Feldman v. Pennroad Corporation

Citation155 F.2d 773
Decision Date21 May 1946
Docket NumberNo. 9038.,9038.
PartiesFELDMAN v. PENNROAD CORPORATION.
CourtUnited States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Leo Brady, of New York City (Mortimor S. Gordon, of New York City, and Stewart Lynch, of Wilmington, Del., on the brief), for appellant.

Morris Wolf, of Philadelphia, Pa. (Daniel O. Hastings, of Wilmington, Del., Wolf, Block, Schorr & Solis-Cohen, of Philadelphia, Pa., and Hastings, Stockley and Layton, of Wilmington, Del., on the brief), for respondent.

Robert T. Murphy, of Washington, D. C. (Joseph B. Keenan, of Washington, D. C., and James M. Tunnell, Jr., of Georgetown, Del., on the brief), for Julia A. Perrine, amicus curiae.

Before MARIS, GOODRICH, and O'CONNELL, Circuit Judges.

MARIS, Circuit Judge.

This is an appeal from an order of the District Court for the District of Delaware dismissing a complaint. The following facts provide a necessary background for the proper understanding of the issues raised.

On October 18, 1932 Julia A. Perrine and Joseph W. Perrine, holders of securities of Pennroad Corporation, brought a stockholders' derivative suit in the Court of Chancery of Delaware in which they sought, inter alia, to charge the Pennsylvania Railroad Company, its directors, and the directors and voting trustees of Pennroad with losses sustained by Pennroad as the result of the alleged wrongful conduct of the defendants. Service was not had upon the individual defendants and consequently the case remained inactive.

In March 1939 Ione M. Overfield and Grace S. Weigle commenced separate stockholders' derivative suits in the District Court for the Eastern District of Pennsylvania. These were combined for trial. The defendants and the causes relied upon for recovery in the Overfield-Weigle suits were substantially the same as in the Perrine suit. The trial of the Overfield-Weigle suits resulted in a verdict and judgment against the Pennsylvania Railroad Company for $22,104,515.92. This judgment was later reversed by this court.1 The order of this court reversing the judgment of the district court against the Railroad Company was filed December 2, 1944. The mandate, however, has not as yet issued, since the time for filing a petition for rehearing has been successively extended by order of the court, the present extension being to June 15, 1946. No such petition has as yet been filed. Negotiations for settlement began in January 1945 and culminated in an agreement of settlement, approved by the board of directors of both the Railroad Company and Pennroad. The relevant provisions of this agreement are that the Railroad Company agrees to pay Pennroad $15,000,000, subject to the approval of the Court of Chancery of Delaware and subject to the condition that prior to the payment the Perrine suit shall have been settled and ended in accordance with law and the rules of the Court of Chancery of Delaware and the Overfield-Weigle suits shall have been so disposed of that the mandate of this court now directed to be entered shall go forward to the district court and the bill be dismissed accordingly, but without costs and the time for a writ of certiorari shall have elapsed.

In the agreement Pennroad covenants to bring no further suits or engage in any controversy with the Railroad Company or its directors concerning any matters arising out of the several complaints or the purchases complained of, as set forth in any of the above named suits, and to deliver releases to the Railroad Company, to the individual defendants named in the suits who are now living, and to the estates of those who are deceased. In case the settlement is not consummated, there is to be no prejudice to any of the parties by reason of making the agreement.

In March 1945 Pennroad petitioned the Court of Chancery of Delaware in the pending suit of Perrine v. Pennroad to approve this proposed agreement of settlement. A hearing upon the petition was set for April 23, 1945. Before the hearing, on April 16, 1945, Matilda J. Feldman, a stockholder of Pennroad residing in New York, filed a complaint in the District Court for the District of Delaware in which she invoked the jurisdiction of the court by reason of diversity of citizenship in a controversy involving, exclusive of interest and costs, in excess of $3,000. She averred substantially the same wrongful conduct by the Pennsylvania Railroad Company and by Pennroad's directors as was relied upon in the Perrine, Overfield and Weigle suits. She asked that the district court enjoin Pennroad from consummating the proposed settlement with the Railroad Company and appoint a receiver for Pennroad to prosecute all claims on its behalf and to supervise the election by Pennroad's stockholders of a competent and disinterested board of directors.

Pennroad moved to dismiss the complaint for failure to allege facts sufficient in law to permit the court to grant the relief sought. The district court dismissed the complaint on May 25, 1945. On April 23, 1945 the scheduled hearing was conducted by the Vice-Chancellor in Wilmington, Delaware, at which time the plaintiff as well as many other interested parties appeared in opposition to the granting of the petition for the approval of the agreement of settlement. Subsequently on August 9, 1945 the Vice-Chancellor of the Court of Chancery of Delaware handed down his decision approving the proposed settlement and authorizing Pennroad to carry it out.2 The plaintiff, on August 24, 1945 filed her notice of appeal to this court from the order of the district court dismissing her complaint. On May 10, 1946 the Supreme Court of Delaware affirmed the decision of the Court of Chancery.3

The district court dismissed the complaint because it thought Section 265 of the Judicial Code, 28 U.S.C.A. § 379, prohibited the granting of the...

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8 cases
  • INTERNATIONAL LONGSHOREMEN'S & WARE. UNION v. Ackerman, Civ. No. 828
    • United States
    • U.S. District Court — District of Hawaii
    • January 18, 1949
    ...6 Wall. 166, 18 L.Ed. 768. The matter was well put in Feldman v. Pennroad Corporation, D.C.Del., 60 F. Supp. 716, 718, affirmed, 3 Cir., 155 F.2d 773, certiorari denied 329 U.S. 808, 67 S.Ct. 921, 91 L.Ed. 690, wherein it was said, "The statute Section 265 of the old Judicial Code is a limi......
  • Masterson v. Pergament
    • United States
    • United States Courts of Appeals. United States Court of Appeals (6th Circuit)
    • March 23, 1953
    ...the directors of the corporation acted fraudulently or unfairly in arriving at the settlement, it should be set aside. Feldman v. Pennroad Corp., 3 Cir., 155 F.2d 773. The District Court correctly held that in the proceedings under Rule 23(c) it is the duty of the court to see that the comp......
  • Franks v. Rankin
    • United States
    • United States Court of Appeals (Ohio)
    • May 1, 2012
    ...substitute its discretion for that of the majority of the stockholders.Feldman v. Pennroad Corp., 60 F.Supp. 716, 719 (D.Del.1945), aff'd, 155 F.2d 773 (3d Cir.1946). See also In re Application of Burkin, 1 N.Y.2d 570, 573 (1956) ("[T]he court lacks power at the instance of a stockholder to......
  • White v. Panic
    • United States
    • United States State Supreme Court of Delaware
    • October 3, 2001
    ...(1946) (discussing "honest business discretion" of directors in deciding whether to settle lawsuits); see also Feldman v. Pennroad Corp., 3rd Cir., 155 F.2d 773, 775-76 (1946) 31. The directors were aware of the suits against ICN and the resulting settlements, but this fact does not indicat......
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