To access this feature, please Log In or Register for your Casebriefs Account.

Add to Library




Brown v. McLanahan

Citation. Brown v. McLanahan, 148 F.2d 703, 159 A.L.R. 1058 (4th Cir. Md. Apr. 9, 1945)
Law Students: Don’t know your Studybuddy Pro login? Register here

Brief Fact Summary.

The voting trustees of a trust agreement amended the charter of the Baltimore Transit Company (Company) to change the voting rights of the preferred stockholders in favor of the debenture holders.

Synopsis of Rule of Law.

Although a voting trustee can change the charter for proper purposes, it is improper to change the charter to affect the voting rights of one class of stockholders to the detriment of another class of stockholders.


Plaintiff is the holder of voting trust certificates representing 500 shares of the preferred stock of the Company. Plaintiff brings a class actions against the voting trustees, the directors of the company, the Company, the indenture trustee for the holder’s of the Company’s debentures, and the debenture holders as a class (Defendants), seeking to set aside an amendment to the Company’s charter as unlawful.
The securities involved in this litigation were issued under a plan of reorganization of the United Railways and Electric Company of Baltimore and The Maryland Electric Railways Company and Subsidiary Companies. The securities issued were: debentures and preferred stock to holders of all first lien bonds; and new common stock, without par value, were issued to the old common stockholders and unsecured creditors. Voting rights were vested exclusively in the preferred and common stock holders. The common stock holder had the exclusive right to vote for one director, while the preferred stock holders had the exclusive right to vote for the remaining directors. Three shares of common stock entitled the holder to one vote.
The plan also provided for the establishment of a voting trust of all preferred and common stock for a period of ten years. All the stock was issued to eight voting trustees, who were a majority of the Company’s directors, under a voting trust agreement, which was to terminate on July 1, 1945. The voting rights would revert to the certificate holders in proportion to the number of shares represented upon termination.
On June 21, 1944, without notice to the certificate holders, the directors amended the Company Charter’s Voting Trust Agreement provision. The changes included the elimination of the arrearage clause which had provided for exclusive voting rights in the preferred stock, it granted voting rights to the holders of debentures, one vote for each $100 principal amount of debentures, which created 221,000 new votes, and the common stockholders no longer had the exclusive right to elect one director. Consequentially, these new amendments diluted the voting power of the stock; deprived the voting trust certificate holders their right to control the management of the Company and the election of its directors; while it gave the debenture holders, namely the voting trustees, the voting rights.
Plaintiff contends the voting trustee’s action amounts to a breach of the fiduciary duty owed to the certificate holders and seeks to (1) declare the June 21, 1944 amendment null and void; (2) remove the voting trustees; (3) terminate the voting trust; or award damages in the alternative.
Plaintiff contends the amendment by the trustee was invalid because: (1) it was beyond the powers vested in the trustees to diminish the certificate holder’s voting power and not return it in the same condition to the them at the termination of the trust; (2) it was an abuse of trust to use the voting power to the advantage of the debenture holders at the detriment of the preferred stockholders, both of whom were original beneficiaries of the trust; and (3) it was an abuse of trust to use the voting power for the voting trustees’ own benefit.
The District Court held in favor of the voting trustees. Plaintiff appeals.


Whether it was beyond the powers vested in the trustees to amend the charter to benefit the debenture holders at the expense of the preferred stockholders?


Yes. Reverse and remanded. Relief will be determined by the District Court.


Although the voting trustees have the power to amend the charter for proper purposes, it was improper to exercise their power in such a way that it would result in taking from the certificate holders the very power which they conferred to the trustees for the holders benefit in the first place.

The trustee may not exercise powers granted to them in such a way as to favor one class at the expense of another class.

Create New Group

Casebriefs is concerned with your security, please complete the following