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Civil Procedure Keyed to Field
Webster Eisenlohr, Inc. v. Kalodner
Citation:
145 F.2d 316 (3d Cir. 1944)Facts
Andrew J. Speese, 3rd, a Texas resident owning 10 shares of preferred stock in Webster Eisenlohr, Inc., filed a class action suit in federal district court on behalf of all preferred stockholders. The complaint alleged that the company’s certificate of incorporation provided that preferred stockholders would have “full voting power” when dividends remained unpaid for two quarters, which had occurred since 1931 with arrearages of $75.25 per share by December 1941. Speese claimed this meant exclusive voting power, while the company maintained preferred and common stockholders voted together. The complaint also alleged the company was controlled by Chase National Bank through common stock ownership and was being operated for the benefit of common stockholders to the detriment of preferred stockholders. After initial hearings where Judge Kalodner indicated the preferred stockholders might prevail on the voting rights issue, Webster Eisenlohr sent its 1942 annual report to stockholders and then offered to purchase preferred shares at $150 per share. The company paid Speese’s attorney $7.50 per share as commission and paid brokers White, Weld & Co. $10,000 for facilitating the purchases. Speese and most other preferred stockholders sold their shares. Judge Kalodner, believing the company’s communications were misleading and that material facts were withheld, appointed a special master to investigate the circumstances of the stock purchases and the company’s financial condition.
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