Delaware Racing Ass'n, Application of

• Decision Date: 02 August 1965
• Citation: 42 Del.Ch. 406,213 A.2d 203
• Court: United States State Supreme Court of Delaware
• Parties: Application of DELAWARE RACING ASSOCIATION, a corporation of the State of Delaware, for a determination, pursuant to Section 262 of the General Corporation Law of the value of certain shares of stock of The Delaware Steeplechase and Race Association.

Page 203

213 A.2d 203

42 Del.Ch. 406

Application of DELAWARE RACING ASSOCIATION, a corporation of

the State of Delaware, for a determination, pursuant to

Section 262 of the General Corporation Law of the value of

certain shares of stock of The Delaware Steeplechase and

Race Association.

Supreme Court of Delaware.

Aug. 2, 1965.

Vincent A. Theisen and Aubrey B. Lank, of Theisen & Lank, Wilmington, for dissenting stockholders, appellants.

William S. Potter and Charles S. Crompton, Jr., of Berl, Potter & Anderson, Wilmington, for Delaware Racing Ass'n, appellee.

WOLCOTT, Chief Justice, CAREY, Justice, and DUFFY, President Judge, sitting.

WOLCOTT, Chief Justice.

This is an appeal by stockholders of Delaware Steeplechase and Race Association (Steeplechase) from a judgment of the Vice Chancellor in an appraisal proceeding fixing the value of the Steeplechase stock.

Delaware Racing Association (Racing) filed a petition for an appraisal of the value of Steeplechase shares. Steeplechase, on July 31, 1963, under the provisions of 8 Del.C., § 253, had been merged into Racing. Stockholders of Steeplechase owning 77 common shares of the 1519 outstanding were determined to be entitled to an appraisal. The Vice Chancellor appointed an Appriser who submitted a final report fixing the per share value of Steeplechase stock at $3,472.90. To this report both Racing and the stockholders filed exceptions. The Vice Chancellor fixed the per share value of Steeplechase at $2,321.30. This appeal followed.

A brief summary of the factual background is required. Steeplechase, between 1937 and July 31, 1963, owned and operated, with the exception of 1943, Delaware Park near Stanton, Delaware, a track for thoroughbred horse racing. On-track parimutuel betting was carried on with a percentage of the pool going to the State in the form of a tax, and a percentage of the pool going to Steeplechase in the form of earnings. Pari-mutuel betting within the enclosure of a licensed horse race meet is permitted by a 1935 amendment to Article II, § 17 of the State Constitution, Del.C.Ann. which theretofore had prohibited all gambling. Authority to control the carrying on of horse racing for stakes or purses was granted to the Delaware Racing Commission by 28 Del.C., §§ 301-366.

The authority thus granted to the Racing Commission is broad. It embraces licensing of race meetings, control over the actual conduct of racing, regulation of all charges made by a licensee, approval of proposed physical additions to a racing plant, supervision over the keeping of a licensee's books and records, control over the personnel of a licensee, and authority to require from a licensee full statements of annual receipts and expenses. The Racing Commission, by statute, is authorized to permit a licensee to deduct improvements to plant as recurring expenses, and to accumulate reasonable annual depreciation on buildings and equipment for the retirement of funded debt and preferred stock.

The Commission, by statute, is further authorized to allow a licensee out of net revenue a sum not in excess of 4% of its 'capital investment' as return on such investment. It is further required that all of the net revenue in excess of the 4% return on investment be set aside by the licensee for the retirement of debt and preferred stock, and for the maintenance of plant and purses, stakes and awards.

Pursuant to 28 Del.C., §§ 301-366, the Racing Commission licensed Steeplechase and ultimately its successor, Racing. These have been the only licensees of the Commission to date. The Racing Commission since its inception has consistently followed the legislative purpose exhibited by the statute of protecting and increasing the State's revenue from racing, and of curtailing the profits available to a licensee for distribution as dividends. It has exercised its statutory powers fully to that end and, presumably, will continue to do so for the future.

Thus it was that the Racing Commission, relying upon an opinion of the Attorney General dated June 20, 1936, interpreted 28 Del.C., § 329(c) allowing dividends not to exceed 4% of 'capital investment' as referring only to 'capital paid in * * * in return for stock.'

Steeplechase was organized and licensed and by 1938 had invested approximately $1,170,000 in fixed assets, of which only $15,190.00 was supplied by the paid-in value of 1519 isssue shares of $10 par common stock. The balance of the money invested by Steeplechase came from an issue of debentures and an issue of preferred stock. By 1945 the entire debenture issue had been redeemed, and by 1953 all of the preferred stock had been retired out of earnings, leaving as the sole corporate security outstanding 1519 shares of common stock. Meanwhile, from 1938 to July 31, 1963, the original investment of $1,170,000 in fixed assets had increased to $8,741,000.00. This increase had been financed out of earnings.

Since the inception of the racing enterprise, Steeplechase has paid no dividends on its common stock. It paid stated dividends on its preferred stock, retired since 1953. No dividends have been paid on the common stock by reason of the described statutory restrictions, restrictions imposed by the Racing Commission, limitations prescribed in loan agreements for the expansion of Steeplechase's facilities, and, finally, by reason of the policy of the promoters and managers to plow back all earnings for the constant betterment of racing facilities and the improvement of thoroughbred racing. This management policy has long been known to the public.

In April, 1962, William duPont, a director and large stockholder of Steeplechase, made an offer to all of Steeplechase's common stockholders to join with him in giving their shares to Delaware Park, Inc., a charitable corporation and sole owner of Racing, or, in the alternative, to sell their shares to him at a price of $1,530 per share, in which event he undertook to give such shares to Delaware Park, Inc. His offer was based upon an appraisal of Steeplechase stock made by Standard Research Consultants which fixed the fair market value of Steeplechase common stock as of December 31, 1962 at $1,530 per share. A summary of the appraisal report accompanied Mr. duPont's offer.

As a result of this offer a total of 1390 shares of Steeplechase was acquired by Delaware Park, Inc., either as a gift from Mr. duPont or as gifts from other registered shareholders of Steeplechase.

Delaware Park, Inc., thereupon, as the owner in excess of 90% of the shares of Steeplechase, caused Steeplechase to be merged into Racing pursuant to 8 Del.C., § 253, the short-form merger statute.

Three questions are presented in this appeal:

1. Does the scope of review by this Court permit it to make its own findings and conclusions of fact contrary to the findings and conclusions made by the Vice Chancellor?

2. Is the intrinsic value of a dissenting stockholder's stock in an appraisal proceeding resulting from a merger under 8 Del.C., § 253, the liquidating rather than the going concern value of such shares?

3. Did the Vice Chancellor and the Appraiser err in their findings as to (a) asset value, (b) market value, (c) earnings value, (d) dividend value, and (e) the weight to be given each of these elements of value in appraising the Steeplechase stock?

Scope of Review

Relying upon Nardo v. Nardo, 209 A.2d 905, the stockholders argue that every appeal to this Court from Chancery is in effect a rehearing on both law and fact, and that it is the duty of this Court to review all the evidence and draw its own factual conclusions from the evidence independently of the findings of the trial judge. Reliance is made upon the Nardo opinion as the text appears in the Atlantic Reporter Advance Sheet for June 12, 1965, No. 5. Following the appearance of this advance sheet, in another appeal, it became apparent to us that the text of the Nardo opinion perhaps needed clarification for the reason that there had been no intention on our part to change the rule heretofore followed by this Court concerning the scope of its review of Chancery proceedings. We were of the opinion that certain language in Nardo v. Nardo was perhaps an overstatement. This clarification will appear in the permanent Volume 209 A.2d.

In substance, the rule as to scope of review is as it has always been, that it is our duty to review the evidence to test the propriety of the findings below. When the evidence consists primarily of depositions, documents, or the report of a master or appraiser, we may make our own conclusions, if the requirement of doing justice requires it and if the findings below are clearly wrong. Furthermore, when we are concerned with findings arising from deductions, processes of reasoning, or logical inferences, it is our duty to review them and, if the requirement of doing justice requires it and if the findings below are clearly wrong, then to draw our own inferences and reach our own conclusions. This is not to say, however, that we may ignore the findings below. On the contrary, when they are supported by the record and are the product of an orderly and logical deductive process, we, in the exercise of judicial restraint, accept them, even though independently we might have reached opposite conclusions. This, we think, is the rule this Court has followed in the past, and it is the rule it will continue to follow for the future. See Sohland v. Baker, 15 Del.Ch. 431, 141 A. 277, 58 A.L.R. 693; New York Trust Co. v. Riley, 24 Del.Ch. 354, 16 A.2d 772; Blish v. Thompson Automatic Arms Corp., 30 Del.Ch. 538, 64 A.2d 581.

Certain it is that in every appeal we do not approach its decision as though we were trial judges facing the duty of determining facts initially. We search the record solely for the ultimate purpose of determining whether or not error in fact or law was committed below.

Measure of Value

The stockholders argue that in an appraisal praisal proceeding as...