Phelps v. Burnham
| Decision Date | 13 February 1964 |
| Docket Number | Docket 28733.,No. 374,374 |
| Citation | 327 F.2d 812 |
| Parties | Barry C. PHELPS, Appellant, v. I. W. BURNHAM et al., Appellees. |
| Court | U.S. Court of Appeals — Second Circuit |
Gerald D. Fischer, New York City (Stroock, Stroock & Lavan, New York City) (David Schwartz, Alvin K. Hellerstein, Arnold I. Rich, New York City, of counsel), for appellant.
Alfred E. Froh, New York City (LeBoeuf, Lamb & Leiby, New York City) (Chauncey P. Williams, Jr., New York City, of counsel), for appellee Independent Telephone Corp.
Irwin Schneiderman, New York City (Cahill, Gordon, Reindel & Ohl, New York City), for appellee Continental Telephone Co.
Louis Stanton, Jr., New York City (Davis, Polk, Wardwell, Sunderland & Kiendl, New York City), for appellees Ayers, Dornblaser, Harrison, Mason, Mowat, Sawyer and Schafer.
Marshall, Bratter, Greene, Allison & Tucker, New York City, on brief for appellee I. W. Burnham.
Willkie, Farr, Gallagher, Walton & Fitzgibbon, New York City, on brief for appellee Donald Stralem.
Before LUMBARD, Chief Judge, and WATERMAN and FRIENDLY, Circuit Judges.
Our motion calendar for February 10, 1964, included a motion by appellant Phelps for a preference and for a stay pending an appeal from an order of Judge Sugarman in a stockholder's action brought by him in the Southern District of New York. After hearing argument on the motion we suggested that the appeal itself be deemed submitted, with leave to file additional briefs on the following day. We affirm the order, with a minor modification designed to avoid prejudice to appellant from the short time we have had the appeal under advisement.
Phelps, a stockholder in Independent Telephone Corporation since January 9, 1964, who with another had submitted an offer to purchase a large amount of its common stock, brought this action against Independent, its directors and Continental Telephone Company to enjoin a proposed merger of Independent and Continental on which the stockholders of Independent are to vote on February 27, 1964, and for other relief. The first count of the complaint, basing federal jurisdiction on diverse citizenship, alleged various improper actions by directors of Independent in refusing to consider Phelps' proposal and in agreeing to the merger with Continental. The second count alleged that the proxy statement pursuant to which proxies of Independent's stockholders were being solicited contained false and misleading statements as to material facts and omitted material facts necessary to make the statements not false and misleading, in violation of § 14 of the Securities Exchange Act, 15 U.S.C. § 78n, and paragraph 14a-9 of the Proxy Rules, 17 C.F.R. 240, 14a-9. In the order under appeal Judge Sugarman directed, inter alia, that any motion seeking an injunction should be served not later than 5 P.M. on February 13, 1964, and that by noon of that day plaintiff should either demonstrate by affidavit that he holds shares of Independent amounting to 5% of the outstanding shares or having a fair value of $50,000, or furnish security for expenses, fixed by the judge at $100,000, pursuant to § 627 of the New York Business Corporation Law, McKinney's Consol.Laws, c. 4, in default of which proceedings under the first count would be stayed. The judge incorporated a certificate, avowedly pursuant to 28 U.S.C. § 1292(b), that the portion of his order applying to the New York Business Corporation Law involved "a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of this litigation." We permitted appellant to move orally for such leave. The question of law presented is that the judge erred in applying § 627 of the New York Business Corporation Law since the defense of Count 1 (hereafter the state claim) will not cause expense additional to that of Count 2 (hereafter the federal claim), or, alternatively in fixing $100,000 as the amount of security without sufficient basis therefor.
Insofar as the appeal concerns the application of § 627, we hold that we have jurisdiction under 28 U.S.C. § 1291. If the complaint had contained only the first count, this would be utterly plain, since the situation would be the very one presented in Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 545-547, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949), except that the appeal here is by the plaintiff rather than the defendant, a distinction ruled immaterial in Fielding v. Allen, 181 F.2d 163 (2 Cir.), cert. denied sub...
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