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ROBERTS v. EATON

December 15, 1953

ROBERTS
v.
EATON et al.



The opinion of the court was delivered by: GODDARD

This is a motion by defendants for summary judgment under Rule 56 of the Federal Rules of Civil Procedure, 28 U.S.C.A.

The action is brought pursuant to Section 16(b) of the Securities Exchange Act of 1934, Title 15 U.S.C.A. § 78p(b), to recover for the Old Town Corporation (later referred to as Old Town) an alleged profit realized by defendants from an alleged purchase and sale of the corporation's stock within a period of less than six months.

No material facts are disputed.

 The plaintiff was president of Old Town from April 14, 1953 to May 25, 1953, and he is a holder of 100 shares of Old Town common stock. There are outstanding, 320,402 shares of common stock, and 320,402 shares f preferred.

 The moving defendants, Joseph S. Eaton, Philip A. Batchker, Herbert A. May, were directors, and Jerome A. Eaton was an officer, of Old Town during the relevant period. The other moving defendants were neither officers, directors, nor 10% stockholders.

 The Old Town enterprise was begun by Joseph S. Eaton and his wife, Lillian K. Eaton. In 1917, it was incorporated under the laws of New York with an original capitalization of $ 2,500, represented by 25 shares of $ 100 par value, all owned by Mr. and Mrs. Eaton. The business prospered and its capitalization increased as Eaton put back the profits into the business as additional capital was required. Over the years the Eatons made gifts of Old Town stock to their children, Jerome and Miriam, defendants in the suit at bar, and to other members of the family. In 1947, Old Town had outstanding 300,000 shares of common stock of $ 5 par value, all except a few shares owned by the Eatons. In that year the Eatons sold 140,900 of their shares to the public.

 In 1951, the Old Town common stock was registered on the New York Curb Exchange. At that time, the corporation's annual sales exceeded $ 5,000,000.

 In 1952, negotiations were entered into by the Eaton family for the sale of their stock as Joseph Eaton wished to retire and take a less active part in the management of the business, and to diversify the family's investments.

 In the latter part of 1952, a reclassification of the Old Town stock was proposed. In November and December, 1952, meetings of the directors were held and they recommended, for adoption by the stockholders, the reclassification of its then outstanding 320,402 shares of common stock of $ 5 par value, into 320,402 shares of common stock of $ 1 par value and 320,402 shares of 40 cents cumulative preferred stock of $ 7 par value.

 The directors caused to be sent to each stockholder a notice of a special stockholders' meeting together with a proxy statement setting forth in detail the information concerning the proposed reclassification and also the negotiations by the Eatons for the sale of their stock. At that time, the Eaton family owned 45.9% of the outstanding common.

 At the stockholders' meeting on December 30, 1952, the reclassification was authorized by a vote of more than two-thirds of the outstanding stock (78% of the outstanding shares, held by 675 shareholders, were voted in favor of the reclassification; only .85%, held by 23 stockholders opposed it). Plaintiff, himself, voted for the reclassification.

 The Amendment of the Certificate of Incorporation was filed with the Secretary of State of New York, on January 12, 1953. A letter was sent to all stockholders advising them that the reclassification had become effective; that no exchange of stock certificates was necessary; that the outstanding certificates thereafter represented common stock of $ 1 par value, and that certificates for their preferred stock were enclosed.

 On February 2, 1953, the moving defendants, with the exception of Batchker, entered into contracts to sell their common stock to James H. McGraw, and members of his family, and to sell their preferred stock to two life insurance companies and an investment company.

 Batchker, in February and March, 1953, sold 2,600 shares of common and 3,000 shares of preferred on ...


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