Abraham v. Parkins, 813.

• Citation: 36 F. Supp. 238
• Decision Date: 20 December 1940
• Docket Number: No. 813.,813.
• Parties: ABRAHAM et al. v. PARKINS et al.
• Court: U.S. District Court — Western District of Pennsylvania

36 F. Supp. 238

ABRAHAM et al. v. PARKINS et al.

No. 813.

District Court, W. D. Pennsylvania.

December 20, 1940.

Campbell, Wick, Houck & Thomas and G. W. Smith, all of Pittsburgh, Pa., and Unger & Pollack, of New York City, for plaintiffs.

Oliver K. Eaton, of Pittsburgh, Pa., for defendants.

GIBSON, District Judge.

The complaint attacks the merger of the McKeesport Tin Plate Company and the National Can Company in March of 1937, the surviving company being the McKeesport Tin Plate Corporation, a corporation of the State of Delaware. The Tin Plate Corporation has been made a defendant with nine individual defendants, all of whom were directors of the Tin Plate Company at the time of the merger, and three were also directors of the National Can Company. The complaint alleges that one of the plaintiffs is the owner of 240 shares of stock of the Tin Plate Corporation, and the other of 160 shares. It further alleges: "Part of said ownership represents stock of the Tin Company purchased prior to the merger and part represents stock of Tin Corporation purchased subsequent to the merger."

The individual defendants are charged with a conspiracy to despoil the Tin Company of its assets, for their individual benefit, by means of the merger. The complainants, inter alia, pray the court to set aside the merger, or, in the alternative, to require the individual defendants to account to the Tin Corporation for any property of the Tin Company or the Tin Corporation diverted to themselves or lost or wasted by violation of their duties.

Defendants have moved to dismiss the complaint, assigning four reasons: First, the lack of averment that plaintiffs were registered stockholders at the time of the transactions of which they complain; second, that laches appear upon the face of the complaint; third, that the complaint relates to the internal management of corporations over which the court has no jurisdiction; and fourth, that the complaint contains no allegation of effort, or excuse for not making the effort, to secure from the directors or shareholders action in respect to the matters set forth.

Rule 23(b) of the Rules of Civil Procedure, 28 U.S.C.A. following section 723c, in an action such as the present, requires the complaint to aver that the plaintiff was a shareholder at the time of the transaction of which he complains. The transactions were alleged frauds upon the Tin Plate Company prior to the merger, and natural pleading would seem to suggest a direct allegation that complainants were the owners (registered or not) of a definite number of shares of the Tin Plate Company upon a date prior to the merger. The verbiage used ("part of said ownership represents stock of the Tin Company purchased prior to the merger") does not actually allege ownership in plaintiffs prior to the merger, although creating such an inference. The court, however, would not dismiss the complaint on account of the lack of certainty in the allegation of ownership, but would allow complainants to amend were this defect in the pleading the only one appearing, but does not allow amendment because a more vital omission of necessary declaration in the pleading requires dismissal. The defendants could then offer as a defense their declaration that complainants were not registered shareholders of the Tin Plate Company prior to merger.

The second reason urged by defendants for dismissal of the complaint, estoppel on account of delay in bringing the action, need not be considered at this time. Were it the only reason urged, the court feels that something other than the face of the complaint would be required to sustain defendants' contention.

Defendants, as their third reason for dismissal of the complaint, urge that its subject matter relates to the internal management of corporations over which this court has no jurisdiction.

If the only relief sought by the complaint were found in the prayer that the merger of the Tin Plate Company and the National Can Company be set aside and annulled, the jurisdiction of the court might well be questioned; but other relief is sought, the prayers therefor being substantially parallel to those in the complaint in Overfield v. Pennroad Corporation, 3 Cir., 113 F.2d 6, opinion by Jones, Circuit Judge. In that case the court held that the action did not involve the internal affairs and management of a Delaware corporation, and that the lower court (E. District Pa.) had jurisdiction. The prayers of that case being paralleled by those of the instant case, the decision upon defendants' third reason must be parallel, and the jurisdiction of the court herein affirmed insofar as the defendants' third reason is considered.

The complaint does not contain any allegation of effort, or reason for lack of effort, to secure action from the directors or stockholders in respect to its subject matters, and this lack is the basis of defendants' fourth reason advanced in support of its motion to dismiss.

Rule 23(b) of the Rules for Federal Civil Procedure is as follows: "(b) Secondary Action by Shareholders. In an action brought to enforce a secondary right on the part of one or more shareholders in an association, incorporated or unincorporated, because the association refuses to enforce rights which may properly be asserted by it,...