Overfield v. Pennroad Corporation, 258.

• Decision Date: 02 May 1941
• Docket Number: No. 258.,258.
• Citation: 39 F. Supp. 482
• Parties: OVERFIELD v. PENNROAD CORPORATION et al.
• Court: U.S. District Court — Western District of Pennsylvania

39 F. Supp. 482

OVERFIELD v. PENNROAD CORPORATION et al.

No. 258.

District Court, E. D. Pennsylvania.

May 2, 1941.

Daniel O. Hastings, of Wilmington, Del., Philip H. Strubing, of Philadelphia, Pa., R. E. Lee Marshall and George C. Doub, both of Baltimore, Md., Hugh F. O'Donnell, of New York City, and Caleb R. Layton, 3rd, of Wilmington, Del., for plaintiffs.

Harold J. Conner, of Philadelphia, Pa. for Bertha Rosenthal, Martin Rosenthal, Patrick Conner, and Bertha Kaufman.

Daniel Blumenthal, of New York City, for Bertha Kaufman.

Macin E. Estill, of Philadelphia, Pa., for Francis E. Walter.

Lynn L. Detweiler, of Philadelphia, Pa. for Pat McGee.

Harry Reiss Axelroth and James McG. Mallie, both of Philadelphia, Pa. for intervenors Janet L. Boskey and Betty Jane Boskey.

Hugh Roberts, of Philadelphia, Pa., pro se.

C. B. Heiserman, of Philadelphia, Pa. for Pennroad Corporation.

John Dickinson, John B. Prizer, Philip Price, Robert T. McCracken, and George G. Chandler, all of Philadelphia, Pa. for Pennsylvania R. Co.

Wm. Clarke Mason, W. Heyward Myers, Jr., Thomas B. K. Ringe, and Ernest R. von Starck, all of Philadelphia, Pa., for Joseph Wayne, Jr.

R. Sturgis Ingersoll, Warwick Potter Scott, and Ballard, Spahr, Andrews & Ingersoll, all of Philadelphia, Pa., for Albert J. County and others.

Thomas Stokes and John Sailer, both of Philadelphia, Pa., for Fidelity-Philadelphia Trust Co. and Francis J. Rue.

Elder W. Marshall, of Pittsburgh, Pa., and Thomas Stokes, of Philadelphia, Pa., for Sarah Mellon Scaife, Richard K. Mellon, and Union Trust Co. of Pittsburgh.

Lewis M. Stevens and Medford J. Brown, (of Stradley, Ronon & Stevens) both of Philadelphia, Pa., for Fidelity-Philadelphia Trust Co.

WELSH, District Judge.

The complainant's motion is to amend her bill of complaint by including therein seven additional causes of action identical in form and substance with the first seven causes set forth in the bill of complaint filed in the companion case of Grace Stein Weigle against the same defendants, civil action No. 938. The motion is opposed upon the ground that the addition of such causes to the present complaint is barred by the statute of limitations, and also by the laches of the complainant.

The bill upon which the case is presently being tried alleges that the Pennroad Corporation was fraudulently dominated and controlled by the other defendants for the unjust enrichment of Pennsylvania Railroad, and to the unconscionable detriment of Pennroad and its stockholders. It charges that control was effected through the medium of voting trustees, who were officers and directors of the railroad, and who operated through the Pennroad directors whom they elected and who knowingly and fraudulently did the wrongful bidding of the railroad for its material benefit and to the disadvantage of Pennroad. In pursuance of such fraudulent conspiracy Pennroad was caused to invest $2,300,000 of its capital in a freight forwarding company designed to produce business for the railroad, but at the Pennroad's sole risk of loss. The bill alleges that through this transaction Pennroad lost about $4,000,000 while Pennsylvania Railroad enjoyed approximately $5,000,000 of revenue from freight and rentals. The complainant seeks an accounting by the defendants and redress for the wrongs allegedly done to Pennroad and its stockholders.

Like charges are made involving the freight forwarding company investment, in the Weigle suit, and in addition thereto it is alleged that seven other improper investments or purchases were made in pursuance of the same fraudulent scheme and conspiracy on the part of the defendants. In the Weigle suit the complainant Over-field was permitted to intervene and become a party plaintiff, and she filed therein a complaint covering all of the transactions and causes of action in question. The answers filed to the Weigle complaint were deemed to be the defendants' answers to the interveners' complaint, and, at the out-set of the trial and with the consent of all parties, an order was entered permitting a joint hearing of both suits. It is also noted that there has been pending in the Chancery Court of Delaware since 1932 a stockholders' suit brought by one Perrine on behalf of himself and others which also seeks inter alia an accounting for the profit and losses arising out of the same investments.

The defendants contend that the passing of ten to twelve years between the making of those investments and the starting of the present suit precludes the complainant from asserting any rights thereunder, because the statute of limitations bars the institution of a suit upon such causes, or amendments to the present suit, which would have the result of adding new causes of action after the period of the statute has expired. It is also contended that the laches of the complainant prevents the allowance of the amendments.

The statute in question is the Pennsylvania Act of Assembly of March 28, 1867, P.L. 48, Sec. 1, 12 P.S. § 41, which provides: Whereas it is just that suits for supposed claims should be speedily brought before the lapse of time destroys the evidence of defense, or impairs the recollection of the witnesses, "no suit, at law or in equity, shall be brought or maintained against any stockholder or director in any corporation or association, to charge him with any * * * neglect of duty as such stockholder or director, except within six years after * * * the commission of such act of negligence."

The statute applies to amendments which introduce new causes of action or new parties or which effect changes which would deprive the defendants of any valuable rights, as well as to original actions. Goldberg v. Wine, 326 Pa. 335-340, 192 A. 252; Bahas v. Wilczek, 324 Pa. 212-215, 188 A. 139. The same principle is applicable to cases before the federal courts (Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487) where the effectiveness of such statute as applied to amendments has been recognized. Brown v. New York Life Ins. Co., D.C., 32 F.Supp. 443, 444.

It was argued that the statutory limitation must be adopted by analogy in equity suits, for to hold otherwise would permit a recovery in equity upon claims which are barred in law. Baker v. Cummings, 169 U.S. 189, 18 S.Ct. 367, 42 L.Ed. 711. The defendants rely almost entirely upon Stampalia v. Murphy, D.C., 34 F.2d 660, and Kelly v. Dolan, 3 Cir., 233 F. 635. They maintain that those cases compel the dismissal of the present motion. The Stampalia case involved a suit in admiralty for damages brought four years and three months after the alleged accident. The libel was dismissed by the Court which declared that, "admiralty courts are not bound by local statutes of limitations, but * * * will adopt them by analogy, unless equitable reasons exist for not doing so." Such statutes declare "the state of the common judgment as to the period" in which suits should be brought and provide "a definite guide for courts in determining the same question in other than common-law causes." 34 F.2d 661.

Kelly v. Dolan was begun on a stockholder's bill against three directors of a corporation brought eight years after they had ceased to be directors. A receiver had been appointed for the railway but the Court appointing him had declined to grant him permission to bring the suit because it found that such suit would have been met by a successful defense based upon the statute of limitations. The stockholder's action charged the directors with neglecting to enforce the covenants of a certain lease, which neglect resulted in the loss of assets through foreclosure. After final hearing, the defendant's motion to dismiss the bill was granted. The action was not for an accounting or discovery, but the gravamen of the complaint was the negligence of the three directors. There the Court held that in whatever form the right was litigated, whether in law or in equity, it was to recover for negligence and was a legal right. The negligence of a director is an injury to his corporation and the right to recover for such negligence is a legal as contrasted to an equitable right. The corporation was vested with that right to recover for such injury and the receiver succeeded to it upon his appointment. The plaintiff therefore could not sue at law to assert a legal right vested in the receiver, and he could resort to equity by a stockholder's bill only where it is shown that the corporation, through the fraud of those in control, had refused to bring suit...