Goldhar v. Rosenfeld
| Decision Date | 31 March 1959 |
| Citation | 149 A.2d 753,51 Del. 561,38 Del.Ch. 233 |
| Parties | Maxwell GOLDHAR, Carroll Rosenbloom, and Universal Products Company, Inc., Appellants, Defendants below. v. William ROSENFELD, Appellee, Plaintiff below. |
| Court | Supreme Court of Delaware |
John P. Sinclair, of Berl, Potter & Anderson, Wilmington, for appellants.
Irving Morris, of Cohen & Morris, Wilmington, and Milton Paulson, New York City, for appellee.
This is a stockholder's derivative suit brought on behalf of Universal Products Company, Inc., against eight directors of former directors of Universal, alleging various breaches of fiduciary duty. Seven of the eight have appeared in the cause.
Shortly after the filing of the suit two of the defendant directors, together with Universal, filed a motion for judgment on the pleadings. After briefing and argument the Vice Chancellor denied the motion. The three defendants appeal.
The ground of defendants' motion was the alleged failure of plaintiff to join indispensable parties. (Parenthetically, we think that in form the motion should have been a motion to dismiss under Rule 12(b)(7), Del.C.Ann., and we note that the concluding paragraph of the motion itself seeks a dismissal of the action.)
In order to understand the issues between the parties, we must examine the allegations of the complaint. Three causes of action are set forth.
The first charges that in May, 1956, five-year warrants for the purchase of 50,000 shares of stock at $56 a share were sold to seven of the defendant directors, 'and to certain other officers of Universal,' at a price of ten cents a warrant. It is alleged that the value of the warrants was substantially in excess of this price, and that the transaction was a waste of corporate assets.
The second cause of action alleges that in April, 1956, 'a group of investors', including defendants Chesler and Hutner, acquired all the stock and some notes of General Register Corporation, sold the stock and notes to a subsidiary of Universal (American Totalisator Company, Inc.) for a block of the subsidiary's stock, and then caused Universal to buy from the group this block of its subsidiary's stock and to pay the group therefor in stock of Universal. The upshot of this transaction, it is alleged, was a substantial profit--at least $500,000--to the group of investors, including the two directors mentioned.
The third cause of action alleges that in 1956 and 1957 there were granted to various persons (not directors) and to the defendant Clare, later a director, options to purchase stock of Universal or of its subsidiary, American Totalisater Company. These options, it is charged, were given without any or without adequate consideration.
The relief sought is as follows:
As to the first cause of action, that the warrants be canceled, or, alternatively, if any warrants have been exercised, that the stock issued therefor be impressed with a trust in favor of universal.
As to the second cause of action that the shares of Universal issued to the group of the investors, or the proceeds thereof, if any shares have been sold, be impressed with a trust in favor of Universal;
As to the third cause of action, that all the options be canceled As to all causes of action, that the defendant directors account to Universal for losses sustained by Universal and for their profits.
Upon these allegations and prayers for relief, defendants contended before the Vice Chancellor, and contend here (1) that the plaintiff is seeking to cancel, or impress a trust upon, property of persons not joined as defendants, and no such relief can be given under Elster v. American Airlines Inc., Del.Ch., 106 A.2d 202; (2) that even if such relief were limited to the defendant directors, no decree granting such relief could be made against them without injuriously affecting the rights of the absent option holders or stockholders; and (3) that in either view of the matter such absent holders are indispensable parties to the action who are not joined, and that the complaint is accordingly fatally defective.
Defendants' contention that the options of persons not in court cannot be canceled is obviously correct. But plaintiff replies: (1) that the fact that he has asked for more relief than he is entitled to does not defeat the actions, because the relief can be appropriately limited; (2) that the interests of the non-director holders of the options and of the stock are severable from the interests of the defendant directors, and that a decree can be made against the latter without adversely affecting the rights of the former; and (3) that in any event the suit cannot be dismissed, since if no relief of cancellation or constructive trust can be given, monetary relief can be had against the appearing defendant directors, whose liability is joint and several.
The Vice Chancellor's opinion upon these issues did not definitely resolve them. As we read his opinion, he held:
(1) That it was unnecessary to consider the issue of indispensable versus necessary parties, because under Rule 21 the court should not dismiss the suit for non-joinder...
To continue reading
Request your trial