Steinberg v. American Bantam Car Co.

• Decision Date: 27 February 1948
• Docket Number: Civ. No. 6953.
• Citation: 76 F. Supp. 426
• Parties: STEINBERG v. AMERICAN BANTAM CAR CO. et al.
• Court: U.S. District Court — Western District of Pennsylvania

76 F. Supp. 426

STEINBERG v. AMERICAN BANTAM CAR CO. et al.

Civ. No. 6953.

District Court, W. D. Pennsylvania.

February 27, 1948.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Beck, McGinnis & Jarvis, of Pittsburgh, for plaintiff.

Kenneth G. Jackson, and William D. Sutton (of Thorp, Bostwick, Reed & Armstrong), both of Pittsburgh, Pa., for defendants.

GOURLEY, District Judge.

This proceeding comes before the Court on plaintiff's motion for a preliminary or interlocutory injunction.

On the basis of the verified complaint and sworn affidavits, and after due consideration thereof, the Court granted the following Temporary Restraining Order on the 13th day of February, 1948:

"And Now, to-wit, February 13, 1948, the complaint herein having been presented to the Court, together with injunction affidavits, upon consideration thereof and on motion of plaintiff's attorney, it is hereby ordered that Jerome P. Bowes, Jr., Lester Kissel and Paul H. Croll, Proxy Holder Defendants, be restrained from voting any proxies obtained by them for the election of directors of American Bantam Car Company at the shareholders' meeting of said corporation, called for February 16, 1948, or at any adjournment thereof, and that Dean B. Copeland, President, and Paul H. Croll, Secretary, be restrained from holding any election of directors thereat, all until further order of this Court.

"A hearing on the application for interlocutory injunction herein shall be held on February 24th, 1948, at 10 A.M., Court Room Number 2, of which timely notice shall be given to defendants or their counsel.

"Injunction bond to be given in the sum of $5000.00.

"Wallace S. Gourley, D. J."

On the 16th day of February, 1948, the defendants first questioned the jurisdiction of the Court for the reason that the allegations in the complaint did not establish diversity of citizenship between the plaintiff on the one hand, and all of the defendants on the other hand. The Court granted the motion of plaintiff to dismiss as to Lester Kissel and vacated the Temporary Restraining Order as it applied to him since the requisite jurisdictional requirements did not exist, and continued said Order as to all of the other defendants. Comment will be made as to the jurisdictional question in a later part of this opinion.

The motion for a preliminary injunction came on for hearing before the Court on the 24th day of February, 1948, and testimony was offered by the plaintiff in support of his claim for relief. Although the defendants appeared through their counsel, an opportunity was extended by the Court to offer testimony in their behalf. No proof was offered by any of the defendants with the exception of affidavits. The Court advised counsel representing the defendants that it would not consider any facts which were set forth in affidavits, and encouraged the defendants to call the necessary witnesses to establish the facts which appear in affidavit form. The defendants believed, on the basis of the facts presented by the plaintiff, a right to a preliminary injunction had not been established and, therefore, elected to call no witnesses.

It is a rule, subject to few exceptions, that a preliminary injunction should not be awarded on ex parte affidavits, unless in a clear case. Lare v. Harper & Bros., 3 Cir., 86 F. 481, 483; Murray Hill Restaurant v. Thirteen Twenty One Locust, 3 Cir., 98 F.2d 578; Warner Bros. Pictures v. Gittone, 3 Cir., 110 F.2d 292.

I believe the converse of the rule should be applied to any defense which might be raised to the granting of a preliminary injunction.

The affidavit presented by the defendants was not a presentment of proof in accordance with the procedure followed in this Circuit.

It will be well to review the facts which give rise to this proceeding.

The plaintiff, Max Steinberg, filed the complaint on behalf of himself and such other stockholders of the American Bantam Car Company, a Pennsylvania corporation, as may desire to join therein, urging that said relief be granted in order that a reasonable time will be accorded the Independent Stockholders' Committee of the American Bantam Car Company to solicit proxies in pursuance of the proxy statement approved by the Securities and Exchange Commission of the United States of America.

The plaintiff is a citizen of the state of New York. The American Bantam Car Company (hereinafter referred to as "Bantam") is a Pennsylvania corporation, and its principal office is situate at Butler, Pennsylvania. The defendants Dean B. Copeland and Paul H. Croll are citizens of the Commonwealth of Pennsylvania, directors and President and Secretary respectively of Bantam. The defendant Jerome P. Bowes, Jr., is a citizen of the state of Illinois. Each is a director of Bantam and Jerome P. Bowes, Jr., Paul H. Croll, and former defendant, Lester Kissel, were designated by the Board of Directors of Bantam as Proxy Holders to vote for directors at a shareholders' meeting of Bantam called for February 16, 1948.

The last fiscal year of Bantam ended June 30, 1947. On August 18, 1947, Miller-Morgan Company, Certified Public Accountants, completed their audit of the books of account of Bantam for the year which ended June 30, 1947, and submitted their audit report on said date to the management of Bantam. On September 3, 1947, the President and Chairman of the Board of Bantam notified the stockholders that the annual meeting which the by-laws provided should be held on the third Monday of September, which in the year 1947 would fall on September 15, 1947, would be postponed indefinitely and that due notice would be given of the date to be selected for the annual meeting. The details of said letter being set forth in Footnote 1.¹

The Board of Directors on December 9, 1947, forwarded to the stockholders the annual report of Bantam, and advised that due to the death of the President and Treasurer, and Chairman of the Board of Bantam, it would be necessary to again postpone the annual meeting of said company.²

It appears from the financial statement enclosed with said letter of December 9, 1947, that the company sustained a net loss from its operations in the year ending June, 1947 of $1,222,267.62; that its total sales in said year were $3,714,271.53; that as of June 3, 1947 Bantam had a deficit and no earned surplus; that an income tax deficiency of $107,169.44, for the period July 1, 1939 to June 30, 1943, had been assessed against Bantam, from which assessment an appeal is pending in the Tax Court of the United States; and that such tax deficiency and interest might amount in the aggregate to as much as $290,000.

The tax deficiency and interest which might aggregate to as much as $290,000 together with the face amount of the tax liability is not shown on the balance sheet of Bantam as of June 30, 1947, but is merely mentioned in a footnote thereto. Although the cost of goods sold exceeded the sales, the management of Bantam expended in the year ending June 30, 1947 for general administration and engineering expenses the amount of $369,760.10. The balance sheet of Bantam as of December 31, 1947 shows its deficit had increased from $49,444.63 on June 30, 1947 to $291,399.38, from which it would appear that Bantam under the present management of said company is operating at a loss of approximately $50,000 per month.

It is set forth, inter alia, in the annual report of Bantam, which was enclosed with the communication of December 9, 1947, that proxies for the annual meeting of stockholders would be requested at a later date, possibly sometime during the first week of January, 1948. However, the notice of the annual meeting of the stockholders to be held February 16, 1948, was forwarded to the stockholders on January 24, 1948, the purpose of said meeting being as follows:

1. To elect Directors;

2. To appoint a firm of Certified Public Accountants to act as auditors of the Company until the annual meeting next following; and

3. To transact such other business as may be lawfully transacted at said meeting or any adjournment thereof.

The notice of said annual meeting of stockholders further provided for the election of the same directors who had previously served in a similar capacity with said company. In the year 1947 the Board of Directors held four meetings, and one meeting was held on January 5, 1948. At the meeting of the Board of Directors on November 3, 1947, the annual meeting of shareholders was called for January 3, 1948. This action was rescinded by the Directors at a meeting held December 4, 1947, and the date was set for January 5, 1948. At its meeting held January 5, 1948, said action was rescinded and February 16, 1948 was fixed as the date of the annual meeting of the shareholders.

The plaintiff contends that the notice of the annual meeting of stockholders which was dated January 24, 1948, for the meeting to be held on February 16, 1948, was not received by him until January 28, 1948; that due to the conditions which existed at Bantam, the plaintiff commenced an investigation in an effort to ascertain the reasons for the loss which was being experienced from month to month, and why the company was being operated and managed in the manner which has been heretofore discussed; that after a discussion had been held with various stockholders of Bantam, it was decided by the plaintiff and other stockholders to form an Independent Stockholders' Committee of Bantam, and to extend efforts to secure proxy authorization from the shareholders in order to effect a change in the management and administration of the affairs of the company.

Legal counsel was retained by the plaintiff who requested a copy of the names and addresses of all the stockholders of Bantam from the Corporation Trust Company of Jersey City, New Jersey, transfer agent of Bantam. A photostatic copy was made on the basis of the promise of the plaintiff and shareholders associated with him to pay the cost thereof,...