When Friends Fall Out

Not even his feud with the "damn bankers" caused Railroader Bob Young more trouble than his fight with a onetime associate named Randolph Phillips. Last week the Young-Phillips battle reached such a pitch that Young cried out in exasperation: "It's criminal. There ought to be a way to make Phillips pay for all the trouble." Grinned Phillips: "We stopped Young."

Young was indeed stopped, at least temporarily, in the use of the most powerful financial weapon at his command, the Alleghany Corp., a railroad holding company. By purchasing Alleghany in 1937, Young was able to get control of the Chesapeake & Ohio. Later, Alleghany supplied the funds that Young lent to those impecunious oil millionaires, Clint Murchison and Sid Richardson, so that they could buy Central stock to vote in Young's favor in the proxy fight.

So long as Alleghany was considered as a carrier under the Interstate Commerce Commission regulations, Young had a fairly free hand to use its treasury for such financial dealings. But a month ago Young had this freedom clipped. A Federal Court ruled that Alleghany belonged under the jurisdiction of the Securities and Exchange Commission, whose strict rules would probably have prevented Young from using the company as he had. Last week, as Young pondered an appeal to the U.S. Supreme Court, he reluctantly registered Alleghany under SEC.

No Plum. Phillips, a onetime financial reporter, first went to work for Young as financial consultant to Alleghany, helped plan the strategy that won his boss the Central. But barely was the Central bagged before the two fell out. According to Young, Phillips cockily anticipated a prize plum in the new Central setup; when Young instead offered to get him a partnership in a brokerage house, Phillips stalked out. Phillips, however, says he resigned because he considered Young's use of Alleghany funds in the Central fight to be "improper," although he apparently did not reach this decision until after they quarreled.

In any case, Phillips' first step was to team up with Carl Bresnick, a New York City real-estate man and Alleghany stockholder, who is also an old hand at suing corporations. Young's version is that the two met accidentally: as Phillips walked out of Young's office in a rage last year, he noticed a sandwich man picketing 277 Park Avenue, an apartment building owned by the New York Central. The placard said: "Central is unfair to tenants." Phillips tracked down the sandwich man's employer, says Young, and found Bresnick, who was vexed with Young because he had been turned down as renting agent for 277 Park. Phillips says this is romantic nonsense, insists that Bresnick is an old friend.

First Opportunity. A few months later, Phillips and Bresnick saw their first opportunity in a suit filed by Manhattan Lawyer Abraham L. Pomerantz, who has won fame and fortune by suing big corporations for small stockholders (TIME, May 22, 1950). Pomerantz, on behalf of a number of small Alleghany stockholders, had accused Young of misusing funds in the Central fight, and Young and his associates had agreed to turn over $700,000 to Alleghany as its share of profits on Central stock. To expedite this out-of-court agreement, Young and Pomerantz pressed to have all the stockholder suits consolidated so that one settlement would cover all. Phillips, however, saw beyond a mere cash payment to Young's real worry: if Alleghany was forced from under ICC's lenient regulation to the more severe SEC's, Young's power could be clipped. Phillips and Bresnick, who were also suing Young for misuse of Alleghany funds, therefore refused to agree to the consolidated settlement in order to keep the issue in litigation. They won their point in court, and had the satisfaction of hearing a federal judge castigate Young et al. for a "patently frivolous" attitude toward the law.

Third Move. The Phillips-Bresnick team had put another burr under Young. They set up the Protective Committee for Common Stockholders of the Alleghany Corp. and nominated a four-man slate of opposition "watchdog" directors.

But Phillips' third move--to force Alleghany under SEC--was the most decisive of all. Actually, Young himself unwittingly supplied the opening. Last year, as SEC and ICC began a slow-motion, bureaucratic contest for jurisdictional control of Alleghany, Young decided to put through a recapitalization scheme for Alleghany's preferred stock. He wanted to clear up arrears on the preferred so that dividends could eventually be paid common stockholders--including himself and his backer, Allan P. Kirby. ICC approved the recapitalization, but Phillips promptly went to court as an affected stockholder.

He got a temporary injunction on the ground that the ICC-approved stock plan was invalid because Alleghany belonged under SEC. He had the satisfaction of hearing a special three-judge Federal Court unanimously uphold him, set aside the ICC-blessed recapitalization as "null and void," and rule that Alleghany belonged under SEC.

When Bob Young filed under SEC last week, he explained that it was only in the hope of getting his recapitalization plan approved while he appeals the whole matter. But his chances of winning the fight against Phillips looked dim.

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