Mardel Securities, Inc. v. Alexandria Gazette Corp.
| Decision Date | 22 April 1960 |
| Docket Number | Civ. A. No. 1519. |
| Citation | 183 F. Supp. 7 |
| Court | U.S. District Court — Eastern District of Virginia |
| Parties | MARDEL SECURITIES, INC., a Delaware Corporation, Plaintiff, v. ALEXANDRIA GAZETTE CORPORATION, a Virginia corporation, and Charles C. Carlin, Jr., Defendants. |
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Oren R. Lewis, Arlington, Va., A. Carter Whitehead, Alexandria, Va., James H. Simmonds, Arlington, Va., for plaintiff.
John Barton Phillips, Alexandria, Va., for defendants.
Mardel Securities, Inc. (hereinafter referred to as "Mardel"), has instituted this secondary action in its capacity as a 48% minority stockholder of the Alexandria Gazette Corporation (hereinafter called "Gazette"), publishers of a newspaper advertised as "America's Oldest Daily Newspaper", against the Gazette and its principal officer, Charles C. Carlin, Jr., the latter being the owner of 52% of the outstanding stock issued by the Gazette. Plaintiff contends that Carlin is indebted to the Gazette in substantial amounts allegedly occasioned by reason of Carlin's ownership and operation of a newspaper known as the "Arlington Daily Sun", hereinafter referred to as the "Sun", which said newspaper1 Carlin caused to be printed at, and partially operated from, the physical plant of the Gazette at Alexandria, Virginia, only a few miles from Arlington where the Sun had its principal office but possessed no facilities for printing the newspaper. Plaintiff contends that the amounts charged to the Sun by the Gazette resulted in substantial losses to the Gazette for which Carlin, by reason of his fiduciary capacity, is liable to the Gazette. In short, the action, while maintained by the minority stockholder, is actually for the use and benefit of the Gazette corporation pursuant to Rule 23 (b) of the Federal Rules of Civil Procedure2, 28 U.S.C.A.
The stock ownership of the Gazette has been the source of continuous litigation in state and federal courts for many years. In Foster v. Carlin, 4 Cir., 218 F.2d 795, Judge Soper reviews at length the various phases of the protracted litigation. An earlier opinion by Judge Dobie in Foster v. Carlin, 4 Cir., 200 F. 2d 943, touches briefly on the past history of the Gazette's ownership and operation. It would serve no useful purpose to review these opinions as they are matters of record. It is sufficient to state that Mardel acquired its 48% stock interest for the sum of $115,000 by purchase from Sara Perine Carlin, the daughter of Charles C. Carlin, Jr., in November, 1952. While the motives of Mardel in acquiring this stock are not free from doubt, the present action does not seek to hold Carlin responsible for his activities with respect to the operation of the Gazette for any time prior to the date Mardel purchased the stock, other than as to the admitted amount due by Carlin to the Gazette as of December 31, 1952, which was $80,218.99.
One phase of the prior litigation has some evidentiary value in a determination of the issues now before the Court. On May 15, 1942, one John W. Tulloch, acting as trustee for Sara Perine Carlin, then an infant, instituted an action in the Corporation Court of the City of Alexandria seeking the appointment of a receiver for the Gazette, and charging Charles C. Carlin, Jr., with various wasteful and injurious acts in the management of the corporation. As noted by Judge Soper in the second Carlin case, supra, 218 F.2d 799, the state court declined to appoint the receiver but "in its final decree gave directions as to the management of the business which showed that Tulloch's charges were not without foundation and that the control of the corporation by Charles Carlin, Jr. should be regulated and restrained". Specifically, these charges of mismanagement and waste concerned the operation and printing of the Arlington Daily (later the Arlington Daily Sun), a newspaper solely owned by Carlin in his individual capacity and started by him in 19423. A portion of the state court decree reads as follows:
In 1945 an order was entered dismissing the action instituted by Tulloch, Trustee. While Carlin testified that, from 1942 to 1945, the decree of the state court had been met, it is abundantly clear that such was not the case. However, the state court decree and formula prescribed therein is of no particular significance, except that Carlin knew, as long ago as 1942, that rights of minority stockholders had to be protected by reason of his commingled operation of two newspapers. It is peculiarly strange that, although Carlin stated that the operation and printing of his solely owned newspaper was discussed at length with the directors of the Gazette, the corporate minutes for the years 1942-1952, both inclusive, make no mention of the printing or publishing of the Arlington Daily, the Arlington Sun, or the Arlington Daily Sun. During this period of time Carlin controlled the Gazette and, in at least one instance, he forced the resignation of directors who had declined to vote in accordance with his wishes4.
The Sun (or its predecessor) was continuously printed, and in part published, by the Gazette under a verbal arrangement between Carlin and the Gazette from April, 1942, until Carlin sold the Sun effective March 31, 1957, on terms hereinafter discussed. The Gazette's sole interest in the Sun was from the standpoint of protection from competition. Undeniably there have been many discussions as to the possible merger of the two publications, including, as well, consideration of the value of the Sun, but such prospects were continuously beclouded by Carlin's indebtedness to the Gazette occasioned by prior combined operations at a loss to the Gazette. Prior to 1952 the charges made to Carlin by the Gazette for printing the Sun were confined to the manufacturer's cost of newsprint, type metal, ink, and dry mats (excluding storage and drayage charges), and all news features and other services were furnished gratis.
The initial written record in the Gazette's corporate minutes relating to the operation of the Sun appears in the minutes of April 1, 1953, at which time Carlin was absent due to illness. At this meeting we find the following:
This meeting, it will be noted, was held approximately four months following Mardel's acquisition of the 48% minority interest, and at a time when the minority stockholder had no representation on the Board of Directors.
The formula devised by Messrs. Phillips and Stearman was supposedly put into effect in three stages; the first for April, 1953; the next for May, 1953; and the third for September, 1953. In April the charges for materials provided to the Sun were fixed at manufacturer's costs and included, in addition to items previously charged to the Sun, charges for one-half the cost of newspaper delivery and one-half the rental of an engraving machine plus cost of materials used. Additionally, charges were made to the Sun for group hospitalization based on actual cost, and foreign commissions to Shannon & Associates based on actual...
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In re Nelco, Ltd.
...85 L.Ed.2d 372 (1985); Mosser v. Darrow, 341 U.S. 267, 271, 71 S.Ct. 680, 95 L.Ed. 927 (1951); see also Mardel Sec., Inc. v. Alexandria Gazette Corp., 183 F.Supp. 7, 14-15 (E.D.Va.1960). An officer or director of the debtor in possession may be held personally liable for the losses suffered......
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Mardel Securities, Inc. v. ALEXANDRIA GAZETTE CORPORATION
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