O'Brien v. Virginia-Carolina Chemical Corp.

• Decision Date: 01 February 1965
• Docket Number: No. A--40,VIRGINIA-CAROLINA,A--40
• Citation: 44 N.J. 25,206 A.2d 878
• Parties: Marybelle Louise O'BRIEN, Plaintiff-Respondent, v.CHEMICAL CORPORATION, a corporation, Defendant-Appellant.
• Court: New Jersey Supreme Court

Page 25

44 N.J. 25

206 A.2d 878

Marybelle Louise O'BRIEN, Plaintiff-Respondent, v. VIRGINIA-CAROLINA CHEMICAL CORPORATION, a corporation,

Defendant-Appellant.

No. A--40.

Supreme Court of New Jersey.

Argued Nov. 30 and Dec. 1, 1964.

Decided Feb. 1, 1965.

Dickinson R. Debevoise, Newark, for appellant (Riker, Danzig, Scherer & Brown, Newark, attorneys).

James F. X. O'Brien, Newark, for respondent.

The opinion of the court was delivered by

FRANCIS, J.

Defendant Virginia-Carolina Chemical Corporation is a corporation of the Commonwealth of Virginia with its principal place of business in the City of Richmond in that state. At all times relevant to this suit and the transaction involved, it was authorized to do business in New Jersey and had a registered agent located here. On September 28, 1962, following an affirmative vote of the required number of stockholders, defendant adopted a plan of recapitalization. Plaintiff, a resident of this State and a preferred stockholder who voted against the plan, instituted this action for a determination of her right to arrears of undeclared cumulative dividends which had accrued prior to January 1, 1957, and for a declaration that her right with respect to such dividends remains unaffected by the recapitalization. The trial court entered summary judgment in her favor holding that her right to the dividends remains valid and subsisting in spite of the favorable stockholder vote on the recapitalication plan and the formal order of approval of the amendment of defendant's certificate of incorporation by the Virginia State Corporation Commission under which defendant maintains the plan was authorized. Defendant's subsequent appeal to the Appellate Division was certified by us prior to argument there.

I.

Defendant was incorporated in Virginia in 1926 to engage in the fertilizer and chemical business. On organization its capitalization was composed of 7% Prior preference preferred stock, 6% Cumulative participating preferred stock, and no par value common stock. The 7% Preferred stock was retired fully by 1936. This was made possible, in part at least, by the curtailment of dividends on the 6% Preferred stock. In any event, by January 1, 1957 the dividend arrearages on the latter stock amounted to $73.50 per share. They were $90 per share at the end of 1962.

Prior to January 1, 1957 plaintiff became the owner of 100 shares of the 6% Preferred stock. The original corporate charter provided that such 'stock shall be redeemable, as a whole at any time or in part from time to time on any dividend payment date, at the option of the board of directors of the corporation, upon notice given as hereinafter provided, at $105 per share, plus an amount equal to all unpaid accumulated dividends thereon, at the rate of 6% Per annum from July 1, 1927 to the redemption date, whether or not earned or declared; * * *.' The provision was unchanged when plaintiff acquired her stock.

Section 154 of the Constitution of Virginia says, as it did in 1926, that corporate charters may be amended by general laws adopted by the General Assembly. When plaintiff became owner of her stock, section 3780 of the Virginia Code authorized charter amendments but declared that no amendment could require an exchange of preferred stock 'for stock of another class or classes, without substantially the same preferences, except upon the consent of each of such preferred stockholder, * * *.'

In 1956 Virginia revised its Stock Corporation Act to be effective on January 1, 1957. L.1956, c. 428. Section 13.1--55 of the Virginia Code into which the revision was incorporated was changed to read:

'A corporation may amend its articles of incorporation, from time to time, in any and as many respects as may be desired, provided that the amendment may contain only such provisions as might be lawfully contained in original articles of incorporation at the time of making such amendment.

In particular, and without limitation upon such general power of amendment, a corporation may amend its articles of incorporation, from time to time so as:

(k) To cancel or otherwise affect the right of the holders of the shares of any class to receive dividends which have accrued but have not been declared (whenever accrued and whether or not earned).'

Acting under this revision, on August 6, 1962 the Board of Directors of Virginia-Carolina decided to submit to the stockholders an amendment to its charter incorporating a plan of recapitalization. A meeting of the stockholders was called for the purpose on September 28, 1962. The plan was adopted by a sufficient number of stockholders. Plaintiff protested its adoption and voted against it. On that day the amendment (incorporating the plan) was submitted to the State Corporation Commission of Virginia, which found that 'the articles comply with the requirements of law and that all required fees have been paid.' On the same day the Commission ordered that

'* * * (t)his Certificate of Amendment be issued, and that this order, together with the articles, be admitted to record in the office of the Commission; and that the corporation have the authority conferred on it by law in accordance with the articles, subject to the conditions and restrictions imposed by law.'

Apparently the proposed amendment was presented to the Commission immediately on the favorable vote of the stockholders, and approved by the Commission as a routine matter. No notice of the presentation or of hearing thereon was given to the stockholders. Plaintiff was unaware of any such proceeding and had no opportunity to be heard in opposition prior to the making of the order directing issuance of the certificate of amendment.

Plaintiff opposed and still opposes the portion of the recapitalization plan which deals with the conversion of her shares of 6% Preferred stock. Under it each share of such stock together with its accumulated dividends was to be converted automatically into the following:

'(i) One (1) share of common stock of the corporation; plus

(ii) One and three-tenths (1.3) shares of the new 5%, $50 par Prior Preferred Stock of the Corporation; plus

(iii) One (1) share of the new 5%, $50 par, Convertible preferred stock of the corporation.'

Miss O'Brien is willing, and has so indicated to defendant, to exchange her stock certificates for the new recapitalized ones but refuses to relinquish her right to the accumulated dividends. Defendant has issued in her name the certificates to which she would be entitled but declines to deliver them to her unless she accepts them unqualifiedly in accordance with the recapitalization plan.

It may be noted that the new prior preferred stock is redeemable 'as a whole at any time, or in part from time to time at the option of the Board of Directors of the Corporation upon notice given as hereinafter provided at a redemption price of $50.00 per share, plus an amount equal to all unpaid accumulated dividends thereon accrued to the redemption date whether or not earned or declared.' The new convertible preferred stock was redeemable on the same basis at $60 per share until October 1, 1964, and thereafter at $55 per share. Each kind of stock also has a liquidation preference similar to the redemption value. Thus the redemption price or liquidation preference on the combined new preferred stock would be $120 ($125 before October 1964) in contrast to $105 for each old preferred share. In addition, on liquidation the holder of the new stock package as a common stockholder would be entitled to share in the assets of the company remaining after the required distribution to the preferred stockholders.

On November 12, 1962, shortly before institution of this suit, defendant declared a quarterly dividend of 62 1/2 cents per share on both types of the new preferred stock to the stockholders of record on December 17, 1962. Plaintiff was advised she would not receive the dividends until she made an unqualified delivery to defendant of her old 6% Preferred stock. During the pendency of this suit, on October 16, 1963, defendant redeemed the 5% Prior preferred stock at $50 per share.

Two months and 23 days after approval of the recapitalization plan by defendant's stockholders and entry of the Corporation Commission's Ex parte order approving the amendment of the certificate of incorporation, plaintiff instituted this action in the Superior Court, Chancery Division. Process was properly served on defendant's registered agent in New Jersey. The complaint described defendant's recapitalization plan, plaintiff's opposition to it and her vote against it. It alleged that as of January 1, 1957 there were accumulated dividend arrearages on her stock of $73.50 per share, that plaintiff had a vested contractual right to such dividends under defendant's charter and the Virginia statute under which defendant was incorporated, and that the subsequent amendment to the Virginia Code, effective January 1, 1957 which purported to confer on corporations of the state the power by amendment of their charters to cancel or to divest stockholders of their right to receive accrued undeclared dividends, is unconstitutional under the United States and Virginia Constitutions in its attempted application to plaintiff's shares of stock. (No charge of illegality is made with respect to the effect of the recapitalization plan on dividends which accumulated after January 1, 1957.) The complaint sought a judgment declaring (1) that plaintiff's right to cumulative dividends on her stock in arrears prior to January 1, 1957 constituted a vested property right which right continues undiminished by the amendment of the Virginia statute and adoption by the required number of defendant's stockholders of the revision of its capital structure; (2) that she is entitled to receive current dividends on the new preferred stock held in her name by defendant, without surrendering her right to the dividend arrearages on her old stock;...