The Birmingham age-herald., 1921-01-03
Daily Financial Gossip
Ny HOLLAND

New York, January 2.-(Special.)-It was inevitable that it would be surmised that something lies behind the compro- mise by which certain directors or for mer directors of the New Haven Rail- road company agreed to pay $2,5OO, ,0OO with intent that the suit which was brought against them by minority stock holders be in this manner ended The surmise is correct insofar as there is a motive not disclosed in the compro- mise agreement or in the formal assent to it which was given by Judge Charles M, Hough of the United States district court although an intination of 1t can be discovered in the opinion which Judge Hough gave.
 It IS spoken of by lawyers as without a precedent that the defendants in a suit should agree to pay a large sum of money to the plaintiff, although it was clearly stated that the defendants were not guilty of personally improper con- duct, gained no pecuniary advantage by the transactions which as directors of the New Haven railroad they authorized, in addition there being a clear intimation by the plaintiff that 1t was very doubtful whether if the suit were pressed to trial the plaintiffs would recover.
 The motive which was behind the action of the majority of the directors of ti e New Haven railroad some years ago in authorizing the expenditure of a very large amount of money strangely enough is motive which recently the federal di- rector of American railroads supported. What William Rockefeller Lewis Cass Ledyard, Charles M. Pratt and one or two other directors who were sued by minority stockholders. and particularly the late J. P. Morgan, whose estate was also sued had in mind, ~as the co-ordi- nation and complete combination of the railway systems of New England. They sought to establish zone within which competition would be eliminated, although having secured monopoly of transpor- tation the consolidated company would be under the regulation and supervision of the interstate commerce commission. Within few months the federal director of American railroads suggested that it would be expedient if there be com bination of railroads in the United States into zone districts, and he especially pointed out New England as section which might well be authorized as one not in detail, this was the purpose which Mir. Morgan, Charles s. Mellen, presi- dent of the company, and other directors had in mind
 WHEN SUIT WAS BROUGHT
 The department of justice at Washing ton, however, brought suit with the pur- pose of tearing to pieces this com bination. After Howard Elliott became president of the New Haven railroad he deemed it the better part to reach an agreement with the department of justice whereby the litigation would be ended.
 An agreement of that kind was reached and already steps are under way by which certain of the corporations which were acquired by the New Haven will again become independent.
 Some of the minority stockholders of the New Haven Railroad company brought suit against several of the direc- tors with intent to recover large amount of money, which it was alleged these directors unjustifiably expended in pur- chasing railroad and steamboat lines. These minority stockholders sued for $l50. .00O, ,00O and aside from the importance of the issues involved the fact that the suit was for greater amount than was ever claimed in any railroad litigation, called general attention to the proceed ings. Now these directors, all of them men of large wealth. have offered to pay E. .5OO.0 900, or as Judge Hough states in his opinion, are prepared to pay as much as that to have the proceedings ended, or in other words. they are will ing to pay $2,5O0000 to buy peace.
 All charges Of improper motive or of the gaining of personal ends were with drawn. and as they were it is difficult for some lawyers to see how a suit could be successfully maintained. But the de- were willing to pay a large amount to buy their way out of the em- and there the case enas.
 WHAT WAS REAL MOTIVE?
 Lawyers who have carefully read Judge Hough's statement are inclined to believe that perhaps the chief motive which lay behind the compromise is the fact that the courts are becoming, more ana more nsistent that directors should be held re- sponsible for their trust. The defendant directors of the, New Haven are inclined to recognize this disposition by the peo- pie and by the courts. There has been general recognition of the fast that in many cases directors have been negligent ,r indifferent to their responsibilities as trustees. For a director is trustee ind he holds in trust the inteests of the stockholders.
 SOME IMPRESSIVE EXAMPLES
 A citizen of New York who had sained reputation for ability and char lcter was elected a director of an insti- l ution, and consented to serve. but he l t no time attended directors meetings. l md was indifferent to his trust. The tp- titution became embarrassed and col