Holt v. Alleghany Corp.

PETITIONER: Holt
RESPONDENT: Alleghany Corp.
LOCATION: Juvenile Court

DOCKET NO.: 131
DECIDED BY: Warren Court (1965-1967)
LOWER COURT: United States Court of Appeals for the Second Circuit

CITATION: 384 US 28 (1966)
ARGUED: Mar 21, 1966
DECIDED: Apr 18, 1966

Facts of the case

Question

Media for Holt v. Alleghany Corp.

Audio Transcription for Oral Argument - March 21, 1966 in Holt v. Alleghany Corp.

Earl Warren:

Number 131, Margaret L. Holt, et al., Petitioners, versus Alleghany Corporation, et al.

Yes, and Number 132, Margaret L. Holt, et al., Petitioners, versus Allen P. Kirby, et al.

Mr. Updike.

Stuart N. Updike:

Mr. Chief Justice, may it please the Court.

Since I have two petitions to argue here, I would like subject to the approval of the Court to argue the basic case first, and the intervention problem second, because I think it will economize on my time and the Court's time.

Earl Warren:

You may proceed in your own manner, Mr. Updike.

Stuart N. Updike:

Thank you sir.

This action was begun to set aside for fraud the settlement of prior derivative actions.

The same relief here is sought that was demanded in those actions, that is the return to Alleghany Corporation of stock, as we say, illegally taken from its portfolio or damages measured by the value of that stock.

The prior actions were pending in the District Court for the Southern District of New York and the New York County Supreme Court.

They claimed among other things that the principal defendant here, Allen Kirby and three other officer, directors of Alleghany Corporation, acquired 48,000 shares of a Class A stock of investors diversified services from Alleghany's portfolio.

The stock was alleged in both the state court and the federal court to have been acquired by means of false and misleading proxy material in violation of Section 14 (a) of the Securities Exchange Act of 1934.

It was successful in gaining shareholder approval.

The prior actions also alleged that the same facts gave rise to a common law liability.

All of these actions were settled with judicial approval of the state court in December 1959.

The basic action for both -- there was an action of the stockholders suit in the federal court and the stockholders suit in the state court?

Stuart N. Updike:

Yes, Your Honor.

And the ultimate settlement was made in the state court, (Voice Overlap)?

Stuart N. Updike:

In the state court only, yes sir.

For convenience and speed in getting through fairly lengthy facts, I would like to divide my fact presentation into three-time groups.

One, the period of 1949-1950, when the self-dealing transaction took place; two, the period from 1954 through 1957 when these litigations were proceeding and discovery and in the direction of settlement; and finally, 1959 when the case was settled with New York State Court approval following which this action was brought.

And while this action was pending, it was brought on behalf of Alleghany by Murchison Brothers of Dallas, Texas and a man named Fossland (ph) in Chicago seeking to set aside these settlements on the grounds that I have stated but while this action was pending and in the course of a proxy contest, a -- the slate of Murchison Brothers succeeded in ousting Mr. Kirby's management and as a consequence of that, certain of what we call, the concealed material which we think was crucial to the determination of the liability involved that is when it was found.

Now, the self-dealing transaction came about like this.

In 1949, Alleghany Corporation after a good deal of careful study and on the recommendation of Mr. Kirby, and Mr. Robert O. Young, who was the Chairman of the Board of Alleghany Corporation, they acquired 85% of the voting stock of IDS.

IDS is the investment advisor of the largest mutual fund complex in the United States.

And in 1949-1950 it was also a highly leveraged investment company on its own.

IDS had in addition to its voting stock, Class A stock, the only difference being that the Class A stock had no vote.

And while control of the voting stock was being acquired, authorization was given by the Board to acquire some Class A stock as a long term investment for Alleghany.

In that manner, 48,000 shares were acquired at an average cost to Alleghany of $8.15 per share.

Upon acquiring control in April of 1949, Alleghany sent a man named Robert Purcell who was Vice-Chairman of its board and a Securities Analyst named Shipman to IDS and those men found at IDS that there was a regular year in, year out, month in, month out program of forecasting the income, forecasting the expense and finally forecasting the net earnings of the corporation.