Du Pont v. Du Pont

• Decision Date: 12 April 1917
• Docket Number: 340.
• Citation: 242 F. 98
• Parties: DU PONT v. DU PONT et al.
• Court: U.S. District Court — District of Delaware

242 F. 98

DU PONT v. DU PONT et al.

No. 340.

United States District Court, D. Delaware.

April 12, 1917

[Copyrighted Material Omitted]

John G Johnson, William A. Glasgow, Jr., and Henry P. Brown, all of Philadelphia, Pa., and Robert Penington, of Wilmington, Del for plaintiffs.

William S. Hilles, of Wilmington, Del., George S. Graham, of Philadelphia, Pa., William H. Button, of New York City, and John P. Laffey, of Wilmington, Del., for defendants.

THOMPSON District Judge.

Philip F. du Pont, the original plaintiff, and Eleanor du Pont Perot, Eleuthere Paul du Pont, Archibald M.L. du Pont, Ernest du Pont, Alfred I. du Pont, Francis I. du Pont, Louis Albert de Cazanove, Jr., Henry S. Morris and Charles Ellis Gooden, intervening plaintiffs, are stockholders of the E.I. du Pont de Nemours Powder Company and E.I. du Pont de Nemours & Co., defendants.

The individual defendants are stockholders of the E.I. du Pont de Nemours Powder Company and the E.I. du Pont de Nemours & Co. and the du Pont Securities Company, defendant corporations.

The E.I. du Pont de Nemours Powder Company, hereinafter referred to as the 'Powder Company,' was organized in 1903, under the laws of the state of New Jersey. From December, 1914, to the beginning of this suit, its authorized capital stock was $60,000,000, of a par value of $100 per share, divided into 250,000 shares of preferred and 350,000 shares of common. There were outstanding 160,688 shares of preferred and 294,272 shares of common stock.

The E.I. du Pont de Nemours & Co. is a corporation organized under the laws of the state of Delaware, incorporated September 4, 1915, and, prior to the filing of the bill, had purchased all the assets and assumed all the liabilities of the Powder Company, paying the Powder Company in cash $1,484,100, $59,661,700 par value in debenture stock, and $58,854,200 in common stock. All of the common stock, at the time of bringing suit, had been distributed two for one to the holders of the shares of common stock of the Powder Company. Since the incorporation of the E. I. du Pont de Nemours & Co., the board of directors and officers of the two companies have been the same, and the E. I. du Pont de Nemours & Co. has been the operating company.

The du Pont Securities Company is a corporation organized under the laws of Delaware, March, 1915, with a capital stock of $7,500,000.

The controversy is over the disposition of a large block of common and preferred stock of the Powder Company purchased by Pierre S. du Pont for himself and certain associates from T. Coleman du Pont in February, 1915.

In December, 1914, T. Coleman du Pont was the largest individual stockholder of the Powder Company, owning 14,599 shares of its preferred and 63,314 shares of its common stock. He was a member of the board of directors, president of the company, and a member of its finance committee, and continued so to be up until March, 1915.

Pierre S. du Pont was a vice president of the Powder Company, a member of the board of directors, and chairman of its finance committee.

On December 14, 1914, Coleman du Pont went to Rochester, Minn., to undergo an operation, and remained there until after March 10, 1915. During Coleman's absence, Pierre was the acting president of the Powder Company and at the annual meeting held in March, 1915, he was elected its president.

For a number of years prior to December, 1914, and up until the beginning of this suit, Alfred I. du Pont was a vice president of the Powder Company, a member of its board of directors and of its finance committee, and was the next largest individual stockholder of the Powder Company owning 37,767 shares of its common stock.

William du Pont was, during the same period, a vice president, a member of the board of directors, and of the finance committee.

The finance committee consisted of four members, namely, Coleman, Alfred I., Pierre, and William. These four were the largest stockholders of the company.

Prior to going to Rochester in December, 1914, T. Coleman du Pont made an offer to sell to the company 20,700 shares of its common stock at $160 a share for the purpose of distributing the same among its more important employes at the price paid by the company. This offer was presented to the finance committee and considered by it at a meeting on December 23, 1914; Pierre, Alfred I., and William being present.

On February 28, 1915, Pierre purchased for himself and his associates, John J. Raskob, treasurer, Irenee du Pont, Lammot du Pont and R. R. M. Carpenter, all of them directors and some of them vice presidents of the Powder Company, and A. Felix du Pont, all of the holdings of Coleman, namely, 63,314 shares of common stock at $200 per share and 14,599 shares of preferred stock at $85 a share.

Briefly stated, the plaintiffs charge in their bill: That at the meeting of the finance committee on December 23, 1914, the entire committee was in favor of the purchase of the stock, but Alfred and William considered $160 per share too high a price to pay and considered that the company was not justified in paying more than $125 per share for the stock at that time. That a resolution was passed to that effect which Pierre was instructed to communicate to Coleman's agent, L. L. Dunham, and that the duty rested upon Pierre to continue negotiations with Coleman for the purchase. That, from that time until the purchase by Pierre and his associates, the stock was rapidly increasing in value owing to large contracts made with European nations at war for the supply of explosives, and the duty on the part of Pierre of continuing negotiations and of giving to the company the benefit of his negotiations for the purchase was still existing when he purchased all of Coleman's stock for himself and his associates on February 28, 1915. That Pierre concealed from the finance committee and the Powder Company information relative to the negotiations for the said stock and concealed from Coleman the true attitude of the finance committee, and thereby kept the other members of the finance committee, the board of directors of the company, and Coleman du Pont in ignorance of facts which were within his knowledge, and which it was his duty to disclose, and that he thereby was enabled to acquire the stock for himself and his associates, when the opportunity, at least, to purchase the stock should, in the performance of his duty, have been presented to the finance committee and the board of directors, with a full disclosure of all the information in his possession in relation to the negotiations with Coleman and in relation to the increase in the business of the company, which affected the value of the stock. That Pierre du Pont and his associates would not have been able to make the purchase involving nearly $14,000,000 without the aid of the credit of the company, and that he and his associates used their official position and facts within their knowledge relative to the financial business of the company in obtaining the credit necessary to consummate the transaction.

The defendants contend that the action of the finance committee on December 23, 1914, was a final rejection of Coleman's offer to sell 20,700 shares of common stock, and thereupon all negotiations with him were at an end, and that Pierre had no further duty of negotiating the purchase for the company and was at liberty to negotiate and purchase the stock for himself and his associates; that, in arranging for the purchase of the stock, Pierre and his associates were fully able, upon their own credit and by the use of the stock purchased from Coleman and certain of their own stock as collateral to finance the transaction, to purchase the stock and in fact did so without in any way using the credit of the company and their official positions with the company to obtain a loan of the necessary funds to carry through the purchase.

A fundamental fact to be determined, therefore, is whether the effect of what was done at the meeting of the finance committee on December 23, 1914, was a rejection of the offer of T. Coleman du Pont, or whether its effect was to instruct Pierre to make a counter offer to Coleman of $125 per share and to continue the negotiations.

The following resolution appears upon the minutes of the meeting of December 23d:

'Purchase of Common Stock Owned by Mr. T. C. du Pont.

'Mr. P. S. du Pont presented a letter from Mr. T. C. du Pont, offering to sell 20,700 shares of common stock of this company at $160 per share. After discussion, it was moved and carried (Mr. P. S. du Pont voting in the negative) that Mr. P. S. du Pont be instructed to advise Mr. L. L. Dunham, attorney for Mr. T. C. du Pont, that we do not feel justified in paying more than $125.00 per share for this stock.'

Alfred du Pont testified that, when the resolution was offered and adopted, it contained the words 'at this time,' and William du Pont testified that it contained the word 'now,' or some equivalent expression, so that the latter part of the minute should have read that 'we do not feel justified in paying more than $125, per share for this stock at this time (or now).'

It appears that the minutes of the finance committee were examined and signed by Pierre and Alfred, which seems to lend some weight to Pierre's denial that the words 'now' or 'at this time' were part of the resolution as presented, but William's recollection of the resolution as presented agrees with Alfred's.

There was a meeting of the board of directors of the Powder Company on December 30, 1914, at which a report of the finance committee, dated December 24, 1914, was presented, containing the following statement:

'Purchase of common stock. An offer was received from Mr. T. C. du Pont to sell

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