United States v. Reading Co.

• Decision Date: 22 July 1924
• Docket Number: 1095.
• Citation: 300 F. 477
• Parties: UNITED STATES v. READING CO. et al.
• Court: U.S. District Court — Eastern District of Pennsylvania

300 F. 477

UNITED STATES v. READING CO. et al.

No. 1095.

United States District Court, E.D. Pennsylvania.

July 22, 1924

William Clarke Mason, Charles Heebner, and Ellis Ames Ballard, all of Philadelphia, Pa., for the rule.

Thomas Raeburn White and Henry P. Brown, both of Philadelphia, Pa contra.

Before BUFFINGTON and DAVIS, Circuit Judges, and THOMPSON, District judge.

BUFFINGTON Circuit Judge.

During the earlier proceedings in this case, the common stockholders of the Reading Company denied the right of the preferred stockholders to participate equally with them in what they alleged were profits or earnings of the company, while the preferred stockholders contended that what was then being distributed was not profits or earnings, but corpus in liquidation. This latter view was adopted by this court, and later also by the Supreme Court. In the opinion then filed (273 F. 848) we carefully called attention to the precise question, then decided as above outlined, and also to the fact that the question of the distribution of profits was not then involved or decided, our language being (page 851):

'In that connection we deem it proper to say that, under the facts and circumstances before us, the legal question of dividend distribution between different classes of stockholders is not here involved, and on that question we express no present opinion, for the simple reason that we are not dividing profits or earnings.'

On appeal to the Supreme Court by the common stockholders (259 U.S. 156, 42 Sup.Ct. 540, 66 L.Ed. 871) they assigned for error, not only that this court had erred in allowing the preferred stockholders to participate in the then distribution, but they also specified that:

'The court erred, in that it did not hold that the holders of the preferred stock of the Reading Company are limited to dividends not exceeding 4 per cent per annum, and no more.'

After argument in that court, a reargument was directed, inter alia, on the question 'whether compliance with the decree will confer on any one class of stockholders of the Reading Company any benefit to the prejudice of the rights of any other class of stockholders,' and in deciding that issue the court entered into a discussion of the rights generally of preferred stockholders under the stock contract existing between them and the company. From its opinion it will be seen the Supreme Court there held (page 177 (42 Sup.Ct. 547)):

'The rights of the common and preferred stockholders of the Reading Company inter sese are to be determined by the organization agreement of 1896. * * * The agreement provided that the preferred stock should be entitled to noncumulative dividends 'at the rate of, but not

...