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SUSQUEHANNA CORP. v. GENERAL REFRACTORIES CO.

February 14, 1966

The SUSQUEHANNA CORPORATION
v.
GENERAL REFRACTORIES COMPANY, D. Emmert Brumbaugh, Harry T. Graham, John E. Hartshorn, Arthur F. Kroeger, David Remer and William B. Walker



The opinion of the court was delivered by: LORD, III

 This is a suit by a stockholder against its corporation and directors. Jurisdiction is predicated solely upon diversity of citizenship. On January 27, 1966, I entered an order enjoining the defendants from holding a stockholders meeting to consider a proposed transaction which plaintiff shareholder opposes unless defendants furnished to plaintiff in advance of the meeting the list of stockholders which plaintiff had demanded. The terms of the order are set out in the margin. *fn1"

 Plaintiff's amended complaint at that time consisted of two counts. The first count alleged that the proposed transaction, the acquisition of the Mining and Mineral Products Division of Great Lakes Carbon Corporation, was entered into by a procedure which violated the corporate bylaws and by a breach of the fiduciary duty of the directors, and would result in the wrongful dilution of plaintiff's stock in the defendant corporation. The second count, incorporating the allegations of the first, alleged plaintiff's repeated request for a list of the corporation's stockholders to enable plaintiff to communicate with other stockholders concerning the transaction. The prayer of the first count requested, in effect, an injunction against the consummation of the proposed transaction. The prayer of the second count requested that plaintiff be allowed to examine and make extracts from defendant's share register and that defendants be enjoined from soliciting proxies for the forthcoming meeting to consider the Great Lakes Carbon transaction.

 At that time, defendants had moved to dismiss plaintiff's complaint because of (1) prematurity of the first count, (2) failure to state a claim in the first count on which relief could be granted, and (3) lack of independent jurisdiction to grant the relief prayed for in the second count. Believing plaintiff's complaint to be premature in all respects except the demand for the stockholders list, I did not reach defendant's second ground for dismissal of the first count, viz., failure to state a claim on which relief could be granted. The relief plaintiff asked for in its first count was accordingly denied. Defendants' attack on the second count rested on the want of jurisdiction to issue a writ in the nature of mandamus except in aid of other federal jurisdiction. Covington & Cincinnati Bridge Co. v. Hager, 203 U.S. 109, 27 S. Ct. 24, 51 L. Ed. 111 (1906); Hertz v. Record Pub. Co., 219 F.2d 397 (C.A.3, 1955), cert. denied, 349 U.S. 912, 75 S. Ct. 601, 99 L. Ed. 1247 (1955); Newark Morning Ledger Co. v. Republican Co., 188 F. Supp. 813 (D.Mass.1960); Mac Neil Bros. Co. v. Williams, 137 F. Supp. 687 (D.Mass.1956); Rosen v. Alleghany Corp., 133 F. Supp. 858 (S.D.N.Y.1955).

 I concluded, however, that the holding of a meeting to consider the transaction in question without giving plaintiff access to the stockholders list would constitute a separate wrong which would result in irreparable injury. For that reason, I denied the motion to dismiss and issued, not an order in the nature of mandamus, but the conditional injunction alluded to and set out above. I adopted the reasoning of Judge Gourley in Steinberg v. American Bantam Car Co., 76 F. Supp. 426, 436-437 (W.D.Pa.1948), appeal dismissed as moot, 173 F.2d 179 (C.A.3, 1949):

 
"As far as the internal affairs of a corporation are concerned, I am aware that the Court should only intervene when necessary to secure a free and full explanation, and an accurate record of the will of the stockholders on the subject in question. It appears to me that the election of directors for the defendant company, under the circumstances which exist in this case, is vital and of the greatest importance to the future welfare of this company. The election of the directors should be orderly and with a full and complete opportunity for a participation of all the stockholders after being fully informed and advised as to the detailed facts and circumstances which exist as to the affairs of the company.
 
"I believe the Court in the exercise of its equitable powers should make positive that a fair and representative meeting should be made available to choose the directors of Bantam by the stockholders of said company.
 
"In view of the barriers which have confronted the plaintiff in securing the names and addresses of the company's stockholders, such a meeting could not be held without the aid of injunctive relief.
 
"The Corporation Act in Pennsylvania affords minimum safeguards for the protection of the rights of shareholders in a corporation, but the Legislature recognized that situations might arise where some additional relief would be required to protect the interests of shareholders.

 My purpose was to insure, without interfering with the business judgment of the directors or stockholders, "a free and full expression of the will of the stockholders." Id. at 441.

 Plaintiff then returned to the court with a second amended complaint, the filing of which defendants oppose. Plaintiff asked, consonant with the aim of holding a fair meeting, that defendants be further enjoined from holding a meeting to consider the transaction unless they permit plaintiff to inspect certain books and records of the corporation, in order to allow plaintiff to gather material with which to evaluate and inform other stockholders of the merits of the proposed transaction. After hearing, argument and full consideration of defendants' objections to the filing of the second amended complaint stating a third cause of action, I have decided to dismiss defendants' objections and grant plaintiff the relief to which it is entitled under state law.

 The essential questions presented by this complex litigation are jurisdiction, rights under state law, and the appropriate relief. Their resolution follows. *fn2"

 At this stage, since defendants have not received their proposed proxy statement with comments from the Securities & Exchange Commission, there is no allegation of a breach of the proxy rules or of any other federal law. The only threatened wrong exists because of state law. Yet this court has jurisdiction over the subject matter by virtue of diversity of citizenship. That jurisdiction extends to an injunction action of this character, and this court is bound to apply state law. The amount in controversy is the value of plaintiff's stock or at any rate the threatened loss to plaintiff from the transaction, which in this case, the evidence shows, far exceeds the ...


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