Overfield v. Pennroad Corporation

889 n COR- OVERFIELD v. PENNROAD char- et al. the same creditors general cases). (three lien, any, that et PORATION al. if contingent acter of interveners obtained similarly situated cases). (three SAME WEIGLE et v. al. general Thus all suit.16 the creditor’s 8371, 8303, 8304, 8372. Nos. equal foot- an put upon be creditors would by the acquired liens, any, if ing to Appeals, Third Circuit. Circuit Court of oth- suit, enforcement of creditor’s er but the Argued Oct. 1943. liens, priority which each or the to entitled, would not be affected.17 Decided Dec. by de- lost may a remedy that a ;18 right intervene lay if the to but per- may be trustee plaintiff lapsed, has pro- defendant to mitted to intervene as bankrupt estate. tect the interests of below court We think the as several should this case its consider determine, within limits pects and ac jurisdiction, what further summary character plenary summarx"- tion or it that there are should taken. If finds be court custody of the state funds to jurisdiction the latter is without administer, making peremptory instead bankruptcy court turn-over order appoint a to trustee direct him should application sur make to the state court render the funds him as trustee and, bankruptcy;19 plenary if action necessary, may either direct the trustee plaintiff to intervene in the state court as independent defendant or file ac an against tion receiver state-court jurisdiction, competent some other court of comity requires that he be directed injunc intervene tion the state An court. may granted be proper also in a case improvident prevent to the distribution of until controversy finally fund restrain, decided, injunction but an may bankruptcy court issued judge only.20 court on the order of the may be issued the referee.21 be, petition rehearing is, hereby same denied.

eral state ruptcy. Kev.StU.S., where such hold session, by any § 379]. When the state court is without 11 U.S.C.A. 11 U.S.C.A. § “While court against a court, C.J.S., through relating it is a injunction may jurisdiction receiver Creditors’ exception § general enjoin receiver, sub. e. proceedings § sub. e. or trustee is made in cases Suits, proceedings rule that a fed- of assets that [28 authority authorized § U.S.C.A. appoint- in bank- 84c. in a pos- surrender ed making vent dian.” granted an er state lier on F. sets, 21 11 U.S.C.A. of the state injunction, until the unlawful distribution of the as- bankruptcy Bankruptcy, 14th U.S.C.A. Carling peremptory application the assets to the court an order to its bankruptcy if § § 1(20). proceedings, Seymour, necessary, might could be order on the receiv- surrender sub. a Ed., p. court proper receiver (15); 252 et instead of Cir., funds, custo- pre- Col seq.

S&l City, Tuttle, H. New York Charles Rockaway, Pettit, and William S. Far Y., N. Stockholders’ Committee Corporation, amicus curiae. Pa., Roberts, for Hugh Philadelphia, intervenor-appellee Roberts. Walter, Easton, Pa., for Francis E. intervenor-appellee Costello. BIGGS, JONES, GOOD- Before and RICH, Judges. Circuit GOODRICH, Judge. Circuit brought an ac- for These actions against counting relief and other individual sylvania Railroad and certain plaintiffs sharehold- are defendants. Corporation and have of the Pennroad ers joined in share- these actions been defendants holders as intervenors. The Pennsylvania Railroad and certain are the representa- personal (or individuals their tives) who officers of were directors or Company the the Pennroad and/or Corporation. Judge gave judgment in in- favor of the for that the dividual defendants the reason by lapse gave barred suit was time. He Mass., for Pound, Cambridge, Roscoe judgment plaintiffs against in favor of the and appellants Kaufmann others. Pennsylvania Railroad, but not to the Del. Wilmington, Hastings, of Daniel O. plaintiffs. extent claimed Both Md., Baltimore, Marshall, of (R. Lee E. appealed. sides have City, York O’Donnell, New Hugh F. problems arising We consider first the Md., Baltimore, Doub, George Cochran question general lia- out of the whether the Maloney, Ev- Strubing, Paul and Philip H. bility corporate of individual and defend- Philadelphia, Frick, Bayard ans, & all of by lapse of ants is barred time. The trans- Brunt, 3d., Van Pa., Layton, R. Caleb John plaintiffs complained of which the actions Layton, Hastings, Stockly all and Jr., and June, began number eight in Marshall, Carey Del., Wilmington, Detroit, with the & Ironton Toledo brief), Baltimore, Md., Doub, on the & fact, purchase. It has found as a plaintiffs. disputed by party, “Neither either Philadelphia, McCracken, T. Robert brought years suits was within six of these Pa., Dickinson, Philadelphia, (John Pa. any the commission of after act com- Southerland, Wilmington, A. Clarence plained of.” Prizer, Price, Philip B. Del., and John re- their The individual defendants McCracken, & Walker Montgomery, pleaded gen- spective pleadings erally limitations Dechert, Barnes, & Rhoads, Price laches and nonconceal- well as Pa., Philadelphia, Smith, on the all of pleaded corporate defendant ment. Pennsylvania R. Co. brief), for plaintiffs part of the in a on the laches permit Wolf, Pa., un- Philadelphia, the defense fashion Morris sufficient der application Corporation. of this doctrine. Philadelphia, problem is Ingersoll, of first the orienta Sturgis R. Marshall, Pittsburgh, Pa., applicable the law case into Pa., W. of this Elder tion jurisdiction Stokes, Heyward Myers, court. Federal is in W. federal Thomas Stokes, diversity Stevens, solely on account of cit and Thomas Jr., M. voked Lewis independent Pa., izenship; Philadelphia, surviving there is no federal di- all of plaintiffs’ claims. representatives question involved of deceased di- rectors operative facts had Corporation. occurred in If all the of Pennroad rectors individual this is maintained such at law or in commission of such act of cept judge applied charge duty deaths, length of P.L. With rector distinguish stated. question necessary application ute arate these individuals Railroad, reason of recently tions rights fendants will first be considered. It is jurisdiction Where the S.Ct. discussed.1 be plicable jurisdiction that there is no local statute is not in aid or laches as same would control ing action type formerly of the federal court there legal right, Russell “exclusive” suits 48,2provides within six as such stockholder stockholder or director.” these is true applicable Pennsjdvania will be him applicable law or formerly cognizable in or error in federal court is They enunciated in is based lapse of time. applied in in this defendants. The v. service 84 L.Ed. to the against any determined any corporation equity. suit is propositions problem individual cases. The on * * * Todd, 1940, where, upon local and the equity, the suit because, as to are immune from suit cognizable on the equity applied in the dates support of a other matter years aspect present litigation will be to local suits statute with state statute statute brought in Act of equity federal Where, of the legal is “concurrent” with shall be limitation with the facts as above after is actions were “ of the while stockholder or di- the trial of the case and the local which have brought in * their before timeliness. is no doubt the doctrine March Supreme side is any neglect regard legal courts, remedies and negligence by individual * * plaintiffs however, * * ^[*] favor of director, U.S. * * * case equity equity and limitations period respective of limita- The trial equity, is applicable right, facts, an us, to their said to statute went assum- equity. aid of might Court their suit. stat- suit, sep sole side say ex- the their absence not de ap- to dividuals named as a sounds in tify; mary involve intentional moral conduct gation their able as buttressed exception are that their default resulted from a miscon part integrity, acting in lieved that and abuse of ception scientiously and that there was no element duties while not intent tiously present action seriously while not which judge way particular ment ceded that moral findings ing pursuant ing of fact was personal tors. plaintiffs ble. by the at the conclusion of the or sions of law in fendants.” Fraud in clearly negatived by formally fraudulent men duties.” the whole cast or other deliberate the rest companies, found: “The culpability was, therefore, to benefit themselves.” “It and without deliberate fraud or trial * * of their a witness. any of events which attacked in argument. honor do not noted, any improper subject agreed terms of statute the sense of conscious made. they the directors acted conscien fact, judge. [42 unimpeachable findings rather to a direction *.” “Their breach of fiduciary obligations others more “ * * * “Here intent or way fiduciary findings F.Supp. 586, have misconceived their on the their own acted based either from the submitted is, therefore, dispute One was too the interest of defendants sweeping persons involved, to absolve “neglect Pie found the case,” dead. With by plaintiffs, again integrity of fact and conclu- personal not honestly part bad faith on the delinquency.” of the trial misrepresentation reflection position argument led to this liti- this heard. one of he a formal it specific fraud and this character and findings directors, as such find- story of the direc- statement said, them. The 629] this Court culpability statement, Thus, ill duty” inapplica- and con misstate- be con did are serving opinion lack Yet on the to tes- which, “in is judge avail- find- duty who pri any one not not be de- list in- At is Circuit, The Second York Guar- of whether are v. there cases which a fed- Co., 1944, anty will not Trust 143 F.2d has re- follow the eral state statute cently limitations, pres- in a case of held concurrent we do not think the jurisdiction, the state statute does not ent nec- case is one for the reasons which are- the, essarily opinion control where defendant set forth later in this where inequitable subject causing plain- guilty of conduct of concealment is discussed. ignorance rights. Regardless his tiff’s 12 P.S.Pa. § corporation can- Dela- plaintiffs (also we shown restoration to a us and money court ware findings corporation) of a sum of the trial find that the plaintiff alleged improperly clearly have been erroneous. corporation expended directors clearly elimi fraud is thus Moral purpose corporate for which funds the view does not clear nated. We think it spent. impropriety of not have been speak happened as of what case to expenditure charged serious was so descriptive fraud. If “constructive” charge misappropriation to amount to a anything means that adjective means comparable Link McLeod. to that to be going than something less fraud Stern, writing Horace Justice so as to attribute to fraud called Supreme opinion for Court of consequence applicable as that same sylvania, cited decision and said If violate conduct. directors fraudulent accepting precedent: “it that case as a on whose duty to ap- would follow that Act of we to resort board sit not need do plicable present proceedings.”5 allegations fraud to hold fictitious say well Then he went on to es- that it They responsible liable. them equity adopt frequently will tablished that fiduciary duty. That we think neglect of apply the statute limitations plaintiffs’ charges of is the substance analogous proceedings controls at law. One against individual defendants these accounting of those cases is where an is way by the regarded it was that was the sought, being the case of concurrent excerpts from judge shown in trial as the equitable jurisdiction only. From he fact, quoted. That findings his of above 1867 concluded that whether the Act of squarely by duty is neglect of covered the applicable was considered to the case then 1867 terms of Act of the directors the proprio vigore, general or that six ex the fairly this case come within it. way year by adopted limitation should be law, analogy proceedings of re- the by is fortified the Penn- This conclusion year sult was the same. The six limita- sylvania decisions under this statute and applicable. applicability The tion of general of The the Pennsylvania statute limitations. general of state limitations de- has, to the in a case where below, fendants is discussed in connection plaintiffs charged misappropria- direct with limitations defense of Penn- corporate managers tion of funds there, sylvania Railroad. As shown we company, seemingly of applied a railroad applicable. find it also year period the six limitation Act of 1867 brought against to an action Pennsylvania statute, The words of the expiration directors after the of that time findings as to the conduct of the direc- McLeod, 1900, a Link shareholder. application of Pennroad tors 194 Pa. authority A. 340. The of limitations Pennsyl- statute quite complete the case is not dearly since does vania courts leave the directors appear opinion not liability lower litigation, except free court, adopted by Court, Supreme question of concealment. This will for which upon.3 statute relied later. considered decision cited question in a recent turn now We whether sylvania upon subject, case lapse ap decided the defense time should be since this cause was submitted. plied Ebbert v. in favor of the Rail Plymouth Co., 1943, Oil 348 Pa. problem A. Here road. is whether This, too, 2d 493.4 Pennsjdvania was an general action a limitations statute of suing equity shareholder compel limiting the time for bringing a an ac 6 trespass quare An examination of the “All briefs actions of discloses clausum urged. fregit, detinue, both statutes were all was also actions trover and claimed, here, away replevin, taking goods cattle, there was actual fraud, upon upon at most “constructive"’ fraud. actions all account and the case approved This case was (other cited and than such accounts as concern the al., 1944, Diebold et Naffah v. Pa. trade of merchandise between merchant merchant, 30 A.2d servants), their factors or page 134, grounded any 348 Pa. at 34 A.2d at actions of debt all lend- ing, specialty, or without contract all ac- arrearages debt, rent, The Act March Sm.L. tions cept ex- 76, 1,12 provides: proprietaries’ quit-rents, § § P.S. all actions, brought assault, trespass, menace, when “Personal actions of bat- appropri- years applicable whether" could had the six is have been tion to the the If through all, Pennroad, corporate barred, by ate if at officers of plaintiffs are to action, bring it.7 fact that equitable laches. general desired doctrine accounting governs, an addition general doctrine of laches asked money changed damages see facts to would then we must examine the delay cognizable the sively action at to one exclu- whether make out such undue Equity jurisdiction, plaintiffs prob equity. where bar because of the through has accountings sought from who prejudice able lapse is one the defendants general ap fiduciary duty, If such as 'that of time. statute breached director, by corporate plies, because owed is concurrent either of its own force or delay, gets equity adopts with that at law.8 shareholder conclusive on only by equity ju litigation if which be the case into the a derivative suit. right being is enforced is that of risdiction here concurrent law, right, corporation He legal which in aid no ex he a member. then gets necessary. he that the amination of facts into court because shows corporation, appropriate through its offi- claims asserted in this case cers, rights neglects to enforce or refuses Pennroad, corporation, claims corporation, belonging enforce- theory against who under others will, course, be to the ment of things injury complaints have done advantage of all the shareholders. of Pennroad. The individual shareholder carefully proposition is stated Pome- he concerned because roy9 as follows: corporate enterprise, has an interest bring “The stockholder does not through individual his such claim of who, rights directly suit violated, his have been against wrongs, those because own injure or because the cause of action he is his, he What or is entitled the member. was claimed here because relief was the sought; permitted of man- failure of the directors he is to sue in this the duty simply in order to set in motion the corporation to do their ner such direc participation judicial machinery the court. The tors and the in their breach of stockholder, individually corporate defendant, duty the the either or as the Railroad, class, may they representative whom also commence suit, may prosecute this claim an judg- served. For action lawat and it to wounding

tery, any Thompson Corporations. imprisonment, (2nd Ed.1909) and or them, brought which shall be sued or §§ of any 1313. day important, comprehensive, after and most time five twentieth “The year remedy April, in and jurisdiction which shall be of our multiform the concurrent pecuniary seven thir- which one thousand hundred and results Lord re- * * * covery accounting. teen, with- be commenced and is that shall sued Among limitation ex- time hereafter the most. common and instances remedy after; say, employed pressed, that which is and not is to this courts upon case, equity other than for are ascertainment actions and set- said account, slander, tlement said actions of claims and and the liabilities between principals agents, trespass, debt, actions for det- and the said and between all oth- and goods persons standing fiduciary replevin, cattle, or and er and inue relations * * trespass quare Pomeroy, Eq- clausum each other *.” 1 the said actions uity years Jurisprudence (5th fregit Ed.1941) said five within three after the 186a. § “ * * * day April directors, next, receivers, or within twentieth and oth- and managers years corporations, ac- er of stock six next after cause such and suit, like, general trustees, not after. tho in a or and And the said sense or tions quasi trustees, respect trespass, assault, menace, par- rather bat- actions persons imprisonment, wounding, tery, ticular or towards whom stand * year fiduciary relation, *, them, one next after the said in ers, within stockhold- —* day analogy April next, etc. But twentieth be and not five years pushed next after too far. The trust the cause of two exists within after; suit, high and and these eases is not of and similar so actions such upon equity words, complete case for character actions has said spo- jurisdiction rights year after over next the words an exclusive within one beneficiaries, ken, to main- after.” interests and not against them trus- tain and enforce 157; Cyclopedia Corporations Fletcher, see also § tees.” Id. § cited; (Perm.Ed.1931) 1271 and cases § id. § merely ment; respect equity ac- uation where every is resorted but in enforcing legal as a claim. ordinary means of one tion is description usually directly given for The is corporation, maintained it is eq jurisdiction of is a situation corporation, where the benefit of the obtained, belongs uity jurisdiction is relief, is to the concurrent. when final concurrent, equity although is resorted corporation, stockholder- and not machinery is, therefore, in mo putting a means of plaintiff. The simply also, party, given indispensably relief necessary although, tion equity given case equity may in a principles plead- an general on the satisfactory complete more than bound ing in order that relief, through law.12 decree, judgment when afforded but in order that the it, party granted, may awarded to with Now what is the situation record, by the decree. view application a statute of to the regard objections completely answers the is in a suit of this kind limitations where class, in suits of this are sometimes raised equity jurisdiction of equity, but where the plaintiff has no interest that situation concurrent? In far as is so controversy subject-matter of the nor in Penn governed decisions the state fact, plaintiff the relief. has rule, broadly fully discussed sylvania interest; corpo- direct the defendant such Stern the recent decision of Justice interest; ration has a direct alone Co., already Plymouth Oil re Ebbert v. plaintiff permitted, notwithstanding his to, perfectly If case clear. ferred interest, maintain the action want equity jurisdiction, as of concurrent one solely prevent complete an otherwise was, court held justice.” failure legal right bars re that bars the statute findings judge of the trial or a covery upon action suit it in an respect unwillingness equity. discussion of the mat This last directors Pennroad to enforce al Supreme ter Court13 leged legal rights justify are sufficient to point. leaves no doubt equity in the resort to a stockholder deriv ative suit.10 But the fact share When we turn to the authorities gets litigation the through holder into we rule generally find same established equity change weight bill in by overwhelming does not that of decision.14 fact right legal right enforced is the in detail but We shall discuss the cases corporation.11 directly of the have point We then sit out that on one case 10 requested plaintiffs’ The court affirmed jurisdiction. tion of the concurrent 1 finding that “it would have been useless Pomeroy, Equity Jurisprudence § any including Pennroad, for the stockholderof 13 Plymouth v. Ebbert Oil Co. cit- complainants case, in this to have approved al., ed and in Naffah v. Diebold et management asked the to seek the relief 1944, 219, 349 Pa. 36 A.2d 7S2. sought.” here 14 Kelly Cir., 1916, Dolan, v. 3 233 F. 11 842, (1939) Cir., Burt, 1934, Note 39 Col.L.Rev. 847: 635. Cf. McNair v. 5 “ * * * (suit receiver); Hughes view the the courts F.2d 814 cause 68 essentially corpora- Reed, Cir., 1931, (suit action that of v. 10 46 F.2d 435 apply by receiver); Cooper Cir., Hill, 1899, statute of tion limitations v. 8 not, depending (suit receiver); or ‘nature’ of the 94 F. 582 Anderson v. corpo- Gailey, D.C.N.D.Ga.1929, cause action in the hands of the F.2d 33 589 (1938) receiver); (suit also, ration.” Note 47 L.J. Yale 1004: see Curtis v. “ * * * majority opinion Connly, 1921, has been 257 U.S. 42 S.Ct. relationship parties (suit receiver). that of the is in it- 66 L.Ed. These ac- unimportant and, brought although tions, self that limitation at the instance of applied period receivers, equitable seeking should be one which would actions re- mismanagement, controlled had have coveries breach of And, duty, suit.” cases see cited and the like. Blythe infra, Enslen, 1922, f. n. 13. State decisions: v. Equity, course, 479; Arrigoni does not Ala. have ex So. Ador jurisdiction merely 32; no, clusive because the rem Conn. A.2d New inadequate. present edy Pomeroy, “. . law York: New York t. irrespective I; appears Equity Jurisprudence, I, that, Pt. Ch. rule Mc Equity identity equitable Clintock, plaintiff, (1936) 40. of the § fact stat legal applied inadequacy underlying of the ute when remedies to do adequately complete justice of action could not that furnishes the cause founda far conduct so of their v. and the nature Kelly

point Circuit is that of this already honesty personal has Dolan, it concerns Cir., 1916, 233 F. of the disposed of in the discussion the been “But, assuming' for The Court said: judge on that findings made the trial jurisdic- present purpose equity that existence point. duty Whatever effect the [neglect litigate tion to this claim running might actual fraud a stock- at the instance of directors] considera- does not call for of the statute holder, jurisdic- it is manifest that such here. tion court of of a tion is concurrent law to litigate claim instance at the however, plaintiffs say, concurrent, receiver, and, being of the claim is conceal was concealment and such there equity by the statute barred running stat toll the ment as would ute under * * * otherwise limitations. To hold are con law. We plaintiff evade stat- be to aid a would ute outset, however, with the at the fronted equity going on the instead over proposition, again down laid over and Thus, we whether of a court.” side decisions15 that Pennsylvania authority toor look to the must which tolls the statute concealment be an opinion legal generally weight of affirmative, independent act of con is one reached. case result is same nondisclosure, cealment; mere silence or jurisdiction; equity the stat- of concurrent enough. by corporate officials is not even le- the enforcement of the which bars ute gal place imma time at which it takes corporation for right at suit of the before, contemporaneous whether terial duty, bars mismanagement or breach of subsequent with or to the act equity shareholder. instance act, independent ef of. “affirmative But protects Obviously, this bar same the di- mislead, divert, prevent discov forts to rectors here ery” must We do not see there be. case, though 1867had the Act of even very independent of conduct such immunity not, itself, given from them suit. complain. plaintiffs which the things about then, clear conclusion is unless complain plaintiffs of investments and something running of to toll the there the covery eye they say were made with statute, plaintiffs are barred re- interest, that of the to Pennroad’s against corporate defend- both Pennsylvania Railroad. But the sum individual directors. as well ant complaint is a series substance up make which alone turn, therefore, remaining transactions We alleged see gravamen of the offenses. We running of the question of whether the “divert, acts, designed independent to' moral no was tolled. Fraud statute discovery”, unless mislead, prevent sense, misstatements of is conscious and circumstances in the facts facts, may be found from considera- be dismissed itself, which the Pennroad venture Obviously, corporation, under tion. circumstances Those facts and except through launched. statements make no could subsequent Penn- conduct spokesmen who its individuals were 1927, 562, 4, 275 U.S. (1941) denied certiorari Note 41 Col.L. treated law.” 120, 427; points Broom- 686, 72 L.Ed. author 48 S.Ct. 691. The out Rev. Doolittle, D.C.S.D.N.X.1942, decisions, held, 2 originally, field v. New Xork Savings misapprehension, Bank through F.R.D. 517. Cf. Greenfield as the court 252, Abercrombie, 1912, N. 211 Mass. 97 v. Northern Pac. in Backus-Brooks Co. v. did L.R.A.,N.S., 173, 897, infra, Ann.Cas. Co., 39 shareholders E. 1913B, since the R. receiver; equity juris (suit equity, court con- 420 sue could “express” trustees Lincoln v. sidered directors purpose Wallace was exclusive. diction limitations, 630, a doc- Bank, 1891, of statute Term. 15 S.W. 89 Sav. cited, supra, hy repudiated (suit cases Am.St.Rep. 448, trine share 625 24 footnote). oth this behalf all and creditor on holder Boyd creditors). Cf. shareholders er 15 Blachley, 1901, 173, v. Pa. 198 Smith Claire, 1003, Eau Fire Ass’n of Mutual v. 849; 985, Hall v. Penn- L.R.A. 47 A. 53 171, 155, 1086, N.W. 94 90 N.W. Wis. 116 Co., sylvania 100 257 Pa. R. Am.St.Rep. (suit 948 96 L.R.A. 61 creditors); 414; L.R.A.1917F, Deemer v. A. Wegwart, 1922, 178 Pietseh v. 215; Weaver, 1936, A. Pa. 187 324 by purchas- (suit N.W. 190 616 Wis. Bailey Jacobs, 1937, Pa. A. v. corpora- of a and assets stock er of all the supra. Plymouth Co., 320; Oil Ebbert v. tion). Weaver, supra, Pa. Deemer North- Co. v. Backus-Brooks Contra: page 88, Cir., 1927, 187 A. 21 F.2d ern Pac. R. plaintiffs’ incorporated When its Pennroad was road directors do bear out charter, paragraph provided charge for a of concealment. us look article Let law, “Except may required by surrounding in- moment at the facts required Corporation ception shall not be of the Pennroad venture. public manner, make stock- to its The whole matter had been discussed otherwise, any holders or con- statement people prior assets, cerning earnings; its liabilities or spring part of 1929. As * * provision A similar also promotion, signed by W. W. Atter- letter contained section of VII of article bury, Pennsylvania Rail- President by-laws. documents, Both these road, 157,000 was sent to shareholders of course, public are matters of record. Sub- company April 24, on writ- bought voting scribers and received trust ten on the letterhead of the certificates not share certificates. para- following Railroad. It contained the plaintiffs talk about the manner of ini- graph : tiation of the venture as concealment given “Your have Directors earnest con- presupposes aforehand. This di- that the developments sideration to recent rectors of a Pennroad and transportation, premeditated field organize and have reached scheme corporation the conclusion that will road as a sham be material fleece they to hide advantage Company shareholders and what intend- and its stock- skillfully by- charter, holders, ed do drawn to unite stockholders laws, corporate and other forms. How- establishing corporation organized so ever, findings personal integ- as to the that it make investments and ad- take rity defendants, of the individual sub- vantage opportunities a much on broad- stantial sums invested the latter possible than er basis under the limited certificates, their friends in Pennroad powers company. of a railroad Di- Your publicity attending the Pennroad trans- opinion rectors in- that such an actions, developed opin- further in this dependent instrumentality pro- is needed to ion, negative the notion -that such was the your your tect interests those Com- purpose underlying by-law the charter and pany.” provisions. prospective subscribers Simultaneously, through there went the knew the relation of the venture to the in- mails a letter of the same date They terests Railroad. Corporation, letterhead of the Pennroad written to as shareholders of that formed, which had signed then been very railroad in the first instance. The corporation through President, H. sugges- name tion of its affiliation with the nia Railroad.18 In carried a Lee, making H. subscrip the offer of share Pennsylva- tions, naming the first board of directors fact, plaintiffs calling of Pennroad and attention to the complaints they averred their fact that seven of them were members of purchases in reliance the letters the board of directors of the 24th, April describing Pennroad- Railroad.17 pro This letter also informed Pennsylvania relationship. Pennsyl- spective subscribers that all of the com were, people obviously, charge vania mon being placed stock was voting in a they, subscribers, a venture to which years. trust for ten Both of these letters told were entitled to no infor- sent were to the then shareholders of the except provided by mation law. Nor Pennsylvania right Railroad and their plaintiffs did seek information about subscribe for shares in the corporation new Pennroad affairs of the the they into which venture based holdings their bought from directors or other Pennsylvania in record Railroad. corporate officers.19 altogether eight 17 plaintiffs were There any Pennroad or intervenors ever made in- being quiry directors on named the first board. the officers or directors of The eighth Corporation H. respect H. Lee was any one. Pennroad in requested plaintiffs’ 18 finding matter here of. given any “The name ‘Pennroad’ was There is no evidence company definitely plaintiffs any new in order to more or intervenors ever made in- identify Pennsylvania,” quiry it with was af- officers or directors of The judge. Corporation fully firmed the trial was not 19 following findings undisputed: are answered. any no There is evidence that 898 in Finally, ment. filed absence in a suit was only Not is there an concealment, Chancery, by a but the Delaware Court of of affirmative acts of directors did disclose the transactions shareholder, complaining gener com Pennroad in ally charges plained Many action similar to those made years of. before this brought, great this action. plaintiffs received they information, though were deal of in no even therefore, conclude, point: To on this require produc legal position its concealment, only there was not period During tion. when in there was disclosure fact much fuller making purchase its of shares than the directors corporations management not its did dis obligated agreement sub- with the public the shareholders or the close scribers to make. purchases. explanation is fact such Its that, any plaintiffs claim in have been that such information would event, running tolled the statute was by in its own harmful creasing shareholders covering a suit ac the same causes price would which Pennroad general in tion terms filed in Delaware buy pay it was had to stock Chancery, by Court of another sharehold not, is ing. Whether that was so or er, Perrine, still action is 1930 undisputed beginning va having pending, it not even come to trial. reports Pennroad’s shareholders rious pertinent This contention here. holdings, all the list of disclosed and, they purchased price applicable of limita statute mar Pennsylvania.22 an ac in case shares had established is that of tions tion is barred If the Indeed, value, price.20 Pennsylvania selling then statute ket some disheartening limitations, reports de set out no action can be maintained purchased at Pennsylvania, though long lists securities tail the even the action prices the total

the 1929market purchase and footed not barred elsewhere.23 Suit must sadly comparing it with the cost before the Penn sylvania has run. A as of of the re statute suit in an values the date shrunken Pennsyl reports to share can no more toll port. went other state These statute, pub applicable Penn given vania to suits in but were usual holders sylvania, unexpired carry claim under financial news than media lication concerning operate daily can press. Facts of another state the statute lift the and to light brought to bar in venture were the Pennroad “ * * * impossible report investiga Splawn Pécora courts. successfully proposition, in 1931 Congressional committees to contend tion and 1932. The trial that there suit commenced another state court found actually plaintiffs a case statute would take out was no evidence investiga Massachusetts, in an action limitations the facts disclosed these knew they Story pending here.” Dela or not Whether did tions. Justice public Crowninshield, C.C.D.Mass.1824, plaine general information. v. matters Fed.Cas.No.3,756.24 judicial This situation take of 7 can and do notice Courts proceedings significantly different from where Congressional and the the case such thus them is cer suit started of facts disclosed existence question it is conceal statute. Then tainly relevant on tolls 1943; S. listed va- tiorari denied U.S. The statement by Pennroad, Ct. 87 L.Ed. 1133. owned rious stocks Estate, 1911, each, owned and their In re Newton’s Pa. bonds amount of Super. 40, against years (action par to 1937 in- stockholder For the value. Jersey holdings corporation); New insolvent cost of each of the clusive years Estate, 1938, re Mercer’s The statements 330 Pa. was listed. 1931, Plymouth 481; Ebbert in addition to A. Oil su- listed quotations pra against promoters (action cost, directors and current market they securities, corporation). a Delaware cases where of the each 23 Restatement, (1934) Conflict Laws also re- statements available. were Pennroad, ported 603. § current income 24 also, Reaser, 1943, liabilities, assets, Fisher v. 113 etc. Darby, Ind.App. 292, 1941, 21 46 N.E.2d 280. Cf. Elder 312 See United States v. 1895, McClaskey, Cir., 529, 109, 657, 451, 100, 6 F. v. 70 cer 61 S.Ct. 85 L. U.S. 1896, 685, 1430; 609, tiorari denied 163 U.S. 16 S.Ct. Louisville Gas Ed. 132 A.L.R. 315; 1201, East 41 L.Ed. Hooker v. River- v. Federal Electric Co. Power Commis- & sion, Cir., 1918, Cal.App. 615, 1942, Dist., 126, 134, 177 Irr. 38 129 side 6 F.2d cer-

899 bound, possible Pennsylvania statute must follow the local rule of con- flicts as Company all sub well. would be tolled as to shareholders See Klaxon v. sequently Inc., asserting Co., claims.25 Stentor Electric Manufacturing the same 487, 496, 313 running 1020, U.S. 61 85 Delaware suit does not toll the S.Ct. L.Ed. far, 1477. So Pennsylvania there statute. no seem to be disagreement among the members of this arguments been Certain subordinate have Court. The opinion difference of arises tolling with of the made in connection regard to what law a statute. These have examined apply, directly by reference, court would carefully considered. there .We think were the on trial in a court of that suits anything them nor is there merit I State. peculiarly think the answer is gained by elucidation elaborate forsworn for us our earlier decision obvious. al., Overfield v. Corporation et In this discussion we have endeavored to Cir., 3 113 F.2d carefully any passing opin- refrain When the Overfield case was here before upon plaintiffs’ ion the merits of the claims. plaintiff’s on the appeal from District pointed beginning, As was out at Court’s dismissal of her suit for want purely upon suits are federal court jurisdiction, we reversed and reinstated the diversity. grounds obligation is our bill, for proceedings. further reversing, apply applicable the state where necessarily pass we had to each of clear this we have The result is done. assigned by the reasons defendants conclusion that the actions in support of their dismiss, motion to whether late. too or not the court below had so. done One judgment of the District Court (113 of those reasons was 9) F.2d at favor of the individual defendants is af- jurisdiction the District Court lacked firmed; judgment present “because the action involves the against Court internal management affairs and of a Del- Company is reversed case remand- aware not transacting business judgment ed with directions to enter in its Commonwealth of favor. the Eastern District thereof situs [the the District Court].” JONES, Judge (concurring). Circuit Upon resorting Pennsylvania law, we fully I opinion concur in the for the held that the suit did “not involve the but, dissent, Court in view of I am con- management or control of the internal af- strained to add to the debate. Pennroad, fairs of foreign corpora- complaint Before matters can be- tion” and that “The sought relief appropriate come or discus- treatment imposition liability upon Pennsylva- merits, duty sion on their we first Company nia Railroad and former direc- pertinent ascertaining law and of alleged tors of Pennroad for wrongdoing pass, therefore, following accordingly. accounting and an the railroad to Penn- immediately ato consideration of the con- consequent road for losses.” Accordingly, trolling law. plea we overruled defendants’ of no jurisdiction authority on the of Loan So- jurisdiction Federal in ciety Eavenson, 65, v. 241 Pa. 88 A. 295. solely ground stant cases rests on the diversity citizenship. applicable situation, being Such cannot therefore, law, is the law of the lo State under said rule State, cal to the situs tlie District Court. The having court of that jurisdic- taken Tompkins, Co. rule of Erie Railroad causes, tion of the would make reference 817, U.S. S.Ct. 82 L.Ed. apply to foreign corporation’s the law of the State of the 1188, 1487, equally 114 A.L.R. pertinent domicil for the ad- equity juris to federal suits judication where rights parties if depends diversity citizenship. diction Pennsylvania. before court of York Obviously, Ruhlin v. New Life if the law Insurance foreign cor- 205, 202, 860, U.S. S.Ct. poration’s L.Ed. pertinent, domicil were because Furthermore, court, a federal so suit management involved the 187; Cohn, Dept. 1099; P. Baker v. 1st Sullivan, Ct. L.Ed. Maas v. App.Div. Sup.1924, N.Y.S.2d 765. 124 Misc. 207 N.Y.S. Company Dept. 1925, App.Div. See Southern Pacific v. Bo affirmed 1st gert, 1919, 483, 488-490, 250 U.S. 39 S. 208 N.Y.S. 895. then, con- suggests in cited the dissent corporation, internal affairs trary. event, Pennsyl- any In right whether a present ordina- a the case would pertinent law vania court Pennsylvania. would derive the of rily cognizable in a court directly Coke from that substantive State’s own Connellsville Thompson v. Southern must, or, reference, from law an- rules of A. 533. We Co., 269 Pa. State, Pennsylvania law applicable other it would be therefore, apply the law either less, ques- applied, court none when and the a to would instant suits as deny a tion still remains basis for whether a else we do required, merely is law court because a claim- under the cognizable cause of action foreign domicil, ant of afford its fa- State. litigation cilities for the of a claim which complaint averred the matters of That the State’s statutes of limitation denounce in adjudged be plaintiffs would as stale. torts, law according plain. makes case I think the Eavenson plain (and I not understand seems do compel proceeding “a dispute) That suit dissent that a sustained duty for losses applying defendants by account court would be under the neg- corporation by limitation, reason of their State’s statutes when in- ** * acts while ligent they fraudulent terposed, to suits for such as are causes capacity acting in their official pleaded in the instant That so cases. Any investigation into the as directors.” the suits on whether law or uity be the court’s corpora- side, jurisdiction the affairs of management equity eq- necessary only “to establish purpose being tion tortious reparation concurrent. which acts of the defendants” majority opinion. A cases cited in federal sought. Eavenson court, State, See the to follow bound the law of the case, supra, page A. Pa. at hardly could action becomes do otherwise. a cause of If page 296. cognizable in a federal Pennsylvania, sitting court in because applied law tort to be Whether the cognizable be would likewise a court directly to be found instant cases is State, but the federal suit to be re- rules or ref- own from impediments which a Penn- lieved sylvania States, law in ac- erence to enforce, be court would bound to Pennsylvania’s rule of con- cordance with Pennsylva- pleaded, right if then a under flicts, instance, depends, in the first will accorded federal court nia law alleged place the commission of - they litigants in that which would State If, perpe- perchance, wrongs. enjoy State. Such in a court a many in as different States as trated effected, result, if would un- constitute an then, conceivably, suggests, dissent impairment of Erie warranted rule to avoid confusion sylvania order a Tompkins. Co. v. uncertainty because of standards wrongs might apply its place of the escape from the Wherein then is the all, which “the own law. After extent pleaded limitations? It is barrier apply in shall its own courts a [a state] suggested fact that the lies ques- state is itself law of another rule of equity are in federal instant suits court. Magnolia forum.” law of tion local noted, But, already rule of Erie Hunt, 320 v. U.S. Co. Petroleum Tompkins Railroad Co. in extends to suits But, 150 A.L.R. S.Ct. ju- equity in federal when courts Pennsylvania would source from whatever upon diversity depends of citi- risdiction zenship. applicable to the instant the law derive suits, v. New York Ruhlin Life Insur- would law of it none come event, any supra. sug- ance where, undeniably, Delaware none immunity gested equity in a federal wrongs can said to alleged from the bar limitations to found committed. applicable local in otherwise no aware, Pennsylvania as I am York has absolute. The recent case of So far means require Guaranty York, Co. Trust of New court of v.

no rule Cir., (whether trial for tort 143 F.2d which the that State on the dissent cites equity side), ap- law or upon, expressly recognizes court’s (143 and relies 527) applicable aggrieved domicil of law of the F.2d local stat- ply the or in behalf of utes of limitation have been foreign enforced courts, brought. sitting equity diversity the suit Nor do I federal (a) cases, “either cases where there was think that inequitable complaint con- The any respect showing of matter of whatever of plain- Company for accounting Freight National di- of the duct defendant is not (b) the ignorance rights his investing tiff’s of rectors’ Penn- sale it but of their entirety, his money which, of becoming aware road’s it plaintiff, after both, happened one, years but six slept prior Not than on them.” more to rights, that, present filing contingencies of the even specified Overfield suit. So of indisputable separate of these if seven of facts matters as the here complaint, Weigle which first plain. suit make cases brought upon years six record well over any disqualifying con- The absence of occurrence, legally after be could ma- fully treated is with cealment Company Freight tacked on to National not, therefore, jority opinion. I shall du- complaint transaction of the Overfield as. pointed may plicate It the discussion. constituting, similar one con- overt acts of however, inquiry pertinent out, tinuing conspiracy, the suits would still for is not upon a concealment search outlawed, for earliest of them was not much have been told how could bounded brought years happening within six much how stockholders but any complained of of the matters of. duty legal under a directors were hardly validity reasoning is a de- them. There disclose imagina- majority opinion outraged legal what an limit to merit finable disposition tion, hindsight, which sprung a chastened makes this Court now ap- appeals having been instant suggest not later seem to stand tome unimpaired. prior propriate matter for disclosure. that, accord- also borne mind undisputed findings, ing to the trial court’s GOODRICH, Judge, agrees Circuit with present plaintiffs or single one this concurrence. any informa- demanded ever intervenors and, or of of Pennroad its directors tion BIGGS, Judge (dissenting). Circuit course, refused information was I must expressed dissent from the views them, as trial court also found. by majority. In my order make rea- But, instant is said even if the necessary sons clear it length to refer at subject are statutes suits pleadings, facts law.1 limitation, Overfield filed suit complaints are There two involved in the timely. light of record now be- appeals bar; Weigle’s. Overfield’s and us, utterly I basis fore to see fail Weigle’s complains bill eight pur- once, times, Not that statement. but three chases, hereinafter, described by The separately the trial affirmed that court Corporation Pennroad by were consummated “Neither of these suits within pursuant scheme employ years six after acts the commission funds the benefit of The complained And, instance, of.” ain fourth Company damage effect, the trial court found to the same complaint, road. prior Overfield’s language, affirmative follows: complained amendment one begun “Each suit years more than six bill, Weigle’s transactions inof plaintiffs complain after the acts growing forwarding freight out of the had occurred.” Nor have been able project. Weigle suit filed on discover, from an examination the vol- 7, 1940; Overfield’s on March June briefs, record uminous those where in both suits is based Jurisdiction findings disputed by anyone. diversity citizenship. February On 10, 1941 the suit, Court made fact an order Overfield “consolidating” complained only proceeded both cases and National Freight days Company transaction, to trial. Four later Overfield asked was filed party-plaintiff day years within one six leave to intervene as from the time suit, Weigle submitting of the action taken Pennroad’s direc her motion a looking disposition petition adopted asserting tors she of Penn- eight causes of action set Freight by Weigle. road’s interest National out Company did below not serve allowed to toll the statute. The the intervention. seventy-eight The trial briefed extenso. consumed trial This statement days. by way apology length length. offered record unusual appendix dissenting opinion. 25) (see our Rule in ex- points 10,000 pages, most cess 902 failed Weigle, Weigle 28, has Maurice S. in 1933. Mrs. February terests On appearing mother, on devolved prove the also to his that her shares on behalf of suit, by operation she did her plaintiff in that testified of law. that the time of not own happening at the Pennroad stock2 Ownership the stock at shares inof complained of the events com happening time of plained events the of the the stock bill received her under but that had she 23(b). Rule required by of is of her will and from the estate the however, compli opinion, am that of the Stein, pur- had father, who Maxwell S. un rule provisions ance with the the 9, appeared 1929. It August chased it necessary maintenance possession Weigle into that Mrs. come con jurisdiction “real” court. This of the 27, 1932, a September after of the stock upon clusion is Supreme the decision based com- North transactions in v. which Court Venner Great date plained all. 328, of, treated as (if Co., 52 24, save 28 S.Ct. one ern R. 209 U.S. completed. Prac Federal events), had been L.Ed. 666. Moore’s unconnected See also Weigle tice, moved to dismiss old pp. provisions The defendant 2275-2276. was not complaint ground Appen that 37, on the she 723 Equity 28 Rule U.S.C.A. § dix, requiring time of at the the intervention to be sub of Pennroad stockholder complained proceeding events ordination to omitted main has the occurrence of, citing 23(b),3 provisions Rule 24 Civil Rule Rules of Moreover, Her un the 723c. it following Procedure. der the law clear that

28 U.S.C.A. section which, Delaware “strict- conceded she was counsel represen- hereinafter, ly” party-plaintiff governs proper in a reasons set forth parties, right 23(b). rights The will of Rule substantive under tative suit Mrs. every reference of stockholder and in Weigle’s makes is derivative father all ures to benefit of shareholders clear how Pennroad stock. is not corporation. through v. See Keenan she has Weigle received the stock but Mrs. Eshleman, 234, 904, 23 120 Del.Ch. 2 A.2d prove shares owned the failed that she follows, therefore, A.L.R. 227. It events happening the time of Weigle suit cured respect defect except complained of her Overfield intervention court freight forwarding which transactions refusing below did not commit error in began in 1929 substance 5 Weigle complaint.4, dismiss end certain in- brought an the sale Pennsylvania’s request 2 below court refused The words “stock” or “stockholder” request 13, a opinion No. to affirm a conclusion time from time to used in this are Weigle’s complaint “voting of law that “vot should be or lieu trust certificate” conformity Actually, dismissed as ing with Rule holder”. trust certificate 23(b). appear opinion, the time from this will complained happening 5 expressed of the events Under the view is unnec Penn- of, essary no stockholders of vexing question there to determine voting arising trustees of the other than the road Tompkins, R. under Erie Co. v. 304 public 64, hereinafter. 817, as stated 1188, trust 58 U.S. S.Ct. L.Ed. voting 1487, issued under certificates trust held A.L.R. and Ruhlin v. New Life York voting until the dissolution trust Ins. 304 U.S. 58 S.Ct. 82 L. provisions trust. Ed. as to whether applicable 23(b) of Rule ato stockhold 23(b) Civ- Rule of the Federal Rules suit, having er’s derivative stockholder part pertinent provides: Procedure il acquired the stock after the time of the a secon- to enforce action “In an. happening of, of the events part dary right more of one or on the when, under the of the state incor incorporat- association, shareholders poration (here, Delaware) there no such * * * unincorporated, the com- ed requirement ownership. time of See * * * (1) plaint aver shall Company, v. Blair F. H. Smith 18 Del. plaintiff time of a shareholder 207, 213. Ch. 156 A. also See complains he transaction Practice, pp. seq.; Moore’s Federal et on him devolved thereafter his shares Barber, Fire Insurance Co. v. Home * * by operation of law 93 N.W. L.R.A. Neb. 716; Am.St.Rep. request the decision of this No. U See Caldwell, Cir., Gallup fact, findings v. 120 F. found the District Perrott requested. as well United It states 2d 90. Mrs. Court Corporation, Banking D.C., 53 F. Weigle acquired in Pennroad aft- States her stock Supp. September Note also that er her per- amend stockholders asked leave Mrs. Overfield petrated through wrongful exercise of complaint by including in by Weigle com dominion the and control of Pennroad seven contained in causes Pennsylvania. alleged com the It plaint Overfield also that not set in the forth for directors of Pennroad defend- plaint. argument motion named as After the C., participated ants7 by conspir- D. See granted. fraud leave to amend was ap ing Questions with F.Supp. carry 482. as to the it out. pre- plication limitation are of statutes of It is asserted “Directors further that the by interven- sented amendment and the the as Officers of named Pennroad herein dis- It tions. will convenient be more conspired defendants” combined and with questions point later in this at a cuss these sup each other and with additional opinion. Assuming that press or showing conceal facts the true Over- of in causes action now embraced character and of the transactions nature by complaint statute field barred are not complained plaintiffs of re and that limitations, in adduced all evidence ignorance mained in until these facts proof action causes of set out public by of them made disclosure complaint Weigle must suit report of the Wheeler Committee equally pertinent is- deemed to be 1938.8-9 complaint. presented by sues Overfield complainants Pennsyl- Both pray that complaints (after amendment of vania and individual defendants bill) substantially Overfield out identical set jointly held severally to be liable causes action. Each now refers to all the losses incurred or suffered eight transactions discussed hereinafter. road because com- transactions general Each allegations contains certain as plained of, for an accounting and for other Pennsylvania, to the conduct Pennroad’s relief. trustees, voting directors Many pertinent facts are out set though language employed com- opinions in the F.Supp. 586, of the District Court at plaints slightly varies substance 48 F.Supp. allegations is the same. It asserted that (cid:127) court’s findings extensive of fact. At the happening at the time of the request court, of this counsel par- complained of the events in “com- compiled ties findings made plete every administrative, control of exe- Court, District specifically designated those managerial' department, agency cutive and and “findings” by as Judge well Pennroad, office of including office as the statements as to facts contained in of Voting Trustees.”6 It alleged opinions his designated “findings.” voting reason of management, trust the References are compilations made in these direction and control of Pennroad “was pertinent to the testimony. I shall refer to vested in period for a findings of fact and conclusions lawof years.” ten It is claimed that made the court below where fiduciary was a for Pennroad and that necessary. deem it to be Pennsylvania’s interests were distinct A conflicted with fundamental those of fact Pennroad. which animated all is asserted the defendants complained long that the was that transactions the in- before ' (described hereinafter) (at fraud early least as paragraph Weigle report Quoted from Session. printed 7 of ordered complaint. February 6, on Weigle complaint specific 9The is more dealing Joseph alleged It should be noted Mr. concealment of Wayne complaining became a director facts of Pennroad on the directors or of- “surreptitiously March ficers of The transactions in re and cov- spect freight ertly forwarding project caused, knowingly permitted, oc or to be after curred this date. All the from the other trans omitted books and records of complained place actions of took showing, before Pennroad all matters Mr. and facts or Wayne tending any relationship had been elected to to show Pennroad’s or inter- Wayne part Pennsylvania” respect board. It will be noted that est became a director of Pennroad before he to the transactions of and Pennsylvania. appear became a director them to caused as if had been Pennroad “in the exercise of the “Investigation Railroads, wholly independent judg- Hold- and disinterested ing Companies, Companies”. and Affiliated individual ment” of tlie defendants as Report Congress, Senate No. 76th 3d Pennroad’s directors. * * * association, Pennsyl- or securities 1924) and directors officers Corporation, desirability, which are held or for perceived even vania necessity, control, directly indirectly, acquiring or not less than 25% by any in of the stock of which or all control, carriers

measure held Corporation rev- of the Pennsylvania’s traffic col- protect stockholders of the order to consolidating lectively.” plan voting A Since the trust certifi- enues. tentative sys- of Pennroad first cates United States into be offered the railroads of promulgated by the Interstate stockholders it tems was thought promoters pursuant that the Commerce Commission Transportation voting Act holders of would of trust certificates mandate to own apparent that more than Penn- it of stock of By of 1920.11 was 25% sylvania. voting pos- Pennsylvania of The might not obtain control trustees would legal essential sess all Pennroad stock. certain which considered title to lines it Pennsylvania, therefore, would protection augmentation of be a cor- poration “not Pennsylvania’s position, less than the stock traffic. like 25% railroads, compli- of which” would be held trunk line was stockholders of other provi- of Pennroad. provisions Under the charter of Section cated further 7 of quoted Pennroad assist- Clayton Act, pro- sions could render 15 U.S.C.A. § Pennsylvania any to which ance manner controlling an- hibiting one carrier from advantageous directors would Pennroad’s when the control deemed effect of such to Pennroad or competition. the officers to its stockholders.12 lessen Most of Pennsylvania were con- and directors vinced that it company by Officers of served as incor- necessary guard was to porators of Directors were Pennroad. acquisition in- stock directors, one, elected and all Mr. those save Pennsyl- “feeder” railroad lines. terests vania Lee, .in Henry H. were also directors wholly-owned possessed subsidiary, Pennsylvania. resigned Mr. Lee Penn- Pennsylvania Company. in- This was an sylvania’s become Pennroad’s treasurer to company which have vestment could proceeded president. im- The directors acquisition used for the railroad stocks. mediately persons elect All to officers. Pennsylvania Company’s-capital com- as officers had been or were officers elected or trust was set paratively direct small because of the Pennsylvania. voting employees A stockownership sylvania company by Penn- of that up. voting inden- trust Clay- provisions of the three provided ture that there should be incapable Act was ton of real assistance voting trustees voting trustees. Three Pennsylvania. to them was General selected. One of Atterbury, president of William Wallace Pennsylvania. appropriate Pennroad was selected as Effing- was Mr. Another expan- instrumentality Pennsylvania’s Morris, a director of company ham B. incorporated sion. The finance committee April and chairman of the invest- Delaware as an of directors. board company capital ment an authorized Cooke, Jay director 10,000,000 par was Mr. third shares of stock without road and chairman value. Pennsylvania board.13 committee The charter of stated Pennroad one “ * * * included stock was of Pennroad’s All purposes any aid of its manner which the board of directors to voting trust. which Penn- and dominion control advantageous Corporation to the deem respect stock, expected exert corporation sylvania the holders of its A C.C. power found Commission’s Act allocated convenient years See 455. without Section Consolidation of after Moody’s under 41 Stat. index of railroad consolidation would specific “Steam Interstate Commerce charter Railroads, Transportation Railroads” possessed plan may 'U.S.C.A. companies authoriza- 63 I. such § nual sion other. The tiou term of third tion consisting 13 By at each annual quoted since one election divided Pennroad had been investing public three of one-third purpose of avowedly directors came into three years. directors were chosen corporation may meeting. At charter of the board. One- classes, incorporated. charter up for purpose for give each directors each aid an reelec- notice provi for a class an- immediately herein- in- These by which it described Pennroad and the means (1) to numbered paragraphs after exhibited achieve tended to this end are (8), inclusive. accompanying' statement drafts of a road’s proposed by-laws sent charter and Detroit, & (1) Ironton Toledo County, April 18, Albert 1929 Mr. on a director of president incorporation Company. J. vice- and its might completion rushed so was purchase accounting treasury, charge company.14 of this securities corporate work, Mr. Morris. purchase approximately price The $35,500,000. “ * * * County said: this statement DTI from Detroit runs protection company pre- the Ohio River and thence Ironton on Toledo, early control, especially losing vent days 350 miles. distance of about ownership, vot- under a diversified & Rail- with Norfolk Western connects * * * The ing only way. trust seems way sub- owned a voting people. trustees would our own stock stantial interest. About 85% sug- first directors of Detroit. DTI’s traffic moved committee, gested our finance purchased Henry 1920 Mr. Ford most In of myself.” including Atterbury General and securities, paying for a DTI’s share $1 stock, pre- a the the common share $5 to Pennroad’s Invitations to subscribe stock, company’s purchasing of ferred and mailed to stock were stockholders all mortgage Pennsylvania He con- Atterbury joined first bonds $60.15 General sending Mr. to structed a 13-mile to a extension the River Lee communication Rouge plant Company Pennsylvania suggest- the ing of of Ford Motor stockholders Rock, purchase yard an interchange of Gen- at Flat Pennroad stock. and.built traffic, Atterbury’s Michigan, to a eral ing handle Ford letter included the follow- Petersburg new “Your di- line from [Pennsylvania] statement: Malinta. to to maximum given rectors have investment made Mr. Ford earnest consideration $23,000,000.16 did developments exceed record field trans- recent portation, have demonstrates the traffic reached the conclusion that without the Ford operated would road deficit. at a advantage that it will this be of to material Company stockholders, and its Pennsylvania marked showed interest to in establishing stockholders unite a cor- February DTI before 1928. In Mr. poration organized so make in- that Stackpole, sent Edsel Ford for Mr. S. T. advantage oppor- vestments and take general-agent the troit, at De- tunities on a much broader basis than stated him to that he his possible powers under limited father like Ex- would sell the railroad. to company. railroad Your Directors are negotiations tended followed. Numerous opinion independent that such in- in- reports officials strumentality your protect needed to Pennsylvania. experts Ownership and of DTI would be of sylvania to your Company.” terests and those of Of advantage Penn- 4,506,- original Pennroad issue of stock there DTI if assurance that acquired 606 shares or 81.13% carry would continue On -to Ford traffic. 6,376,971 persons held 56.- who shares or County March Mr. in a stated Pennsylvania. By stock of rea- 64% Atterbury Pennsyl- letter General that son these facts came with- $39,000,000 pur- vania not risk category corporations designated in the “except DTI chasing on a firm contract charter Pennroad’s of whose stock 25% and with I. approval.” Ford C. C.’s was held the stockholders of Pennroad. County Kuhn, had Mr. discussed with Loeb question Immediately upon incorporation & DTI marketing Co. of of public. Pennroad it Mr. embarked bonds Schiff Mortimer the first eight banking that firm had of. of stated transactions plaintiffs ed Mr. Ford connection assert that Pennroad in with his reality ownership bought railroad; of DTI. it did possess power under charter distinguished operate total 16The Ford investment was esti- own or railroad as $22,172,889 preliminary report owning mated from the of a securities railroad necessary Pennsyl- company. DTI made a committee is not to discuss point. officials the executives of vania Penn- unnecessary sylvania when itself was &». It is to describe to re- purchase corporate sidering DTI. fer entities creat- to the various

'906 guarantee mar- traf- no Ford interested continuation of syndicate would not completion one fic. Pennsylvania’s guarantee On the sale

keting the bonds without River Detroit representatives in and to the Fords Rouge plant traffic telephoned carried him that County Mr. told to be would continue purchase been consummated. had by DTI. Lee, president Neither Mr. of Penn- by Penn- agreement drafted had been An road, vice- Ogden, nor Mr. Samuel H. DTI be used for sylvania officials president, DTI any part neg- took being purchaser purchase, the name Mr. “The Ogden otiations. testified: was known as left blank. One such draft draft * * * Corporation made no County’s Mr. it in Written on “#4.” ** * merits of examination [of dealing with handwriting a memorandum purchase] of the conditions because purchase. proposed financing of the * * * existed at that time there mar- The memorandum is set out practically opportunity As so. do phrase, gin.17 Attention called to testified, my opinion it was The Penn- initials Corp.” The “G. “Use * * * Corporation road was formed memorandum refer appearing H. P.” on the acquire immediately Detroit, securities Pabst, Jr., had George who suc- H. & Railroad Com- Toledo Ironton Pennsyl- Mr. Lee treasurer ceeded pany.” No executive officer of Pennroad written The memorandum was vania. attempted to estimate the amount days prior April about two company’s return on the until investment incorporation. purchase after made. $15,000,000 purchase intended price 30, expended amount about 44% by April paid Fords Despite capital. road’s total authorized this fact Pennroad’s April 29, days after 1929. On five did not author- board County incorporation, Mr. purchase pur- ize the DTI until of transmitting reports Mr. DTI, wrote to Lee had been chase made. stating, data on “As pur- Company Pennsylvania, did make wish not to An assistant-treasurer of hopeful Schotter, property, I that W. chase of this am Mr. H. DTI reviewed the Corporation, your do an transaction in will so order to recommend a finan- date, question early has been so cial setting up basis for because investment on long delayed Ford interests de- Pennroad’s an books. He selected 8% prompt appropriate return, showing mand that action must taken or that he deemed parties.” they will deal On the investment to entail risk. The sale $15,000,000, price April 29th Pennroad borrowed which the obtained based Fords was purpose payment apparently making average earnings for the of DTI of years” $2,- “over recent referred to. of the amount 160,000, capitalized Fords 6%. Pennsylvania’s negotiations with the could assume would traffic suddenly off. were broken Mr. Fords Pennroad, carried on their own railroad. Henry give guarantee Ford however, not was make entitled to such an the DTI he would continue to use of make assumption. accept Ford He would for traffic. not independent partial payment. experts On how- appointed by the June ever, purchase DTI of was consum- District Court19 reached the conclusion simple $48,000,000 has DTI was worth mated in form. As been to the Fords on approximately $35,- paid Pennroad basis stated of income returns. These returns 500,000,18and received all the DTI of se- included both received income from the by operation Fords. owned curities There railroad and interest on County’s road road Bk. will First Can’t grees ^[*] “1. “2. As Corp. officers for we Natl, Covering Covering follows: ^[*] copy. provide Use two be in of Detroit act for it. The the stock G. H. P. ^[*] the bonds this. “Rewrite Corp. take contracts, is to ^[*] the bonds & Use Tlie in which of let the Penn- “A. J. C.” be a First $3. ^[*] party. Natl. Mr. de- ^[*] ly $37,500,000. need not be detailed here. The net 499,000. paid purchase securities Subject See 48 to the Fords was price issued Pennroad F.Supp. to certain amounted by DTI. purchased approximately $35,- page 1009. adjustments The “overall” approximate additional price 1,350 of Company owned acres Fords. also about held the securities high. improved land. About experts too acres by the seems figure given wharves, warehouses, - of building sheets comparative balance See the piers. lands leased Railroads” These Moody’s “Steam given DTI Totalling net' Canton Railroad. desired years 1929 and for the $37,- prevent using control of Canton accrued interest income and compet from falling average return into hands basis,20 500,000 as a ing appears in trunkline. As from a letter years 1921 to the Fords September Charles written Mr. about clusive, rate of was at 4%%. Krick, Pennsylvania, vice-president the S. $37,500,000, figure Making use Clement, Region, in Mr. W. plus accrued Eastern Martin income percentage of net charge vice-president obligations outstanding terest on operations, Penn control of Canton rate of DTI at the 12.03% sylvania Pennsylvania re would result 1930, and 2.68% 8.70% ceiving years of Canton business Railroad’s average the three 7.804%. 60% inclusive, 43%, resulting the instead a net increase years For freight returns Averaging the revenue to average was 5.2%. $577,000 inclusive, year. the about find 1929 to we from did to be average Since 5.85%. July County a let- On wrote $2,000,000 face approximately not own Hannaur, ter to Mr. member Jerome return the securities DTI value Kuhn, stating & firm of Loeb average over it was less than this he had conferred “with some our friends years date from twelve property, as to the value of [Canton] Precisely what return was trial. say $11,- and they figure outside accounting. an ascertained on * * * 000,000, could this amount except experts appointed period independent long be realized within it large part investment because must the court found Pennroad’s arise profits so DTI excellent one. cannot future from real latter estate to be subject years during since becomes in demand characterize $11,000,000 might traf the Fords move their come. From risk that we deduct Rouge plant $1,500,000 bonds, from [outstanding] fic to and of leav- River the ing $9,500,000.” made net value railroad. this some other Pennroad In of] [a compelled Pennsylvania County because Mr. plain letter made it that' he investment reason. Penn- thought it do and for other to so no Canton’s stock was worth about made board and executive officers share. About $432 W. its this time Mr. Thomas road’s Hulme, investigation vice-president Pennroad no of value of estate, in charge real They accepted which of valuation and taxa- DTT. the risks of Pennsylvania imposed corpora tion, upon their Atterbury that wrote General to. liability of defendants tion. The the Canton is paying “While share a$8 liability dividends, of their conduct and the reason of it most from comes applicable property. as well of sale ter- as the of Its railroad and damages operations will herei be discussed of minal without measure nafter.21 conducted * * *” profit. Company Baltimore. On (2) Canton 1928 negotiating In ceased 21,975 purchased Pennroad for price Canton because demanded June Company stock, of the stock Canton about share, shares22 $600 also $13,432,817. price acquisition for Baltimore by Pennsylvania its because per slightly require approval in excess of share. $611 was Inter- Company Canton Railroad owns state Following Canton Commerce Commission. thirty- operates meeting May a terminal railroad on of General Atter- length vice-presidents bury in and Balti Pennsyl- miles about with the three vania, following Canton Railroad connects with more. memorandum was Maryland Pennsylvania, with the Western written: “At the President’s Conference , question Baltimore & yesterday Ohio. Canton and with purchasing ity securities on Fords The District Court figure including purchased by last mentioned includes all respect few imposed not Pennroad. owned the DTI liabil stock. transaction. appear page This was 1008. His substantially opinion reasons at 48 for not all of Canton’s F.Supp. doing so at up. Mr. damage Canton R. R. County came of Baltimore has been Pennroad suffered he price from investment, lowest stated that Canton Co. [in or per light share could obtain complainants was $700 failure of the of] [sic] $15,400,000 clearly property. for entire damage establish a suf- basis of opinion while was that consensus fered as a [Pennsyl- result of defendant’s have trust, breach should it vania’s] does [and] Railroad, he war- seem we would essential Canton that the should Chancellor * * * price.” paying ranted On an make award based June decided, should purchase.” Pennroad Canton Co. F.Supp. it was ' County purchase day Mr. Canton. On that The fact that Pennroad suf- damage the fered previously prepared apparent. took letter to Aside fact, Banks, presi- on, office already Mr. Theodore H. commented Exchange dent of that Pennroad compelled American Securities to embark Corporation, was on The letter brokers. real speculation, inappropriate estate Signed by dated 10th. for company, Banks investment clear June Colgate paid addressed to Mr. C. that Pennroad more than the stock James voting and all worth. owners Canton’s No share voting cer- trust certificates, trust tificate of contained an offer Canton had sold on the Balti- buy any voting or all the triist more exchange price stock or stock for a in excess $596, a share. of prices $400. certificates Financial Canton at Most sales were at substan- sup- Canton, tially price statements of below the stated. City porting on sent Pennroad Baltimore appraised data had been which then tax purposes real purchased substantially estate at 5th. Pennroad 100% June value, au- appraised Canton stock without proper- Canton’s June $6,184,719 thorizing year direc- ties at resolution its board of later, $7,100,200 year tors.23 More than a A Sells Haskins and report maps showing very asked Canton for “available 1929 showed a June unimproved property owned Canton substantial deficit surplus. The returns Company, area, streets, whether indicate a value below far not, price siding paid. through available connec- among cut These factors others tions, employed arriving and like information.” Pennroad possession apparently this amount loss. not in District specific Court should pur- make a finding vital information when it made its chase. value the stock at time bought road it. findings profits Canton from sale support Court are without $690,000; of real in amounted estate to about evidence. $1,259. 1930, $93,487; 1933, only profitable year Canton In the most (3) The Pittsburgh & Virginia West had, operating had revenue Railroad its net Railway Company. This transaction $323,401, amounting than only less was to briefly be treated pre- more than the two investment. bn Pennroad’s purchases. September, 1929, 3% vious About Atterbury General obtained information Because of the amount of real estate stock, experts en- that shares of representing held Canton court’s the con- difficulty arriving at in the trol of PWV and countered owned Mr. Frank Taplin, Pittsburgh, from ven- amount of losses this were for A sale. suggested special meeting and of the board of ture directors of compelled to Canton from Penn- Septem- take over called Pennroad was and held on purchase Pennroad. The adopted at ber A road its cost 5.24 resolution was stock Pennroad in purchase was fact Canton authorized Pennroad about speculation, speculation 220,000 real estate price a which could shares of PWV at a not to only result in benefit regular a share. At the exceed next $175 sylvania. board, meeting days later, of Pennroad’s six Atterbury General informed the directors any give Court The District refused to Taplin agreed that Mr. had to sell his stock in favor of Pennroad judgment because per purchase concluding pur- share. then Canton that there Pennroad $170 Taplin’s stock, “grave doubt chased constituting as to whether real was 73% authorizing purchase president Pennroad, Lee, resolution A Mr. n passed County present on June 12. and were not at this meeting. PWV, for ex- In when the Great fact outstanding stock of Lakes route. the total bought operation Subsequently, put in $37,898,100. tension was Pennroad with interchanged shares number of loaded cars number of additional small Maryland Western Connellsville open market. stock 10,518 in- had this number junction Pittsburgh PWV runs from 54,459. inter- creased to The increase in west Wheeling & Lake Erie with largely change was due traffic to new junction with Pittsburgh to a and from Lakes. carrying iron ore from the Great Maryland PWV also in the south. Western from traffic was diverted PWV railroad, Belt West-Side owns a terminal Ohio, Pennsylvania, & from the Baltimore Along Company Pittsburgh. Company, the New York Central Railroad owned of West-Side lie mines tracks and the Bessemer and Erie. Lake Coal operated by Pittsburgh Terminal unnecessary It coal traffic the contro- Company. About discuss 75% traffic) versy Pennsylvania and (at existing its between of PWV least of all 50% By originated Pittsburgh certain trunk the so- Terminal. railroads under “Four-System consequent- Plan” called eastern production coal may be railroads or described as ly Terminal what Pittsburgh income of the net Taplin “Fifth-System company in- abruptly. There had Plan.” declined cogent Pennsylvania’s When clear and reasons curred deficits stock, prevent Pitts- purchased the PWV desire to interests dominated Sweringens from burgh obtaining had Van control Terminal five mines operation. PWV’s financial structure was of PWV25 and for desire complicated by Taplin’s friendly the fact PWV had have Mr. hands. stock Pittsburgh and, while Terminal own- owned emphasis lay fact The defendants on the it, payment ing guaranteed principal had paid that PWV rate of dividends at Pittsburgh bonds interest of issued per from 1929 inclusive. share $6 amount, Terminal. In face these exceeded years, however, During these cap- $2,500,000. By working 1927 PWV’s pointed experts appointed by the out $743,000. ital a deficit of showed court, paying charges after fixed and divi- dends, its PWV retained proposed by less those control than 5.9% surplus. part earnings for The ex- addition PWV that it be a central constituted perts, practices thir- using as test of a new Baltimore route tidewater at railroads, pursuance representative teen this American to the Great Lakes. In years plan, engaged that in each of the referred struggle PWV with concluded $1,600,000 put systems the to PWV certain railroad least to control stated, surplus They into Wheeling by purchase Erie accounts. Lake permitted divi- struggle In incurred “Such a course would have stock. PWV had per $1,700,000 each of dends of less than share for $5 indebtedness amounted to years paid.” September, ob- instead 1929. PWV three $6 also had ligated extension, generous Making known allowance for the itself to build an success extension, extension, Connellsville com- the “Connellsville” to connect Maryland. pleted pur- the time of with the Western 1928 and $6,000,000 chase, experts average 1929 PWV estimated net issued bonds amounting earnings of the railroad finance the extension. was in- as This sum apparent $3,777,000. Capitalizing sufficient and was PWV this amount it 6.26%,26 gross experts would have to raise as much more to com- the arrived at a $60,- plete slightly new line. On for PWV the other hand value the excess 000,000. Deducting was the obvious with Connellsville ex- estimated debt dividing completed $20,000,000 from PWV would constitute this and tension about outstanding by important total element Baltimore- net number of and two raises the “The stated the Baltimore application The Interstate Commerce Commission Connellsville competitive proposal Baltimore question gist [the systems, extension Connellsville toas & Ohio, matter PWV to served whether when it or should extension] merely by construct granting said: port lation to 1928 served C.C. struction West with both the thirteen experts A Virginia also capitalization 762. by and based representative Extension others.” stock Railway a third prices. figure employed by on See system, by Pittsburgh Company, 138 I. railroads in Proposed earnings competing Con- re- & price shares; viz., 302,351, they shares arrived of Seaboard stock $4,523,838. sur- per of about circumstances value PWV stock share of the rounding purchase brief- the value of this stated This include did not $129. ly November, Erie Mr. Lake as Wheeling and follows. stock In But, although engineer, Wheel- Walter by Colpitts, W. PWV. railroad owned earnings, by management was ing Lake Erie had substantial asked Seaboard prior study only properties paid on its Seaboard recom- being and to dividends less improvements. report mend sub- preferred owned A stock and PWV was lien Colpitts mitted Mr. the Seaboard stock. than shares of this report management May, 1928. The 60,000 October, 1928, September permitted showed Seaboard had some PWV traded on shares of had been place deterioration to lines take price Exchange and the New York Stock single equipment. largely a Seaboard was low range between a fluctuated 145% weight light track railroad constructed of By both May, high and a of 163. inferior; ap- rails. The road-bed was price had fallen off and in volume and proaches many were made of wood 5,400 shares month fell so that possessed these were old. Seaboard also price range of traded in at 125%-135%. grades. track- excessive age About of its 40% Taplin and appears May Mr. also that lay re- in the State of Florida and the trading formed a some of his associates trackage maining plains served coastal activity price pool market Appalachians. east of the This land momentarily There- increased.27 stock largely competed agricultural. Seaboard price PWV con- after the stock declined large systems lying with other railroad trary stocks. market for railroad trend These had direct South. access bought Pennroad The PWV stock ports gateways. Gulf and south-western when more a share worth not than $129 competition was in Seaboard direct with it, purchased less than Pennroad $41 Colpitts’ Railway. Atlantic Coastline $9,- price paid. The difference amounts to states, report Atlan- “The and the Seaboard 140,130. imposed this Judge The District competitive as perhaps tic Coastline as Pennsylvania. F. liability upon '48 any two railroads in the United States.” Supp. The learned 1011. Judge purchase Pennroad found that the The Atlantic Coastline was much by Penn- of the PWV stock was “induced stronger two railroads. Seaboard’s sylvania for the reasons Railroad” same dividend record was bad. far So purchase Pennroad of induced the discloses, paid record never dividends viz., Detroit, Ironton, Toledo & stock income, however, did Its on stock. net sphere of influence of bring PWV “into the improvement show some from 1921 F.Supp. 625.] lines.” [42 it, County so put As “Seaboard went supported abundantly by the finding is something earn far common in- Judge The District did evidence. Net stock income available [in 1927].” underwriting damages commis- clude in the payment of in 1927 dividends amounted paid Pennroad connection sions $32,000. In 1928 to less than there was These transactions. amounted PWV $70,000 In 1929 deficit. the deficit $5,281,586. The total cost to $238,000. report Seaboard’s annual pur- this amount. increased year 1928 showed funded indebtedness the stock chased because $192,000,000. outstanding Seaboard’s over PWV. Uninfluenced wanted to control preferred and common stocks in face Pennsylvania I cannot conceive that $60,000,000. out- amount exceeded pur- road’s have made the directors would nearly $24,000,- standing preferred totalled chase. Moody’s Manual of Railroad Securi- Railway graded Company. ties Seaboard’s common (4) Airline stock at Seaboard 402,- October, 1929, purchased rating of “Ca.” sold low Seaboard’s Pennroad bonds ance of an 000 shares at company investment, also a director instance Supp. “As to the The court authorized the railroad agreement Pittsburgh 1010: $170.00 will found the be recalled that at the Pennroad, per previously president, purchase & West following, share the latter who Virginia reached pursu- 220,- was F. accurate the market icy followed, therefore been Va. and the with the stock. operated, experts basis of value.” principal the market The facts price and also stockholders a purpose found, quotations reckless dividend disclosed at the stock, that of P. influencing formed pools and that & W. trial, had pol- no

9H The & and underwriting Co. Dillon Reed par and below between syndicate maxi- to a coming members of the due had maturities railroad stock, the mum to all the new common $38,000,000 according of over and 25% viz., 473,157% Pennroad about a shares. total of Colpitts’ report needed Seaboard if 125,000 improvements $32,000,000 became entitled obtain shares to permanent for many original un- in- so were available to the before was close 1932. The railroad by the purchased solvency. from not derwriters stock under- public. receive an Pennroad was to syndicate Syndi- A known as “Securities writing a share. commission of 750 Seaboard. cate” been formed to had rescue ex- apparent immediately It how will be Bollard, Ralph vice-president Mr. H. If traordinary arrangements were. these & brokerage Reed house of Dillon difficulty syndicate no had Seaboard and Pennsylvania, among brokers others for by sales to disposing stock forming organization. was active 125,000 get public, might Pennroad not & Dillon Reed Co. as served one public If was interested shares. not a managers. Atterbury General became not), (and Pennroad venture it was syndicate February, member 125,000 buy more shares would have than participation of obligating a himself Even- of Seaboard’s new common stock. $9,- $100,000. participations The totalled 402,119 tually purchase Pennroad had to 360,000. Bollard objective, The shares, offering of the total stock testified, reorganize finances “to 20% was of Pennroad’s maximum commitment. Company Railway Airline 85% the Seaboard company hope that affairs of interesting It to observe put stronger underwriting a financial basis.” would be time Pennroad entered into its syndicate plan Sea- a for Syndicate, worked out no agreement with Securities syndicate reorganization. syndicate board’s underwriting actually days essential Seaboard obtain place deemed later. two formed. took $20,000,000 money. actually least assure still, in new To extraordinary More Pennroad Reed obtaining holdings Seaboard’s this sum Dillon dispose not was free of its 1,892,630 & Co. others underwrote September until Seaboard common at 1930,28 shares of new to be sold appear common stock though this fact does underwriting commission signed. share. An $12 of from contract which Pennroad arranged partici- for all a share in a exposed great risks Pennroad was pants. & entitled prospective Dillon Reed Co. became speculative underwriting $4,500,000 to an a share profit additional commission a share. It risked 75^ managers. $350,000. reorganiza- services It gain If Seaboard’s syndicate successful, conceded that Seaboard tion had been stock financing paid need further purchased might soon Penn- Pennroad syndi- proposed by reorganization dividends not in excess a share road of 450 expedient necessary cate was made year. The adventure failed and Seaboard position. financial receivership. dire Seaboard’s entered thought might common stock new purchase Penn- was made because higher as much share. No earn sylvania desired an interest in Seaboard. expected. return could Pennsylvania desired to secure the southern through gateways traffic flowed. On October 1929 Pennroad’s directors $3,800,000 govern- Judge sell worth of in re- voted to learned found bonds, 5%%, yielding spect to this “Under un- ment authorized transaction: fully carry arrangement acquired ef- derwriting Pennroad’s officers “to into 402,119 arrangements with Messrs. Dillon a total cost fect shares of Seaboard at associates, justifica- $4,523,838.75. There general being & Co. and Reed purchase finding memorandum tion such terms of a submitted reasonably respect proposed meeting with new stock sound made even investment pur- voluntarily Airline Rail- Pennroad for its own' be issued the Seaboard day pose, conclude it was under way Company.” On the we same agreement to underwrite the domination and at instance of executed an road from Mr. Samuel bly common Pennroad, ultra vires. was an oral agreement and Mr. H. agreement Ogden, Alfred Weill to sell Seaboard letters vice-president S. proba- of Messrs. commitment. period Weill, Blakely October felt & Nesbitt, itself 5 to bound October written wholly subsidiary, acquired in accordance a [Pennsylvania] Railroad owned had pre- purpose large Lehigh Valley general with the scheme and stock. amount of described, viously the whole and that York, & (6) (7) and New Nezv Haven de- purchase price charged must be to Company, Boston Railroad and Hartford fendant as one element in the measurement and purchased Maine Railroad. Pennroad amount, liability. The of its total financial 98,800 shares New of the common stock however, re- by sum must be reduced July 1, 1929 Haven between and October Seaboard ceived Pennroad’s sale of $12,129,008.75 pur- a cost at and to charge stock, wit, $73,686.71, the net and 50,000 between chased an additional shares $4,450,152.04.” defendant is thereforé $5,- Mav 6 and at a cost of June F.Supp. District Court [48 1014.] 172,842.50. average price per share of last damages sum decree allowed as $122.76; purchased block first mentioned. while Penn- that of the second was $103.45. findings of fact made 168,283 purchased road also shares of respect transac- below in the Seaboard preferred common and stock and of Boston support in record. tion find full July March Maine between 1929 and $20,448,950.92. 1930 at a cost of total Company. (5) Lehigh Valley Railroad 33,104 purchased It Boston also shares of purchased 1929 Pennroad On November January voting and Maine’s stocks between Valley 10,000 Lehigh shares of stock of $3,188,757.- a and cost of at a share. Company price a June of $65 interested paid by price was below the Pennroad long New Maine Haven and Boston and pur- price. Among market all the stocks purchases before these were made instigation of chased Pennroad at briefly road. is desirable state plain- Pennsylvania complained reasons for this conclusion. tiffs, one which this is pur- a sound to have constituted deemed May, 1923, President Samuel Rea company. None chase for an investment Pennsylvania, appearing Inter- before the less, purchase loss ta resulted in a Commission, objected state Commerce to a 8,200 Pennroad Pennroad. sold plan tentative consolidation of New $192,274.50 bal- and retained shares England emphasis on railroads laid remaining in Pennroad’s ance. The shares Pennsylvania’s New in both the interest at the possession worth share $2.75 H'aven and the Maine. The Boston and time the trial. The loss net proposed plan had con- Commission $450,000. about into solidating England the New railroads separate system Al- brought about a but the Boston and The circumstances Pennsyl- bany typical Railroad was not be included in the transaction Albany had General consolidation. The Boston and Pennroad. relations with vania’s Atterbury Buffalo, County leased York New Central and Mr. 10,000 years. County including Not it in the consoli- York. Mr. learned New system put Lehigh Valley were dated would have stock which shares system disadvantage He if the new con- being “distressed” owner. offered plan Atterbury about been effected. Gen- with General solidation As conferred pur- Atterbury later the Boston desirability having stated eral Albany lay spear” through rich telephoned “like They Lee Mr. the stock. chase territory. A “feeder” letter mem- got with the latter in touch County Judge B. Clarence from Mr. committee. executive of Pennroad’s bers Heiserman, Pennsyl- General Counsel of Mr. County that he said to testified “ vania, Pennsylvania’s July, Atterbury approve shows ‘Now, myself Lee, England New carriers. people acute interest with these get in touch thing, part: position County stated in “Our Pennroad’s executive Mr. members [the single carry in the creation you been that of a has if can see committee] ” system Cen- paid the New York England New disbursing officer Pennroad’s out. up its interest in the Boston money give without tral should $650,000 out Railroad, Albany Line allow that & authority the board of directors. England wth the other merged New instigation purchase Lines, that if New York Central holds potent most who were individuals .or two permit- Albany, we should be Boston & policies. It should directing trafile relations in New continue our ted to the end of also that observed assignment through the Company, England us

913: ** purchases At- New General Haven securities the New Haven purchases prices emphasized Pennsylvania’s interest not due to terbury at excessive respec- under existing and the Boston the conditions at the New Haven and tive purchases Com- such resulted England Railroad times of Maine the New mittee, England general changes subse- appointed by New 3, quently apparent April place.” took This is the Governors. He stated as of 204,000 1930, Pennsylvania the court below to- basis assess the refusal of itself owned Railroad; damages stock for the New Haven_ shares of the Haven New 100,000 plaintiffs transactions. have devoted approximately The Pennroad owned many pages 168,000 to an elaborate- of their brief shares of New Haven and shares they Atterbury calculation of losses which assert were- General Boston said: “The Maine. purchase caused to Pennroad because of Pennsylvania its desires Railroad of New Haven stock. Under the view a New Haven. closer association with the which I take un- buy case bar it is at We started the New Haven stock calculations, necessary very deal with these proven when it was down and it has a for I think it clear that di- Pennroad’s profitable to us. The Boston investment bought rectors the New Haven stock to to bought at and Maine Railroad stock we Pennsylvania benefit regard without relatively prices, earnings low and then the the benefit or detriment which Pennroad began go up I think in time so that might incur. prove very profitable will invest- a [that] stock, Corporation.”29 to The Pennroad ment purchased Pennroad much of pur- premium.. The Maine court below found that “the Boston and at * * * prices The paid District Court chases found of stock for it Hartford, prospective took bene- New Haven & and Boston & into account expected Pennsyl- fits Maine made in derived furtherance plans proof vania.32 Pennsyl- under the domination of shows that Pennroad. bought bring Boston & Maine stock in order that vania Railroad and closer affiliation Pennsylvania might power operating voting alliance of those with roads Pennsylvania important England through system. Railroad the co- railroad New. operative imposed ownership instrumentality, The District Court damages of its $1,271,983.88 Pennsylvania primary objectives on sought Pennroad. The reason of purchases purchase such were the benefit to be Boston and Maine decided, through basing derived stock. The court con- Railroad its report experts, clusions on extension its influence into the fields price operated, procur- average in ing said roads would have $112.50 freight price traffic from such been a fair for the common whereas- sources prospective share; friendly paid assurance of man- Pennroad lia- $130 no agement bility imposed by continuance of of Penn- friendly co- reason operation Pennsylvania Railroad,”31 purchase preferred, of certain shares road’s stock finding supported fully by purchased, since these shares had been evi- dence. price range”; “within reasonable stocks, preferred certain other as to learned Judge imposed charged costs exceeded to Pennroad insofar as damages on because of Penn- should be reimbursed purchase road’s 5%% of the New Haven stock. F.Supp. Pennroad. See 48 imposed $1,271,983 He damages of page 1015. purchase because of the the Boston appointed by experts (8) Freight Company. National and Maine stock. stated, opin- “In our became interested freight ion the loss suffered business of the Pennroad on forwarder.33 A subsequent Finding hearing opinion aAt No. in 42 before England F.Supp. page New Committee, 625. Gen Atterbury finding why quoted eral also asked referred in purchases replied, was formed. He “Because like terms to the there the stocks Lehigh Yalley were certain investments which should be and of Seaboard Bos- made that we were not able to ton make and Maine. through company.” Finding F.Supp. our own direct He 34th of Fact. See only asked, was then “Is that reason?” replied, description He “The of the business of' reason so far as I For freight Export Shipping know.” forwarder see R. Co. v. Wabash 14 I.C.C. month. shipped pounds freight a collects less-than-carload freight forwarder re- last inaccuracy estimate combines consignors and shipments from fact ferred demonstrated delivered These are them by carload lots. into operations during dis- the course of the delivery are on rail carriers below fell pounds shipped never higher number of a Since consignees. tributed to the as 30,000,000 went pounds per month and shipments charged for freight rate bemay Na- 65,000,000 per ship- high pounds month. as carload than for less-than-carload profit. operated Freight at a gives tional rates never

ments, freight the difference most margin profit. Prior to a freight Freight purchased other National came business forwarding price of one forwarding companies. The Loading Distrib- & through Universal Car uting Company, a independent-minded high so was subsidiary wholly owned was corporation paid it. would have In Company. Freight of United States Company. Forwarding Freight the Judson 35,000 Pennsylvania purchased shares 14, C. Edward August On Strohm, 1929 Mr. Freight Com- United the stock of States of pany. Freight, rec- president of National testified, County Mr. purchase ommended Judson Universal suddenly appeared that $2,000,000. In Company for than not more * * * giving Company had been “which Deasy, oper- May, assistant Mr. F. J. splendid business [Pennsylvania] this Pennsylvania, Mr. ating vice-president of * * * large portion of its a sold manager of Large, general B. traffic John York, Company, Central New stock Pennsylvania, Mr. Lee talked with Mr. * * Con- of its subsidiaries or one trol of Universal had respect purchasing Strohm in Judson New passed Company. advice was Mr. Strohm’s Pennsylvania then con- York Central. than worth more company was not forwarding freight operating sidered a $1,200,000 Company’sown- and that Judson lines, a service its own service for told Mr. Lee ers were anxious to sell. ownership of County said, nobody’s “that Company’s that he was not owners Judson Atterbury disturb.” General stock could “price paying for interested a Judson Pennsylvania to certain officers of ordered prospects would largely upon based primarily County’s plan prepare for Mr. considera- over which railroads benefit the if questions for legal arose tion. Pennsylvania * * * -Difficult operated the forwarder ”; freight own was to be its Company was Pennroad’s interest in Judson shipper as a might forwarder it be classed strictly ac- a commercial one. Pennroad’s if rail- a carrier and it doubtful was assertion, August this on tions belied busi- engage legally in such a road could Freight’s National board author- ness. Company purchase of ized the Judson $1,850,000. price The transaction background, Against this June passed immediately. consummated of Pennroad It directors Septem- an audit made as following “The matter be noted that resolution: net worth of the freight forwarding indicated the com- ber formation of $230,000. oper- company It had in whole or about pany would held whose stock $30,466 in 1928 and part by discussed loss of ated first of terprise. in a road profit five months of 1929 showed necessity, especially the Eastern Rail- * * * en- Whereupon an unsuccessful Territory: [it $1700. proper Resolved officers was] proceed hereby with the for- authorized to Freight incorporated National National Company be known as The mation of Company Carloading and transferred its ** Company Freight National it, receiving National load- Car assets to incorporated, owned and company was return. Pennroad’s advances ing stock in thereby em- financed to National been made to have seem competitive highly business barked on the advanced in turn funds Freight which freight forwarder removed from far Carloading. Freight had National National company. investment field of an the usual money received from quickly the exhausted question subscription. The capital $800,000 about estimated that It had been forwarding project freight financing the necessary finance Pennroad’s would be project was en- became acute. project ap- and that forwarding freight York countering competition from the New $50,000 would re- a month proximately forwarding subsidiary, the freight enterprise Central’s operate it quired to r country. It should powerful 30,000,000 most profitable if one be a accepted by National in- 1933 and was March, three noted that con- Freight on March persons, directors dependent sylvania, $400,000 and no plan to that as a whole instead of ages Na- arising by incurred it out separate of, complained incidents Freight tional transaction which it deter- in fact but overt acts in a continuous |3,852,000. mined to be the amount of conspiracy. civil requires Pennsylvania also to account “profits” Pennsyl- Pennroad for all Law. by vania way received of from Liability As to I. freight charges and rents. The court Individual Defendants. $3,- “profits” found that these amounted to 390,250. charges, profits These were not jurisdiction Whether of a federal expressed hereinafter under views equity court of is concurrent or exclusive reasoning it is unnecessary to discuss by must be determined federal decisions. develop by or to formula which the Todd, 280, 286, Russell v. 309 U.S. 60 S.Ct. liability court below arrived item of .at the 527, 754; 84 L.Ed. Stratton v. St. Louis stated. last Co., S. R. 284 U.S. S.Ct. 52 W. 465; Summary Guaranty Com- 76 York the Transactions L.Ed. v. Trust plained York, Cir., present I have Co. New endeavored to 143 F.2d of. picture a eight fair trans- 526. A each of stockholder’s derivative suit complained though against compel actions much detail respond directors them to necessarily damages has been All omitted. their for losses transactions pat- fall into their the same sustained because rectors di- conduct as .seem tern purchase by in that the equity ju- securities lies concurrent Pennroad was dictated considerations risdiction of federal the since the courts. has advantage Pennsylvania founding of by rather than of the Re- regard public. profit Dodge Woolsey, for the v. benefit and 18 How. 340-347, Pennroad and its stockholders. The in- 401. The L.Ed. suits defendants, Pennroad, dividual bar based on equity ju- directors of “concurrent” conducted equity. themselves in Pennroad’s affairs risdiction causes While of ac- they if Pennsylvania.37 exclusively equitable as were directors of tion might in their nature eight complained against transactions con- been asserted certain nothing steps stitute more than in the ex- individual in the cases at bar defendants capacities trustee, ecution of a single plan voting whole and their con- in complaints ceived specifically allege to make use do not of a breach- corporate entity, Pennroad, represented against voting of trust es such and relief is trustees as the security holders against of the latter not asked in- large public independent entity, as an dividual defendants voting trustees. The gee F.Supp. any against entitled benefit whatever as also, The court stated Pennroad and its defendant certificate “The holders * * * accounting charge- full mil- more than five gross capital able with lion the whole amount of the dollars be ren- income should Freight profits may contributed to the National ven- dered so that the net inure to required ture on its behalf to reim- lawful beneficiaries of the business.” Credit, burse Pennroad for such sum. however, given clear, however, It should be shall be for the net amount justice disposi- to the individual defendants that no received Pennroad in the final freight sugges- holdings evidence has been offered com- tion of its they guilty pany. tion has been made that Railroad is also any gain profits desire to financial all to Pennroad accountable acceptance profit operation themselves of Penn- received net sylvania’s pur- Freight mandates. Each of them on its behalf National fiduciary duty substantial amounts chased of Pennroad breach of in this road. they continued to stock and hold it. that the railroad is not -transaction is such steps in on the exclu- actions of be treated therefore are based (cid:127)suits plan executing single entered equity. whole and jurisdiction sive cooperation Pennsylvania, into Mfg. v. Electric In Klaxon Co. Stentor employ defendants, of the individual 61 S.Ct. U.S. enjoy- Pennroad’s funds vicarious diversity held that in L.Ed. regard ment of without citizenship must cases federal court (cid:127)of the benefit and its stockholders of Pennroad follow rule of conflicts State (which view) I think the correct (cid:127)which rule it sits. conflict-of-laws support position will that that record di liability is that plan Pennsylvania. was entered into in foreign corporation, rectors Pennsylvania, resident view, majority But the do not take such a governed the law of position seemingly adhering to that the incorporation of the the state of the com separate individual transactions constituted Shetler,38 pany. 226, See Cochran Pa. torts, greater if they were torts. The dif- A. 232. lies; think, ficulty majority with the view majority position seem to take that, employment the fact absent the complained of, that the if acts form rod, the measuring law the Delaware as a liability, the basis torts com- the in- liability determination of the Pennsylvania and, therefore, mitted in adjudicated dividual in defendants must be Pennsylvania the law applied must be legal a kind of of vacuum for unless the law in forum of the District Court of the Delaware used there are no criteria "United States the Eastern by which the duties and liabilities of the Pennsylvania; that the law State corporation directors of a Delaware incorporation, the law of Dela- company can be determined. The ware, disregarded. must be Difficulties Pennsylvania conflict-of-laws rule of does application in principle. .arise of such a require the result effected ma- If purchases the individual of stock com- jority. A forum would look plained of be treated bases of to the liability governing law of Delaware as torts, an examination of the record will defendants, of the individual for- disclose place that these transactions took mer directors and officers Pennroad. separated at widely places. examples As it will purchase be seen that the decision the Delaware There no securities of DTI was consummated in based circumstances identical courts Michigan; purchase that the offer with at bar but there those cases stock of rulings PWV New are the Delaware which was made in York courts (cid:127)City accepted and was persons applied divers in indicate law which should be states, several purchases presump- Ordinarily the instant being cases. .apparently in jurisdictions; tion exists the action taken di- various (cid:127)the corporation various compris- individual rectors of a best in- are transactions ing freight forwarding corporation. project terests of Mercantile took place widely separated Trading Company localities, v. Rosenbaum Grain oc- curring variously 325, Pennsylvania, Corporation, 17 Del.Ch. 154 in Ohio A. 457. York; and in presumption, New voting that the That if existed under the trust up was set that the under the law of circumstances bar has Delaware and been obliterated leading acts incorporation by the evidence. are fiduciaries Directors (cid:127)of place Pennroad took there. If who must be faithful trust the trans- to their 156, 38 case, 429, 1092, In L.R.A..N.S., the Cochran Pa. 77 A. the receiver of a 30 corporation sought Delaware analogy further oilers evidence recover alleged from employ its directors dividends courts of will to have paid illegally. incorporation foreign Wettengel In of the state of corporation of a v. Robin son, 362, 370, 371, A. 673, Pa. order determine li- (cid:127)676, Supreme ability corpo- Court of of a shareholder of such a Virginia looked to statute must of West ration. Pennsylvania be concluded that Supreme to a decision of to the li- Court West rule as measure of ability foreign Virginia, Lynchburg Colliery corpora- of a directors Co. v. Gau ley, etc., Ry. respect Co., 144, in this from W.Va. tion is no different S.E. 462, Restatement, in order to determine the most of the States. See status and powers corporation Laws, 187, 189, 191, of a Sections and its Conflict directors corporate after the surrender of Annotations there- char- and the Supreme Laws, to, Beale, ter. The Conflict of The decision Court Section Paret, Converse 185.2. Equity- judgment. peremptorily inexorably, most business exercise honest dealing scrupulous with just duty, compel will intervene to observance his have in protect corporation affirmatively directors when its the interests corpora corporation charge, their reckless indif also those of terests adverse to committed his .anything doing to refrain tion act or when corporation injury work rights corporation, would to to the ference deprive Pacific profit advantage Karasik v. it of or of its stockholders. 81, ability 180 A. 604. bring his skill and to Corp., might properly 21 Del.Ch. Eastern it, Co., 10 Del.Ch. Martin or to enable Martin v. D. B. it make in reason- In 211, 373, 614, 612, A. powers. able lawful exercise of its A. Delaware, quoting requires Morawetz rule that undivided and un- Chancellor of 529-530, loyalty Corporations, on Private Section selfish demands and that persons duty are directors there shall no held that agents who conflict between corporations cannot and self-interest. of two The occasions for the de- each represent, honesty, good loyal transaction in termination both faith and opposed. many varied, are conduct interests of two and no hard Eshleman, A. can Keenan v. Del.Ch. fast rule be formulated. The stan- loyalty dard of Chief fixed 2d Layton 120 A.L.R. is measured Justice appellants scale.” Bovay “The were in In the recent stated: case of v. H. Byllesby corporations. A3 M. & control of both Del.Ch. 38 absolute A.2d directors, Supreme stock- for the faith and fair Court of re- they were trustees Delaware holders, good re-emphasized iterated and and the utmost doctrine. them, expected especially dealing was If the “self-interest” be eliminated words their individual were con-

where interests quotation from the previ- contained in the * * * place, In the second cerned. paragraph phrase ous and a such as the * * * corpora- dealing with another corporation” “interest of another or the they directors of which were the sole tion Pennsylvania” substituted, “interest of they officers, assumed the burden and Supreme the Court of Delaware would showing fairness of trans- the entire the precise have stated the principle of law action.”39 applicable in the cases at bar.40 Supreme Court The decision of the The District Court found that Pennroad Inc., Loft, 23 Delaware in Guth v. Del.Ch. subject to the control of 510, 270, 503, 255, 5 A.2d indicative of eight and the transactions “ * * * applied principles of law which must be of were induced or made in In the cases. case in instant cited plans furtherance of, the under the or * * * Layton “Corporate stated: Chief ”; domination of Justice permitted are officers and not directors and control domination ef was through position their trust and confidence fected means voting use to technically trust private While further their interests. which own directors were trustees, they in Pennroad; stand elected directors that “Penn- fiduciary corporation independent road did not and its act as an relation com public policy, existing pany serving purposes primarily A its own stockholders. * * * years, pro- but through and derived from a interest of for and purpose knowledge benefiting Pennsylvania found of human characteristics motives, accomplishment that de- Railroad plans has rule and established director, purposes.”41 corporate or and findings sup mands of a officer These are 1, 39 486; Id., Del.Ch. 120 A. v. and Chief Justice cited Geddes An- 14 Del.Ch. Copper Co., 122 A. 142. aconda Min. 254 41 U.S. findings 35, inclusive, Nos. 1 L.Ed. 425. S.Ct. opinion E.Supp. pages at at 621- quotations findings Chancellor Wolcott in Bodell v. Gen- are from Corp., Nos. & 33 and It should eral Gas Electric Del.Ch. noted also law, in his second conclusion of 132 A. stated F. Supp. page 625, judge at owe the trial [directors] “Trustees not alone stated: duty profiting “The actions refrain from themselves of said defendants induc- They ing directing purchases expense Pennroad of their and beneficiaries. and duty saving investments interests of owe their beneficiaries and for citing Burbage, loss”, v. Cahall the benefit of Railroad con- from fiduciary 55, 121 A. and a breach of their Allied Chemi- stituted duties Del.Ch. they Corp. Co., Dye accountable.” Steel & are Tube for which cal & sitting In the United States evidence. ported an abundance order the must Delaware in apply Judge pronounced addition Pennsylvania’s liability under actions to define “The of law: following conclusion instant presented inducing direct circumstances defendants said of ing in cases. investments purchases benefit and for the interests of is demonstrated The nature of that law a breach Pennsylvania Railroad constituted Supreme Court the decision of the fiduciary of accountable.”42 duties Byllesby Bovay M. & Delaware v. H. Co., Bovay’s alleged supra. bill dominating correctly applied the defendants, corporations, District Court two inexorably corporation, had under Peremptorily directors of third law. the law of Delaware the scrupulous sought to The bill most assets. converted its compel duty the in- required of to account observance defendants affirmatively property con- defendants, refund the dividual to verted. The stated, value Supreme Pennroad, but Court of Delaware protect interests of defend- anything 813: “The doing A.2d refrain also to would ants, least, Byllesby & were in injury or work bankrupt. As complete control re- profit The individual advantage.43 to its therefore, Byllesby gards corporate action, & Co. exception defendants with the company. proposed jointly bridge What it Wayne,44 must be held liable accepted bridge company, it severally damages as Byllesby Wayne Though the sustained. Mr. be held & Co.” suit road bank- cited ruptcy, trustees in liable with other individual defendants case was indicated, casé, already damages sustained equity jurisdiction. freight forwarding within the transactions. concurrent Supreme Court considered defend- Pennsylvania’s Liability. II. As to corporations fiduciary ant in strict to be bridge company relationship to the against asserted causes action plain allegations that if made bill were Pennsylvania lie also within the concurrent by proof, defend- sustained jurisdiction. equity Pennsylvania exercised accounting. held a would strict ants The circumstances by control over dominion and naming the case are cited voting the elected trustees45 who to those the cases at bar. also close See These, in graphic Pennroad’s directors. 116, Keenan, 21 181 v. Del.Ch. Eshleman A. County, language peo- were “our own 655; 25, Id., 259, 21 A. af- Del.Ch. 187 manager ple.” in fact 234, 904, 2 firmed 23 Del.Ch. A.2d 120 judgment of Pennroad and substituted A.L.R. It 227. follows for Pennroad’s directors. I conclude damages also held liable for the must be therefore that had status a by suffered Pennroad. analogous ordinarily possessed by corporation directors of a relation Damages. III. Measure of corporation. For the stated reasons represented preceding heading What are the stockholders opin- under the of this plaintiffs by the from Pennslyvania I conclude that entitled to recover ion would a forum apply law individual and from Penn- meas- the defendants of Delaware to liability sylvania ? Pennsyl- point Pennroad At there ure determine the this management occur the immemorial division vania I seems be- Pennroad. conclude, therefore, rights tween substantive and remedial that a district court 42 Gahall, 2, F.Supp. Conclusion rectors. v. of law Lofland 13 Del. No. 42 1; 384, Burbage, stronger A. Ch. 118 v. 14 625. lan Cahall Contrast 55, 646; guage characterizing A. Del. Ch. 121 Chemical used Allied Dye freight Corporation forwarding & Co. v. Steel & Tube transactions. 1, 120 486; 43 America, 14 A. Del.Ch. should be ooserved that under principle Corp., 15 Bodell & Electric law of Delaware the is well es v. General Gas 119, 132 A. 442. tablished that where transactions con Del.Ch. behalf summated on of the 44 supra. See note 7 possess who interests adverse directors up 45 voting corporation, trust was set under Sec of the transactions those Corporation 18 Law tion of the Delaware be set aside rela because dual tionship regard Act March as amended without fairness Chapter Laws, good faith of di- Delaware transactions been would have Assuming, probability as I losses in all equity. federal courts of depression. must, because of decision of incurred theory ar- recognized New York Court Supreme in Ruhlin v. this Court 860, damages. This Co.,46 202, riving 58 S.Ct. at measure Life 304 U.S. a Ins. that when 1290, Erie indicate error. authorities L.Ed. the doctrine extends 64, intentional been Tompkins, 58 S.Ct. breach of has Co. v. 304 U.S. the the court trust R. 817, 1487, pertinent act will treat 82 L.Ed. A.L.R. acted with equity and factor. The defendants ions in that in the federal courts Pennsyl- benefiting Supreme has Court conscious intention of therefore the regard wiped rights lack out substantive theretofore and with conscious vania equity Under granted “general” federal of Pennroad.49 under the interests law, equitable appropriate to there remain remedies the circumstances seems analogy. Scott applied See turn to the of trusts for to the decision of in the federal courts.47 205.1, Trusts, & Yates “It is this court Black Section on states: Ass’n, pur- had Mahogany v. that if F.2d defense to trustee he ap prob- damages grows proper measure of there out of chased ably trust investments plication great right. equally remedial What have been loss damages general measure is in suits conditions and such because of economic those bar case general is manifested deci fall in values. such such trust, Hodgman Refining sions as D.C., v. Atlantic the loss breach of results possible F. a similar loss although reversed on it is Cir., grounds F.2d and Brincker even if there would have occurred Roosevelt, C.C., Perry hoff v. 2 131 F. affirmed of trust.” See also no breach Cir., Edition, 847,. Trusts, application F. 478. The 6th Vol. Section proper damages my opinion measure p. 1386. In the defense as- suits require bar would full connection restitution to Penn- the defendants in this serted is without road for the losses incurred son of the acts rea- merit. of.48 part of the As measure of restitution pay defendants contend that no matter must the defendants interest on invested, in what my securities Pennroad had found them? In sums due from

length which creates the & Ohio before the is surance creates quoting judication R.A.1917F, 367, tion of the ed same 558, tion of the 491, tion sylvania Mason v. courts doctrine of the Supreme tion inseparably S. C., ages (9th 47 48 applied inseparable part P. in 31 F.2d 757. Since In the Ruhlin ease the sole If on 412.1, 43 S.Ct. 36 S.Ct. result would * * Co. Beale, of incontestability under also the policy, R. Co. v. would United equity may Court Ed.) question v. the other hand of substantive “The law that creates the Supreme * proper Supreme connected Justice 200, Companhia ”, heading Section the measure but that suggested Tompkins look to the States, measure of 67 L.Ed. 396. be is Conflict of measure right citing Sedgwick, Pitney Kelly, Court was the effect not be doubted. reached. Court to discussed at with IV of this “ * * * 1373, clause of a life in- the courts of 60 260 U.S. it was the inten- De rights the rule substantive law case to L.Ed. 241 in comparison damages, law of Dela- Navegaco, Laws, Chesapeake right damages damages As extend in federal U.S. Royal 545, 557, 1117, question opinion. is stat- right.”, greater of Dam- of ac- right ques- 485, Sec- The law ad- M. D. L. of is is ware under the instant circumstances as Klaxon Co. is no supra, tho law which measures defendants, infra) The law of ing quoted An scious breach of court) made sylvania, in Pennroad’s affairs A. sylvania defendants to restore Pennroad been for the sition it would have that the dium of tho fact made dual ual defendants See trustees Court 49 1, determine tho measure inconsistency why they Lofland v. i directors of Pennroad from and by question am not so found. which does not court below found is Guth and by examined, it would look corporation, Delaware individual wrongful attempt tlie same effect. unmindful of the statements Cahall, knew Stentor but v. directors. majority opinion require fiduciary duty If court below is Loft, Inc., supra. guilty doing apparent what Court to absolve the only through occupied clearly requires 13 Del.Ch. acts Electric defendants, voting specific findings a different result. could the law of Penn- of such breaches. will it. also (many liability The District bo (see since and to that law the individ had it while find to the Mfg. Co., any apparent 384, of them note the me of this did indivi There Penn right. doing con 118 not act po of. 57 of' plicable granted rate was one at law be Brinckerhoff opinion, was held to the amount of the is not substantive and remedial required Co. division heretofore courts added as See due the cited case district court was Hodgman v. governed by from the 6% Stentor in by damages equity the cases at per withheld the cases at the law be an v. v. annum therefore Roosevelt, Electric defendants must be deemed Atlantic and not in item of referred in sums to right bar. held, decision the State diversity bar, Mfg. rights Refining supra. to add interest damages Interest at sums but the be recovered equity. this Pennroad.50 to between Co., supra. in Klaxon in federal in found cases as question Co. and be action to be ap be to director set jority opinion within said statute which the trict Court prqvid.es no mission Act of March m charge duty further at against the individual defendants is limitations support out in haec suit, of March to bar instant cases. six him or maintained such such act of this years 28, 1867, 12 hold to be a any pertinent part ** law or 27, 1713, 12 and need not be point verba * * * director, except after proposition majority * in note 6 of the The statute negligence against * ^[*] this P.S.Pa. equity, bar to P.S. liability opinion. that statutes bar any * ** § neglect § “ * * * described the Dis- recovery recovery shall be * * the Act * * * is * com- It ma- is is exclusive Todd’s suit was based on the IV. of Limitations Statutes and Laches. jurisdiction equitable but Mr. Stone Justice Application of Russell v. Todd. majori- language51 use which the majority Todd, apposite rely ty of court conclude is Russell this on v. 280, majority I cases bar. think that the U.S. L.Ed. S.Ct. justice simple plain right governed consideration of If to interest tlie dealing. and fair We have been referred law the forum as an incidental controlling.” right precedent v. purview Klaxon If the within the Co. applicable Mfg. Co., supra, (which law some sum Electric Stentor equivalent ease) of in think should be allowed as is not the the result would substantially The law of terest an element the assessment same. damages govern. suffered Pennroad’s stock Under holders. Since was an invest in tort interest cases damages, equiva equiva company, compensation, ment allowed interest, per interest, an element lent of at the rate an- lent of is allowed as 6% might appropriate. of the amount of dam num the assessment plaintiff to, ages language Unit referred 309 U.S. suffered pages 288, 289, Corporation, 531, 84 States v. Bethlehem ed Steel 60 S.Ct. at L.Ed, 754, though E.Supp. 676, 681, affirmed, as follows: grounds equity point federal “In courts the doctrine somewhat different cited, early supplemented court, of laches was F.2d question lapse Supreme Court, rule that when the is of 62 S. 316 U.S. barring Fidelity- equity, of time relief such Ct. See also 86 L.Ed. 855. courts, though regarding Philadelphia Company Simpson, even them- Trust as bound state of limi- selves tations, statutes Pa. A. 202. The decision of nevertheless, Superior will when consonant Mc Court of in equitable adopt ap- principles, Pa.Super. 127, Dermott v. with McDermott, 130 ply own, helpful. 889, 130, 890, as their the local statute lim- A. In that 196 applicable equitable to Judge stated, itations causes “An Parker examina case judicial charge dealing action in the district in which with the tion of the cases * * * is heard. the case and allowance of interest will disclose though many difficulties, there is no state statute “Even decided trend of but the equitable demands, applicable equity similar courts courts of has been jurisdiction away the federal court when ‘to break fast rules hard and law, charge with that is concurrent or the suit allow in interest accord legal right, equity principles equity, in aid of a ance with in order to remedy legal right accomplish justice particular if the will withhold in each case.’ Agnew Education, Co. v. Board the local statute limita- is barred John 83 stays N.J.Eq. its hand in 49, 1046, It thus aid of tions. 89 A. 1054. Unless a which, legal right found, prece under the Rules conclusive case be which is a Act, dent, would unenforcible the safest and at of Decision the same time the way ques law well courts fairest a court is to federal decide ” * * * according pertaining state tions to interest courts. 922 so concluding very cised pertinent overlook two according principles ap- to rules and portions plicable opinion. every Todd first alike state. un- paragraph quoted doubtedly cases, supra, true, SI note Mr. adjudged as announced in Stone equity states that federal courts them- courts feel Justice ordinarily adopt bound, will selves juris- state limi- statutes of cases of concurrent diction, by tations when exercising the concurrent of limitation that statutes' equity jurisdiction govern points they out courts of law in similar circum- will stances, do equitable so “when consonant with upon and that they sometimes act principles.” Second, analogy 152 in note like limitation at law. opinion, emphasis Stone’s But these general is laid rules must be taken sub-

Justice j on the equity fact qualification that federal ect equity courts of jurisdiction have not apply bound themselves local courts the United statutes of conflict with impaired limitations when States those statutes cannot be the laws of equitable respective principles the Mr. as they and cites states sit.” (I think approval) with such cases as Harlan cited such authorities Justice Kirby v. Campbell, Lake & Michigan 212, Shore South- Robinson v. 3 Wheat. Co., 434, 372, ern 430, R. 130, Boyle Zacharie, U.S. L.Ed. S.Ct. v. Pet. 658, 30 L.Ed. 569. 8 L.Ed. 532. Kirby In the case suit had been conclude that it intention was not the brought ern Supreme Court for the South- of the Circuit Court in the Todd case Kirby District of New York to aside overrule the set case and similar deci- settlement of accounts. The action merge was sions and to the historic distinc- jurisdiction. equity based on the concurrent rights” equity tions between “remedial pleaded The defendant a statute of and the my step, limita- substantive law. Such a Supreme least, tions of New Court mind at York. would have been the sub- “ * * * stated: clear that ject unequivocal the statute pronounce- of a direct and subject Supreme of New York of limitation ment me Court. It seems to power duty does not affect that Mr. Stone in the Todd case Justice following rights settled rules indicated that the remedial of a below— equity adjudge pre- time court of equity did not federal were to —to served, defendants, destroyed. charged Ap- run in favor actual with Court of fraud, peals in its concealed until after such Second Circuit recent was, diligence Guaranty fraud in York or should with due decision Trust Co. of York, been, 503, 521-526, Upon any have discovered. New reached expressed.53, F.2d theory jurisdiction equity conclusion of the courts similar that here of the United States could not be exer- also the decision of * * * opinion] proba- part, The note states in 309 U.S. at Stono’s it seems equitable pages ble that claims 60 S.Ct. asserted equity if L.Ed. “Federal courts of extreme situations even the local stat- ap expired, obligated ute of has not ply themselves limitations I cannot considered be- present lieve that local statutes of limitations when is such an occasion. Any equitable lay principles, as where fault here conflict the omission of the plaintiff’s they apply, irrespective plaintiff to warn trustee loss she rights accept ignorance if because of the fraud incur failed of his she inequitable defendant”, regard debtor’s offer. That I conduct as at most Kirby negligence alia, something citing, v. Lake Shore & an act of inter Michigan far different from Southern R. U.S. a deliberate concealment * * 430, 30 L.Ed. 569. It will be observed 7 S.Ct. Guaranty dissenting Judge opin- In York v. Trust Co. of learned was of the Judge York, Hand concur- ion Learned the statute of limitations of the New Judge opinion. Judge applied by in Frank’s Au- State would not be a red federal equity gustus stated, Hand dissented “Since court “in extreme situations.” granted 54 Tomp- by in R. v. Certiorari was the rule announced Erie Co. the Su- * * * preme 9, 1944, 60, Ruhlin v. Court Oct. kins and New York 65 S.Ct. in * * * law, question York Insurance Co. the limited to the first Life became case by petition. presented question situation is most rare when the I think the we That disregard equity the local statute of limi- is as follows: “In an case in a should Fed- diversity proceeding equita- citizenship, on because the eral court based tations by implicit in court bound the State This seems the decision is the statute of ble. * * * govern by while, and held like cases Russell Todd be- limitations in v. [1] [in footnote Mr. Justice State courts?” cause

923 period years Appeals possessed for Circuit Court of and enormous Holders, ly They ap Fourth Circuit in Committee intricate background. for factual pear Kent, me, etc., 684, v. 143 687. herein- F.2d reasons stated before, to separate complex have been in Pennsylvania may argued It that in single cidents what pre was in a fact 1867 applies specifically Act its terms plan whereby meditated was equity” against and to actions “in directors enjoyment to obtain a vicarious Penn- other, reason, that for this no if for road’s regard resources to Penn- without applied must be the in- for the benefit of or damage. road’s benefit There no was dividual bar. at defendants cases fact, upon disclosure of the fundamental point I respect can in find no case in turned, plan which the whole the vot jurisdiction. equity Such concurrent ing people” trustees “our were to be own past applied have statutes not been County equity in lying used to causes within sense the exclusive phrase jurisdiction. Riker, Alsop 155 U.S. board directors See v. those voting into trustees 39 L.Ed. and Pat- voted office S.Ct. Hewitt, loyalty Penn possess primary terson v. S. would U.S. Pennsylvania’s sylvania subject in 1 of Mr. Ct. cited note L.Ed. and be case, opinion in control to the deriment Stone’s the Todd dominion and Justice opinion Judge in was the fundamental and note Pennroad.56 This Frank’s case, page plan, the vice that the York 143 F.2d at vice of out, however, pointed large he that in the losses. measure caused Pennroad’s in opinion pertinent tran paragraph final of the Todd to the as is here Insofar way of, perhaps open complained plan left revision of sactions . per- prior respect. began I law in But can to the this domination of authority ground Pennroad, ceive on reason or continued with incorporation of why apply voting state trustees and designation a federal court should directors, limitations, dealing statute even one election specifically equity, eight in with suits to a suit transactions com carried equity jurisdiction probably of, within the concurrent reached what plained equit- when it not be consonant with richest fruition conclude, .principles The aver able to do there- Freight so. transactions. National fore, application scarcely comprehend statutes that if the could layman age Pennsylvania, includ- explana limitations of technical place took without what ing with the would conflict Act more difficult to make and difficult tions equitable principles historically Moreover, addition understand. giving governed federal courts in effect to fundamental great and concealment rights, to, remedial statutes those was act there referred fact heretofore applied in cases bar.55 at pertinent facts lesser concealment ive cooperation of directors, as with my opinion In circumstances dis defendants individual (cid:127)the instant cases closed evidence District Court findings made application make are such as below demons out opinion set incon- of limitations statutes Pennsylvania, attitude trate.57 equitable principles. The tran sonant Penn- attitude fact of continued sactions over law.” who lows: stantive eral equitable bar rights, stated, kins supra, fact in effect overrules courts were in Black & Yates being 129 F.2d “The there is “The majority opinion rights have arisen under state remedies also connection see the 25th a uniform basis for original determinative rule of directors of still the District in cases in Erie directors of Pennroad preserved v. Mahogany R. Co. decision of substantive Judge, where it was the eases which sub- granting the fed- finding of this Tomp- as fol- Ass’n, at facts embodied full formulating ments, vestment tive holders statements, ports of “As particular P.Supp. support agents information news matter of fact public participated manuals E.Supp. from news items and manuals did not page the evidence. investigations. in'the court’s executing following findings available given in and were pages 612, possibly reports seems in the annual the said Railroad in opinion. finding certificate from re- 613 and state- plan.” as to has in- ac- directors, plain transactions- exemplified by and risks fits complained involved” road’s Certainly suits at bar of. the tiffs’ with Annual “Note in exhibit No. Connection Kirby case. the the ruling within of Meeting.” is are document facts- pertinent There was concealment opinion, long reproduction too in this ap equity should not and a federal court but it indicates a state mind in which ply a statute of limitations. required dealing the candor of fiduciaries quite lacking.58 point with cestuis ed out in the As is bar were plaintiffs in the suits at findings quoted of fact surround- not aware the circumstances supra, note 57 given the statements to the of until ing the -transactions security by holders of Pennroad the given omitted im them publicity had been to portant motives, details Wheeler investigation by to the “as bene conducted account, pri- right any inspect any or to book make available information as to the by Pennsyl- except negotiations the laws or document as conferred interests of and to Railroad, do motives which authorized of Delaware or vania unless prompted management or of resolution board the formation and so of the corpora- Pennroad, stockholders, and known the tion shall not nor hazards and pub- required make it to risks which undertook for benefit any or its stockholders Railroad.” lic in manner to concerning any otherwise assets, statement obviously intention “It was earnings so unless railroad, possible liabilities keep secret as found, find- authorized.” also The court regarding details Railroad’s purpose ing provisions Id., of the the No. that “The and with Pennroad interests connections limiting in the charter investments and the that Pennroad fact rights give stockholders through agency instrumentality was an control of the cor- directors of Pennroad sought bring it other railroad which properties poration in- without an all times sphere.” into its and business investing persons in its terference of stock.” Without in- “The disclosures embarking an ex- purchases were in- dicated the stock application dissertation as to the tended transportation companies vestments eighth paragraph 5 of of Section might from which Corporation General State Law and expected benefit, im- but the also be rel. ex Penn-Beaver Oil Cochran v. motives, portant details W.W.Harr., Del., man- 143 A. benefits and risks involved those petition will of a damus issue on public.” investments not made inspection compel stockholder to “The attitude corporate records where stockholder clearly most indicated President Lee right part shows clear his declared, pol- who have followed the ‘We inspection. Swift v. State ex rel. See icy any making far of not so ourselves Richardson, Houst., Del., 338, 6 A. public regard to statements with our 143, Am.St.Rcp. 32 A. 127. But the ownerships of securities nor of de- legal owners of stock of Pennroad therewith,’ tails connected voting were the trustees mandamus County somebody said, who ‘Let else do ” is hold courts Delaware figuring.’ * * “purely legal remedy it “And is doubtful whether such de- Corporation, v. Salt Dome Oil Schenck tails would have been furnished view Del.Ch., 34 A.2d I am of the policy company express- of ed, opinion that under the law of Delaware certainly expected not could voting holders of trust certificates- that evidence would have been made avail- compelled corpora- could have their purpose starting able or a grant inspection tion to of' them similar action. secrets books, records, documents files congressional investigation until the of Pennroad. This view fortified as inviolate as the secrets Tomb provisions heretofore charter King Tut.” Chancery to. Court of referred except grant discovery will not Delaware 58It should also be borne mind that pending of a aid suit. extremely doubtful under if the law just plaintiff think it is to stale that the could ob- entire of Delaware the inspection set-up designed, put corporation. their tained It keep Pennsylvania, of Pennroad in control found Court prevent voting-trust finding P.Supp. page 622, No. also certifi- .the by-laws obtaining “The holders information [Pennroad] charter and cate concerning corporation. provide stockholder shall have they they have which have enriched themselves clear Committee.59 con- injury corporation, of court of guilty been laches.60 not of regard will mere science acts not such as Byllesby Bovay Application v. M. trust, of H. torts, and but as of serious breaches & Co. point will moral make and clear principle corporate officers and direc- any statute question as whether will, trustees, tors, while not in strictness (in contradistinction of limitations case, though they in such treated be laches) applied cases should be express and subsist- trustees of fact equitable prin bar as “consonant with trust, ing protection and without the of disposed without ciples” may not of be limitations, especially statute in- where of aspects de of the consideration of certain corporation solvency of is the result case. decision Bovay cision In its wrongdoing. enlarged Supreme of Delaware Court plea "It follows of the stat- bare fiduciary relationship ex nature of the more, whol- ute of limitations without managers a Dela isting between the ly insufficient in as a defense to stockholders. and its ware complaint.” charges of the of sub change effected one law, in the na and was reflected stantive Bovay co-plaintiff his trustees rights court which the ture of remedial Bridge bankruptcy Vicksburg plaintiffs. felt be afforded Supreme pointed Company. out Court apply Specifically refused to company that the been rendered bridge had ordinarily limitations61 State statute of insolvent the acts of defendants brought applicable suits within con dead,” “civilly ripe property being Delaware equity jurisdiction of current equity as a fund administration trust Chancery.62 Court of creditors, legali- benefit ty stated, the acts Layton defendants would A.2d Chief Justice principles different those decided than 820, 821: pages applicable. Lay- Chief theretofore Justice requires public policy “Sound the acts rights enlarged ton of stock- the substantive dealing corporate directors officers and corporations of Delaware holders corporation to be with a with the viewed quoted enlarge- above. paragraphs Where reasonable strictness. suit dependent insolvency as on ment was compel equity them ac- brought pointed hereinafter. will out damage resulting count for loss or neglect insolvency but corporation through passive reached never $100,- more, they nearly argument end of it had lost duty, without 000,000, approximately deprived two-thirds of ought benefit of not to capital. By engag- after end of not without statute limitations is years, required ing in business for than three weight; but an- less where assets been reduced had wrongful commission swer acts tention reasons, that page learned since number of the ordered 1931 pertinent have these has Section pointed The defendants contend See the Wheeler plaintiffs Splawn prepared answer been 613. General 76th reports adequately. because of the deaths printed opinion facts guilty Congress, out, here. received their cases. individual defendants. The had but, from which Judge there is Pécora was written. disclosed Atterbury laches, among Delaware Report, February 6, 3rd Soss. answered information from shall Investigations District Court evidence many F.Supp. Report they could of a has died this plaintiffs Revised It was repeat large con- No. ment, Code, an “action on year period action Castle upon account, after trespass, * 62 Bovay’s Houst., Wilson, detinue, * * accruing Superior Emphasis If quotation. applied. County record no >< no expiration Del., 4 Del.Ch. no action action action of the cause of such Court the ease shall be of limitations would have provides: See Rice v. supplied throughout suit 279, 353, 354, have been recover specialty, case” and the Delaware for replevin, assumpsit, three been “No action debt designated Pennypacker, no money years not found and Dodd no action brought action; action three judg- New no trusts, $50,000,000. express man- tions based on have not about manage- applied by heretofore federal agement closely paralleled the the alleged equity The Byllesby Company courts to exclusive actions. ment to have therefore, Pennsylvania given Bridge Vicksburg Com- of Act applied co- instant cases. pany. of should not be in the directors operated Pennsylvania’s management Obviously the Act of profit. applies The can personal application have no since it though not for their insolvency aside, case, rights Bovay legal actions and of the based on facts stated, Supreme strikingly gives the similar Court as has been of Delaware plaintiffs the While of the bar. of under an to those cases at status cestuis Company, express Bridge Vicksburg trust. But whether assets of the or not the in the equity, Bovay language change of immemorial decision worked a subject rights were tion fund” to administra- substantive of of Dela- a “trust stockholders creditors, corporations fund giving of ware just the status for the benefit that them did), Court of I (as before Delaware am was not described convinced it equitable Chancery bankruptcy court. it would be but in the inconsonant principles apply that from borne mind statute should be corporation days position of of Delaware view the stock- earliest afforded corporations law, Delaware of Pennroad the assets of holders decision of Supreme ad- trust to be have been treated as funds Court of Delaware. the benefit the directors for ministered Opinion Erroneously Ap- Majority stockholders. of the plies Statutes. I that foregoing conclude In view the of respect I Assuming in error am Delaware Supreme Court of the very plain principles to the of ex- law heretofore Lay- language Chief Justice I pressed heading, this think it is under opinion intended to serve Bovay ton in erroneously apply majority clear managers of that the on the world notice Pennsylvania. of limitations statutes corporation be held to Delaware recapitulate: majority eliminate To express of an obligations strict of trustees defendants, liability individual subsisting The decision trust. and (as District did the directors of Pennroad insolven- Bovay cy turn on the case does not application of the Act Court) company though that was bridge Pennsylvania by liability and the court considered. an issue which provide a the Act 1713. Both statutes quoted paragraphs shows language year period six of limitations. insolvency is not that prerequisite first, statute I rule. with the 1867 application Dealing majority by the courts agree with Bovay declaration decision is a phrase where have construed the Supreme Court of Delaware that * ** corpo- “any duty as direc- neglect Delaware has overtaken disaster broadly as to include even wilful through “wrongful acts of commis- tor” so ration managers his part corporate in office a director for malfeasance on the sion” that, profit. agree I pecuniary in the case also (as own disaster overtook fraud, passive through mere concealment or bar) absent years rights statutes is in six duty bar both effect the substantive neglect of equiva- event com- enlarged happening after plained will be stockholders express stringent applying those of under But cestuis of. lent majority is in of Dela- statute of limitations rule conclude trust and they individual ware, ordinarily applicable to within because treat the acts causes error complained equity if jurisdiction, will not of as were distinct the concurrent bar an action corporate separate not constitute a against the man- incidents and did Pennsylvania’s single plan manifestation of agers. (in which purpose the individual and whole plaintiffs into came that the It follows cooperated) use Pennroad’s defendants District for the Eastern Court for the benefit advant- and assets funds standing with the regard age without que ex- under an rights of cestuis trustent might or the loss which occur to benefit subsisting trust and defend- press security Pennroad and holders. obligations, subject duties ants The record demonstrates of such trust. liabilities trustees plan prior sylvania’s limitations, was conceived even those statutes State incorporation and was carried designed applied ac- to be specifically of) record as but complained first (including those out intended. not single the step plan was incidents in the execution of of a execution that plan and by Pennsylvania Each whole the purchase DTI. of the securities of cooperation purchases complained of individual the the defendants of of made there- the for road step in of domination and Penn- after was another Pennsylvania’s the execution control of in- and its we take scheme. Each of the assets and even if the 31, 13, 1933, -April date of March ex- dividual contributed defendants 1933,66 plan They when and Pennroad’s ratified ecution of the Pennsylvania as whole. directors par- Carloading the sale in in law of Stand- were fact and National Carloading, years prescribed conspiracy employing ard to a civil six ties and Pennsyl- in- statutes analogy law as an of limitations of the criminal elapsed vania complained filing had not before of dividual of transactions in the the at nothing more suits bar. critical date at which than individual overt acts commenced to run in fact single illegal of a statutes was furtherance end. 31, than findings opinion much March 1933. fact later embodied support the District Court this view.64 conclude, I hereinbefore for the reasons stated, that whether the nature of the de- upon Many which transactions transgressions their fendants’ acts and was induced to enter are Pennroad complained against are to be considered Pennroad plaintiffs but steps merely in ex- isolated incidents of steps constituted in the execution too plan, single ecution should be deter- single plan. loans These include the mined stat- the law Delaware. The Company Fruit and made Universal are, applied to be how- utes limitations Company purchase of Gerrard and the ’ ever, Pennsylvania. Substantive those of Company. stock of Raritan Railroad rights merge seem this and remedial instance and come close place be- these took Some of transactions being indistin- 13, April 1933.65 31 Some fore March and guishable.67 present time. On the occurred after when Delaware courts say difficult to the ex- No decision of the record it is question Pennsylvania’s light upon vi- plan throws clear ecution of involved, though here enjoyment resources of law of Pennroad’s substantive carious Keenan, end, Guth apparent in Eshleman v. it the decisions came an Inc., Bovay M. Loft, v. un- H. cease v. Byllesby and scheme did not execution Co., desig- supra, independent & indicate that voting trustees til ef- will not under circum been courts Delaware changes until such nated and like break down Pennroad stances those at bar in the directorate of fected corporate man dealings between from the domination of course of agers freed Potts, single, into sylvania. Mr. William M. While large voting transactions. conclude holder of trust individual Pennroad’s a certificates, present question were before the voting trustee at an became if Chancery equi date, I Court on bill think it is fair conclude Delaware earlier containing those operation voting ty allegations similar to trust complaints bar un- evidence domination of presented freed cases, changes 1936 in- that in the was like instant further effected til dependent adopt reasoning majority among voting trus- would the Court Kissel, 218 shortly may as United be assumed that after such cases States v. tees. 1168, 124, 607, 54 601, 31 L.Ed. the directorate of S.Ct. last mentioned U.S. event Kentucky Tel. Co. v. Southern relieved Northern 335, Cir., 333, Co., 73 F.2d regard if & T. 6 But we all Bell T. management. Machette, 133, Clark present demonstrated in v. 97 A.L.R. transactions recovery hope E.Supp. had no 601. time Pennroad See except way from of suit. stated, Menges 137, Frick, on March Pa. As has See Carloading Am.Rep. National was sold 731. Carloading Law, Holmes, The Common Standard April 13, 1933, p. 253, Chamberlayne, the sale on Board ratified relieving Evidence, 1911, obli Modern Law Section thus gation, states, authority last showed a 171. The cited measure fulfilling, lifting promise of “The distinction between substantive freight illusory. procedural burden of its for is artificial and point warding transactions. From none.” this In essence there is rely. this majority limitations 36S, which the 184. Colo. 21 P.2d stated, court As Mrs. heretofore Overfield’s see decision of this connection complaint, originally Klaxon Mfg. Co. v. Electric Stentor freight transactions, Treating forwarding all F.2d filed on Employing this record March even transactions demonstrated steps single plan, designated para- earlier date execution of a graph statutory imposed. probably hold bar the Chancellor prescribed period by Delaware the the Running The of the Statutes of Limita- limitations, would not commence statute tions Was Tolled. 31, earliest, run, prior the to March conclude, fair majority 1933. It would seem The if hold that there con- therefore, pre action that the causes of by cealment the defendants such conceal- by bar complaints cases at sented affirmative, ment must independent be “an act,” come before the Court District citing Blachley, inter alia Smith v. Pennsylvania, insofar Eastern 173, 985, 849; 198 Pa. A. L.R.A. concerned, upon rights are Bailey substantive Jacobs, supra, as v. Ply- and Ebbert v. Penn the statutes limitations of which supra. mouth Oil “independent The may operate, single a course sylvania as act” majority view must constitute conspiracy. civil constituting conduct mislead, “affirmative divert, efforts to or Pennsylvania Co., D prevent Canal v. discovery,” See Brown citing v. Deemer by .C., 444, 452, Weaver, 229 F. affirmed 85, 88, 215, Pa. 187 A. 216. peri follow that the agree F. It would I 669. majority with the the Penn- that not prescribed statutes sylvania those should ods frequently decisions refer before the to commence to run necessity be deemed “affirmative, independent act I think the courts date last stated. that of concealment” over and the origi- above adopt a rule such wrongful nal complained act I of but must- prescribed by a period would treat majority dissent from the as view to what not as statute limitations interpretation constitutes a correct n commencing until the end of to run Supreme decisions. The prohibited conduct. whole course Court though employing Zellner, Luz.L.Reg.Rep., Maslovsky v. language quoted above mitigated has Pa., Compare the circumstances 108. strictness rule announced de- Jacobs, 325 Bailey v. Pa. such cases claring slight rather of further instances Plymouth Oil v. and Ebbert 189 A. concealment running as sufficient to toll the Company, 338 13 A.2d Pa. 42.68 of the statutes of-limitations here involved. Cornell, In Schwab v. 306 Pa. The Statutes 449, 450, Schaffer A. stated: Justice Project. Freight Forwarding “If are circumstances such eyes open majority of hold that the man’s have been to what this court respect occurring, begins then the liability statute to run defendants seen, upon freight project embarked from the forwarding time when he could concealment, if through inducement but fraud or Pennroad at otherwise, limitations screen had the statute been barred erected effectually adversary transactions his as are the precisely obscures n my happened, what have stated reasons the view of has of. stat- quiescent concluding and ute that these transactions remains until actual knowl- participation edge in them did In arises.” the Schwab case the the defendants’ de- fendant, conveyancer, duty until March 31 come to an end owed a not my plaintiff, purchaser, I am con- April 1933. If correct see he liability' clear certain land. clusions it is obvious that obtained a title to n is not barred to these the settlement the title defendants When sheet of company either of delivered to defendant transactions statutes ‘ charges individuals, 68 Bailey not Jacobs all had In v. con due from the years converting the than made more six before Jacobs tended personal corporation’s for his It suit was started. held assets own plan recovery. pursuant In the Act 1867 barred use acted fixed case, Supreme conspiracy. though Court of In Ebbert neither did case Pennsylvania pass upon point appears specific to have a concerted there ben among plan action under discussion. the directors here corporation legal charge expenses showing “De- unpaid. among 'showed that some taxes were these sums others stock- reports defendant ferred plaintiff Charges” did not inform the annual act plaintiff this defect holders his title and the had committed an affirmative February 28, took a deed Act of On toll the 1923. concealment sufficient to 28, 1923, mailing in this Compare later connection with decision June case, the recorded purchaser, 34 A.2d deed to Pa. de- fendant wrote him stating a letter to Bailey Jacobs, supra, Jacobs policy the title showed title corporate funds withdrawn and converted clear of exceptions liens with certain to his own use. withdrawals were pertinent. here for tax- land was sold company. entered books of plaintiff es in 1928. suit on This was treated of concealment as the act years December more than six running tolled the stat- after the date of the from the de- letter ute. case will be observed in the Jacobs informing property fendant him that acts of were con- concealment was clear liens. The lower de- original wrongs current with that the cided that the date of the was the letter concealment, the act of treated an as af- date at which the statute limitations by Supreme act the Court firmative (the 1713) Act of began to run and barred Pennsylvania, was the omission of Jacobs reversed, the Supreme action. The Court to cause withdrawals be entered his plaintiff's holding eyes that the had been corporate Stern, writing the books. Justice by closed the defendant’s letter and that opinion, though the that there was stated his ripen cause of action did not for suit testimony no the that concealment was this until he received notice sale any by result of order “there direct Jacobs property holding for taxes. The justifying was evidence conclusion Supreme is if Court an act of con- a suggestion at least made [Jacobs] [to original wrong, cealment obscures the effect, bookkeeper] to that and that he knew statute of limitations run until does not upon being the withdrawals were not noted injured person’s eyes opened. * * page books See 325 Pa. at Weaver, 189 A. at supra, In Deemer v. the hold- er of a life interest in real estate concealed particu- In view of these decisions and from the remaindermen the fact she larly Jacobs, light Bailey v. piece $9,000 had sold of real estate limi- think it clear that statutes of $5,000 reported instead of for she as majority opinion tations relied on in the place them. The sale took up- original wrong have been tolled. The $5,- stating the a deed consideration security holders of Pennroad was immediately. 000 was almost Fif- recorded promotion company of their years later, years teen three after the death primary benefit with- interest, of the holder of the the re- life regard Penn- out to the benefit loss or fraud and maindermen discovered road, employment by of Pennroad against the hold- suit the estate of Pennsylvania, cooperation with the of the life interest. courts er lower defendants,69 individual held the action barred the 1713 statute. pocketbook. If I correct in con- am Supreme judgment, Court reversed the clusion, independ- it clear that numerous deed, recording holding that ent affirmative of concealment fol- acts $5,000 showing consideration was an original wrong. lowed the We need look act of and that the affirmative concealment provision further than to Penn- no begin did not to run until dis- statute declaring charter it to be one of road’s covery by remaindermen of the ac- corpora- purposes to Pennroad’s aid other price tual received the holder tions, twenty-five percentum within the life estate. clause, ownership manner which the Plymouth might supra, In Oil board of Pennroad deem “advan- Ebbert v. corporation Corporation tageous the directors of a Delaware [Pennroad] the holders of its stock.” While was of funds of in to made use Penn- understood the stockholders of with certain suits in which connection sylvania personally amount and the holders interested. The corpo- voting certificates trust of these sums carried Pennsylvania, repre- Charges.” might aid as “Deferred rate books that aid should be Supreme in sented that such Court held that defendants finding Judge. supra, 25th See note fact advantageous and its Majority to Pennroad Least a heading pany, of the Stock.” stockholders. See also the letter included Com- stocks of Canton General Atterbury April common, sent on DTI Freight National com- mon, Pennsylvania (more stockholders of PWV common. There is than Pennroad) of whom indication Freight stockholders that the National became com- 56% mon, part, and which states in “Your carried value statement at a [Pennsylvania] opinion $2,400,000, very directors are of the little worth end instrumentality of 1931 independent such Canton common carried $13,400,000 value in your excess of worth protect [as needed to Pennroad] Any much less. suggestion true your Company.” interests and those of common, value of PWV carried in the “independent Pennroad was instru- not an statement at nearly $38,000,000, lacking. mentality.” contrary On the it was in a subserviency. state of substantially statements sent security similar tenor .to holders In the financial sent statement years and 1933. its statement security road to March holders on as of again December 1934 it carried Pennroad as securities owned cost, its investment at but state did not listed, December 1930 are market values. also in This is true given number of not the shares years statements for 1935 and prices paid for the twenty thousand One hundred stocks. the common shares of That the attitude Freight Company stock of National are in withholding Pennroad was by information vital listed respect statement part no other is made policy of a settled is demonstrated Freight. is National There early July, 1930, As Mr. record. suggestion County Pennroad in a statement that “Personal” memorandum Freight Lee, in- had caused National Mr. referred National to Barron’s corporated Weekly July at inducement Financial Business and speculative thereby engaging depreciation in a se- and was 7th which showed curities of and wrote: venture, company quite keeping with the ordi- another investment out of proposed company. “In statement of nary of an investment activities Pennroad, you I think should avoid gives no indication The statement any allusion market value of purchased above had Pennroad securities somebody securities. Let else do prices their true or in excess of market figuring.” Lee Mr. stated in a letter why values, it no hint as to there is Company The Melrose Trust of Massachu- statement In Pennroad’s this. had done setts, voting a holder of 2500 cer- trust year December un- ended tificates, reply inquiry respecting to an heading which Market “Stocks for der the ownership of stock Bos- Pennroad’s Available,” Quotations number ton and Maine: “We followed purchased is stated as the cost shares any policy making of not so far ourselves price these market and the to Pennroad regard public statements with to our own- This of December securities as erships any nor securities details huge loss in stocks for shows a statement ” * * * therewith. connected available, quotations were which market pur- that Pennroad stated the advice of counsel Pennroad but it On prices of market pending excess Perrine stocks no mention suit chased security been Delaware, A holder would have which referred to some of values. cost of each down the in the compelled break transactions suits Ogden expressed shares by the number of bar. Mr. views of securities lot of prices legal arrived at compare the thus financial advisers Pennroad’s probable “emphati- time he wrote that market values as when purchased. Under cally making had been adverse to statement the securities such circumstances ** * it conclusions as about [the suit] stockholders, paid prices up many whom stir reasonableness it, pure possibly nothing although on the knew be almost surmise about road would dismissed, voting-trust believe, finally ordinary certificate suit if the part might be made to certain stocks are reference In the statement some annual by holder. listed Quo- report or other Having No Market statement sent out as “Stocks Corporation Corporation.” Owns Where Or tations November Mr. Ogden's 1932, relating memorandum bis con- ference venizer and with Messrs. Leonard D. Adkins. George W. Bo n In, February worth nothing. $400,000 little or If proxy statement dated meet- prior to the annual notes which Freight sent out National received 6% ing Pennroad, vot- included Carloading Standard stockholders end, ing reference having trust come Pennroad’s year statement for 31, 1933, end ing was made to the suits at bar and to December un this asset was lay answers which Pennroad filed to the had disclosed head under some other complaints. ing. Compare Bailey notice contained the the facts of v. Ja- “ * * * by cobs, Plymouth statement that similar suits and Ebbert v. Oil su- pra. other individual have been stockholders It was not disclosed to Pennroad’s instituted, security Freight of like character suits National had holders that threatened; credibly have been and that as sold Carloading National Car- to Standard present informed The loading, thereby directors of relieving Corporation Pennroad in- believe obligation failing an prise to take that enter- complained of vestments and transactions out of Pennroad’s hands. As to were made in exercise of reasonable purchase of Seaboard never stock it was prudence light care and of the then any report disclosed in curity se- prevailing and in the interests conditions involved holders Pennroad Corporation.” of The Pennroad underwriting agree- itself in a disastrous signed presi- statement Lee as Pennsylvania, and ment for benefit of dent of Pennroad. In view of cir- October, 1933, there was no disclosure until purchases surrounding cumstances by private was bound oral Pennroad Freight Seaboard stock—to and National agreement not to sell Seaboard stock employ examples two which Mr. purchased by September it until —with conversant, impossible Lee was me agreement As a result of quoted consider the words to tice as from the no- declining against held its Seaboard stock anything other than an effort made transactions market. As to one Mr. Lee lull stockholders complained of did ever disclose quietness. my opinion Pennroad into security why to its holders the reason the contents of this notice are sufficient paid prices val- higher than market or true toll statutes of limitations as to those ue for such as PWV. securities those of of Pennroad who were with- stockholders out may argued It be that financial statements knowledge Report or of the Wheeler material, ordinarily not contain do such ap- pending the nature It suits. but the such an is short answer to assertion pears Supreme from decisions of the corporations acting persons that fiduciary capacity in or cited, Pennsylvania heretofore Court required give are all point time at which in- pertinent information their cestuis as to dependent affirmative act of concealment put. into which are investments Since the defendants trust funds place is immaterial. Once it takes has tak- cases instant begin will place run en the statutes pleaded have the statutes of limitations of person’s eyes after the deceived have until Pennsylvania, the issue of should what opened.71 been by been disclosed independent affirmative As to acts security statements to its holders most is respect some concealment in the pertinent. complained occurring specific transactions Conclusions. consummation, examples few after I generis. bar are con- The sui freight cases suffice. As to forward will com- clude that none transactions transactions, Pennroad’s financial ing state of, plained whether be considered as the fact that Penn ments never disclosed separate causes of action or as $3,000,000 incidents more than sylvania received single plan, of a barred is the execution by Freight or National Car- National Pennsyl- statutes of limitations of way freight loading of rentals applicable. National vania even if such statutes charges, that the sale of Car- plaintiffs that the and the Carloading conclude also Standard loading was made to they represent have not $400,000 stockholders 1933 for notes. state my opinion security also that guilty of laches. which Pennroad sent ment which Pennroad entered in- February, no transaction carried National holders Pennsylvania pursuant the benefit $2,400,000 to for Freight common with the plan presently barred Carloading, National National sale Equity laches. must do corporate mere limitations Freight had become shell page 88, example supra, Weaver, A. at 324 at for Deemer par- justice complete full and between invest- require all ties. This incorpo- Pennroad, ments made from its an ration to the date it obtained at which independent directors, whether board of not, in- of or should be thrown accounting. The transactions profit (the pur- resulted in a for chase of the stock Raritan Company, example) included for accounting as those well as expended resulted in a loss. sums Pennroad should and interest al- be totalled per an- lowed thereon at the rate of 6% judgment. num until the date of final should be allowed There defendants against a setoff this the amounts sum investments received Pennroad from the plus held the value of the securities peri- end the critical Pennroad as of the should be designated. defendants od severally jointly and liable to be held formula. determined the net amount accounting. The problem one of required my suggested opinion course presented circumstances by the unusual Cal., Gilmore, Sacramento, Chas. L. cases. instant appellant. judgments reversed should be remanded directions to cases Atty., Hennessy, U. S. of San Frank J. permit such amendments Francisco, Cal., below to Seawell and Emmet J. may necessary to effect pleadings O’Hara, Attys., Asst. S. Thomas both U. Opportunity suggested. should Sacramento, Cal., result appellee. the be afforded presentation of such DENMAN, WILBUR, Before required. Ad- evidence further MATHEWS, Judges. Circuit findings conclusions fact ditional by the learned be made law should MATHEWS, Judge. Circuit and the Judge the circumstances Appellant indicted in six counts. may warrant. charged appellant Count 1 took use, away with intent carried for his own purloin, property certain steal Each States.1 other United charged appellant counts in his possession, with intent to convert his property gain, own certain use and which had United States been theretofore stolen, knowing to have the same so Appellant arraigned, pleaded stolen.2 STATES. v. UNITED trial, guilty, jury McELHENY waived tried court, guilty and was found on count 10690. No. A guilty on other counts. and not Appeals, Ninth Circuit. Court new trial was Circuit made and de motion February Thereupon, nied. Dec. 1944. sentencing judgment appellant was entered year imprisoned for one to and that on count dismissing counts. From appeal prosecuted. judgment this Code, 36(C) Code, 48 of the § Criminal Criminal § 1 See § U.S.C.A. § U.S.C.A. in notes sideration was Pennroad’s to elected had been 6% pro- contained a cash. The also contract well as These men as hoard. Carloading could whereby vision liquidate Standard concerned became of Pennroad directors paying obligation by entire in the position with Pennroad’s acutely as certain amounts in cash. The contract forwarding One freight business. by Freight Stan- Post, executed National directors, H. S. -independent A.Mr. by Pennroad’s Carloading dard ratified was question as testified that he raised April 12, board on 1933. The reason for ad- make further whether Pennroad should subsequent view ratification in Gen- Freight and that National vances to prior by Pennroad’s board authorization company Atterbury replied eral changes was because effected in as by Pennsylvania be taken over n soonas a .method option terms to of the contract of sale. do be devised could pay stipulated cash was exercised however, Advances, continued so. Carloading 1935 when Standard Freight for National Pennroad to paid Freight Carloading Standard National Carloading. benefit of National $381,000. business, with- forwarding freight Carloading With the sale of National entities, was corporate regard out operated for Sweringen opportun- the Van interests the department of substantially as a ity compel Pennsylvania Freight paid National Pennsyl- $3,000,000 freight project take over forwarding totalling over sums freights rentals. Messrs. hope vania for and end. came to an Pennroad’s sole Lee, quickly reached Ogden County recoupment lay against Pennsyl- and in a suit Pennsyl- expressed the conclusion that and vania. duty Pennroad to a moral owed vania take over National Judge Na- learned District held that Freight fash- “in some Freight agency or instru- tional was ion.” mentality Pennsylvania, employed October, 1932, Long it was obvi- before purpose establishing speculation busi- Pennroad’s ous that freight forwarding in the petition business in com- forwarding freight would have ness of engaged with other railroads liquidated if further losses disastrous findings same business.34 In its of fact the 13, 1932 were to be avoided. On October Freight also Court found that National Company, a Trust American Contract and enterprise speculative “a new in character Pennsylvania, wholly-owned subsidiary of subj and which ected Pennroad to the whole purchase made an offer loading National Car- enjoyed risk while $100,000 $400,000 and cash the benefits therefrom.”35 plaintiffs contend securities. The Court stated that: “The actions of di- bona and this offer was not tion fide this asser- managers Pennroad], and rectors [of justified the record. Subse- seems exercising Railroad in quently an offer the Van was made practical control and domination $100,000 Sweringen pay interests to cash them, freight enterprise constituted $300,000 agreement notes. An 6% flagrant fiduciary the most breach of the whereby proposed Pennroad would sell imposed obligation them the cir- Carloading to in National its interest equally cumstances of this It is case. clear Carloading Company, a Van Standard sole beneficiary that the of the National Sweringen company, for the consideration Freight venture Rail- stated. profit substantially road .and did revenues, February freight board On from rentals and competitive proposed promotion position approved the sale National of its freight company Carloading long operated. Carloading to Standard as the $100,000 $300,000 liability good in cash notes. The should therefore in con- 6% purchase imposed upon A firm was made that or offer to member science the Carloading group Company Standard on March who directed controlled 35 Finding 34 Designated of Fact 29. See F. No. as “Conclusion of Law” Supp. page F.Supp. 625. The No. 4. See reality finding is a of fact. statement protect Pennsylvania’s enlarge taken.”36 to rail- profited the action who exception empire. Though All road findings of these with the quoted separate portion of that course into of the one last be broken down incidents, regards re- freight including eight transactions revenues and rentals National by Pennsylvania of, ceived Freight Company toward Penn- its conduct supported uninterrupted profits road continuous and was a fully by single plan. execution determining whole the record. aspects legal certain Pennsyl- requires judgment The court’s liability the defendants we should look vania all dam- to reimburse Pennroad for

Case Details

Case Name: Overfield v. Pennroad Corporation

Court Name: Court of Appeals for the Third Circuit

Date Published: Dec 28, 1944

Citation: 146 F.2d 889

Docket Number: 8288, 8289, 8303, 8304, 8371, 8372

Court Abbreviation: 3rd Cir.