Francis I. duPont & Co. v. Universal City Studios, Inc.

• Decision Date: 21 July 1975
• Citation: 343 A.2d 629
• Parties: FRANCIS I. duPONT & CO. et al., Plaintiffs, v. UNIVERSAL CITY STUDIOS, INC., a Delaware Corporation, Defendant.
• Court: Court of Chancery of Delaware

Page 629

343 A.2d 629

FRANCIS I. duPONT & CO. et al., Plaintiffs, v. UNIVERSAL CITY STUDIOS, INC., a Delaware Corporation, Defendant.

Court of Chancery of Delaware, New Castle County.

Argued June 24, 1975.

Decided July 21, 1975.

Richard F. Corroon, of Potter, Anderson & Corroon, Wilmington, for plaintiffs.

E. N. Carpenter, II, R. Franklin Balotti, Roderick McKelvie, of Richards, Layton & Finger, Wilmington, and Cyrus R. Vance, of Simpson, Thacher & Bartlett, New York City, for defendant.

OPINION AND ORDER ON PLAINTIFFS' CLAIM FOR THE PAYMENT OF

ADDITIONAL INTEREST; CLAIM DENIED

QUILLEN, Chancellor:

Some of the history of his statutory stock appraisal case is set forth in a reported opinion of this Court, Francis I. duPont & Co. v. Universal City Studios, Inc., Del.Ch., 312 A.2d 344 (1973) and in an affirming reported opinion of the Supreme Court, Universal City Studios, Inc. v. Francis I. duPont & Co., Del.Supr., 334 A.2d 216 (1975). The current dispute after remand centers on the amount of interest to be paid as part of the award and is submitted by stipulation, briefing and argument.

On December 7, 1973, this Court entered an order, pursuant to 8 Del.C., § 262(f) and (h), finding the fair value of each share of the common stock of Universal Pictures Company, Inc. ('Universal'), on March 25, 1966, the effective date of the merger of Universal into the defendant, Universal Studios, Inc., to be $92.75 and directing defendant to make payment of $92.75 per share to the stockholders entitled thereto at 5.23% Interest per annum from March 25, 1966 to December 7, 1973.

The pertinent portion of this Court's order, paragraphs 2 through 4, reads as follows:

'2. The fair value of each share of common stock of Universal Pictures Company, Inc., on March 25, 1966, the effective date of the merger of Universal Pictures Company, Inc., with and into Universal City Studios, Inc., is $92.75.

'3. The stockholders whose names are set forth in the Court's Order of February 9, 1967, are entitled to payment for their respective shares of Universal Pictures Company, Inc., in the amount determined to be the value of such shares in paragraph 2 above.

'4. The defendant is directed to make payment of said $92.75 per share to the stockholders entitled thereto with 5.23 percent interest per annum from March 25, 1966, to the date hereof--upon receipt by the defendant of the certificates representing such shares from such stockholders, who are hereby directed to deliver the certificates representing such shares to the defendant for cancellation.'

On January 20, 1975, in its opinion affirming the order of this Court, ^* the Supreme Court said in its concluding sentence:

'The 5.23 per cent interest per annum awarded to plaintiff from March 25, 1966 to December 7, 1973 is approved, with post-judgment interest accruing at 6% Thereafter.'

Universal City Studios, Inc. v. Francis I. duPont & Co., supra, at 334 A.2d 223.

The stipulation of the parties reads as follows:

'Plaintiffs and defendant agree that the value of the judgment entered on December 7, 1973, was $3,413,731.98, which included interest at 5.23 percent per annum of $980,435.73. The parties do not agree whether post-judgment interest of six percent accrues on the $980,435.73.

'Nevertheless, defendant has paid plaintiffs an amount calculated by accruing interest at the rate of 5.23 percent per annum on the principal amount of $2,433,296.25 ($92.75 for each of the 26,235 shares of Universal owned by plaintiffs) from March 25, 1966, to December 7, 1973, and at the rate of six percent on such principal amount from December 7, 1973, to the date of payment. In accepting such payment, plaintiffs who are parties to this stipulation reserved their right to contend that they were entitled to receive from defendant post-judgment interest at the rate of six percent from December 7, 1973, to the date of payment on the full value of the judgment of $3,413,731.98, and defendant reserved its rights to contest plaintiffs' contention.'

The statute, 8 Del.C., § 262(f) and (h), reads in pertinent part as follows:

'(f) . . . The Court shall by its decree determine the value of the stock of the stockholders entitled to payment therefor and shall direct the payment of such value, together with interest, if any, as hereinafter provided, to the stockholders entitled thereto by the surviving or resulting corporation upon the transfer to it of the certificates representing such stock, which decree may be enforced as other decrees in the Court of Chancery may be enforced . . ..'

'(h) . . . The Court may, on application of any party in interest, determine the amount of interest, if any, to be paid upon the value of the stock of the stockholders entitled thereto.'

Professor Folk, in his treatise, The Delaware General Corporation Law, A Commentary and Analysis (1972), provides a useful background on Section 262 at pages 389--390. It reads as follows in the next paragraph with Professor Folk's footnote case citations and a couple of other references added in the body of the text by me.

'The Court . . . has discretion under § 262(h) to determine, upon application of an interested party, the amount of interest, if any, to be paid on the value of the dissenters' shares. At one time the statute did not authorize the granting of interest. The Court held that the right of appraisal was a statutory remedy whose contours are defined exclusively by the statute. (Meade v. Pacific Gamble Robinson Co., (29) Del.Ch. (406), 51 A.2d 313, 316--321 (1947), aff'd, Del.Supr., (30 Del.Ch. 509) 58 A.2d 415 (1948).) Therefore, the court could not exercise its equitable powers to grant interest from the date of the merger but could only allow interest from the time that the parties were entitled to enforce the award at law. (Id. at 51 A.2d 320; In re General Realty & Utilities Corp., (29) Del.Ch. (480), 52 A.2d 6, 16 (1947).) However, since § 262 now authorizes payment of interest, the courts will allow interest from the effective date of the merger to the date of payment of cash. (47 Del.Laws, Ch. 136, § 7 (1949); Sporborg v. City Specialty Stores, Inc., (35) Del.Ch. (560), 123 A.2d 121, 127 (1956).) And as the statute does not fix the interest rate, the matter is one for judicial discretion. (Id.; Felder v. Anderson, Clayton & Co., (39) Del.Ch. (76), 159 A.2d 278, 287 (1960); Swanton v. State Guaranty Corp., Del.Ch., 215 A.2d 242, 247 (1965).) The stockholders apparently must show the appropriate rate of interest for the relevant period, (Sporborg v. City Specialty Stores, Inc., supra at 123 A.2d 127), but absent such evidence or if the parties are willing to abide by the court's independent judgment (see Swanton v. State Guaranty Corp., supra at 215 A.2d 247), the court will itself fix the interest rate. (See Sporborg v. City Specialty Stores, Inc., supra at 123 A.2d 127 (4 percent); Felder v. Anderson, Clayton & Co., supra at 159 A.2d 287 (4.75 percent); Swanton v. State Guaranty Corp., supra at 215 A.2d 247 (5 percent).) The court will not employ any 'arbitrary presumption' as to the interest rate, but will seek 'to find a rate which will fairly compensate plaintiffs for the fact that they were deprived of the use of their money for' the period from the merger's effective date to the payment date. (Felder v. Anderson, Clayton & Co., supra at 159 A.2d 287. See also Universal City Studios, Inc. v. Francis I. duPont & Co., supra at 334 A.2d 222.)'

With the factual and legal background, I turn to the contentions of the parties. Initially, the defendant argues the Supreme Court opinion in this case forecloses the contention of the plaintiffs. By reference to the plaintiffs' brief in the Supreme Court, the defendant concludes that the opinion of the Supreme Court necessarily rejected any effort to compound interest and effectively determined the question now raised by plaintiffs. The plaintiffs deny that they argued in favor of compound interest in the Supreme Court and say the portion of the brief noted merely was argument in support of the proposition that a 5.23% Interest rate was unjust. I am satisfied that the Supreme Court did not focus on the precise contention now first raised after remand and this Court is free to reach its own determination. In this regard, I should specifically note that the language of the last sentence in the Supreme Court's opinion does not, in my judgment, dictate a result one way or the other on the question now raised. Moreover, the form of order entered by this Court on December 7, 1973 is not particularly helpful, although it should be noted that it is expressed, as one would expect in an appraisal case, in a principal amount per share with a specified rate of interest and not in terms of a lump sum.

It should also be noted, as Vice Chancellor Marvel did in a July 8, 1975 unreported opinion in Gibbons v. Schenley, C.A. No. 3746, that the problem in this case may be somewhat unusual. Orders in appraisal cases appear to have generally provided for interest in the amount fixed from the date of the merger until the date of payment, and not merely until the date of order as here. ^** See Sporborg v. City Specialty Stores, supra. Indeed, as the defendant's brief points out, the plaintiffs in this case proposed a form of order (Docket No. 89) which would have directed the payment of interest from the date of the merger 'to the date of payment.'

Nonetheless, the plaintiffs argue that they are not seeking any unusual relief nor, they say, are they seeking compound interest. They contend they are merely seeking application of the usual rule that interest on a judgment runs on the full amount of the judgment, including any prior interest therein contained. 45 Am.Jur.2d, Interest and Usury, § 78; Missouri-Kansas Pipe Line Co. v. Warwick, Del.Supr., 25 Del.Ch. 388, 22 A.2d 865 (1941); Louisville & N.R.R. v. Sloss-Sheffield Co., 269 U.S. 217, 46 S.Ct. 73, 70 L.Ed. 242 (1925); Johnson v. Hazen, ...