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Gaudiosi v. Mellon

June 24, 1959

LOUIS GAUDIOSI, CHARLES SCHWARTZ, AND RANDOLPH PHILLIPS, INDIVIDUALLY AND ON BEHALF OF ALL OTHER STOCKHOLDERS OF THE PENNSYLVANIA RAILROAD COMPANY SIMILARLY SITUATED, APPELLANTS,
v.
RICHARD K. MELLON, ROBERT T. MCCRACKEN, C. JARED INGERSOLL, WALTER S. FRANKLIN, JAMES E. GOWEN, PHILIP R. CLARKE, JAMES M. SYMES, JOHN A. DIEMAND, JOHN B. HOLLISTER, LAMMOT DUP. COPELAND, DONALD DANFORTH, R. GEORGE RINCLIFFE, WILLIAM L. DAY, OTTO N. FRENZEL, FRED CARPI, DAVID C. BEVAN, JAMES P. NEWELL, DIRECTORS AND PENNSYLVANIA RAILROAD COMPANY, A CORPORATION, INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, APPELLEES. LOUIS GAUDIOSI, CHARLES SCHWARTZ AND RANDOLPH PHILLIPS, INDIVIDUALLY AND ON BEHALF OF ALL OTHER STOCKHOLDERS OF THE PENNSYLVANIA RAILROAD COMPANY SIMILARLY SITUATED, APPELLANTS V. WALTER S. FRANKLIN, RICHARD K. MELLON, ROBERT T. MCCRACKEN, C. JARED INGERSOLL, JAMES E. GOWEN, PHILIP R. CLARKE, JAMES M. SYMES, JOHN A. DIEMAND, JOHN B. HOLLISTER, LAMMOT DUP. COPELAND, DONALD DANFORTH, R. GEORGE RINCLIFFE, WILLIAM L. DAY, OTTO N. FRENZEL, FRED CARPI, DAVID C. BEVAN, JAMES P. NEWELL, DIRECTORS: BAYARD H. ROBERTS AND PENNSYLVANIA RAILROAD COMPANY, A CORPORATION INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, APPELLEES (FIVE CASES).



Author: Kalodner

Before KALODNER and HASTIE, Circuit Judges, and EGAN, District Judge.

KALODNER, Circuit Judge.

Two separate actions in the United States District Court for the Eastern District of Pennsylvania, arising out of a proxy contest for the election of six directors of the Pennsylvania Railroad Company ("Railroad") at its annual meeting on May 13, 1958, resulted in the six appeals now to be considered.

The first of the two actions (No. 24,456 below), was filed April 9, 1958, by Randolph Phillips, Louis Gaudiosi and Charles Schwartz,*fn1 citizens of New York, individually and in behalf of stockholders, against the Pennsylvania Railroad Company ("Railroad"), a Pennsylvania corporation having its principal office in Philadelphia, Pennsylvania, and its Directors, all citizens of states other than New York.

The complaint in this first action alleged multiple claims in four counts premised upon events which had occurred up until its filing in the campaign conducted for proxies by plaintiffs in behalf of Phillips' candidacy for director, and the Railroad for its six nominees.

It sought a declaratory judgment invalidating all proxies received by Railroad, an injunction against Railroad's solicitation of proxies in the manner pursued prior to the filing of the action and the use of Railroad's funds in solicitation of proxies, and a mandatory order that Railroad supply all stockholders with a ballot form of proxy and statement by Phillips refuting alleged false and misleading statements made by Railroad in letters earlier sent to stockholders.

On May 6, 1958, the Court below, following hearings, entered an Order*fn2 denying the relief sought by the plaintiffs, dismissing their complaint and entering judgment for the defendants with costs.Plaintiffs' appeal No. 12,618 arises out of the May 6, 1958 Order.

The second of the two actions (No. 24,654 below) was filed on May 9, 1958, by the plaintiffs against the defendants named in the first action and Bayard H. Roberts, secretary of Railroad. It, too, related to the proxy contest. It sought a declaratory judgment invalidating all proxies received by Railroad in support of its nominees, an injunction restraining Railroad's use of the proxies at the annual meeting at which six directors were to be elected, and postponement of the annual election until at least three weeks after the entry of a final order disposing of plaintiffs' request for relief.

In Count IV of their complaint plaintiffs pleaded a class action and asserted a derivative claim that the defendant directors were liable to Railroad for improper expenditures of corporate funds to promote the candidacies of management's six nominees for director, and sought an order requiring payment by the individual directors of all expenditures by Railroad in the proxy contest.

After filing this second complaint on May 9, 1958, plaintiffs, the same day, sought to amend it by adding as defendants Swiss banks which allegedly had 707,734 shares of common stock of Railroad registered in their names. In this fifth count plaintiffs sought an injunction restraining the Swiss banks from voting the stock mentioned at the May 13, 1958 annual election or executing proxies in favor of management nominees for directors. Copies of the amended complaint were served upon the Swiss banks on May 12, 1958. Subsequently, on June 10, 1958, this fifth count was dismissed on motions of the Swiss banks, by stipulation of the parties.

A hearing on plaintiff's motion for preliminary injunction scheduled to take place on May 13, 1958, the date of the election, was continued until May 19, 1958, and the annual election proceeded without restraint.

On May 19, 1958, upon agreement of the parties, the hearing was postponed until the judges of election had filed their report. On June 4, 1958, after the report had been filed, another hearing was held and the Court below entered a temporary restraining order serving to enjoin the management nominees from taking office pending disposition of the proceedings after final hearings which were concluded in July, 1958.

On August 5, 1958, the Court below entered an Order directing rehearing upon the class action claims embodied in Count IV of plaintiffs' complaint and for a separate trial of the claims. In an Opinion*fn3 accompanying the Order the Court below stated (166 F.Supp. at page 352) "* * * the plaintiffs have presented the representative claim in such haphazard fashion as to make it virtually impossible for the trial judge to make any just, proper determination."

On August 6, 1958, the Court below, pursuant to defendants' motion for an order requiring plaintiffs to furnish security for expenses, including attorneys' fees, incurred in connection with the proceedings relating to the class action claims in Count IV, entered an Order*fn4 directing plaintiffs to give such security in the sum of $3,000 on or before September 17, 1958. The Order directed the Clerk of the Court to mark the representative claim in the class action in Count IV dismissed in the event of failure to file the security specified. Developments with respect to this phase of the action will be discussed later.

On August 18, 1958, the Court below, complying with Rule 54(b), Federal Rules of Civil Procedure, 28 U.S.C., entered final judgment for the defendants on all of the several claims in plaintiffs' second action, except with respect to the class action claims in Count IV, reserved for trial in its prior order of August 5, 1958.*fn5 Unquestionably this judgment was immediately appealable.

However, on August 27, 1958, plaintiffs filed a mostion, on its face denominated a motion pursuant to Rule 52(b), to amend particular findings of fact. The motion recited plaintiffs' desire to introduce new evidence on the particular factual issue and tendered supporting matter in the nature of new documentary evidence. Then, on September 16, 1958, with this motion pending before the Court below, the plaintiffs filed notices of appeal from the August 18th judgment which were subsequently docketed and are now befOre us as No. 12,742 and No. 12,743.

But a timely post judgment motion under Rule 52(b) deprives the judgment, for the time being at least, of its finality, and its immediate appealability. United States v. Crescent Amusement Co., 1944, 323 U.S. 173, 65 S. Ct. 254, 89 L. Ed. 160, rehearing denied 323 U.S. 818, 65 S. Ct. 437, 89 L. Ed. 650; cf. Continental Oil Co. v. United States, 1936, 299 U.S. 510, 57 S. Ct. 30, 81 L. Ed. 378; Aberlin v. Zisman, 1 Cir., 1957, 244 F.2d 620, certiorari denied 355 U.S. 857, 78 S. Ct. 84, 2 L. Ed. 2d 63. As this Court stated in Healy v. Pennsylvania R. Co., 1950, 181 F.2d 934, 935:

"The District Court, when timely substantive motions are entertained and pending, has not lost jurisdiction, and it having the power to grant the motions, the judgment is not final for the purposes of appeal."

If this were all, the prematurity of the appeals at No. 12,742 and No. 12,743 would be clear. However, on September 29, 1958, the Court below denied the motion to amend its findings, ruling that it had no authority under that rule to make an amendment which could be justified only by matter outside the trial record. It is now argued that the motion was not in legal contemplation or effect a 52(b) motion and, therefore, that it did not affect the finality or appealability of the judgment. However, Rule 52(b) explicitly authorizes motions "not later than 10 days after entry of judgment * * * [to] amend its findings or make additional findings * * *." The instant motion was filed nine days after entry of judgment and it plainly asked for an amendment of the Court's findings. It was in fact and law a timely motion under Rule 52(b). It is true that the Court below found the motion without proper basis because ...


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