Sarner v. Mason, Civ. No. 732-54.

• Decision Date: 06 May 1955
• Docket Number: Civ. No. 732-54.
• Citation: 130 F. Supp. 829
• Parties: Sidney SARNER, Leonard Sarner, Maurice Sarner, and Linwood Park Inc., Sections 1 to 13 inclusive, each a corporation of New Jersey, Plaintiffs, v. Norman P. MASON, Commissioner of the Federal Housing Administration, and Albert M. Cole, Housing and Home Finance Administrator, and Federal Housing Administration, Defendants.
• Court: U.S. District Court — District of New Jersey

130 F. Supp. 829

Sidney SARNER, Leonard Sarner, Maurice Sarner, and Linwood Park Inc., Sections 1 to 13 inclusive, each a corporation of New Jersey, Plaintiffs, v. Norman P. MASON, Commissioner of the Federal Housing Administration, and Albert M. Cole, Housing and Home Finance Administrator, and Federal Housing Administration, Defendants.

Civ. No. 732-54.

United States District Court D. New Jersey.

May 6, 1955.

Van Riper & Belmont, Walter D. Van Riper, Newark, N. J., George I. Marcus, Hackensack, N. J., for plaintiffs.

Warren E. Burger, Asst. Atty. Gen., Raymond Del Tufo, Jr., U. S. Atty., Charles H. Hoens, Jr., Newark, N. J., Asst. U. S. Atty., Edward H. Hickey, Carl Eardley, Dept. of Justice, Washington, D. C., for defendants.

MEANEY, District Judge.

The plaintiffs, individuals resident in the State of New Jersey, and corporations organized under the laws of the State of New Jersey, seek to enjoin and restrain the defendants from holding a meeting of preferred stockholders of the plaintiff corporations, from voting the preferred stock of the plaintiff corporations for the purpose of removing the present boards of directors of the plaintiff corporations and electing new boards, and from interfering with the operations of the present boards of directors. The defendants, on the pleadings, moved to dismiss the proceedings on jurisdictional grounds, and in the alternative moved for summary judgment. It seemed proper to the court that the matter should be considered from the standpoint of the motion for summary judgment and it is with that idea in view that the court will proceed to examine the situation.

The undisputed facts would seem to be that the various corporations, Linwood Park Inc., Sections 1 to 13 inclusive, are corporations each acting under a charter granted under the authority of the laws of the State of New Jersey. The corporations were organized for the purpose of constructing and operating housing projects pursuant to the provisions of Section 608 of the National Housing Act, 12 U.S.C.A. § 1743, and in their certificates of incorporation they have agreed to be bound by the National Housing Act and the rules and regulations of the Federal Housing Administration promulgated thereunder.

The articles of incorporation of each of the plaintiff corporations authorize 300 shares of capital stock, of which 100 shares with a par value of $1 per share shall be designated "preferred stock" and 200 shares shall be designated "common capital stock" of no par value. Under the provisions of the National Housing Act the Federal Housing Administration acquired by purchase all of the preferred stock of each corporation. Ralph J. Solow and Sidney Sarner individually owned 50% of the issued common stock of each corporation, each of them contributing $6,500, so that the total investment in the plaintiff corporations at the time they commenced doing business was $13,000.

The charters of the corporations give the holders of the preferred stock certain rights and privileges, among which is the right to replace existing directors in the event of the creation or existence of certain defaults under the terms of the certificates of incorporation. The language of the articles of incorporation with respect to defaults amounts to a practical repetition of the language of the regulations of the Housing Administration Commissioner.

In the event of a default the holders of preferred stock are entitled to elect new directors. The defaults enumerated in the articles of incorporation are adopted from the regulations issued by the Commissioner of the Federal Housing Administration. The pertinent regulatory provisions, made part of the articles of incorporation, are as follows:

Third: (d) * * * So long as any property of this corporation is encumbered by a mortgage or Deed of Trust insured by the Commissioner it shall engage in no business other than the construction and operation of a Rental Housing Project or Projects.

Fifth: (e) In the event of any default by the corporation as hereinafter defined, and during the period of such default, the holders of the preferred stock, voting as a class, shall be entitled to remove all existing directors of the corporation, and to elect new directors in their stead; Provided, however, that one of said directors shall be the owner or holder of one or more shares of common stock. When such default or defaults shall have been cured, the right to elect directors shall again vest in the holders of the common stock.

Sixth: The corporation shall not without prior approval of the holders of a majority of the shares of preferred stock, given either in writing or by vote at a meeting of the preferred stockholders called for that purpose (a) * * * (b) * * * (c) * * * (d) * * (e) * * * redeem or cancel any of its shares of preferred stock, or effect any changes whatsoever in its capital stock; alter or amend the certificate of incorporation or fail to establish and maintain reserves as set forth in this certificate of incorporation.

Seventh: (a) The happening of any of the following events shall

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