## Facts

- Andrew J. Speese, 3rd, a preferred stockholder of Webster Eisenlohr, Inc., filed a representative shareholder action in the U.S. District Court for the Eastern District of Pennsylvania on behalf of preferred shareholders.
- Speese alleged that dividends on the preferred stock were long in arrears and that the corporation’s certificate of incorporation provided that, once two quarterly dividends were unpaid, full voting power would vest in the preferred stock until arrearages were paid.
- The complaint challenged the corporation’s conduct at an annual meeting where the corporation refused Speese’s demand that preferred stock vote exclusively and instead allowed common and preferred shares to vote together to elect directors.
- While the case was pending, Webster Eisenlohr circulated an annual financial report to shareholders and sent preferred shareholders a letter offering to purchase their preferred shares.
- Judge Harry E. Kalodner obtained copies of the report and letter at his request. They were not placed in issue by the parties’ pleadings, and no claim or defense sought relief based on those communications or the buyout offer.
- The judge expressed concern at hearings that the financial report and the buyout letter might be misleading or omit facts he believed shareholders should know.
- Acting on those concerns, the judge entered an order under Federal Rule of Civil Procedure 53 appointing attorney David Bortin as a special master to investigate the circumstances of the report, the offer, and possible misrepresentation or overreaching.
- Webster Eisenlohr moved to vacate the master appointment in the district court. After failing to obtain relief there, it filed an original petition in the Third Circuit seeking writs of mandamus (to require vacatur of the order) and prohibition (to prevent the master from proceeding).

## Issues

1. Whether a district judge may appoint a Rule 53 special master, on the court’s own initiative, to investigate corporate communications and a stock-purchase offer when those matters are not part of any factual dispute or claim raised by the parties.
2. Whether Rule 53 permits use of a special master as a general investigator rather than as an aid to deciding issues properly presented for adjudication.
3. Whether mandamus and prohibition are appropriate to restrain a district court order that exceeds the court’s judicial function and would impose burdens not adequately cured by ordinary appeal.

## Decision

- The Third Circuit granted the petition for extraordinary relief.
- The court directed that the district judge’s order appointing the special master be vacated and prohibited the master from proceeding with the investigation.
- The court reasoned that the federal judicial role is to decide the case or controversy presented by the litigants, and the master’s assignment was not tied to resolving any pleaded claim or defense.
- The court held that Rule 53 does not authorize a court to initiate a free-standing inquiry into matters outside the controversy the pleadings framed.
- The court concluded that extraordinary writs were proper because the challenged order would subject the petitioner to an unauthorized investigation and related burdens that would not be remedied in a meaningful way by later appellate review.

## Legal Principles

- Federal courts exercise judicial power only to resolve an actual case or controversy presented for decision; a judge may not create a new inquiry simply because the judge suspects wrongdoing outside the issues the parties raised.
- Rule 53 allows appointment of a special master only as an exceptional aid to deciding matters that are part of the case; it does not permit appointment of a master to conduct broad investigations unrelated to adjudication of the pleaded dispute.
- Trial judges have tools to manage proceedings (including questioning witnesses and controlling evidence), but those tools must remain connected to deciding issues within the lawsuit.
- Mandamus and prohibition may issue to confine a district court to its proper judicial function when a challenged order exceeds authority and would cause immediate, nontrivial burdens not effectively cured by appeal.

## Conclusion

In *Webster Eisenlohr, Inc. v. Kalodner*, the Third Circuit held that the district judge exceeded his authority by appointing a Rule 53 special master to investigate a financial report and a preferred-stock buyout offer that were not placed in controversy by the parties, and it issued mandamus and prohibition to vacate the appointment and stop the investigation.


Webster Eisenlohr, Inc. v. Kalodner, 145 F.2d 316 (3d Cir. 1944)