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decided: December 3, 1964.


Appeal from decree of Court of Common Pleas No. 4 of Philadelphia County, June T., 1963, No. 5639, in case of Arcadia Theatre Company, Samuel Shapiro, Edna Shapiro, jointly, et al. v. Morton J. Sablosky, Bennard Shapiro and Edna Shapiro.


Michael H. Egnal, with him Eugene F. Brazil, and Egnal and Simons, for appellants.

Morton Witkin, I. Raymond Kremer, and David S. Malis, with them Malis, Malis & Malis, for appellees.

Bell, C. J., Jones, Cohen, Eagen, O'Brien and Roberts, JJ. Opinion by Mr. Justice O'Brien. Mr. Chief Justice Bell and Mr. Justice Roberts concur in the result. Mr. Justice Eagen dissents.

Author: O'brien

[ 418 Pa. Page 36]

This appeal is part of a complex of litigation among the parties for control of the Arcadia Theatre Company,

[ 418 Pa. Page 37]

    a Delaware Corporation. The sole asset of the corporation is an operating theatre in Philadelphia. The entire outstanding issue of stock of the corporation is sixty shares, of which forty shares are owned by Samuel and Edna Shapiro, husband and wife, as joint tenants with right of survivorship, and twenty shares are in the name of Morton J. Sablosky.

Marital difficulties arose between Samuel and Edna Shapiro and they separated in January, 1962. Their sons, Merton and Bennard Shapiro instituted an action in equity for specific performance under an agreement which gave each son an option to purchase ten shares of stock owned by their parents.*fn1 The parties and Morton J. Sablosky, not a party in the action for specific performance although the owner of one-third -- 20 shares -- of the stock of Arcadia entered into a stipulation and consent decree in April, 1962. The substance of the consent decree was that there would be no change in corporate structure or in the personnel of the officers or directors pending final hearing. Another consent decree was filed on December 21, 1962, which, inter alia, referred to a meeting on November 26, 1962, in which a de facto board of directors was elected. Morton J. Sablosky was released from any restriction imposed upon him in the use of his stock as agreed to in the consent decree of April, 1962. The December, 1962, consent decree sought to establish some order in the operation of the theatre pending the chancellor's adjudication. The adjudication was filed in August, 1963. On September 4, 1963, Edna Shapiro and Morton J. Sablosky issued a call for a special meeting of Arcadia stockholders to be held on September 12, 1963.

A few days later, the within action was commenced -- a complaint in equity filed and preliminary injunction granted -- and hearing date set. Counsel for the

[ 418 Pa. Page 38]

    parties, by stipulation approved by the court, agreed to the appointment of the Master and "2. That the powers and duties of said Master shall be as follows: (a) To supervise the collection and distribution of all receipts until the next election of Directors of Arcadia Theatre Company with the object in view to see they are proper. (b) . . . (c) To consider and pass upon the question when it shall be proper for Arcadia Theatre Company to hold its next meeting of shareholders for the purpose of electing a Board of Directors. (d) To act as chairman and judge, and to rule upon all disputes, at the next election of Directors of Arcadia Theatre Company. 3. That immediately after the next election of Directors of Arcadia Theatre Company the powers and duties of the said Master shall cease and determine."

The Master commenced the performance of his duties, in pursuance of the stipulation filed, immediately after his appointment on September 24, 1963. He filed his written report on November 27, 1963.

Plaintiffs filed a motion to dismiss and suppress the master's report for the reason that "it now appears that counsel entered into the Stipulation . . . [providing for the Master] unwittingly, and without an awareness of [the Pennsylvania] Rule of Civil Procedure 1514." Exceptions were also filed to the report of the master assigning, among other reasons, that the master exceeded his authority in many respects and ignored certain provisions of the bylaws of Arcadia.

The court approved the master's report and adopted the findings of fact and conclusions of law and entered the following order: "1. Plaintiffs' motion to suppress or dismiss the Master's report is denied. 2. Plaintiffs' exceptions to the Master's report are dismissed. 3. The stockholders meeting of November 26, 1962, is declared invalid. 4. The directors' meetings of November 26, 1962, December 17, 1962, August 29, 1963, and October

[ 418 Pa. Page 394]

, 1963, are invalid. 5. The special stockholders meeting held on November 5, 1963, was a valid special stockholders meeting and the board of directors, consisting of Morton J. Sablosky, Bennard Shapiro, Nathan Markovitz and Edna Shapiro was duly elected at that meeting and may, henceforth, act as the board of directors of the Arcadia Theatre Company until the next valid election of directors."

Appellants assign as error: I. The master was without any authority to make any factual or legal determinations. II. Authority for the master could not be supplied by consent or otherwise. III. The master violated the injunction of September 9, 1963, which was continued in full force and effect under the stipulation of September 24, 1963. IV. Acts of de facto officers and directors are binding on all persons who acquiesce in their management and direction. V. The validity of the election of November 26, 1962, was beyond the scope of the issue and not ...

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