Heddendorf v. Goldfine, Civ. A. No. 56-356.
| Decision Date | 05 November 1958 |
| Docket Number | Civ. A. No. 56-356. |
| Citation | 167 F. Supp. 915 |
| Parties | George B. HEDDENDORF, for the Benefit of EAST BOSTON COMPANY and Boston Port Development Company v. Bernard GOLDFINE et al. |
| Court | U.S. District Court — District of Massachusetts |
Abraham Pomerantz, New York City, Jules E. Angoff, Boston, Mass., and Irvin M. Davis, Wellesley Hills, Mass., for George B. Heddendorf.
Harold Brown, Boston, Mass., for Joseph Galdi, Galdi Securities, Lillian A. Rosenfeld and Burnham & Co. George Broomfield, John Fox, Boston, Mass., for Mildred W. Powell, Marion J. Haviland and Rita E. Doten.
William I. Schell, Boston, Mass., pro se.
Samuel P. Sears, Lawrence R. Cohen, and James W. Kelleher, Boston, Mass., for Bernard Goldfine, East Boston Co. and Boston Port Development Co.
David Burstein, Boston, Mass., for Bernard Goldfine.
Nyman H. Kolodny, Boston, Mass., for Jeremiah S. Connors.
Charles W. Bartlett, Boston, Mass., for Winthrop R. Scudder, individually and as Administrator of Estate of William J. McDonald.
Ralph Slobodkin and Albert R. Mezoff, Boston, Mass., for defendants Gross and Packard.
This action was brought on April 26, 1956, by Heddendorf, a citizen of Maine, against the East Boston Company, a Massachusetts corporation, of which he is, and since August 1, 1949, has been, a shareholder, and against individual defendants, all citizens of Massachusetts. Jurisdiction rests on diversity of citizenship.
All parties of record having entered on March 18, 1958, into a stipulation of agreement, settling this action, the parties filed a motion for judgment in accordance with the settlement. March 19, 1958, this Court, mindful of the provision of Fed.Rules Civ.Proc. rule 23(c), 28 U.S.C.A., directing that "a class action shall not be dismissed or compromised without the approval of the court", ordered that a hearing on the motion should be held on April 16. The Court prescribed the notice to be given. Shareholders of both East Boston (hereinafter called "the parent") and its subsidiary Boston Port Development Company, another Massachusetts corporation (hereinafter called "the subsidiary"), as well as the parties to this case presented testimony and arguments on April 16, 29, and 30 and were given until May 13 to file briefs.
At this stage the chief issue is whether this Court shall approve the compromise settlement and enter judgment accordingly. The Court, not having heard the full evidence available on the merits, does not purport to reach any conclusion which forecloses it from reaching different conclusions on a record of that full evidence.
For present purposes, the starting point is not the original complaint, but plaintiff's amended complaint filed October 1, 1956. That amended complaint recites the status of the parties and alleges that defendant Goldfine owns 42% of the stock of East Boston, that defendant Scudder individually and as administrator of the late McDonald owns 19% of the stock of East Boston and is subservient to Goldfine, that Goldfine has caused certain other defendants to be selected as directors and officers of East Boston and its subsidiary Boston Port and these other persons take their instructions solely from Goldfine, and that Goldfine and the other individual defendants, by their acts and omissions, pursuant to a conspiracy, wrongfully caused losses to the subsidiary.
Then follow detailed allegations which may be conveniently summarized in eight categories.
First, plaintiff alleges borrowings from the subsidiary. As of December 31, 1954, Goldfine is said to owe $129,477.65 including interest; defendant Connors, on non-interest bearing notes, $178,833.34; defendant Scudder, on non-interest bearing notes $24,300; McDonald, partially on non-interest bearing debts, $119,752.19; Chase Brothers, on non-interest bearing obligations, $30,200, and Chase, on non-interest bearing obligations, $13,000.
Second, plaintiff alleges that, with a view to concealing these borrowings and to allowing them to be outlawed by the statute of limitations, the claimed conspirators caused the parent not to file with the S.E.C. reports and caused the parent not to make full reports to shareholders.
Third, plaintiff alleges that the claimed conspirators have allowed the subsidiary to continue to make additional loans to Scudder, in excess of $30,000, and Connors at the rate of $20,000 a year.
Fourth, plaintiff alleges that defendants caused the subsidiary to pay to themselves and others unwarranted so-called expenses.
Fifth, plaintiff alleges that defendants caused (a) the subsidiary to purchase, in the name of a straw, property at 202-208 Boylston Street, Boston, on January 23, 1947, (b) the straw to mortgage that property, and (c) no account of the proceeds to be made to the subsidiary. Moreover, defendants suffered tax liens and attachments to be created against the property.
Sixth, plaintiff alleges that defendants caused (a) the subsidiary to purchase, in the name of a straw property at 210-212 Boylston Street, Boston, on May 14, 1945, (b) the straw to give the subsidiary a mortgage on the property to secure a note for $75,000, (c) the subsidiary to discharge without consideration the subsidiary's mortgage, (d) the straw to give, without consideration, a note for $50,000 and a new mortgage to a conduit who assigned both note and mortgage to defendant Goldfine's wife, and (e) the straw to give a junior mortgage to the subsidiary to secure its $75,000 note. Moreover, defendants suffered tax liens and attachments to be created against the property.
Seventh, plaintiff alleges that defendants caused (a) the subsidiary to purchase, in the name of a straw the Little Building at the corner of Boylston and Tremont Streets, on August 1, 1946, (b) in 1949 the straw to transfer that property to The Little Building Trust, Inc., a corporation dominated by defendant Goldfine, and (c) that corporation to give a first mortgage of $1,000,000 to an unspecified person, a second mortgage of $500,000 to the subsidiary, and a third mortgage of $500,000, without consideration, to defendant Goldfine.
Eighth, plaintiff alleges that during past years the subsidiary has received income of about two million dollars, largely out of the sale of its real property, that neither the subsidiary nor the parent has declared any dividends, that neither has filed the certificates of condition required by Massachusetts law, and that they have caused both corporations not to hold shareholders' or directors' meetings.
The amended complaint recites in detail the futility of plaintiff making upon the directors and shareholders of the parent and subsidiary corporations a demand for action by them. The prayer asks for (a) an accounting by the individual defendants to the parent and the subsidiary, (b) repayments by the individual defendants, (c) declarations that the subsidiary owns 202-208 Boylston Street, 210-212 Boylston Street, and the Little Building, (d) appropriate action with respect to the mortgages and (e) "a receiver to be appointed for the parent and the subsidiary to take over their management and all of their business, affairs, and property."
Defendants filed various motions. On October 24, 1956, the Court denied defendants' motion for a more definite statement. November 28, 1956, the Court denied Connors' motion to dismiss. November 30, 1956, defendants filed answers. In the meantime, beginning in November 1956, plaintiff began taking depositions, of which notices appeared on this Court's docket November 6, 1956, March 27 and 28, 1957, August 19, 1957, October 23 and 28, 1957, and November 20 and 25, 1957.
This Court set the case to be heard, on the merits, on assigned dates first on September 12, 1956, second on September 9, 1957, and third on January 13, 1958. On each occasion all counsel requested postponement.
In the meantime, despite the publicity which the case had received, Mary J Janesco was the only person who sought to intervene. On December 27, 1957, Mr. Pomerantz and his associates, who throughout the proceedings have been counsel for plaintiff Heddendorf, filed Mary J. Janesco's motion to intervene. Her object was to take advantage of the fact that she became a stockholder of the subsidiary on January 9, 1942, more than 7 years before Heddendorf became a stockholder of the parent and that she was therefore not precluded by Fed.Civ. Proc.Rule 23(b) from complaining of transactions between January 9, 1942 and August 1, 1949. On January 7, 1958, this Court denied Janesco's application to intervene "on the ground that it is not timely, this case, after postponements, having been set for Monday, January 13, 1958."
By January 13, 1958, the day set for the trial, Mr. Pomerantz, Heddendorf's counsel, and Mr. Sears as counsel for most of the defendants had worked out a general plan for compromising this case. From that general plan emerged the settlement proposal of March 18, 1958, filed March 19, 1958. The background of Mr. Pomerantz's willingness to make this compromise he explained in open court on April 16, 1958. What he said, while not agreed to by counsel for defendants, was not contradicted by them. And they joined in plaintiff's motion for approval of the compromise.
Before stating the proposed settlement, it will be convenient, though out of chronological order, to summarize Mr. Pomerantz's view of what he had discovered by diligent pre-trial discovery, including the taking of the depositions of Bernard Goldfine, Mildred Paperman, Benjamin Brown, Pilgrim Trust Co., Second Bank-State St. Trust Co., Samuel W. Chase, Horace M. Goldfine, Alwyne F. Jealous, Clarence Tichell, Marcien Jenckes, Roland M. Packard, B. Ralph Slobodkin, and Henry Atherton.
Regarding the loans embraced by the first three categories of the complaint, Mr. Pomerantz on April 16, 1958, stated that on...
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