Slayton v. MISSOURI PACIFIC RAILROAD COMPANY

• Decision Date: 18 September 1964
• Docket Number: No. 63 C 436(2),64 C 77(2).,64 C 48(2),63 C 436(2)
• Citation: 233 F. Supp. 747
• Parties: Rose SLAYTON et al., Plaintiffs, v. MISSOURI PACIFIC RAILROAD COMPANY et al., Defendants. ALLEGHANY CORPORATION et al., Plaintiffs, v. MISSOURI PACIFIC RAILROAD COMPANY et al., Defendants. Betty LEVIN, Plaintiff, v. MISSISSIPPI RIVER FUEL CORPORATION et al., Defendants.
• Court: U.S. District Court — Eastern District of Missouri

233 F. Supp. 747

Rose SLAYTON et al., Plaintiffs, v. MISSOURI PACIFIC RAILROAD COMPANY et al., Defendants.

ALLEGHANY CORPORATION et al., Plaintiffs, v. MISSOURI PACIFIC RAILROAD COMPANY et al., Defendants.

Betty LEVIN, Plaintiff, v. MISSISSIPPI RIVER FUEL CORPORATION et al., Defendants.

Nos. 63 C 436(2), 64 C 48(2), 64 C 77(2).

United States District Court E. D. Missouri, E. D.

July 13, 1964.

Order September 18, 1964.

Harold C. Ackert, Ackert, Giesecke & Tompkins, St. Louis, Mo., and Pomerantz, Levy, Haudek & Block, New York City, for plaintiffs Rose Slayton and others.

Mark M. Hennelly, Guilfoil, Caruthers, Symington, Montrey & Daniel, R. H. McRoberts, Bryan, Cave, McPheeters & McRoberts, St. Louis, Mo., for defendants Missouri Pacific R. R. Co., Mississippi River Fuel Corp. and others.

Fordyce, Mayne, Hartman, Renard & Stribling, St. Louis, Mo., and Robert M. Loeffler, Donovan, Leisure, Newton & Irvine, New York City, for plaintiffs Alleghany Corp. and others.

Roberts P. Elam, St. Louis, Mo., Sherin & Lodgen, Boston, Mass., Szold, Brandwen, Meyers, Blumberg & Altman, John Lowenthal, New York City, for plaintiff Betty Levin.

MEREDITH, District Judge.

These three cases, consolidated for the limited purposes of pre-trial discovery and hearings on motions, in major part arise out of the agreement of the Boards of Directors of defendant Missouri Pacific Railroad Company (hereafter MoPac) and Texas and Pacific Railroad Company (hereafter T&P) to consolidate the two companies into Texas and Missouri Pacific Railroad Company (hereafter T&M), a new Delaware subsidiary of MoPac created for the purpose of the merger, upon approval of the merger by the Interstate Commerce Commission. Subsequent to the filing of the first of these cases, MoPac, T&P and T&M applied to the ICC for an order authorizing consolidation and issuance of securities by T&M. The application to the ICC, under 49 U.S.C.A. §§ 5(2) and 20a, stated, as had been announced earlier by MoPac, that the proposed merger plan would be submitted to their shareholders at an annual meeting on May 12, 1964, for approval by two-thirds of the aggregate of shareholders. Plaintiffs, all holders of Class B shares of MoPac, having filed these actions, defendants thereafter deferred any stockholders' meeting for approval of the proposed plan until the adjudication of the class voting right issue here involved

Separate motions to dismiss have been filed by the defendant Mississippi River Fuel Corporation, owner of the majority of Class A shares of MoPac, and certain individual defendant members of the Board of Directors of MoPac and by defendant MoPac. The three cases are similar, but not identical, there being some divergence in allegations as well as type of relief sought by plaintiffs on behalf of themselves representatively as Class B stockholders and derivatively for defendant MoPac. Similarly, there is a variety of and various combinations of relief sought — declaratory, injunctive and money damages. However, common to all three cases is the demand for a declaratory judgment that the proposed consolidation requires the approval of separate majorities of both Class A and Class B stockholders of MoPac. Defendants' separate motions to dismiss are directed to all phases of the several complaints, but we here treat such motions only as they relate to the declaratory issue of class voting rights on the proposed plan of consolidation. On this issue defendants seek dismissal on the ground that the complaints and the exhibits thereunto attached show on their face that plaintiffs are not entitled to so vote and fail to state a claim on which relief can be granted. The matter has been fully briefed by all parties and on April 10, 1964, oral argument was heard by the Court.

For the purpose of the motions, the allegations of fact in the complaints and the inferences reasonably to be drawn therefrom must be taken as true and not in issue. We therefore discuss the factual allegations as though proven and conclude as to the law. The crux of the issue presented is whether or not the plan of consolidation as approved by MoPac must be concurred in by separate majorities of Class A and Class B shareholders of MoPac.

Paragraphs 3 and 4, Article VII, Section D, of the Articles of Association of Missouri Pacific Railroad Company provide:

"(3) The Company shall not, without the consent, given in writing or by resolution adopted at a meeting duly called for that purpose, of the holders of record of at least a majority of the number of shares of the Class A Stock then outstanding and at least a majority of the number of shares of the Class B Stock then outstanding, (a) issue any shares of stock of the Company of any class now or hereafter authorized in addition to the shares authorized to be issued by the provisions of Section C of this Article VII, (b) create or issue any obligation or security of the Company convertible into or exchangeable for shares of stock of the Company of any class, (c) alter or change the preferences, qualifications, limitations, restrictions and special or relative rights of the Class A Stock or of the Class B Stock or (d) amend or eliminate any of the provisions of this paragraph (3).

"(4) Except as otherwise provided above in paragraph (3) of this Article VII, or as otherwise required by law, each share of Class A Stock and each share of Class B Stock shall have the same voting power, and the vote of the holders of all or any portion of any class of stock, as a class, shall not be required for any other action whatsoever to be taken or authorized by the stockholders of the Company, including any amendment to the Articles of Association. In all elections of directors each stockholder may cast as many votes in the aggregate as shall equal the number of voting shares which he is entitled to vote multiplied by the number of directors to be elected at the election, and each stockholder may cast the whole number of votes, either in person or by proxy for one candidate, or distribute them among two or more candidates, and the directors shall be those persons, in a number equal to the vacancies to be filled, who shall receive the greatest number of votes."

Defendants urge first that since neither "merger" nor "consolidation" is in terms employed in paragraph 3 of Section D of Article VII, the plan for consolidation necessarily falls within paragraph 4 of Section D of Article VII as "any other action" not requiring class voting. We have considered but found this contention to be without merit since what is proscribed by paragraph 3(c), Section D of Article VII, is "company action" without the consent of the majority of each class of shareholders, altering or changing the preferences, qualifications, limitations, restrictions and special or relative rights of the Class A stock or of the Class B stock without regard to the purpose of such company action, whether it be merger, consolidation or otherwise. The article does not attempt to set out specific types or methods of company action which might be employed to alter or change the relative rights. In plain language, it prohibits, unless class voting is observed, company action, without limitation and without specification as to type or method when such action "alter(s) or change(s) the preferences, qualifications, limitations, restrictions and special or relative rights of the Class A Stock or of the Class B Stock * * *"

Defendants next urge that since MoPac is not to be the surviving corporation and the proposed consolidation will, if consummated,...