Mississippi River Fuel Corporation v. Slayton, 17836.

• Decision Date: 19 April 1966
• Docket Number: No. 17836.,17836.
• Citation: 359 F.2d 106
• Parties: MISSISSIPPI RIVER FUEL CORPORATION, William G. Marbury, Glenn W. Clark, D. B. Jenks, Sam B. Cook, James Lee Johnson, C. D. Peet, John C. Bolinger, Jr., James M. Kemper, Jr., and Missouri Pacific Railroad Company, Appellants, v. Rose SLAYTON, Joseph M. Proskauer, Walter Mendelson, Alfred L. Rose and Dorothy B. Rose: Alleghany Corporation, and Empire Trust Company, a Corporation, as Voting Trustee, and Betty Levin, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

359 F.2d 106 (1966)

MISSISSIPPI RIVER FUEL CORPORATION, William G. Marbury, Glenn W. Clark, D. B. Jenks, Sam B. Cook, James Lee Johnson, C. D. Peet, John C. Bolinger, Jr., James M. Kemper, Jr., and Missouri Pacific Railroad Company, Appellants, v. Rose SLAYTON, Joseph M. Proskauer, Walter Mendelson, Alfred L. Rose and Dorothy B. Rose: Alleghany Corporation, and Empire Trust Company, a Corporation, as Voting Trustee, and Betty Levin, Appellees.

No. 17836.

United States Court of Appeals Eighth Circuit.

April 19, 1966.

COPYRIGHT MATERIAL OMITTED

R. H. McRoberts, of Bryan, Cave, McPheeters & McRoberts, St. Louis, Mo., Thomas S. McPheeters, Jr., and Marion S. Francis, St. Louis, Mo., and John H. Hendren, of Hendren & Andrae, Jefferson City, Mo., for all appellants except Missouri Pac. R. Co.

Thomas J. Guilfoil, of Guilfoil, Caruthurs, Symington, Montrey & Petzall, St. Louis, Mo., Stuart Symington, Jr., and Gerald M. Smith and Mark M. Hennelly and Gilbert Strelinger, St. Louis, Mo., for Missouri Pac. R. Co.

Abraham L. Pomerantz, of Pomerantz, Levy, Haudek & Block, New York City, William E. Haudek, New York City, and Harold C. Ackert, of Ackert, Giesecke & Thompkins, St. Louis, Mo., for appellees Rose Slayton, Joseph M. Proskauer, Walter Mendelson, Alfred L. Rose and Dorothy B. Rose.

Walter R. Mansfield, of Donovan, Leisure, Newton & Irvine, New York City, Granville Whittelsey, Jr., Mahlon F. Perkins, Jr., and Ben Vinar, New York City, and G. Carroll Stribling, of Fordyce, Mayne, Hartman, Renard & Stribling, St. Louis, Mo., for appellees Alleghany Corp. and Empire Trust Co.

John Lowenthal, New York City, Roberts P. Elam, St. Louis, Mo., and Maxwell Brandwen, of Szold, Brandwen, Meyers, Blumberg, & Altman, New York City, for appellee Betty Levin.

Before VAN OOSTERHOUT, BLACKMUN, and MEHAFFY, Circuit Judges.

BLACKMUN, Circuit Judge.

This litigation is a chapter in the struggle between the holders of the respective majorities of the two classes of outstanding shares of the Missouri Pacific Railroad Company (MoPac).

The district court has denied defense motions to dismiss complaints in three separate diversity actions instituted by certain Class B shareholders of MoPac. The court's ruling was one restricted to the declaratory issue of the necessity of voting by classes on a proposed plan of consolidation of railroads. Decision on all other questions was reserved. Slayton v. Missouri Pac. R. R., 233 F.Supp. 747 (E.D. Mo. 1964). The trial court has certified the matter under 28 U.S.C. § 1292(b) and this court has permitted the appeals from the interlocutory order. Further proceedings have been stayed.

MoPac, a Missouri corporation and an interstate common carrier by railroad, emerged as of January 1, 1955, from reorganization proceedings which had been pending under § 77 of the Bankruptcy Act, 11 U.S.C. § 205, for more than 22 years. See Missouri Pac. R. R. Reorganization, 290 I.C.C. 477 (1954); In re Missouri Pac. R. R., 129 F.Supp. 392 (E.D. Mo. 1955), aff'd sub nom. Missouri Pac. R. R. 5¼% S.S.B.C. v. Thompson, 225 F. 2d 761 (8 Cir. 1955), cert. denied 350 U.S. 959, 76 S.Ct. 347, 100 L.Ed. 833; In re Missouri Pac. R. R., 135 F.Supp. 102 (E.D. Mo. 1955), aff'd sub nom. Missouri Pac. R. R. 5¼% S.S.B.C. v. Thompson, 229 F.2d 898 (8 Cir. 1956). It so emerged without preferred stock but with two classes of $100 stated capital no par voting common: Class A, which is preferentially entitled to noncumulative dividends of not to exceed $5 per share per year, and, upon liquidation or dissolution, to $100 per share plus declared but unpaid dividends; and Class B, as to which earnings and equity in excess of the Class A preferences are available. The Class A shares replaced MoPac's old preferred and accumulated dividends thereon and the Class B shares replaced MoPac's old common.

Among the well-pleaded facts alleged in one or more of the three complaints and therefore, for purposes of these motions to dismiss, to be accepted as true, Cooper v. Pate, 378 U.S. 546, 84 S.Ct. 1733, 12 L.Ed.2d 1030 (1964); Bonnot v. Congress of Independent Unions, 331 F.2d 355, 357 (8 Cir. 1964), are the following:

a. MoPac has outstanding 1,849,576 shares of Class A stock and 39,731 shares of Class B stock.

b. The Texas and Pacific Railway Company (T & P) was incorporated by Act of Congress in 1871 and is an interstate common carrier by railroad. It has outstanding 445,464 shares of one class of stock. MoPac owns 369,111, or 82.86%, of these shares.

c. Mississippi River Fuel Corporation (Mississippi) is a Delaware corporation. It began acquiring MoPac Class A stock in 1959. It now owns in excess of 1,071,895, or 57.95%, of the Class A shares.

d. Alleghany Corporation (Alleghany) is a Maryland corporation. Since 1958 it has owned beneficially in excess of 20,500 or 51%, of the Class B shares of MoPac. This holding is subject to a voting trust agreement between Alleghany and Empire Trust Company, a New York corporation, as voting trustee.

e. The individual plaintiffs, totaling six in the three suits, own the following amounts of MoPac's Class B shares: Rose Slayton, not stated (but presumably 10 shares); Joseph M. Proskauer, 100; Walter Mendelson, 50; Alfred L. Rose, 50; Dorothy B. Rose, 50; Betty Levin, 85.

f. Most of the named individual defendants are the present directors of MoPac. Some of them are also directors and officers of Mississippi and of T&P. Neither Mississippi nor any of the individual defendants, with one exception, owns any of MoPac's Class B shares.

g. Texas & Missouri Pacific Railroad Company (T&M) is a newly organized Delaware corporation. Its equity capital consists solely of $25 par common stock.

h. MoPac's Articles of Association provide, Article VII, Section D(4), that, except for restrictions specified in Section D(3), or as otherwise required by law, each share of Class A and each share of Class B "shall have the same voting power" and that the vote of the holders of any class of stock, as a class "shall not be required for any other action whatsoever * * * including any amendment to the Articles of Association". Section D(3), however, states that four kinds of corporate change shall not be effected without the consent of the record holders of a majority of the Class A shares and of a majority of the Class B shares. These are: (a) the issuance of additional shares; (b) the creation or issuance of any MoPac obligation or security convertible into or exchangeable for MoPac shares; (c) 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 (d) the amendment or elimination of any of the provisions of Section D(3). The exact language of these portions of the MoPac Articles is set forth in the margin.¹ i. In December 1963 the boards of directors of MoPac and T&P approved an "Agreement and Plan of Consolidation" which would effect the consolidation of MoPac and T&P into T&M as the surviving corporation. The plan provides that each share of MoPac, both Class A and Class B, shall be exchanged for four shares of T&M and that each share of T&P (other than those owned by MoPac) shall be exchanged for 4.8 shares of T&M.

j. MoPac's board 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 intended to submit the plan only to the collective vote of Class A and Class B.

k. In January 1964 MoPac, T&P and T&M filed their joint application with the Interstate Commerce Commission for an order, under § 5(2) of the Interstate Commerce Act, 49 U.S.C. § 5(2), authorizing the proposed consolidation and, under § 20a, 49 U.S.C. § 20a, authorizing the issuance of securities by T&M. In this application MoPac stated that it intended to submit the proposed plan to its shareholders for approval, as contemplated by § 5(11) of the Act, 49 U.S.C. § 5(11), by May 1964 by the shareholders' collective vote.

We note parenthetically at this point that, while Mississippi owns the majority of MoPac's outstanding Class A shares and Alleghany beneficially owns the majority of MoPac's outstanding Class B shares, Mississippi obviously owns the majority of the total of Class A and Class B. We note further that, under the plan, the proposed one for four exchange of both Class A and Class B for T&M shares would result in the present Class B holdings being engulfed by the larger number of Class A holdings.

In 1963, after the boards' approvals of the plan but prior to its submission to the ICC, Class B shareholder Slayton instituted the first of the three suits with which this appeal is concerned. The four plaintiffs Proskauer, Mendelson, and Rose have been permitted to intervene in that suit. The action is one against MoPac, Mississippi, and twelve individual defendants. The complaint as amended alleges, among other things, that the plaintiffs bring the action on behalf of themselves, representatively on behalf of all other (approximately 1200) Class B shareholders of MoPac, and derivatively on behalf of MoPac itself; that since about 1960 Mississippi "did and it now does control MoPac, select and dominate its directors and principal executives and determine its policies and the conduct of its affairs"; that Mississippi acquired this control illegally; that the plan "is grossly unfair and inequitable" to the Class B shareholders; that the value of one Class B share is many times greater than the value of one Class A share; that the plan is "a fraudulent and manipulative device adopted by defendants to enhance the value of the Class A shares at the expense and to the detriment of the holders of the Class B shares"; that the proposed consolidation "serves no valid or legitimate business purpose" of MoPac; that the adoption of the plan by MoPac's board "results from the illegal exercise by Mississippi of its control over" MoPac; that the approval and...