Delaware & Hudson Co. v. Boston R.R. Holding Co.

• Decision Date: 09 November 1951
• Citation: 328 Mass. 63,102 N.E.2d 67
• Parties: DELAWARE & HUDSON CO. v. BOSTON R. R. HOLDING CO. et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 67

102 N.E.2d 67

328 Mass. 63

DELAWARE & HUDSON CO. v. BOSTON R. R. HOLDING CO. et al.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued April 4, 1951.

Decided Nov. 9, 1951.

H. D. McLellan, Boston (H. V. Atherton, Boston, with him) for petitioner.

J. L. Hall and R. Wait, Boston (J. M. Howe, 4th, Boston, with them) for the respt. New York, N. H. & H. R. Co.

E. O. Proctor, Boston, receiver, pro se.

Before QUA, C. J., and LUMMUS, SPALDING, COUNIHAN, and RONAN, JJ.

SPALDING, Justice.

This is a petition filed in the Supreme Judicial Court by The Delaware and Hudson Company, hereinafter called the petitioner, seeking a determination of the rights of certain shareholders of the Boston Railroad Holding Company (hereinafter called the holding company) in connection with the proceedings in dissolution of that corporation pursuant to St.1946, c. 518. The New York, New Haven and Hartford Railroad Company, hereinafter called the New Haven, filed an answer, as did also the receiver. ¹ A single justice of this court reported and reserved the case without decision on the pleadings and statement of agreed facts, from which it is agreed inferences of fact may be drawn. The holding company is a Massachusetts corporation created by St.1909, c. 519, as amended by St.1910, c. 639. The reasons for its incorporations are set forth in Codman v. New York, New Haven & Hartford Railroad Co., 253 Mass. 144, 145-146, 148 N.E. 467; Hurley v. Boston Railroad Holding Co., 315 Mass. 591, 595-596, 54 N.E.2d 183, and Delaware & Hudson Co. v. Boston Railroad Holding Co., 323 Mass. 282, 283-284, 81 N.E.2d 553. ² The New Haven is a corporation organized and existing under the laws of this Commonwealth and of the States of Connecticut and Rhode Island. Many of the facts underlying its multiple incorporation will be found in Attorney General v. New York, New Haven & Hartford Railroad Co., 198 Mass. 413, 418-420, 84 N.E. 737.

To a proper understanding of the issues here involved it is necessary to set forth at some length the facts surrounding the formation of the holding company and the relations of that company with the New Haven. The holding company was created by St.1909, c. 519, 'for the sole purpose of acquiring and holding the whole or any part of the capital stock, bonds and other evidences of indebtedness of the Boston and Maine Railroad, and of voting upon all certificates of stock so acquired and held, and of receiving and collecting dividends and interest upon said stock, bonds and other evidences of indebtedness'. § 1. Section 3 provided that the stock of the Boston and Maine Railroad (hereinafter called the Boston and Maine) which might be acquired by the holding company should not be sold by it without express authority from the Legislature, and that the bonds, notes or other evidences of indebtedness of the Boston and Maine which might be acquired by the holding company were not to be sold, transferred, pledged or otherwise disposed of without the approval of the board of railroad commissioners. Section 4, so far as material, reads, 'Any railroad corporation incorporated at the date of the passage of this act under the laws of this commonwealth may guarantee the principal of and the dividends and interest upon the capital stock, bonds, notes and other evidences of indebtedness of said Boston Railroad Holding Company, and may acquire and hold said stock, bonds, notes and other evidences of indebtedness: provided, however, that the shares of stock of said Boston Railroad Holding Company shall not be sold or transferable until said stock has been guaranteed as hereinbefore provided. Any railroad corporation acquiring said stock as hereinbefore provided shall not thereafter sell the same without the express authority of the legislature.' And that section further reserved to the Commonwealth the right to take or purchase all the securities of the holding company and provided the means by and the terms upon which this might be done. The acquisition by any railroad corporation of any of the securities of the holding company was to be deemed an acceptance by any such corporation of all the terms and provisions of the act.

By the early part of 1910, by means of transactions which need not be described here, the holding company had become the owner of numerous shares of the various classes of stock of the Boston and Maine, and the New Haven had become the owner, directly or beneficially, of 31,065 shares of the outstanding common stock of the holding company. The common stock was the only stock having voting power and the shares acquired by the New Haven constituted all of that class of stock.

By St.1910, c. 639, § 1, it was provided, 'The Boston Railroad Holding Company may, by vote of a majority in interest of its common or general stockholders at a meeting called for that purpose, issue preferred stock, and from time to time increase the amount thereof * * *: provided, that the amount of such issue and of every such increase shall be approved by the board of railroad commissioners. The holders of such preferred stock shall, in preference and priority over all other stock of the corporation, be entitled, upon dissolution of the corporation or in liquidation of its affairs, or in case of a default in the payment of any stipulated dividend on said preferred stock, to payment of the par value thereof and accrued dividends thereon, and shall further be entitled to semi-annual dividends, to be paid out of the net profits of the corporation, at a rate to be approved by the board of railroad commissioners, but not to exceed, however, five per cent. per annum, which dividends shall be cumulative. Said preferred stock shall not be entitled to participate in any increase or issue of new stock, common or preferred, which may be made by said corporation, [and] shall not have any voting power * * *.' Section 2 of that act provided, 'Subject only to the rights of creditors of said Boston Railroad Holding Company existing at the date of the stockholders' meeting at which any of said preferred stock is first authorized, said preferred stock, to the amount thereof at par at any time outstanding, and of all accrued and unpaid dividends thereon, shall be and constitute a charge and lien upon, and be secured by, all stock of the Boston and Maine Railroad at any time held by said Boston Railroad Holding Company.'

By § 4 of that act the Commonwealth reserved to itself the right to acquire, by purchase or otherwise, this preferred stock. Subject to this reserved right the holders of a majority of the preferred stock were given the right, in case of a default in the payment of any semiannual dividend upon such preferred stock, to apply to this court for an order for the sale of the Boston and Maine stock in order to enforce the statutory lien created by § 2. Section 4 also provided that 'In case of any such sale, the proceeds thereof shall be applied, after payment of expenses of the sale--first, to the discharge of any claims which existed prior to the date of the meeting at which any of such preferred stock was first authorized; second, to the payment of all accrued and unpaid dividends to which, by the terms of this act, such preferred stock was entitled to the date of said sale; third, to the payment in full, or if said proceeds are insufficient therefor then to the equal pro rata partial payment, of the par value of said preferred stock, and the balance, if any, of the proceeds shall be paid to said Boston Railroad Holding Company.' Section 5 of that act reads: 'Any railroad corporation owning any of the common stock of said Boston Railroad Holding Company may acquire, hold, own and sell any of the preferred stock authorized by this act, and may guarantee the payment of the stipulated dividends thereon, and of the par value thereof in case of liquidation or distribution of said Boston Railroad Holding Company, and of any deficiency resulting from a sale under the provisions' of § 4.

In the years 1910 and 1911 the holding company pursuant to the act of 1910 issued 272,939 shares of preferred stock, and these were all acquired by the New Haven. In 1911 the New Haven sold to various members of the public 28,000 shares of this stock, stamping on the certificates therefor the following indorsement: 'For value received, The New York, New Haven & Hartford Railroad Company * * * hereby guarantees the payment of cumulative dividends on the shares of stock represented by this certificate at the rate of four per centum (4%) per annum as stipulated in this certificate, and the payment of one hundred dollars ($100) upon each share of said stock in case of liquidation or distribution of Boston Railroad Holding Company and of any deficiency resulting from a sale under the provisions of Section 4 of Chapter 639 of the Acts of Massachusetts of the year 1910.' These shares will sometimes hereinafter be referred to as the publicly held preferred stock.

On July 23, 1914, the United States of America brought proceedings in equity under the Sherman Anti-Trust law, 26 U.S.Sts. at Large, 209, 15 U.S.C.A. §§ 1-7, 15 note, in the United States District Court for the Southern District of New York, naming as defendants the New Haven, the holding company, and others not here involved. The New Haven and the holding company appeared and on October 17 of that year a consent decree was entered the material portions of which follow. The New Haven was ordered to assign and transfer to named trustees all the shares of common stock as well as its 244,939 shares of preferred stock of the holding company, the latter being at the time the holder of a majority of the shares of the Boston and Maine. Subject to the provisions of the decree and until its purposes had been fully carried out, the trustees were to hold these shares and exercise all the powers which owners of shares of the holding company were entitled to exercise, except the right to sell or otherwise...