Hottenstein v. York Ice Machinery Corporation, 8097.

• Decision Date: 29 December 1944
• Docket Number: No. 8097.,8097.
• Citation: 146 F.2d 835
• Parties: HOTTENSTEIN et al. (MOORE, Intervenor) v. YORK ICE MACHINERY CORPORATION.
• Court: U.S. Court of Appeals — Third Circuit

146 F.2d 835 (1944)

HOTTENSTEIN et al. (MOORE, Intervenor) v. YORK ICE MACHINERY CORPORATION.

No. 8097.

Circuit Court of Appeals, Third Circuit.

Heard on Petition for Leave to File Bill of Review December 8, 1944.

Decided December 29, 1944.

Seymour M. Heilbron, of New York City (William H. Foulk, of Wilmington, Del., and Arthur Garfield Hays and Alan S. Hays, both of New York City, on the brief), for plaintiffs.

Aaron Finger, of Wilmington, Del., for defendant.

George D. Hornstein, of New York City, amicus curiæ.

Before BIGGS, JONES and GOODRICH, Circuit Judges.

BIGGS, Circuit Judge.

The petitioner asks leave of this court to file a complaint in the nature of a bill of review in the District Court of the United States for the District of Delaware. The petitioner owns shares of the 7% cumulative preferred stock of York Ice Machinery Corporation. He brought a suit in the District Court of the United States for the District of Delaware seeking to enjoin a merger of York Ice Machinery Corporation with a wholly owned and inactive subsidiary pursuant to Section 59 of the General Corporation Law of Delaware, Section 2091, Revised Code 1935, designed to effect a reclassification of the stock of the corporation. The District Court held, inter alia, that there was insufficient evidence to support the conclusion that the plan was unfair to preferred stockholders. See D.C., 45 F.Supp. 436, 439. Upon appeal to this court, the judgment of the court below dismissing the complaint was sustained. We were of the opinion that a court of the United States bound by the rule of Erie R. Co. v. Tompkins 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487 was powerless to afford aid to a stockholder until a reclassification reached that degree of unfairness where it might be deemed to amount to a cancellation of the preferred stockholders' accumulative unpaid dividends without adequate compensation therefor. See, 3 Cir., 136 F.2d 944, 953, 954.

Thereafter, the petitioner and certain other preferred stockholders, who had not consented to the merger and who had made appropriate objection thereto, proceeded to an appraisal pursuant to Section 61 of the General Corporation Law of Delaware, Section 2093, Revised Code 1935. That appraisal proceeding, now completed in so far as action by the appraisers is concerned, and awaiting review by the Chancellor of Delaware, resulted in a majority of the appraisers concluding that the value of the petitioner's preferred stock at the time of the merger was less than its parvalue.

The basis for the petitioner's motion lies in his allegations that York Ice Machinery Corporation presented or caused to be presented to the District Court in Delaware evidence tending to prove that the value of the assets of the corporation amounted to approximately $10,000,000, whereas, in the appraisal proceeding, it presented evidence to the effect that its assets were worth very much less. Under the merger and reclassification, preferred stockholders of York Ice Machinery Corporation who exchanged their shares for the stock of the consolidated corporation received approximately 83.2% of the equity represented...