Root v. York Corporation

• Decision Date: 03 December 1946
• Court: Court of Chancery of Delaware
• Parties: ELEANOR H. ROOT, RICHARD MEYER, DANIEL E. EVARTS, GEORGE J. NOTHNAGEL and MAE K. NOTHNAGEL, LOUIS J. BRECKER, and others, v. YORK CORPORATION

50 A.2d 52

29 Del.Ch. 351

ELEANOR H. ROOT, RICHARD MEYER, DANIEL E. EVARTS, GEORGE J. NOTHNAGEL and MAE K. NOTHNAGEL, LOUIS J. BRECKER, and others, v. YORK CORPORATION

Court of Chancery of Delaware, New Castle

December 3, 1946

William H. Foulk, and John Schulman, of New York City (Arthur Garfield Hays, Seymour M. Heilbron, George Hornstein, and Elias Messing, of New York City, of counsel), for Eleanor H Root, et al., cross petitioners.

Robert H. Richards and Aaron Finger, of the firm of Richards, Layton & Finger, and George S. Munson, of Philadelphia, Pa., for York Corporation.

OPINION

HARRINGTON, Chancellor.

York Ice Machinery Corporation merged with York Corporation ^[2] a wholly owned subsidiary, on June 29th, 1942, and a new York Corporation resulted. The merging corporations were organized in this State. The plan adopted by them provided for the exchange of the outstanding preferred and common stock of York Ice Machinery Corporation for common stock of York Corporation on the basis of 15 shares of common stock for each share of preferred stock of York Ice Machinery Corporation, together with accrued dividends thereon, and one share of common stock for each share of the common stock of York Ice Machinery Corporation. The new corporation, therefore, had no preferred stock.

Eleanor H. Root, a preferred stockholder, objected in writing to the merger and demanded payment of the value of her stock as of that date; but failing to agree with York Corporation as to its value she took the necessary steps to have her stock appraised, pursuant to the provisions of Section 61 of the General Corporation Law (§ 2093, Rev. Code of Del., 1935), prior to the 1943 amendment.

The proceedings in this court were initiated by the petition of Eleanor H. Root, alleging the essential facts and seeking the appointment of a third appraiser to act with the two appraisers previously selected to value her preferred stock in York Ice Machinery Corporation at the time of the merger. The appointment was made pursuant to the provisions of the statute. See Root, et al., v. York Corp., 28 Del. Ch. 203, 39 A.2d 780. Other preferred stockholders, who had likewise objected to the merger, subsequently intervened in the proceedings. The three appraisers, so appointed, held several hearings at which much testimony was heard, but were unable to agree on the value of the stock and filed majority and minority reports. The report filed by two of the appraisers fixed the value of the stock at $ 90 per share, and the report filed by the other appraiser fixed the value at $ 197.50. Thereafter York Corporation filed a petition seeking to compel the preferred stockholders, who were parties to the appraisal proceeding, to assign, transfer and deliver their stock certificates in York Ice Machinery Corporation to the petitioning corporation upon the payment of $ 90 per share. The petition also contained a prayer that pursuant to the statute, the Chancellor fix a reasonable fee for the appraisers and tax the cost of the appraisal proceeding. See Root, et al., v. York Corp., supra. After a motion to quash the proceedings for lack of jurisdiction had been denied, the objecting stockholders appeared and filed a pleading designated as "Answer and Supplemental Petition." That portion thereof which constituted an answer to the petition of the corporation admitted all of the essential averments of the petition. See Root, et al., v. York Corp., supra. The allegations of that portion which amounted to a cross petition will be stated later.

Prior to the consummation of the merger, some of the objecting stockholders had sought to enjoin it by a class bill filed in the United States Court for the District of Delaware. 56 F.Supp. 288. One of the claims made was that the proposed plan was unfair to the preferred stockholders because the common stock had absolutely no equity in the corporate assets. After a hearing on the facts, the relief sought was denied and the bill dismissed.

The cross petition alleges, among other things:

(1) That, as a defense to said suit, and in justification of the proposed merger, York Ice Machinery Corporation "alleged upon trial * * * that the proposed merger was fair because justified by (1) the asset value, and (2) the earnings of York Ice Machinery Corporation, and submitted uncontradicted testimony that the corporate assets of York Ice Machinery Corporation had a minimum value of $ 9,721,346.04 (being only a few hundred thousands less than the full amount, i.e., $ 9,953,691.51, necessary to provide par, plus accumulated dividends on all of the preferred stock of said York Ice Machinery Corporation), and submitted uncontradicted evidence that the minimum future earnings of the defendant, York Ice Machinery Corporation, would amount to $ 800,000 per annum, and could be expected to reach between $ 1,000,000 and $ 1,500,00 per annum."

(2) That because of that uncontradicted evidence produced by York Ice Machinery Corporation, the injunction sought was denied; and, relying upon such evidence, the cross petitioners demanded "payment of their stock" and took the necessary steps for the appointment of appraisers to value it.

(3) That "at said appraisal hearings, the defendant, York Corporation, presented testimony, hereinafter referred to as contradictory testimony; wholly at variance with the testimony presented by York Ice Machinery Corporation in the aforesaid proceedings in the Federal Court, with respect to the asset value and the earnings of York Ice Machinery Corporation."

(4) That the appraiser designated by York Corporation and the appraiser designated by the Chancellor, valued the preferred stock of York Ice Machinery Corporation at $ 90.00 per share, and based their valuation upon said contradictory testimony so produced.

Relying on estoppel, the cross petitioners seek to have the appraisement declared invalid and the proceedings remitted to the same, or different, appraisers for the determination of the value of their stock upon the basis of such evidence only as is admissible under standards of law and equity.

York Corporation answered the cross petition admitting some of its allegations, but denying that the testimony offered and admitted in the hearings before the appraisers was inconsistent with any of the testimony produced in the injunction proceeding in the United States District Court with respect to the value of the assets of the corporation. It avers that in the court proceeding:

"* * * evidence was introduced having a bearing upon the fairness of the proposed merger, including evidence pertaining to earnings and evidence pertaining to the reproduction cost new, less depreciation, of certain assets, and the assets and liabilities of the corporation as set forth on its books at certain dates and * * * refers to said testimony when presented * * * for the facts pertaining thereto."

In all other respects, York Corporation denies the allegations of paragraph 1 of the cross petition. The corporation, therefore, concludes that estoppel is not applicable and the relief sought should be denied and the cross petition dismissed.

As a separate and distinct defense to the cross petition, the answer of York Corporation also relies on res judicata, based on a judgment alleged to have been entered by the United States Court of Appeals for the Third Circuit, denying a class petition filed by some of the cross petitioners, after the appraisal had been made, for leave to file a bill to review the injunction proceedings in the District Court. See Hottenstein v. York Ice Machinery Corp., 146 F.2d 835.

When the proceedings were started in this court, Section 61 of the General Corporation Law provided:

"The decision of the appraisers as to such value of such stock shall be final and binding upon the corporation and such stockholder."

The cross petitioners, necessarily, concede that this provision is controlling, unless for some reason the appraisal was invalid. See Root v. York Corp., (D.C.) 56 F.Supp. 288. They point out, however, that in Chicago Corporation v. Munds, 20 Del.Ch. 142, 172 A. 452, this court refused to decree a transfer of stock at the appraised value because it appeared from the appraisers' report that their valuation was based entirely on market value. Apparently the Chancellor also disagreed with the contention that asset value was the sole controlling factor.

The precise question of fact raised by the pleadings and argued by the parties seems to be whether the evidence produced by York Corporation before the appraisers, with respect to the value of its assets, was wholly inconsistent with the testimony previously introduced by its predecessor, York Ice Machinery Corporation, in the injunction suit; whether the uncontradicted evidence produced by the corporation in the Federal Court showed that the net value of its assets on June 29th, 1942 was more than $ 10,000,000 while in the subsequent appraisal proceeding the evidence produced by it showed that the value of such assets on that date was much less than that amount.

The cross petitioners purchased their stock in December of 1940. The contemplated merger was not officially announced until January, 1941, but the probable plan appeared in a financial journal as early as November, 1940.

When the injunction bill was filed, 53,171shares of 7% cumulative preferred stock of York Ice Machinery Corporation were outstanding, with $ 86.50 per share accrued and unpaid dividends thereon. As we have seen, the preferred stockholders claimed that the common stock, therefore, had no equity, and that the management and majority stockholders had abused their powers and discretion in giving that stock some benefits under the merger plan. See Porges v. Vadsco Sales...