transfer failed
of its purpose and was insufficient to establish either estoppel or
laches. At most, the evidence shows that, in 1930, one of the
petitioners became suspicious that the life tenant had suffered
losses in the stock market, and made inquiry of one corporation
whose stock was included in the estate, only to learn that the
stock certificate had been properly issued to the widow as life
tenant of the estate, and that he made no further inquiries. The
record is barren of any
Page 311 U. S. 241
evidence to suggest that petitioners had any ground for
suspicion that respondent had issued the certificate to the life
tenant in any improper or unlawful form before March, 1934, when
they discovered the misappropriation of the stock. They brought
suit in the state court the following June. We think there was no
want of diligence on the part of petitioners in presenting and
prosecuting their demand, and that the findings of the trial court
are supported by the evidence, and should not have been
disturbed.
The judgment will be reversed, but, as other points involving
questions of state law argued here were not passed upon by the
Court of Appeals, the cause will be remanded to that court for
further proceedings not inconsistent with this opinion.
Reversed.
[
Footnote 1]
Article IV, § 6 of the Ohio Constitution provides that:
"Judgments of the courts of appeals shall be final in all cases,
except cases involving questions arising under the constitution of
the United States or of this state . . . and cases of public or
great general interest in which the supreme court may direct any
court of appeals to certify its record to that court . . . and
whenever the judges of a court of appeals find that a judgment upon
which they have agreed is in conflict with a judgment pronounced
upon the same question by any other court of appeals of the state,
the judges shall certify the record of the case to the supreme
court for review and final determination."
[
Footnote 2]
In
Keithler v. Foster, 22 Ohio St. 27, the demand on a
sheriff for moneys collected on an execution sale in 1855 was not
made until 1867. The Supreme Court, in holding that the suit
brought on the sheriff's bond in 1868 was not barred by the
ten-year statute of limitations, said that, where
"the statute begins to run, in cases like this, from the time of
demand, it would be but reasonable to hold, in the absence of other
special circumstances, where no demand is shown to have been made
within the statutory period for bringing the action, that, for the
purpose of setting the statute in operation, a demand will be
presumed at the expiration of that period, from which time the
statute will begin to run."
In
Douglas v. Corry, 46 Ohio St. 349, 21 N.E. 440;
Townsend v. Eichelberger, 51 Ohio St. 213, 38 N.E. 207, on
which respondent relies, no suit was brought until after the
expiration of the additional limitation period after the demand was
made or presumed as in
Keithler v. Foster, supra.
Here, even if demand were presumed at the end of a four-year
period, which began to run either in 1927 or 1929, the state court
action was timely when begun on June 2, 1934. It was dismissed in
February, 1937. The present action was begun in July, 1937. § 11233
of the Ohio G.C. provides:
"In an action commenced, or attempted to be commenced, if in due
time a judgment for the plaintiff be reversed, or if the plaintiff
fails otherwise than upon the merits, and the time limited for the
commencement of such action at the date of reversal or failure has
expired, the plaintiff . . . may commence a new action within one
year after such date. . . ."
MR. JUSTICE ROBERTS.
I concur in the opinion of the court insofar as it holds that
the Circuit Court of Appeals should have treated the decision of
the Cuyahoga County Court of Appeals, under the circumstances of
this case, as expressing the law of Ohio with respect to the
necessity of a demand prior to institution of suit. I do not,
however, agree that the judgment should be reversed.
I am unable to say that the court below erred in holding that,
under Ohio law, the four-year period of limitations applied to
petitioners' cause of action, and that delay of demand for more
than four years after the cause of action accrued barred the suit.
Both holdings seem to me to be supported by decisions of the Ohio
courts;
Keithler v. Foster, 22 Ohio St. 27;
Douglas v.
Corry, 46 Ohio St. 349, 21 N.E. 440;
Townsend v.
Eichelberger, 51 Ohio St. 213, 38 N.E. 207;
Stearns v.
Hibben Dry Goods Co., 11 Ohio C.C. (N.S.) 553, 31 Ohio C.C.
270,
aff'd, 84 Ohio St. 470, 95 N.E. 1157. There is
here
Page 311 U. S. 242
no place for any presumption of demand, as in
Keithler v.
Foster, for here the suit in the state court was dismissed on
the express ground that no demand had in fact been made, and, in
the present suit in the United States District Court, the averment
of the complaint is that demand was made June 18, 1937, at least
eight years after the cause of action accrued. In such
circumstances, as the other cited cases show, a demand made at a
date beyond the period of limitations does not toll the statute. In
the
Douglas case, the averment was that demand was made
nine years after the cause of action accrued and suit was brought
within four years thereafter. In the
Stearns case, it was
alleged demand was made four years and nine months after accrual of
cause of action, and suit begun within four years thereafter. The
statute of limitations was held a bar in both.
Though the action was in equity, an action at law might have
been maintained (
Stearns v. Hibben Dry Goods Co., supra;
Russell v. Todd, 309 U. S. 280,
309 U. S.
289), and the statute governing such an action is
applicable.
Not only have petitioners failed to show "special circumstances"
justifying their delay in making demand (
Keithler v. Foster,
supra), but the court below has held they were guilty of
laches, an independent ground of decision, which, though the
question be a close one, we ought not, under our settled practice,
to reexamine.
For these reasons I think that, despite the erroneous view of
the Circuit Court of Appeals as to the law of Ohio on the point
decided by the State Court of Appeals, the judgment should be
affirmed.