Clarke v. Gold Dust Corporation, 6233.

• Decision Date: 03 October 1939
• Docket Number: No. 6233.,6233.
• Citation: 106 F.2d 598
• Parties: CLARKE v. GOLD DUST CORPORATION.
• Court: U.S. Court of Appeals — Third Circuit

106 F.2d 598 (1939)

CLARKE v. GOLD DUST CORPORATION.

No. 6233.

Circuit Court of Appeals, Third Circuit.

August 10, 1939.

Rehearing Denied October 3, 1939.

William C. Kronmeyer, of Union City, N. J. (Edward R. McGlynn, of Newark, N. J., of counsel; Albert Adams, of New York City, on the brief), for appellant.

George W. C. McCarter, of Newark, N. J., for appellee.

Before BIGGS, MARIS, and BIDDLE, Circuit Judges.

BIGGS, Circuit Judge.

The appellant filed a bill of complaint against the appellee in the court below praying the court to adjudge a consolidation or merger of American Linseed Company and Gold Dust Corporation to be illegal and void as to her, for an accounting and other relief. After the decision of various preliminary motions an amended bill of complaint was filed by the appellant upon March 12, 1936. Upon June 22, 1936, after answer, hearing was had at which various documentary exhibits relating to the status of the two companies were introduced in evidence and oral testimony was taken. The trial judge thereupon ordered the bill dismissed for want of equity. An appeal was taken to this court, and after argument, the cause was remanded to the court below with directions to make findings of fact and conclusions of law as required by Equity Rule 70½, 28 U.S.C.A. following section 723. Our opinion is reported in 3 Cir., 91 F.2d 12. Upon receipt of the mandate, the trial court held an additional hearing at which evidence bearing upon the question of jurisdiction was received. The trial judge made findings of fact and conclusions of law and dismissed the bill again for want of equity. This is the decree appealed from.

The following facts appear. The appellant on September 1, 1925, became the owner of 100 shares of the 7% non-cumulative preferred stock of a par value of $100 a share of American Linseed Company, a corporation chartered under the laws of New Jersey on December 5, 1898. On November 28, 1928, the appellant became the owner of five additional shares of that preferred stock.¹

The purpose of American Linseed Company, as expressed in its charter, at the time of its incorporation, was to deal in flaxseed and agricultural products and linseed oil. On January 9, 1912, however, the certificate of incorporation of the American Linseed Company was amended so as to include among the purposes of the corporation the manufacture and sale of vegetable and animal oils.

Upon November 19, 1928, the appellant and other stockholders of the corporation received notice from American Linseed Company to the effect that upon November 30, 1928, certain changes were to be made in the purposes of the corporation and that an amendment appropriate to such ends had been approved by the board of directors and would be submitted to the vote of the stockholders at a special meeting. The amendment proposed was for the purpose of giving to the corporation among other rights, the right to manufacture and sell any kind of merchandise or personal property, to deal in stocks and securities, to lend money with or without collateral and to assist financially any corporation in which the company was interested. At the special meeting of stockholders held upon November 30, 1928, 157,911 shares of preferred of 166,290 outstanding, and 159,085 shares of common out of 167,500 outstanding were voted in favor of the amendment. The appellant voted against the amendment. The certificate of amendment was thereupon filed in accordance with law.

Concurrently, a consolidation or merger between American Linseed Company and Gold Dust Corporation (the predecessor corporation to the appellee) was proposed and was approved by the boards of directors of each company. After notice to stockholders, the agreement of consolidation or merger was submitted to special meetings of stockholders. The stockholders' meeting of American Linseed Company was held December 20, 1928. All shares except those of the appellant were voted in favor of the merger. The appellant's shares were voted against the merger. The consolidation agreement was duly filed upon December 20, 1928.

By the terms of the agreement, Gold Dust Corporation, which we will refer to as the old corporation, was merged with American Linseed Company. American Linseed Company was the consolidated corporation. Its name, however, was changed to Gold Dust Corporation. In short, following the merger, American Linseed Company took the name "Gold Dust Corporation", to be distinguished from the old Gold Dust Corporation. The capitalization of the new Gold Dust Corporation, the appellee, consisted of 500,000 shares of preferred stock divided into initial issues of 6% and 7% preferred, and 3,000,000 shares of common stock. On August 23, 1929, a merger took place between the consolidated corporation and Standard Milling Company and the American Cotton Oil Company, whereby the former absorbed the latter and the consolidated company thus formed later amended its certificate of incorporation in respect to its capitalization.

Under the terms of the merger agreement between American Linseed Company and the old Gold Dust Corporation the holders of the 7% non-cumulative preferred stock of American Linseed Company were offered two alternatives. One alternative provided that each share of the 7% non-cumulative preferred stock of American Linseed Company should receive 2¾ shares of the common stock of the consolidated corporation. The other alternative provided that each such share should receive one share of the $7 cumulative preferred stock of the consolidated corporation, the appellee agreeing to pay in cash to each of the holders of preferred stock of the American Linseed Company a sum equal to the amounts of any deferred or unpaid dividends to which such stockholders might be held to be entitled upon the final adjudication of such issue in a court of record.

The appellant did not exercise either option provided in the agreement nor did she seek appraisal of her stock pursuant to the provisions of Chapter 241 of the Laws of 1902 as amended by Chapter 142 of the Laws of 1920.²

The appellant contends that the consolidation or merger was void as to her and that she is still the owner of 105 shares of the preferred stock of the American Linseed Company; that American Linseed Company retained and still retains its corporate existence, and that she therefore is entitled to an accounting to determine what dividends or other moneys are due her by virtue of her ownership of the stock. The appellee, for its part, contends that the consolidation or merger of the two companies was in all respects in accordance with law, was fair and equitable to all the stockholders of American Linseed Company, but that if the appellant possessed any cause of action she has lost it by laches.

The Law.

Section 27 of the New Jersey Corporation Act of 1896, Laws 1896, C. 185, p. 285, N.J.S.A. 14:11-1 to 14:11-3, provides that a corporation organized pursuant to its provisions may change the nature of its business or its name, increase or decrease its capital stock, by resolution of its board of directors and by the vote of two-thirds of each class of its stock.

Section 28 of the New Jersey Corporation Act of 1896, Laws 1896, C. 185, p. 286, as amended by the Laws of 1898, Laws 1898, C. 92, p. 149, N.J.S.A. 14:11-4, provides that any corporation may relinquish one or more branches of its business, "or extend its business to such branches as might have been inserted in its original certificate of incorporation". This section was in effect at the time of the organization of American Linseed Company.

The provisions as to merger in effect at the time of the organization of American Linseed Company, viz., Sections 104, 105, 106 and 107 of the New Jersey Corporation Act of 1896, Laws 1896, C. 185, pp. 309-311, N.J.S.A. 14:12-1 to 14:12-3, 14:12-5, need not be quoted here. It is clear that their provisions must be read into the charter of the company. See Meyerhoff v. Bankers' Securities, Inc., 105 N.J.Eq. 76, 85, 147 A. 105, 108; Colgate v. United States Leather Co., 75 N.J.Eq. 229, 239, 72 A. 126, 130, 19 Ann.Cas. 1262. It is obvious therefore that the directors and stockholders of American Linseed Company took the steps required by law in amending its certificate of incorporation. That amendment was binding upon the appellant unless it appears that the amendment was unfair and inequitable and worked injustice to the appellant. See Meredith v. New Jersey Zinc & Iron Co., 59 N.J. Eq. 257, 44 A. 55, affirmed by the Court of Errors and Appeals, 60 N.J.Eq. 445, 50 A. 1119.

The appellant takes the position that though a corporation may amend its certificate of incorporation to include other and different objects than those set forth in its original articles of incorporation, it may not amend its charter to merge or consolidate with another corporation with different purposes and objects. The appellant points out that Section 104 of the New Jersey Corporation Act of 1896 provides that corporations organized for the purpose "of carrying on any kind of business of the same or a similar nature, may merge or consolidate into a single corporation", and that the amendment to the charter of American Linseed Company was for the purpose of merger with old Gold Dust Corporation, and not being for the purpose of carrying on the business of the corporation, was a fraud upon the Corporation Act. In support of this contention the appellant cites American Malt Corp. v. Board of Pub. Utility Com'rs, 86 N.J.L. 668, 92 A. 362; Loomis v. Public Service Transportation Co., 102 N.J.Eq. 259, 140 A. 398; Colgate v. U. S. Leather Co., supra; Knights of the Ku Klux Klan v. Monmouth Pleasure Club, 3 Cir., 34 F.2d 730.

Of the cases cited by the appellant, only the Colgate case requires comment. In this case it was proposed that United States Leather Company and the Central Leather Company be merged and that the consolidated company by its charter should possess...