Albert v. Salzman

• Decision Date: 31 May 1973
• Citation: 41 A.D.2d 501,344 N.Y.S.2d 457
• Parties: Stanley ALBERT, Plaintiff-Appellant and M. Bruce Fine, Proposed Intervenor Plaintiff-Appellant, v. Hal A. SALZMAN et al., Defendants-Respondents, Arnold Neis et al., Defendants.
• Court: New York Supreme Court — Appellate Division

Page 457

344 N.Y.S.2d 457

41 A.D.2d 501

Stanley ALBERT, Plaintiff-Appellant and M. Bruce Fine Proposed Intervenor Plaintiff-Appellant, v. Hal A. SALZMAN et al., Defendants-Respondents, Arnold Neis et al., Defendants.

Supreme Court, Appellate Division, First Department.

May 31, 1973.

Donald N. Ruby, New York City, of counsel (Robert M. Kornreich, New York City, with him on the brief; Wolf, Popper, Ross, Wolf & Jones, New York City, attorneys), for plaintiff-appellant and proposed intervenor plaintiff-appellant.

Henry P. Wasserstein, New York City, of counsel (William R. Meagher and Michael H. Diamond, New York City, with him on the brief; Skadden, Arps, Slate, Meagher & Flom, New York City, attorneys), for defendants-respondents Hyman I. Katz, Eugene B. Yohe, Jr. and Papercraft Corp.

Sheldon S. Lustigman, New York City, of counsel (Bass & Ullman, New York City, attorneys), for defendant-respondent Hal A. Salzman.

Before NUNEZ, P.J., and KUPFERMAN, STEUER and CAPOZZOLI, JJ.

STEUER, Justice:

Taking, as we must for the purposes of this motion, the alllegations of the complaint to be true, the following facts appear.

Odell, Inc. was a Delaware corporation engaged in marketing certain brand products. Papercraft Corporation is a corporation engaged in the manufacture of various paper products. Both are publicly owned companies. Following negotiations in the fall of 1969 the boards of directors of both companies informally approved an agreement of merger whereby the stockholders of Odell would receive .59375 of a share of Papercraft for each share of Odell. This proposed arrangement accorded roughly with the respective market prices of the stocks of the two companies, namely, Odell $16.50 per share and Papercraft $31 per share. However, on October 21, 1969, the Odell board of directors rejected this offer.

Following the rejection a series of private negotiations between Papercraft and various officers, directors and stockholders of Odell ensued. As a result of those negotiations the following transactions resulted. On November 25, 1969, defendant Salzman, a director of Odell, sold his shares (45,406 common and 1,270 preferred) to Papercraft for $30 a share, an excess of $11.50 per share over the market price. For this Salzman agreed to and did resign as an officer and director of Odell, although his salary was to continue until December 1970. He further agreed to use his best efforts to have Odell reduce the number of its directors from 12 to 9, to provide for an easier method of amending the By-laws, to bring about the resignation of 7 of the 12 directors, and to cause the election of nominees of Papercraft in their stead. Two days previously Papercraft had made an agreement with Laurence, a director of Odell who owned individually and with his wife 28% Of the outstanding Odell stock (237,000 shares) to buy 85,000 shares. Laurence agreed to vote his remaining shares for a board of directors mutually agreeable to Papercraft and himself. In addition Laurence had the right, for six months, to 'put' to Papercraft 70,000 shares of Odell, or, if it had been merged with Papercraft, the equivalent number of shares of Papercraft at $22.44 per share.

The substitution of directors did not, however, go smoothly, despite the cooperation of Salzman and Laurence. Thereupon Papercraft had further negotiations with the remaining directors. Papercraft agreed to buy the stock of director Wessenger (8,500 shares) for $30 a share, the sale to become effective when the new board was seated. The market price of Odell at that time was between $20.25 and $21.75 per share. Wessenger was also guaranteed against any loss of his pay on an employment agreement. He agreed to vote for Papercraft's nominees for the board. At the time Wessenger's Odell stock was transferred to Papercraft, its market price was about $4.50 per share. Arrangements were made with director Marcus to left restrictions on the 10,000 Odell shares he owned, which required him to offer the stock to Odell at 12 1/2cents a share. Marcus was also promised the presidency of Odell. Director Schur was given a two year extension of his employment contract and a substantial salary increase. Directors Eisenberg and Wishingrad received beneficial, but less favorable, contract changes.

Thereupon a new board took office and immediately approved a merger offer by which Odell stockholders would receive one share of Papercraft for each four shares of Odell.

The above are the allegations of the first cause of action. The second is not under separate attack. The third cause of action alleges that between the date of the election of the new board and the effective date of the merger the board adopted new and improper accounting practices which made it appear that Odell's financial position was greatly inferior to what it had been. This practice, together with the added expense of the employment contracts referred to above, is alleged to have depressed the price of Odell stock, with the result that the merger offer was made to appear beneficial to Odell stockholders.

The fourth cause of action alleges that Salzman, Laurence and Wessenger were aware of the fact that Odell was in serious financial difficulties due to several facts set out and that they concealed this knowledge, enabling them to make the sales of their stock referred to.

Upon this motion by Salzman, two of the new directors and Papercraft to dismiss the complaint, it appears that the plaintiff Albert, a former stockholder of Odell, sold his stock after this suit was initiated. It is conceded that he can no longer maintain the action. However, another stockholder of Odell, Fine, has sought to intervene in the action, and it is his application that provides the meat of the appeal. Special Term denied the application, and with the disqualification of Albert dismissal was inevitable.

Three grounds for denying the intervenor's motion are urged. The first, considering the experience of counsel urging it, must be regarded as a tongue-in-check makeweight designed to trap...