Donnelly v. Consolidated Inv. Trust

• Decision Date: 27 September 1938
• Docket Number: No. 3322.,3322.
• Citation: 99 F.2d 185
• Parties: DONNELLY v. CONSOLIDATED INV. TRUST et al.
• Court: U.S. Court of Appeals — First Circuit

99 F.2d 185 (1938)

DONNELLY v. CONSOLIDATED INV. TRUST et al.

No. 3322.

Circuit Court of Appeals, First Circuit.

September 27, 1938.

Edward C. Park, of Boston, Mass. (Lothrop Withington, of Boston, Mass., on the brief), for appellant.

William T. Snow, of Boston, Mass. (Charles S. Maddock and Gaston, Snow, Hunt, Rice & Boyd, all of Boston, Mass., on the brief), for appellee Consolidated Inv. Trust.

Charles P. Curtis, Jr., of Boston, Mass. (John L. Hall, Philip H. Rhinelander, Rodgers Donaldson, and Choate, Hall & Stewart, all of Boston, Mass., on the brief), for appellee Dumaines.

Before WILSON and MORTON, Circuit Judges, and MAHONEY, District Judge.

MORTON, Circuit Judge.

This is an appeal in a bankruptcy case. The principal question presented concerns the right of Dumaine and Winsor to purchase and hold shares of the Amoskeag Company and the Amoskeag Manufacturing Company and to receive certain liquidating dividends on the Manufacturing Company stock. There is also a question as to the appellant's standing to appeal. The facts are stated in very condensed form in the Referee's certificate.

The Amoskeag Company was a holding company in the form of a Massachusetts trust. It rested on an agreement or declaration of trust, and the beneficial interests were represented by transferable shares, — a common form of business organization. Such organizations are for purposes of taxation regarded as corporations which they much resemble, the trustees being analogous to directors and the shareholders to corporate stockholders. The shares of the Amoskeag Company were listed and dealt in on the Boston Stock Exchange. Both Dumaine and Winsor were trustees of it. The trust instrument is not before us nor is there any finding as to their duties under it. Presumably they were to hold and manage the property of the trust for the benefit of the certificate holders. The property consisted of all the shares of the Amoskeag Manufacturing Company, which was also a Massachusetts trust of similar character. It operated large textile and finishing mills in Manchester, New Hampshire, and had substantial assets.

In the summer of 1927 an offer was made by outside parties to purchase the assets of the Amoskeag Company, i. e., the shares of the Amoskeag Manufacturing Company at a price which would realize for the common shares of the holding company $90 each. This was substantially more than they were then selling for in the market. The avowed purpose of the buyers was complete liquidation of the properties. Dumaine, who was a trustee of the Manufacturing Company and treasurer of it, opposed the sale. Winsor, who was also one of the trustees and was a partner in the banking house of Kidder, Peabody & Co., caused letters to be sent by his firm to all shareholders in the Amoskeag Company, saying that Kidder, Peabody & Co. regarded the shares as worth more than the then market-value and advised shareholders not to sell. About this time, — the date is not stated, — what may be regarded as a counter-plan was formulated by Dumaine and Winsor and other trustees acting with them. It contemplated partial, not complete, liquidation of the property. If adopted it would make the shares worth substantially more than the existing market price of them. After this counter-plan was formulated but before any public announcement of it, Dumaine and Winsor began purchasing in the open market enough shares of the Amoskeag Company to secure voting control and the adoption of their own plan. Their purpose, as found by the Referee, in formulating their counter-plan and in endeavoring to put it through, was "First, to give timid stockholders a chance to get their money out of the textile business. Second, to avoid the possibility of control by an outside group whose sole purpose was to liquidate." (Referee's Certificate.) The Kidder, Peabody letter to shareholders was sent before any of the Dumaine and Winsor purchases were made. Some of their purchases were made before and some after the counter-plan had been formulated and made public. Dumaine and Winsor bought "all the stock they wanted at figures well below the $90 offered by the outsiders and well below the figures which they knew the stock would command in their own plan of liquidation. They obtained all the stock they needed to secure the adoption of the trustees' plan and assured themselves a...