Stokes v. Williams

• Decision Date: 10 August 1915
• Docket Number: 1948.
• Citation: 226 F. 148
• Parties: STOKES et al. v. WILLIAMS et al.
• Court: U.S. Court of Appeals — Third Circuit

226 F. 148

STOKES et al. v. WILLIAMS et al.

No. 1948.

United States Court of Appeals, Third Circuit.

August 10, 1915

This is an appeal from a decree of the District Court of the United States for the District of New Jersey, authorizing the receivers of the Standard Plunger Elevator Company to accept an offer to purchase, at private sale, all the assets and rights of that corporation, including its choses in action, and ordering the sale of the same in pursuance with the terms of the offer. The appeal was taken by certain minority stockholders to protect rights which they conceived had been prejudiced by the decree and the sale made thereunder.

An irrepressible conflict between certain stockholders and officials had been waged for many years within the corporation and in the courts, culminating in the appointment of receivers.

On July 16, 1914, the receivers presented to the court a petition showing that they had received from a committee representing creditors of the corporation an offer to purchase all of its property, excepting accounts and bills receivable and cash on hand, and praying authority to accept the same. The amount of the bid was $250,000, and included the cancellation of damages to be assessed on two interlocutory decrees entered against the corporation in certain cases, which aggregated approximately $161,000. The purchase price of the offer, when thus estimated, was about $411,000. Bills receivable, certain percentages retained on contracts, and cash on hand aggregated about $144,000. These various sums, if in the hands of the receivers for distribution, made an approximate total of $550,000. The claims allowed amounted to about $411,000. The offer, however, provided that any excess of the purchase price, after paying all creditors and costs of administration, should be returned to the purchasers. The amount bid, therefore, was equal to the debts of the corporation and was sufficient to satisfy all creditors, but left nothing for distribution to stockholders. The tangible property of the corporation was appraised at $286,000, and its patents at $100,000.

Upon the presentation of the receivers' petition, an order was made, directing the creditors and stockholders to show cause on July 27, 1914, why the bid of the creditors' committee should not be accepted and the sale ordered. A copy of the order and a summary of the offer were mailed to each creditor and stockholder of record. Upon the return of the order, Mr. Craig, counsel for the minority stockholders and the appellants in this appeal, asked for a continuance until July 29th, in order to present to the court, in the form of affidavits, certain information which he contended would induce the court to reject the bid. The continuance was allowed, but with the object of losing nothing thereby, the bid was accepted provisionally; that is, by a nisi order, the court authorized the acceptance of the bid, unless, on or before July 30th, a better bid was received, or a creditor or stockholder should at that time show to the court that it would be inadvisable and not for the best interest of the trust to accept the offer and sell in the manner prayed by the receivers. On July 30th Mr. Craig presented to the court several affidavits in opposition to the petition of the receivers.

The objection of the appellants to the acceptance of the offer and the order of sale, as then presented and repeated in this appeal, arose out of a grievance against certain stockholders and directors of the corporation, principally Woodin and Hoyt, who were charged, first, with fraudulent conduct, whereby the value of the corporation's stock was destroyed, and second, with effecting a combination with the Otis Elevator Company in violation of the Anti-Trust Law, and was addressed to the point that the bid, which included the sale of the corporation's choses in action to those who were interested in not suing upon them, precluded the institution of actions to recover damages for such fraudulent and unlawful conduct.

'On the assumption that the terms of the offer might have this result,' the District Judge said, 'I submitted the copies of the affidavits to Mr. Wall, one of the receivers, with directions to examine the same and to report to the court on August 3d as to his conclusions, to which time the whole matter was continued. I have also examined all of the affidavits with the exception of a short affidavit by Mr. Stokes, a short affidavit by Mr. Clegg, and a copy of an affidavit by Mr. Craig. The contents of these latter affidavits were stated to me by Mr. Craig.

'The receivers recommend and urge the acceptance of the offer. It appears that the acceptance of the offer will pay all of the creditors in full. The bid specifically provides, that if the amounts deposited by the bidders shall be more than sufficient to pay in full all claims proven and allowed, that the surplus remaining shall be returned to the Creditors' Committee. The stock issued and outstanding is as follows: First preferred $311,000; second preferred $321,000; common $1,200,000. Mr. Craig's clients hold no first preferred stock; they hold, as he states, about one-quarter of the second preferred stock and a minority interest in the common stock.

'There is another claim now in judgment against the company and Mr. Woodin and Mr. Hoyt, jointly, in favor of Mr. Jones for $54,000. There is also a claim of Mr. Stokes for $15,000, which is in dispute. If the former is a claim against the company, and the latter is allowed for the full amount, there will be sufficient on hand, if the bid is accepted, to pay them. If the former claim has not already been proven before the receivers, the time within which claims can be proved will be extended to permit it to be filed and proven, if counsel wishes to do so. As represented to me, however, it seems to be a claim primarily against Mr. Hoyt and Mr. Woodin.

'The affidavits presented by Mr. Craig do not, in my judgment, present a situation which would warrant me in refusing to authorize the receivers to accept the bid, which appears to be an excellent one, with the possible exception that it may preclude the receivers from recovering anything from certain of the directors and the Otis Elevator Company on the claims above mentioned. I am by no means sure that it does preclude them from doing so; but, even assuming that it does, the evidence, to warrant the belief that any such suit could be prosecuted with effect, is so very meager that I do not feel justified in directing the receivers to reject the bid. The affidavits show a series of transactions which, although indicating that there has been an understanding between the defendant company and the Otis Elevator Company extending over a period of years to control prices, they fail to indicate that thereby the defendant company received less for its products than it would have received had it bid without such understanding. The evidence is that on several occasions, after each had put in bids, when another competitor entered the field, that they both reduced their bids. This may be very harmful to others, but I cannot see that it shows anything of which the stockholders can complain. If the directors saw fit, by a combination with the Otis Elevator Company, to secure greater sums than could have been secured had they not entered into such agreements, it surely is not a matter of complaint on the part of the stockholders of the defendant company. One instance where the company withdrew a bid, evidently at the direction of the Otis Elevator Company, is pointed to. This happened in 1906 when, admittedly, the two companies were negotiating for consolidation, or rather for the sale of the defendant company to the Otis Company. This latter project was subsequently abandoned when it was found that it would violate the provisions of the Anti-Trust Law.

'From these facts I am asked to draw the conclusion that the dealings between the two companies was a scheme on the part of the Otis Elevator Company, and Woodin and Hoyt as directors of the defendant company, to turn over the defendant company to the Otis Elevator Company by means of wrecking the former company, thus accomplishing, in an indirect way, what they attempted to accomplish by means of a direct transfer and agreement. If this were so, it has taken Woodin and Hoyt eight years to accomplish this result. I cannot conceive that if such had been their intention from the beginning, that it would have taken that length of time. However that may be, the evidence is, at the most, merely suspicion, and I do not think that is sufficient to warrant me in rejecting a bid which the receivers, who are familiar with the whole situation, urgently recommend that I accept. I appreciate the position in which Mr. Craig and his clients are placed-- that the burden is artificially cast on them of proving that a cause of action exists, whereas it is incumbent upon the receivers to investigate and find out whether a cause of action does exist. But nearly four months ago, when Mr. Wall was appointed receiver, the same facts were set forth by Mr. Craig, and he was instructed to place them before Mr. Wall. There may have been good reasons why he has not done so, but this, I do not think, would be a sufficient ground for refusing to accept a bid of this kind, at this time, when it would probably be difficult to secure another bid of equal amount, especially when I am not entirely clear that this cause of action, if one exists, could not be hereafter prosecuted by the receivers.

'I will therefore confirm the bid, unless Mr. Craig is willing to give the receivers a bond, with surety to be approved by them, in the sum of $400,000, conditioned that if the proceeds of another sale, when added to the...