Webster Eisenlohr, Inc. v. Kalodner

145 F.2d 316 (3rd Cir. 1944)

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Nature of the Case

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Facts

Speese (P) was the owner of 10 shares of the preferred stock in D. P filed a suit against D for and on behalf of all the preferred stockholders.' D stock was divided into common and preferred shares, and P alleged that the dividends on the preferred shares had remained unpaid since April 1, 1931, and, as of December 31, 1941, amounted to $75.25 per share. The certificate of incorporation of D provides that the preferred stock shall not be entitled to vote at any meeting of stockholders, and shall not be entitled to participate in the management of the corporation '* * * unless and only in the event that (1) two quarterly dividends payable thereon shall be and remain unpaid and in arrears, * * * whereupon * * * full voting power shall be vested in the preferred stock, until the arrearages of accumulated dividends upon * * * [the] preferred stock shall have been paid * * *.' On the March 10, 1942, annual meeting, P demanded that the voting power be vested exclusively in the preferred stock. D refused the demand and ruled that the preferred stock and common stock together had the voting power to elect directors. P alleged that D is dominated and controlled by the Chase National Bank by reason of its ownership of a large block of the common stock of the company and that the control of D had been 'usurped' by reason of the action of the company in refusing to recognize the officers elected by the preferred stock; that the alleged usurpation 'is in fraud of the rights and privileges of the preferred stockholders and has had the effect of illegally depriving * * * [them] of their right to name directors.' P sought a judgment that the preferred stockholders possess presently the exclusive voting power in the company, that a receiver pendente lite be appointed, and that general relief be granted. D denied the allegations. While the case was pending, D wrote its preferred stockholders, offering to purchase their interests. Judge Kalodner indicated his belief that the financial statement sent by the corporation to stockholders was misleading and he criticized the letter sent to preferred stockholders for failure to state facts which he deemed material. The judge then appointed an examiner to look into the issues. It appointed Mr. Bortin as Special Master under Rule 53. D sought vacation of the order and failing that, asks a writ of mandamus directing the District Court to vacate this appointment and a writ of prohibition directed to the Special Master to prevent him from carrying out his commission.