- 86 -
the power of ELC's board of directors in Erie Lighting Co. v.
Commissioner, supra, was restricted not only because of the
preferential dividend provision involved there, but also because
the ELC
board * * * was prohibited from affecting any "invest-
ment of surplus" or "increase of capital indebtedness"
without the approval of the preferred stockholders. * *
*
* * * * * * *
* * * the Erie Lighting board was more restricted than
Petitioner's Board because the Erie preferred stock-
holders could vote on any borrowings or reinvestment of
undistributed earnings.
We disagree with petitioners' contentions.
Initially, we note that, contrary to petitioners' assertion,
the court in Erie Lighting Co. v. Commissioner, supra, did not
state that the preferred stock in question had a right to vote on
or approve "investment of surplus" or "any borrowings". Indeed,
that court did not even use the phrase "investment of surplus",
or any similar phrase, in its opinion.27 While the court in Erie
27 The Board of Tax Appeals in Erie Lighting Co. v. Commis-
sioner, 35 B.T.A. 906, 910-911, revd. 93 F.2d 883 (1st Cir.
1937), found that the preferred stock in question "could by its
vote affect and effect action in various ways, such as in regard
to * * * approval of investment of surplus". However, in revers-
ing the decision of the Board of Tax Appeals in that case, the
Court of Appeals in Erie Lighting Co. v. Commissioner, supra, did
not indicate in its opinion that the preferred stock in question
had a right to vote on or to approve the "investment of surplus".
Even assuming arguendo that the ELC preferred stock had a right
to vote on or to approve the "investment of surplus", the Court
of Appeals in the Erie Lighting Co. case did not address the
(continued...)
Page: Previous 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 NextLast modified: May 25, 2011