Levin v. Mississippi River Fuel Corporation Alleghany Corporation v. Mississippi River Fuel Corporation

• Decision Date: 27 February 1967
• Docket Number: Nos. 352 and 359,s. 352 and 359
• Citation: 386 U.S. 162,87 S.Ct. 927,17 L.Ed.2d 834
• Parties: Betty LEVIN, Petitioner, v. MISSISSIPPI RIVER FUEL CORPORATION et al. ALLEGHANY CORPORATION et al., Petitioners, v. MISSISSIPPI RIVER FUEL CORPORATION et al
• Court: U.S. Supreme Court

386 U.S. 162

87 S.Ct. 927

17 L.Ed.2d 834

Betty LEVIN, Petitioner,

v MISSISSIPPI RIVER FUEL CORPORATION et al.

ALLEGHANY CORPORATION et al., Petitioners,

v. MISSISSIPPI RIVER FUEL CORPORATION et al.

Nos. 352 and 359.

Argued Jan. 19, 1967.

Decided Feb. 27, 1967.

Breck P. McAllister and John Lowenthal, New York City, for petitioners.

Robert H. McRoberts, St. Louis, Mo., and Dennis G. Lyons, Washington, D.C., for respondents.

Mr. Justice CLARK delivered the opinion of the Court.

The ultimate issue in these cases is whether the holders of the Class B stock of the Missouri Pacific Railroad Company (MoPac) are entitled to vote separately, as a class, on the proposed plan of consolidation of MoPac and Texas and Pacific Railway Company (T & P) into the newly formed Texas and Missouri Pacific Railroad Company (T & M). An application has been filed with the Interstate Commerce Commission requesting permission to effect a plan of consolidation under §§ 5(2) and 5(11) of the Interstate Commerce Act, as amended, 54 Stat. 905, 908 (1940), 49 U.S.C. §§ 5(2) and 5(11). MoPac's Board of Directors has announced that its Class B shareholders are not entitled to vote on the plan separately and apart from its Class A shareholders, and that it intends to submit the plan only to the collective vote of the Class A and Class B shareholders.

Three separate declaratory judgment actions were filed by different Class B shareholders seeking a declaration that the plan requires the separate approval of the holders of the Class B shares by majority vote. Upon a limited consolidation of the cases, the District Court held that MoPac's Articles of Association prohibited the consolidation unless class voting was observed and that § 5(11)¹ of the Interstate Commerce Act, by adopting state law, required the separate approval of each class of shareholders. 233 F.Supp. 747. The Court of Appeals reversed on the ground that, despite Missouri law, the 'plenary character of § 5(11) * * * with its consequent preemptive nature' compelled a contrary result. 359 F.2d 106, at 119. We granted certiorari. 385 U.S. 814, 87 S.Ct. 86, 17 L.Ed.2d 53. We have concluded that Missouri law, as provided by § 5(11), is controlling on the point and that the judgment must, therefore, be reversed.

I.

Background of the Parties and the Litigation.

MoPac, a Missouri corporation, is an interstate common carrier railroad. It had been in reorganization proceedings under § 77 of the Bankruptcy Act, as amended 11 U.S.C. § 205, until January 1, 1955.² After those proceedings terminated, the corporation's preferred and common stock was replaced by two classes of $100 stated capital no par voting shares: Class A, which is preferentially entitled to noncumulative dividends not to exceed $5 per share annually, and Class B, which is entitled to all the earnings and the equity in excess of the Class A preferences. MoPac's Articles of Association, Art. VII, § D(3), provide that class voting shall not be required save as to four types of corporate change, none of which shall be effected without the separate consent of the record holders of a majority of the Class A and the Class B shares. The four specified changes are: (1) the issuance of additional shares; (2) the creation or issuance of any MoPac obligation or security convertible into or exchangeable for MoPac shares; (3) an alteration or change in 'the preferences, qualifications, limitations, restrictions and special or relative rights of the Class A Stock or of the Class B Stock'; and, finally, (4) the amendment or elimination of any of the foregoing requirements.

MoPac has 1,849,576 shares of Class A stock and 39,731 shares of Class B stock outstanding. T & P was incorporated by an Act of Congress in 1871 and is also an interstate railroad of which MoPac owns 82.86% of the outstanding shares of stock. Mississippi River Fuel Corporation (Mississippi) is a Delaware corporation and owns a majority (57.95%) of the Class A shares of the stock of MoPac. Alleghany Corporation (Alleghany) is a Maryland corporation and owns a majority (51%) of the Class B stock of MoPac, subject to a voting trust. T & M is a Delaware corporation organized for the purpose of being the consolidated company upon the merger of MoPac and T & P.

The agreement and plan of consolidation were approved by the Board of Directors of MoPac and T & P in December of 1963. The plan provided for an exchange of each MoPac share (without regard to class) for four shares of the new corporation and for an exchange of the T & P stock (other than that owned by MoPac) on a basis of one share of T & P for 4.8 shares of the new company. In January of 1964, the three companies filed a joint application with the Interstate Commerce Commission for an order under § 5(2) of the Act authorizing the consolidation and the issuance of securities by T & M under § 20a. In this application MoPac advised that it would submit the proposed plan to its stockholders, for approval, by May of 1964 on the basis of a collective, rather than class, vote.

There are a total of six individual petitioners, each of whom owns only a nominal number of Class B shares, and Alleghany which owns, as aforesaid, a majority of those shares. The respondents are MoPac, T & P, Mississippi, and some of their directors or officers, only one of whom owns any Class B stock of MoPac. The first of the three suits which this cause involves was filed prior to the submission of the plan to the Commission; the second and third subsequent thereto. Each of the suits attacks the plans of consolidation, alleging, among other things, that the Class B stock has a much greater value than that of the Class A and that the exchange is unfair; that the collective voting plan would violate the Articles of Association, the law of Missouri (and, therefore, § 5(11) of the Act) and would result in irreparable injury to the Class B shareholders. Each complaint prays for a declaration that the plan of consolidation requires the separate vote of each class of stock. At trial the parties agreed that the court should first pass upon the voting rights question. The District Court held that class voting was required and certified the issue to the Court of Appeals which permitted an interlocutory appeal under 28 U.S.C. § 1292(b). Further proceedings in the District Court were stayed.

As we have indicated, the Court of Appeals held that, even though MoPac's Articles of Association required a class vote on consolidation and Missouri law, therefore, demanded such a vote, it nevertheless was 'impressed with the significance of the national transportation policy and its emphasis on railroad consolidation, with the stated exclusive and plenary character of § 5(11), and with its consequent preemptive nature.' 359 F.2d, at 119. The Court felt that, by virtue of the federal statute, it was compelled to conclude that it should apply the general standard as to voting rights, i.e., the majority of all voting shares, rather than honor the exception, i.e., class voting, as provided under Missouri law.

II.

Conclusion.

We believe the Court of Appeals erred in so construing § 5(11) of the Act. That section specifically provides that voluntary consolidations of railroads must have the assent 'of a majority (vote of all shares), unless a different vote is required under applicable State law, in which case the number so required shall assent, of the votes of the holders of the shares entitled to vote * * *.' As the Court of Appeals held, this section 'bows in the direction of state law.' 359 F.2d, at 114. Both the District Court and the Court of Appeals decided that Mo.Rev.Stat. c. 351 (1966), V.A.M.S., was 'the applicable state law.' As both courts found, § 351.055(3) authorizes the issuance of classes of shares of stock and § 351.270 provides that where 'the articles of incorporation require the vote or concurrence of the holders of a greater portion of the shares, or of any class or series thereof, than required by this chapter with respect to such action, the provisions of the articles of incorporation shall control this section.' But the Court of Appeals concluded that since § 351.425³ permitted the plan to be approved by the vote of at least two-thirds of all the outstanding shares, § 5(11) required that it control, rather than § 351.270. We think not. In using the language 'required under applicable State law,' § 5(11) embraced all state...