Alleghany Corp. v. Aldebaran Corp.

• Decision Date: 13 January 1938
• Docket Number: 85,86.
• Citation: 196 A. 418,173 Md. 472
• Parties: ALLEGHANY CORPORATION et al. v. ALDEBARAN CORPORATION et al. SAME v. TRI-CONTINENTAL CORPORATION et al.
• Court: Maryland Court of Appeals

196 A. 418

173 Md. 472

ALLEGHANY CORPORATION et al. v. ALDEBARAN CORPORATION et al.

SAME v. TRI-CONTINENTAL CORPORATION et al.

Nos. 85, 86.

Court of Appeals of Maryland

January 13, 1938

Appeals from Circuit Court No. 2 of Baltimore City; Samuel K. Dennis Judge.

Suit by the Aldebaran Corporation and the Broseco Corporation and others, against the Alleghany Corporation and the Chesapeake Corporation, to enjoin consolidation of defendant corporations, wherein the trustees of the University of Pennsylvania intervened as plaintiff; and suit for the same relief by the Tri-Continental Corporation and Selected Industries, Incorporated, and others, against the same defendants. tried together. From orders granting preliminary injunctions, defendants appeal.

Appeal dismissed.

A temporary injunction enjoining consolidation of two corporations until 'further order of this court' was not a final adjudication of parties' rights, and hence neither it nor court's opinion supporting it could be invoked as estoppel against revival of consolidation plan or proposal of different consolidation plan. Richard F. Cleveland and Raymond S. Williams, both of Baltimore (Semmes, Bowen & Semmes, Frederick W. Brune, and Hershey, Donaldson, Williams & Stanley, all of Baltimore, and White & Case and Glover Johnson, all of New York City, on the brief), for appellants in both cases.

Charles McH. Howard and Hunter H. Moss, both of Baltimore (Venable Baetjer & Howard, of Baltimore, on the brief), for appellees in No. 85.

R Dorsey Watkins and James Piper, both of Baltimore (Piper Carey & Hall, of Baltimore, on the brief), for appellees in No. 86.

Argued before BOND, C.J., and URNER, OFFUTT, PARKE, SLOAN, MITCHELL, SHEHAN, and JOHNSON, JJ.

OFFUTT Judge.

The Alleghany Corporation, herein called Alleghany, and the Chesapeake Corporation, called herein Chesapeake, appellants here, defendants below, are two Maryland corporations. The Tri-Continental Corporation, a Maryland corporation, and Selected Industries Incorporated, a Delaware corporation, plaintiffs below and appellees, in No. 86 of the October term of this court, own respectively 18,000 and 18,500 shares of the common stock of Chesapeake, out of 1,799,745 shares of such stock issued and outstanding.

The Aldebaran Corporation, a Delaware corporation, plaintiff below and an appellee in No. 85 of the October term of this court, owns 2,600 shares of cumulative 5 1/2 per cent. preferred stock Series A, of the par value of $100 per share of Alleghany, and 800 shares of the common stock of the Chesapeake. The Broseco Corporation, an appellee and also a plaintiff below in that case, owns $51,900 shares of the same preferred stock of Alleghany and 5,900 shares of the common stock of Chesapeake. The Trustees of the University of Pennsylvania, an intervening plaintiff in No. 85, is a Pennsylvania corporation, and owns 4,000 shares of said 5 1/2 per cent. preferred stock Series A of the Alleghany corporation.

The Tri-Continental Corporation and Selected Industries, Incorporated, filed the bill of complaint in No. 86 against the Alleghany Corporation and the Chesapeake Corporation. The Aldebaran Corporation and the Broseco Corporation filed the bill in No. 85 against the same defendants. The purpose of the bill in each case was to secure an injunction restraining the defendants from consummating a consolidation of those two corporations under and in accordance with a plan or scheme which had been recommended by the directors of each of said defendant corporations and from holding a stockholders' meeting called and warned for the purpose of considering said plan. The grounds advanced for that relief were that a consolidation in accordance with the proposed plan would (a) be unfair to the minority stockholders of Chesapeake; (b) unfair to the holders of cumulative 5 1/2 per cent. preferred stock, Series A, of Alleghany; (c) would deprive holders of such preferred stock of vested and contractual rights in violation (1) of applicable provisions of the statutory law of the state, because if such law authorized the consolidation upon the terms proposed, it would itself violate article 23 of the Maryland Declaration of Rights, and article 1, section 10, and the Fourteenth Amendment of the Constitution of the United States; and (d) that the proposed plan in violation of the statutory law of the state left to the directors of the defendant corporations, respectively, the right to decide in their discretion after submission to the stockholders whether the consolidation agreement should be consummated, whereas said statutes require that any such consolidation agreement be first advised by said directors, then submitted to the stockholders, and when approved by the requisite number of votes of such stockholders, be executed and filed, and when so executed and filed the consolidation becomes complete and effective. Or to state the last point differently, appellees' contention is that the proposed plan gave to the directors the power to decide whether the plan should be adopted notwithstanding the stockholders, whereas, they say, under the statutes, the directors may advise that the plan be adopted, but that the power to decide whether it shall be adopted is in the stockholders.

The defendants in each case answered, and both cases, while not consolidated were tried together, upon the bills, answers, and evidence.

At the conclusion of the case, after hearing counsel for the parties, the court in each case ordered 'that a writ of preliminary injunction be issued as prayed in said Bill, enjoining and strictly prohibiting the defendants, Alleghany Corporation and The Chesapeake Corporation, and each of them, and their respective officers, agents and employees, from taking any and all action looking to a vote by stockholders of said defendant Corporations, or either of them, to pass upon or adopt the plan of consolidation or the agreement of consolidation referred to in this proceeding, and from taking any and all other action directed toward the consummation of said proposed plan or said agreement of consolidation; all until further order of this Court.' These appeals are from those orders.

While the appellees in No. 86 are interested only as holders of the common stock of Chesapeake, and the appellees in No. 85 are interested both as holders of that stock and as holders of the Series A 5 1/2 per cent. preferred stock of Alleghany, both cases may be considered together, because the result must be the same if the consolidation is enjoined because it is unfair to the minority holders of the common stock of Chesapeake as it would be if it is enjoined because it deprives holders of the Class A preferred stock of the Alleghany Corporation of vested and contractual rights.

The contention of the minority stockholders of the Chesapeake Corporation is that the majority stockholders are, because of their holdings in the Alleghany Corporation, more interested in strengthening the financial position of that corporation, than in maintaining at its present or a higher level the value of the common stock of Chesapeake. That the Alleghany Corporation is in financial difficulties, that it corporate structure is unsound, and that as compared with Chesapeake its financial condition is doubtful and unsatisfactory. That the financial condition of Chesapeake is sound and secure, its corporate structure simple, and its affairs prosperous. That the purpose of the consolidation is to improve the position of the holders of the stock and securities of Alleghany at the expense of Chesapeake.

The contention of the holders of Class A 5 1/2 per cent. preferred stock of Alleghany is that as holders of that stock they are entitled as under a contract between them and the corporation and between them inter sese, to certain rights, privileges, and benefits. That the effect of the consolidation will be to deprive them of such rights, benefits, and privileges, without offering them therefor any adequate substitute. That the plan therefore not only violates their vested and contractual rights, but is so grossly unfair and unreasonable as to amount to constructive fraud.

After the argument in this court and pending the decision of the cases, the court here has been informed by counsel for the respective parties that the board of directors for each appellant corporation has by formal and sufficient action rescinded its action recommending the consolidation of the two corporations, as well as its action calling a meeting of the stockholders of each corporation to consider the proposed consolidation, and that the proposed consolidation has been...