Delzell v. Central Public Utility Corporation, Civ. A. No. 245.

CourtUnited States District Courts. 3th Circuit. United States District Court (Delaware)
Writing for the CourtMarvel & Morford, of Wilmington, Del., and Duke & Landis, of New York City, for defendant
Citation56 F. Supp. 25
PartiesDELZELL et al. v. CENTRAL PUBLIC UTILITY CORPORATION.
Docket NumberCiv. A. No. 245.
Decision Date07 October 1943

56 F. Supp. 25

DELZELL et al.
v.
CENTRAL PUBLIC UTILITY CORPORATION.

Civ. A. No. 245.

District Court, D. Delaware.

October 7, 1943.


Collier, Collier & Bernard, of Portland, Or., and Charles F. Richards, of Wilmington, Del., for plaintiffs.

Marvel & Morford, of Wilmington, Del., and Duke & Landis, of New York City, for defendant.

KIRKPATRICK, District Judge.

This is an action by trustees under Chapter X of the Bankruptcy Act, 11 U.S.C.A. § 501 et seq., of Portland Electric Power Company (Pepco), to recover from the defendant, Central Public Utility Corporation (Cenpuc) a block of 21,000 shares of stock of Consolidated Electric and Gas Company (Cegco) $6 cumulative preferred, originally owned by Pepco and transferred by it to the defendant on November 26, 1935. The transfer was one of several made by the two corporations on the same day and was in pursuance of an agreement reached at a conference between the president of Pepco, Mr. Griffith, and the president of the defendant, Mr. Knutson, which had taken place in New York City about a year earlier (November 22, 1934). The plaintiffs contend that it was independent of other matters dealt with at the conference and of the other transfers, and that it was either without any consideration or based on an illegal one.

A vast amount of the plaintiffs' evidence was directed to tracing the series of transactions which produced the intricate and complicated corporate interrelationships

56 F. Supp. 26
which were the subject of the conference of November 22, 1934.1 However, the situation as it existed at that date is the only part of the history material here

Pepco owned 144,606 48/100 shares of Cenpuc's preferred stock. Cegco, a subsidiary of Cenpuc, owned 51,414.6 shares of Pepco second preferred. Cenpub (Central Public Service Corp.) and its subsidiary, Cengas (Central Gas and Electric Co.), were in reorganization under § 77B, 11 U.S.C.A. § 207, in the United States District Court of Maryland. One of the assets of Cenpub was 175,797¼ voting trust certificates of Pepco. Pepco was a creditor of both the debtor companies upon a million dollar note made by Cengas and indorsed by Cenpub. Pepco's subsidiary, Portland G. E. (Portland General Electric Co.), owned 107,000 first preferred and 20,000 second preferred stock of Cengas. Cenpuc, the defendant, was by far the largest creditor of Cenpub (about 90 percent).

Pepco was very much interested in acquiring the block of its second preferred stock held by Cegco, and also its voting trust certificates. The second preferred carried voting rights, constituting one-eighth of the outstanding voting shares. While, at that time, the voting rights of the shares represented by the voting trust certificates were exercised by three directors of Pepco, those shares represented practical voting control, and upon termination of the voting trust agreement that control might again pass into the hands of outside interests, thus making possible a repetition of what had been a disastrous period in Pepco's corporate life.

The situation may be simplified still further by personifying the two groups of corporate interests represented at the meeting, as Mr. Griffith (Pepco and Portland G. E.)

56 F. Supp. 27
and Mr. Knutson (Cenpuc and Cegco), for the entire arrangement was in reality worked out by these two. Mr. Knutson had the block of second preferred stock of Pepco which Mr. Griffith wanted. Mr. Griffith had 144,606 48/100 shares of Cenpuc preferred which Mr. Knutson wanted. These two blocks of stock could, of course, have been easily exchanged at agreed valuations. However, there remained the 175,797¼ voting trust certificates of Pepco which Mr. Griffith wanted and these were owned by Cenpub which was in reorganization in Maryland. There were also the 160,000 shares of Mr. Knutson's Cegco, owned by Cenpub's subsidiary, Cengas (also in reorganization with it in Maryland), of which stock Mr. Knutson wanted to acquire as much as he could get

The trading position of each of the two groups of interests thus depended upon which of them could control the disposition of the assets of the companies in reorganization. On the face of it Mr. Griffith could control Cengas and Mr. Knutson Cenpub, through their respective holdings of creditor interest of each. However, the trustees of Cenpub had recently asserted a claim for $22,000,000 against Cengas. The validity of this claim was not admitted but, if it had been established, it would have reduced Mr. Griffith to a small minority position among the creditors of Cengas and left things largely in the control of Mr. Knutson. Both parties recognized that unless an agreement could be reached the status of the $22,000,000 claim could not be determined except after prolonged and costly litigation. It was also apparent that that matter would have to be settled somehow before the two Maryland companies could be reorganized, and that a plan for reorganization of those companies would have to be worked out before Griffith and Knutson could accomplish what each desired for his own company by way of reacquiring its securities.

The foregoing facts have been cited because they show quite plainly, it seems to me, that the problem of readjustment with which these gentlemen undertook to deal in November 1934 cannot be viewed as a number of distinct and isolated items nor can it be disassociated from the reorganization proceedings in Maryland. The parties had a single common end in view, namely, the unscrambling of the unnecessarily complicated and burdensome interlocking ownership by which each had become vested with large blocks of securities of the other, and agreement upon a reorganization plan for the Maryland companies was a necessary prerequisite to reaching it.

In a very narrow and technical sense, of course, the mutual agreement upon the plan of reorganization might be considered to be separate from the general readjustment of corporate holdings, but even if that view should be adopted (and I do not adopt it) the transfer of 21,000 shares of Cegco clearly would belong with the general readjustment, not with the agreement effecting the reorganization and, for consideration, it was supported by the other transfers to the Griffith Companies of their own securities.

As stated above, the theory upon which the plaintiffs base their claim is that the transfer of the 21,000 shares of Cegco was either, (a) wholly without consideration — a pure gift by Griffith and the directors — and consequently ultra vires, or (b) the price of the defendant's consent to the plan of reorganization (disguised as compensation for services in the resolution authorizing it) undisclosed to the reorganization court and hence unlawful and a fraud upon the Court. Obviously, if the agreement to make the transfer was part of the means by which Pepco obtained valuable assets (its second preferred stock and voting trust certificates) and of the general agreement, then there was a perfectly legal valid consideration, the transfer was not ultra vires, and, being a matter of adjustment of their own affairs by the two corporations involved, did not require disclosure to the Court which was engaged in reorganizing a third company. Even assuming that the law was otherwise and that nondisclosure would have made the transfer, even though supported by valid consideration, illegal, still, if the transaction was all one, the plaintiffs cannot make out a case without disclosing that Pepco is still in possession of the very substantial benefits which it received from the transaction. In such case, whatever the remedy, it would not be a return of the stock to Pepco, leaving it in possession of all the fruits of the deal.

The plaintiffs, for evidence of the separate nature of the agreement to...

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6 practice notes
  • United States v. 15.3 ACRES OF LAND, ETC., Civ. A. No. 5051.
    • United States
    • United States District Courts. 3th Circuit. United States District Court of Middle District of Pennsylvania
    • August 15, 1957
    ...1953, 206 F.2d 592, at page 594. A specific answer to each request is not required. Delzell v. Central Public Utility Corp., D.C.Del., 56 F.Supp. 25, at page 30. The request may have been denied, deemed immaterial, or covered by other findings. Cf. Cohen v. Globe Indemnity Co., D.C.E.D.Pa.1......
  • Dorsey v. Tisby
    • United States
    • Supreme Court of Oregon
    • July 6, 1951
    ...106, 222 P.2d 224, and Webster v. Harris, 189 Or. 671, 222 P.2d 644. According to Delzell v. Central Public Utility Corporation, D.C., 56 F.Supp. 25, 28: 'Before the parol evidence rule can be applied in any given situation the court must determine the preliminary question whether the docum......
  • Walley v. Bay Petroleum Corporation, No. 19858.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • January 23, 1963
    ...that is the general principle which underlies the rule and is the law everywhere." Delzell v. Central Public Utility Corp., D.C.Del.1943, 56 F.Supp. 25, 6 The procedure to be followed has been succinctly stated as follows: "Thus, parol evidence is admitted in separate stages; first to prove......
  • Reconstruction Finance Corp. v. COMMERCIAL UNION, ETC.
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • April 16, 1954
    ...question, all the circumstances of the transaction are relevant and must be considered. Delzell v. Central Public Utility Corp., D.C., 56 F.Supp. 25, at page 28, affirmed, 3 Cir., 143 F.2d The exchange of telegrams between the parties, which the confirmation of sale referred to as the sale,......
  • Request a trial to view additional results
6 cases
  • United States v. 15.3 ACRES OF LAND, ETC., Civ. A. No. 5051.
    • United States
    • United States District Courts. 3th Circuit. United States District Court of Middle District of Pennsylvania
    • August 15, 1957
    ...1953, 206 F.2d 592, at page 594. A specific answer to each request is not required. Delzell v. Central Public Utility Corp., D.C.Del., 56 F.Supp. 25, at page 30. The request may have been denied, deemed immaterial, or covered by other findings. Cf. Cohen v. Globe Indemnity Co., D.C.E.D.Pa.1......
  • Dorsey v. Tisby
    • United States
    • Supreme Court of Oregon
    • July 6, 1951
    ...106, 222 P.2d 224, and Webster v. Harris, 189 Or. 671, 222 P.2d 644. According to Delzell v. Central Public Utility Corporation, D.C., 56 F.Supp. 25, 28: 'Before the parol evidence rule can be applied in any given situation the court must determine the preliminary question whether the docum......
  • Walley v. Bay Petroleum Corporation, No. 19858.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • January 23, 1963
    ...that is the general principle which underlies the rule and is the law everywhere." Delzell v. Central Public Utility Corp., D.C.Del.1943, 56 F.Supp. 25, 6 The procedure to be followed has been succinctly stated as follows: "Thus, parol evidence is admitted in separate stages; first to prove......
  • Reconstruction Finance Corp. v. COMMERCIAL UNION, ETC.
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • April 16, 1954
    ...question, all the circumstances of the transaction are relevant and must be considered. Delzell v. Central Public Utility Corp., D.C., 56 F.Supp. 25, at page 28, affirmed, 3 Cir., 143 F.2d The exchange of telegrams between the parties, which the confirmation of sale referred to as the sale,......
  • Request a trial to view additional results

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