Brown v. McLanahan
Fourth Circuit Court of Appeals
148 F.2d 703 (1945)
Under a bankruptcy reorganization plan, preferred stockholders held exclusive voting rights for most Company directors as long as dividends remained unpaid (which they always were), with all stock placed in a ten-year voting trust controlled by eight trustees who also served as a majority of the Company's directors and happened to personally hold substantial debentures. Without notifying certificate holders, the trustees voted to amend the charter, stripping the preferred stockholders' exclusive voting rights and creating 221,000 new votes for debenture holders like themselves. Brown (plaintiff), a preferred stockholder, sued the Company and trustees (defendants) to void the amendment; the trial court dismissed her complaint, and she appealed.
Whether voting trustees may use the voting power they hold in trust to grant new voting rights to debenture holders, to the detriment of preferred stockholders whose interests the trustees were bound to protect.