Group Libel Laws: Abortive Efforts to Combat Hate Propaganda
The Yale Law Journal · 1952
The Wabash rule does place non-cumulative stockholders largely at the mercy of a board of directors.If common stockholders will forego immediate dividends, directors can channel a disproportionate share of the corporation's profits away from non-cumulative preferred.Annual earnings may be retained for several years.After non-cumulative preferred has received merely the current year's dividend, common stock may be liberally rewarded with the retained earnings themselves 2 l, or, more subtly, with profits which the preferred's retained dividends have financed.To stir a court to remedial action, non-cumulative stockholders must at least prove that earnings were retained in conflict with "wise administration of a going concern." 2 7 But since most boards can readily discover some contingent liability or expansion plan justifying retention of earnings, the Wabash rule tends to check only the unimaginative common stockholders' board. 28 Nevertheless, the Second Circuit should have stayed within the Wabash formula.Not only has the rule, on the books for over twenty years, served notice on draftsmen of preferred stock contracts, but doubtless has been reflected in market quotations on outstanding non-cumulative preferred.Overturning Wabash might provide a windfall for stockholders who bought at prices that took account of the rule.Moreover, non-cumulative preferred was typically issued not to attract new capital of the investing public, but as a stopgap refinancing to6l of corporations in distress or as a bonus to e-dsting stockholders. 2 9Since these circumstances would not seem to foster high hopes in non-cumulative preferred stockholders, adherence to the Wabash rule probably accords with their investment expectations3 26.Cf.Bassett v. U.