Adams Et At v. United States Distrib. Corp.

• Decision Date: 06 June 1945
• Parties: ADAMS et at. v. UNITED STATES DISTRIBUTING CORPORATION et al.
• Court: Virginia Supreme Court

34 S.E.2d 244

184 Va. 134

ADAMS et at.

v.UNITED STATES DISTRIBUTING CORPORATION et al.

Supreme Court of Appeals of Virginia

June 6, 1945.

.

Rehearing Denied Sept. 14, 1945.

Appeals from Law and Equity Court of City of Richmond; Willis D. Miller, Judge.

Suit in equity by Maurice D. Adams and others against United States Distributing Corporation, the Pittston Company, and others for determination of rights of plaintiffs as dissenting holders of preferred

stock of first-named defendant and that plaintiffs should be paid amounts alleged to be due them, wherein the last-named defendant filed a demurrer, and after the demurrer was overruled the last-named defendant filed a cross-appeal. From a decree plaintiffs appeal and last-named defendant cross-appeals.

Reversed and dismissed.

Before CAMPBELL, C. J., and HOLT, HUDGINS, GREGORY, BROWNING, EGGLESTON, and SPRATLEY, JJ.

John J. Wicker, Jr., of Richmond, and Seymour M. Heilbron, George M. Jaffin, and Charles Winkelman, all of New York City, for appellants.

R. Grayson Dashiell and William W. Crump, both of Richmond, and James V. Hayes, J. Leo Coupe, and Donovan, Leisure, Newton & Lumbard, all of New York City, for appellees.

EGGLESTON, Justice.

This appeal involves the rights of certain holders of preferred stock in United States Distributing Corporation, a Virginia corporation, with its principal office in the city of Richmond, who dissented from the merger of that corporation with The Pittston Company, a Delaware corporation, under the name of the latter. The merger was approved by the respective agencies of the two States on December 31, 1942, with the result that the merged corporation is now duly incorporated in both States.

Prior to the merger the United States Distributing Corporation had outstanding 99, 915% shares of 7% cumulative convertible preferred stock, of the par value of $100 per share, and 401, 876% shares of common stock of the par value of $5.00 per share. The Pittston Company owned 62,-879 shares of this preferred stock, or approximately 63% thereof, and 360, 713 shares of the common stock, or approximately 90% thereof. As of the date of the merger, the cumulative unpaid dividends on the preferred stock of United States Distributing Corporation amounted to a total of $84 per share.

It was provided both in the charter of United States Distributing Corporation and in each preferred stock certificate, that "in case of the liquidation or dissolution of this corporation, or a distribution of its assets, except by payment of dividends, the assets of this corporation shall first be applied toward paying to the holders of thepreferred stock an amount equal to the par

value of their respective holding's of such preferred stock, plus all accrued and unpaid dividends thereon, * * *."

Under the terms of the merger agreement the holders of the preferred stock of United States Distributing Corporation, other than The Pittston Company, were to receive in exchange for each preferred share of United States Distributing Corporation stock held by him, and unpaid dividends thereon, one share of "Class A Preference" stock and one share of common stock of the continuing corporation. The "Class A Preference" stock provided for a cumulative dividend of $5.00 per year per share, and other rights which need not be here detailed.

Between the date of the merger and March 13, 1943, the appellants, who together own a total of 1, 337 shares of preferred stock in United States Distributing Corporation, in various amounts, gave notice to The Pittston Company, the merged corporation, that they elected to dissent from the merger and to enforce their appraisal rights under section 3822 of the Code of Virginia, as amended by Acts 1922, c. 380. Various other like notices of dissent were received from other preferred stockholders.

On June 2, 1943, the appellants filed their bill in the Law and Equity Court of the city of Richmond against United States Distributing Corporation, The Pittston Company, and the officers and directors of the latter company. After setting out the above facts, the bill alleged that the merger "constituted a dissolution and liquidation of Distributing, requiring a distribution of its assets"; that under the terms of the charter of that company, and its certificates of preferred stock, each of the dissenting stockholders was entitled to be paid the $100 par value for each share of stock, plus accumulated dividends of $84 per share, with interest thereon from the date of the merger; and that this was "a contractual right, fixed and vested, " of which the dissenting stockholders could not be deprived by the merger. It was also alleged that at the time of the merger, United States Distributing Corporation had sufficient assets to pay these claims of the dissenting preferred stockholders in full, but that pursuant to the merger agreement these assets had been transferred and delivered to The Pittston Company, with the result that the latter became liable for and was bound to pay the dissenting stockholders the amount of their respective claims.

The bill prayed, among other things, that the rights of the dissenting holders of preferred stock of United States Distributing Corporation "be ascertained,, determined and fixed"; that they be paid the amounts alleged to be due them; and that The Pittston Company be enjoined and restrained from paying any dividends on any classes of its stock, or from using any of the assets acquired by it from United States Distributing Corporation, as a result of the merger, unless and until the claims of the appellants had been satisfied.

At the time the bill was filed the plaintiffs (the appellants here) gave notice of an application to the lower court, on June 12, 1943, for a preliminary injunction in accordance with the prayer of the bill. In the meantime, on June 9, The Pittston Company had filed a petition in the Chancery Court of the city of Richmond, against the appellants and others, under the provisions of Code, § 3822, as amended, asking for the ascertainment of the "fair cash value" of the preferred stock of United States Distributing Corporation owned by those stockholders who dissented from the merger. The petition also prayed that the appellants be enjoined from further prosecuting the present suit in the Law and Equity Court of the city of Richmond.

When the appellants' application for a preliminary injunction in the present proceeding came on to be heard in the Law and Equity Court of the city of Richmond, The Pittston Company entered a special appearance and objected to the proceeding on the ground that the remedy provided by Code, § 3822, was exclusive, that the appellants were not entitled to equitable relief, and that since the principal office of United States Distributing Corporation was in the city of Richmond, under the express terms of that section the Chancery Court of the city of Richmond had sole jurisdiction of the ascertainment of the value of their stock.

The Law and Equity Court of the city of Richmond sustained the position of the appellants that the appraisal statute (Code, § 3822) did not provide an exclusive remedy and that since that court had first acquired jurisdiction of the subject-matter the appraisal proceeding which The Pittston Company had instituted in the Chancery Court of the city of Richmond should be stayed. Thereupon The Pittston Companyfiled a demurrer to the bill which was overruled.

The Pittston Company then filed its answer and cross-bill in which it alleged that the merger did not effect a dissolution of United States Distributing Corporation, and hence the charter provisions upon which the appellants relied for the recovery of the par value of their preferred stock, plus accrued and unpaid dividends, were inoperative. It again asserted the defense that the appellants' sole remedy was to recover the fair cash value of their stock by an appropriate appraisal proceeding in the Chancery Court of the city of Richmond under the provisions of Code, § 3822, and that the Law and Equity Court of the city of Richmond had no jurisdiction of the cause of action.

The appellants having answered the cross-bill, the matter came on to be heard on the pleadings and exhibits therewith filed. The lower court entered a decree adjudicating the principles of the cause, from which the present appeal has been taken. In substance, the decree provided that as a result of the merger of the two corporations the appellants as dissenting stockholders, had the right to institute the present suit and share in the net assets of United States Distributing Corporation pro rata with the other preferred stockholders, including those who assented to as well as those who dissented from the merger, as of December 21, 1942; that the appellants were entitled to receive the par value of their stock, plus accrued and unpaid dividends thereon, provided such recovery did not exceed the "actual value" of such stock, "to-wit the said proportionate share of such stock in the net assets of United States Distributing Corporation as of said date"; and that unless the appellants should establish facts to estop the Pittston Company from denying that the value of their stock is less than par, plus accrued and unpaid dividends, their recovery should be limited to such "actual value." The cause was referred to a commissioner in chancery for the purpose of inquiring into and ascertaining such matters as were necessary to carry into effect the conclusions of the court.

The dissenting preferred stockholders, the plaintiffs below, have appealed from this decree. Their contention is that they are entitled to recover, what they term, the "full contractual value" of their stock namely, the par value of $100 per share, plus $84 of accumulated and unpaid dividends thereon, and interest from the date of the merger, and that the lower court erred in limiting their amount of recovery to the "actual value" of their stock as fixed by the net assets of...