Allen v. Francisco Sugar Co.

• Decision Date: 15 February 1912
• Docket Number: 61 (1,532).
• Citation: 193 F. 825
• Parties: ALLEN v. FRANCISCO SUGAR CO. et al.
• Court: U.S. Court of Appeals — Third Circuit

193 F. 825

ALLEN v. FRANCISCO SUGAR CO. et al.

No. 61 (1,532).

United States Court of Appeals, Third Circuit.

February 15, 1912

Louis Marshall (Samuel Untermyer, on the brief), for appellant.

Sullivan & Cromwell and Lindabury, Depue & Faulks (Richard V Lindabury and Francis D. Pollak, of counsel), for appellees.

Before GRAY and LANNING, Circuit Judges, and McPHERSON, District Judge.

GRAY Circuit Judge.

The appellant, the complainant below, seeks to review the decree of the Circuit Court of the United States for the District of New Jersey, rendered on June 26, 1911, which sustained the demurrer interposed to the bill of complaint by the appellees, the defendants below, and dismissed the bill.

The bill states that the complainant was a citizen of the state of Pennsylvania, and that the Francisco Sugar Company is a corporation of the state of New Jersey, and Manuel Rionda a citizen of the state of New York; that the defendant corporation was duly organized in 1899 under the provisions of an act of the Legislature of the state of New Jersey entitled 'An act concerning corporations' (Revision of 1896; P.L.p. 277). The range of objects for which the defendant corporation was incorporated, stated in its certificate of incorporation, as set forth in the bill of complaint, is very large, and the business in which it did engage, to wit, the holding and cultivation of land in the Island of Cuba, the growth of sugar cane and the production, manufacture and sale of sugar was clearly within that range. Its corporate powers also expressly included the widest possible incidental powers of buying and selling, leasing, mortgaging real and personal property, and of holding, purchasing, mortgaging, conveying or disposing of all its real and personal property. The bill then goes on to state that, on and after May 4, 1904, the total authorized share capital of the defendant corporation was $1,500,000, each share being of the par value of $100; that of said authorized share capital, there have been issued and are now outstanding 12,277 shares of the par value of $1,227,700. The bill then states that the complainant has been for a number of years the owner of 450 shares of the defendant company's capital stock; that he was a shareholder of the defendant corporation at the time of the transactions and grievances of which he complains; that he was elected a director of the defendant corporation on or about October 9, 1907, and continued in office until on or about October 13, 1909, 'and that he became familiar with the affairs of the company'; that shortly after its organization, the corporation acquired, by purchase, its lands in Cuba, for the cultivation of sugar cane; that said lands were acquired at low prices; parts thereof were cleared and prepared for the cultivation of sugar cane, and about 7,000 acres out of 50,000 had been cleared during the past year and now are under cultivation, producing large quantities of sugar cane, of good quality, which yielded a very large amount of sugar, which was sold and disposed of by the corporation at a large profit, and that its output of sugar during the fiscal year ending June 30, 1910, was considerably larger than that for the preceding year. The bill then sets forth with considerable detail the business operations and methods of the company, in producing and making its sugar, and that after making 5 per cent. and 6 per cent. cash dividends from 1904 to 1909 inclusive, in 1910 it made a dividend of 7 1/2 per cent. in cash and 21 per cent. in scrip bearing interest, payable in 4 years from May 15, 1910. The complainant further avers that the earnings of the defendant corporation have been largely in excess of the dividends declared and paid, and that liberal amounts have been charged off for depreciation of lands, machinery and plant; that the corporation's property and assets are without lien or incumbrance, and have never been incumbered, and that the corporation has no indebtedness beyond current bills and accounts, except certain debentures issued soon after the organization of the company, due in 1911; that 'in the judgment of the complainant, based upon his familiarity with the affairs of the defendant corporation and his knowledge gained while a member of the board of directors, the book value of the corporation shares, taking into account its actual tangible assets, exclusive of good will and trade marks, over and above all liabilities, is much greater than the par value of the shares; and when the earnings and earning capacity of the corporation are taken into consideration, the actual intrinsic value of such shares is at least several times their par value.' The bill then avers that the defendant, Manuel Rionda, one of the incorporators of the defendant corporation, has for several years owned or controlled 2,277 shares of the corporation's outstanding capital stock of 12,277 shares; that some time prior to the filing of the bill, the defendant 'Rionda conceived a plan to acquire the ownership or control of the entire outstanding capital stock of the defendant corporation, or so much thereof as could be acquired, for an inadequate price, and to finance the operation out of the corporation's treasury for his personal benefit. ' This charge rests upon the statement, that 'to that end, said Rionda, on or about August 6, 1909, issued to all the stockholders of the corporation a circular letter, a true copy of which, marked 'Exhibit A" is annexed to the bill and made part thereof. In it, the defendant, Rionda, states to the stockholders of the defendant corporation that he owns or controls $227,700 of the $1,227,700 of outstanding stock of the defendant company, and offers to the other shareholders of the defendant company depositing their stock with the Morton Trust Company, under an agreement inclosed, to purchase their stock, or cause the same to be purchased and paid for at the price of $125 per share. This price was to be payable either in 6 per cent. collateral trust 30 year sinking fund bonds of a company to be organized under the name of the Francisco Investment Company (such bonds to be secured by the deposit in trust of all the first mortgage bonds and not less than a majority of the stock of the defendant company then outstanding or subsequently issued); or, in the 6 per cent. first mortgage 30 year sinking fund bonds of the defendant company, as provided in the agreement secured by a first mortgage upon the properties of the defendant company. After setting forth other details of the arrangement, the circular letter states that under the proposed agreement, four named persons, or the survivors of them, are appointed a committee to represent the depositors, with the powers specified in the agreement, to protect their interests in connection with the issue of the new securities and the carrying out of the plan. The letter then proposes that the shareholders should deposit their shares with the Morton Trust Company, which will issue temporary certificates therefor, to be exchanged for bonds as soon as the transaction can be completed. That the invitation to deposit is given to all the shareholders of the company, and that the deposit of the stock is made with the understanding that the writer, the defendant Rionda, shall have full power to vote and act upon, and with respect to, the shares of stock deposited in aid of the execution of the plan and purchase, as stated in the agreement, and subject to the supervision of the committee representing the depositors.

The bill avers that the complainant believes that, owing to his expressed objection to so much of the plan stated in the 'Offer and Deposit Agreement,' as contemplated the issuance of its bonds by the defendant corporation, to enable said Rionda to purchase the stock of the company, and to complainant's threat to take legal measures to prevent such an issue of bonds, the carrying out of said 'Offer and Deposit Agreement' has been in abeyance, and that the said Investment Company has never been organized, and that the defendant corporation has not offered or authorized the issuance of any bonds. The complainant then avers that the said defendant, Rionda, 'cast about for other means to accomplish the same, or substantially the same, object as was contemplated by the 'Offer and Deposit Agreement,' and in substance to carry out and effectuate such agreement. ' That on June 15, 1910, the board of directors of the defendant corporation voted to reduce the authorized share capital of the company from $1,500,000 to $300,000, by means of the purchase for retirement of about 10,000 shares of the stock, such purchase to be made by the issuance of $1,000,000 of 6 per cent. first mortgage 30 year bonds of the defendant corporation; and a meeting of the stockholders to vote upon said proposal was called, to be held at the company's office in Camden, New Jersey, at noon, on June 27, 1910, of which meeting notice, in the form of a letter signed by the secretary of the defendant company, was sent to all the stockholders. It states that the board of directors, at a meeting held on June 8, 1910, had declared a cash dividend of $7.50 per share, payable on June 30, 1910, to stockholders of record on June 9, 1910, out of the net earnings of the then present fiscal year. It then recites the resolution adopted by the board of directors on June 15th, to purchase for retirement 10,000 shares, or such lesser amount as the company should be able to purchase, of the issued and outstanding capital stock of the company; that it would be the right and privilege of each and every stockholder to exchange his shares of stock to the extent of 81.45 per cent. of his said holdings, or any lesser part thereof at par for 6 per cent. first mortgage, 30 year sinking...