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J. L. WOLGIN v. STATE MUTUAL INVESTORS (04/20/79)

decided: April 20, 1979.

J. L. WOLGIN, ON BEHALF OF HIMSELF AND OTHERS SIMILARLY SITUATED, AND DERIVATIVELY ON BEHALF OF THE STATE MUTUAL INVESTORS, A MASSACHUSETTS UNINCORPORATED ASSOCIATION, APPELLANTS,
v.
STATE MUTUAL INVESTORS, STATE MUTUAL LIFE ASSURANCE CO. OF AMERICA, THE AMERICAN GROUP MANAGEMENT CORP., W. DOUGLAS BELL, TRUSTEE, FRANCIS H. DEWEY, III, TRUSTEE, ROLAND A. ERICKSON, TRUSTEE, FREDERICK FEDELI, TRUSTEE, MICHAEL GREENBAUM, TRUSTEE, JACOB HIATT, TRUSTEE, BARTOW KELLY, TRUSTEE, THOMAS R. MULROY, TRUSTEE, STEWART F. OAKES, TRUSTEE, JAMES T. WILCOX, TRUSTEE, FREDERICK FEDELI, EXECUTOR OF THE ESTATE OF RICHARD H. WILSON, DEC'D., TRUSTEE, AND JOHN E. SAWYER, TRUSTEE



No. 1310 October Term, 1978, Appeal from the Order entered March 22, 1978, of the Court of Common Pleas of Philadelphia County, Trial Division, Equity, at No. 417 May Term, 1977.

COUNSEL

David Berger, Philadelphia, and with him Stanley R. Wolfe and Russell D. Henkin, Philadelphia, for appellants.

Lewis H. Van Dusen, Philadelphia, and with him Sarah M. Thompson, Philadelphia, for appellees State Mut. Investors, Dewey, Greenbaum, Hiatt, Kelly, Mulroy, Oakes and Sawyer.

Otis W. Erisman, Philadelphia, and with him Nicholas E. Chimicles, Philadelphia, for appellees State Mut. Life Assur. Co., America Group Management Corp., Bell, Erickson, Fedeli, etc., and Wilcox.

Cercone, Hester and Hoffman, JJ.

Author: Hester

[ 265 Pa. Super. Page 527]

This is an appeal from an order of the Court of Common Pleas of Philadelphia County, dismissing appellants' complaint.

Appellant owns $76,000 worth (face value) of 6 3/4% subordinated convertible debentures issued by State Mutual Investors, a Massachusetts Trust Company. The action below was brought by appellant against State Mutual Investors (Investors), its Trustees, State Mutual Life Company (which formed Investors in 1970 as a Real Estate Investment Trust), and America Group Management Corporation, formed by State Mutual Life to furnish investment advice to "Investors". (The foregoing defendants, we now term "appellees").

County I of the complaint is a derivative action and charges appellees with violating the provisions of "Investors" Declaration of Trust by:

1. Investing more than 10% of Trust assets in junior mortgages and allowing Trust debts to exceed 400% of net assets;

[ 265 Pa. Super. Page 5282]

. violating fiduciary duties to the shareholders and debenture holders by failing to diversify Trust investments;

3. negligently causing Trust loans to be undersecured; and

4. selling stock and debentures on basis of false financial statements.

Count II, also a derivative action charges that appellees filed a false and inaccurate Form 10-K with the Securities and Exchange Commission.

Count III, a class action in favor of all holders of 6 3/4% debentures, alleged that the 6 3/4% debenture holders were improperly denied the right to join in the settlement of two Ohio suits brought against appellees.

Appellant sought three forms of relief: (1) the appointment of a receiver for the trust and supervision of its operation; (2) injunctive relief against certain parties to prevent implementation of a settlement approved by the United States District Court for the Southern District of Ohio in the cases of Lois A. Doyle v. State Mutual Investors, et al., No. C-1-75-312 (filed August 21, 1975), and Ruth A. Starr v. State Mutual Investors, et al., No. C-1-75-436 (filed November 28, 1975); and (3) damages in the amount of $125,000,000.00.

The two federal suits brought in Ohio against appellees basically alleged that appellees filed false financial statements, proxy statements and annual reports which showed "Investors" assets at an artificially inflated value; made improvident loans and failed to diversify investments. They also alleged various acts of self-dealing ...


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