Nature of the Case
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Facts
Case (P) was a minority shareholder of Mahoning Coal Railroad Company. That company owned railroads in Ohio and leased lines in Pennsylvania. Mahoning did not operate the lines but rented them to New York Central RR (D) which paid rent of about 40% of the gross revenues from traffic on those lines. D paid all expenses of operating and maintaining the lines including all taxes on the property, except for Federal Income Taxes. Mahoning had no operating expenses and thus was guaranteed to make a profit. In 1955, D and its 34 subs entered into an agreement for the allocation of federal income tax liability. The IRC of 1954 allowed the filing of consolidated returns when there was 80% of stock ownership of one corporation of another. D owned about 74% of Mahoning. D then made a proposal to Mahoning to include itself in the tax allocation agreement if D acquired the extra 6% needed. Mahoning's board consisted of almost entirely D officers or employees with one exception. The approval of the agreement was unanimous. The IRS affirmed the transaction. As a result of the agreement, Mahoning was relieved of the payment of $3,825,717.43 in taxes. Of this D was rebated back $3,556,992.15 and Mahoning got the difference of $268,725.28. P sued to rescind the agreement and to compel an accounting by D; a fiduciary parent corporation cannot retain the benefits of an unfair agreement. The trial court determined the agreement was not unfair. The Appellate Division ruled the agreement unfair.
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