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PHILLIPS v. TOBIN

November 5, 1975

Randolph PHILLIPS, Plaintiff,
v.
John E. TOBIN et al., Defendants



The opinion of the court was delivered by: WARD

ROBERT J. WARD, District Judge.

 Defendants, Alleghany Corporation ("Alleghany") and certain of its directors, move for judgment pursuant to Rule 12(c), Fed.R.Civ.P., dismissing the amended complaint of plaintiff Randolph Phillips ("Phillips"). For the reasons hereinafter stated, the motion is granted in part and denied in part.*

 "The affairs of Alleghany Corporation . . . have given rise to a flood of litigation that must be unparalleled in American corporation law." Willheim v. Murchison, 342 F.2d 33, 35 (2d Cir. 1965). This action adds to that flood.

 Phillips, the beneficial owner of shares of Alleghany's common stock, charges violations of the Investment Company Act (15 U.S.C. § 80a et seq.), the federal securities laws, and the common law fiduciary duties of defendant directors. The violations are alleged to have taken place in the course of Alleghany's 1968 acquisition of the Jones Motor Company, Inc. ("Jones") and in the corporation's purported delay in selling its Penn Central shares in 1969.

 Rule 12(c), Fed.R.Civ.P., under which defendants move, provides in pertinent part:

 
After the pleadings are closed but within such time as not to delay the trial, any party may move for judgment on the pleadings.

 The complaint is challenged on several grounds. Defendants claim that Alleghany is exempt from the Investment Company Act because the Interstate Commerce Commission ("the ICC") has subjected the corporation to its regulation. They assert that ICC approval of the Jones transaction has deprived the Court of subject matter jurisdiction and requires that any claims relating to that acquisition be pursued under the mechanisms provided by the Urgent Deficiencies Act (28 U.S.C. § 2321). Lack of subject matter jurisdiction over the common law fiduciary duty claims is also argued, based on lack of complete diversity.

 Additionally, defendants maintain that Phillips' allegations of violations of federal securities law fail to state a claim, that certain counts of his complaint are foreclosed by the applicable statutes of limitation, and that all requested equitable relief is barred by laches. Finally, it is argued that Phillips cannot provide the representation required by Rule 23.1, Fed.R.Civ.P., that as a layman, he may not prosecute a derivative suit pro se, and that his pleadings fail to satisfy the demands of the federal rules.

 Plaintiff's complaint consists of seven counts. First the Court will deal with those which arise under the Interstate Commerce Act and the Investment Company Act; these go to the subject matter jurisdiction of this tribunal. Next to be discussed will be those counts which claim violations of the anti-fraud provisions of federal securities law. Finally, the last count, which involves state law claims, will be examined.

 The bulk of Count I as well as part of Count VI and all of Counts II and IV raise questions regarding the authority of the ICC to regulate Alleghany's activities. Thus, crucial to a disposition of this motion is a determination of Alleghany's status as an entity subject to ICC regulation. A brief review of the corporation's past is in order.

 In 1940 Alleghany registered with the Securities and Exchange Commission ("the SEC") as an investment company. Five years later, the corporation's application for ICC approval of its acquisition of certain railroad interests was granted. In its directive the ICC indicated that "unless and until otherwise ordered by this Commission Alleghany Corporation shall be considered as a carrier subject to," applicable Interstate Commerce Act provisions. In the same year, the SEC declared that Alleghany was no longer an investment company. At this time Alleghany owned controlling stock interests in both the Chesapeake & Ohio Railway Company ("C&O") and Pittston Company, a trucking concern. In 1954, the C&O stock was sold and subsequently control of the New York Central Railroad Company ("Central") was secured. Later that year, wishing to merge two Central subsidiaries, Alleghany sought ICC approval. The application was granted by Division IV of the ICC in 1955; its decision was later affirmed by the full Commission. Division IV held that the 1945 ICC order with its "unless and until otherwise ordered" language was still in effect, unaltered by any of Alleghany's shifting stock interests.

 In 1966 Alleghany relinquished control of Central, and in 1968, acquired Jones. Phillips claims that with surrender of its Central interests Alleghany ceased to be subject to ICC regulation, and reverted to the status of an investment company. He points to Alleghany's registration in 1968 with the SEC, a move which defendants assert was done with full disclaimers and designed solely to cover the possibility that proposed plans to apply to the ICC for continued regulation might fail and dire consequences result.

 By an order dated January 27, 1970, the ICC approved, subject to conditions set forth in a report of the same date, Alleghany's acquisition of control of Jones. In addition, the ICC vacated its 1955 orders regulating Alleghany as a person not a carrier in control of a carrier under § 5(3) of the Interstate Commerce Act and imposed regulation upon the corporation under Part II of the Act ...


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