CORPORATIONS - STOCKHOLDERS' SUITS - EFFECT OF <em>Erie Railroad v. Tompkins</em> ON FEDERAL EQUITY RULE 27

Plaintiffs filed a stockholders' bill in federal equity court to enforce certain rights of Hearst Consolidated Publications, Inc., a Delaware corporation. The individual defendants, directors of the corporation, were charged with having effected a plan to sell various Hearst properties to the corporation at excessive prices. Defendants moved to strike from the bill of complaint paragraphs referring to transactions which occurred prior to the date when plaintiffs acquired their stock. The motion was based on equity rule 27.

The contention of counsel for plaintiffs was that rule 27 is based on the federal general law, which on this point conflicts with the local general law of both New York and Delaware; and that under Erie Railroad v. Tompkins, the court should apply the local general law. In the opinion of the court, it was bound to apply rule 27, so long as the Supreme Court of the United States left the rule in force. Held, defendants' motion denied, not because equity rule 27 did not apply, but because its application in the particular situation would be inequitable. Summers v. Hearst, (D. C. N. Y. 1938) 23 F. Supp.

986.