Jeffs v. Utah Power & Light Co.
| Decision Date | 26 April 1940 |
| Citation | 12 A.2d 592 |
| Parties | JEFFS et al. v. UTAH POWER & LIGHT CO. et al. |
| Court | Maine Supreme Court |
Appeal from Supreme Judicial Court, Kennebec County, in Equity.
Bill in equity by Phoebe W. Jeffs and others, preferred stockholders of the Utah Power & Light Company, on behalf of themselves and of any stockholders who may wish to join, and on behalf of the Utah Power & Light Company, against the Utah Power & Light Company and the Electric Power & Light Corporation for an accounting by the Electric Power & Light Corporation of certain alleged secret promoters' profits, allegedly derived from the promotion of the Utah Power & Light Company, and for other relief such as cancellation of the common stock of the Utah Power & Light Company, claimed to have been issued without consideration. From decree dismissing bill as to both defendants, the plaintiffs appeal.
Appeal dismissed, and decree affirmed.
Argued before BARNES, C. J., and STURGIS, THAXTER, and MANSER, JJ.
Locke, Campbell & Reid and Pattangall, Goodspeed & Williamson, all of Augusta, Critchlow & Critchlow and Joel Nibley, all of Salt Lake City, Utah, and Putney, Twombley & Hall, of New York City, for plaintiffs.
George R. Corey, of Salt Lake City, Utah, McLean, Fogg & Southard, of Augusta, Simpson, Thacher & Bartlett, of New York City, and Perkins & Weeks, of Waterville, for defendants.
This is a bill in equity brought by five preferred stockholders of the Utah Power & Light Company, a Maine corporation, for an accounting by the Electric Power & Light Corporation, another Maine corporation, of certain alleged secret promoters' profits claimed to be held by the Electric Power & Light Corporation which it had received in part from its predecessor in title, the Utah Securities Corporation, a Virginia corporation, one of the original promoters in the organization of the Utah Power & Light Company, and in part in direct payments. Other relief such as cancellation of the common stock of Utah Power & Light Company, claimed to have been issued without consideration, or the payment for it is asked for. The plaintiffs bring the bill on behalf of themselves and of any stockholders who may wish to join and on behalf of the defendant, the Utah Power & Light Company.
The defendants demurred both generally and specially. These demurrers were sustained and a decree was entered dismissing the bill as to both defendants with costs. From such decree the plaintiffs have appealed.
The transactions set forth in the bill are exceedingly complex. They concern the dealings of five corporations with each other, only two of which are parties to the bill. Large amounts of money and property were passed from one to another for no apparent reason as disclosed by the bill. The plaintiffs claim that it all has been in pursuance of a scheme formulated almost thirty years ago whereby the Electric Bond & Share Company of New York and its associates would acquire electric utility properties in Utah, Idaho, and Colorado and by means of pretended sales would cause title to these properties to become vested in an operating company, Utah Power & Light Company, one of the defendants in this case, at greatly inflated prices without disclosing to such company or to its prospective stockholders the cost of such properties or the fact of such inflation, and thereby fraudulently and unlawfully would obtain for the syndicate and its associates large secret profits, and also would retain the control and management of such operating company for the syndicate and those associated with it to the detriment of the operating company and its stockholders. Such in brief is the plaintiffs' claim.
We are concerned, however, with what actually happened and with the effect of the various manipulations on the rights of these plaintiffs. It is accordingly necessary to analyze the allegations of the bill with some care.
The Electric Bond & Share Company, a New York corporation, is said to be in the business of promoting, financing, managing and controlling utility corporations. September 6, 1912, it caused the defendant, Utah Power & Light Company, to be organized as a corporation under the laws of Maine. The corporation started with nominal stock which two months later was increased to $40,000,000 consistsing 400,000 shares of the par value of $100 each. The certificate of incorporation was later amended to authorize the issuance of other classes of stock which from time to time was sold to the investing public as directed by the Electric Bond & Share Company. At the same time the Electric Bond & Share Company caused the Utah Power Company to be organized as a corporation under the laws of Maine with an authorized issue of 60,000 shares of stock of the par value of $100 of which 50,000 shares were common stock and 10,000 shares were preferred. The directors and officers of this corporation it controlled. At about the same time it caused to be organized under the laws of Virginia a third corporation, Utah Securities Corporation, which was the predecessor of the defendant, The Electric Power & Light Corporation, which to all intents and purposes stands in its shoes. The authorized capital of this corporation was $30,000,000, represented by 300,000 shares. Controlling all of these corporations Electric Bond & Share Company proceeded to pass property through the Utah Power Company and the Utah Securities Corporation until title finally reposed in its other ward, the Utah Power & Light Company, which was the operating unit.
The first transaction took place September 25, 1912, when it is alleged Utah Power Company purchased from an agent of Electric Bond & Share Company by which it was then controlled certain utility properties and securities which had been acquired by Electric Bond & Share Company at a cost to it of not exceeding $2,975.091.35, and paid therefor $8,500,000, in notes of the Utah Power Company in the amount of $2,500,000, in preferred stock of the par value of $1,000,000, and in common stock of the par value of $5,000,000. September 26, 1912, Utah Securities Corporation at the direction of Electric Bond & Share Company traded 274,990 shares of its capital stock having a par value of $27,499,000 for the 50,000 shares of stock of the Utah Power Company and also took the $2,500,000 notes and the $1,000,000 preferred stock, and certain other securities which had been acquired by Electric Bond & Share Company at a cost to it of not exceeding $1,800,947.47, and paid therefor $4,500,000 in cash. November 1, 1912, Utah Securities Corporation at the direction of Electric Bond & Share Company purchased securities from Electric Bond & Share Company which had cost the latter $1,962.365.36, and paid therefor $1,962,365.36 in cash and in 25,000 shares of capital stock of Utah Securities Corporation of a par value of $2,500,000.
At this stage in the promotional scheme it appears from the above that Utah Securities Corporation was the owner of property and securities which had cost Electric Bond & Share Company $6,738,397.18 and that for these it had paid in cash $6,462,365.36 and in 299,990 snares of its own capital stock of a par value of $29,999,000.
At this point on December 12, 1912, as alleged in the bill, Utah Power & Light Company enters the scene and was caused by the promoting companies to purchase these properties and securities held by Utah Securities Corporation which had cost it $6,738,397.18, together with certain other securities which had cost $4,158,111, and to pay therefor as follows:
$20,000,000 in par value common stock
January 25, 1913, at the instigation of the promoters, Utah Power & Light Company bought from Utah Securities Corporation properties and securities which had cost the latter $2,152,832.33, and paid therefor in 78,370 shares of its common stock of a par value of $7,837,000. During the month of February, 1913, at the direction of the promoting companies, Utah Securities Corporation surrendered to Utah Power & Light Company $4,500,000 of the latter's 6% notes which it held and 28,370 shares of common stock, and in exchange therefor received 30,000 shares of 7% preferred stock of Utah Power & Light Company of the par value of $3,000,000 and 43,370 shares of its 6% second preferred stock of the par value of $4,337,000.
Following through these transactions we now find that the Utah Power & Light Company had properties which had cost the promoters $13,049,340.51 and it had outstanding against these the following securities:
$5,000,000 6% three year notes
$3,000,000 7% preferred stock
$7,837,000 6% second preferred stock
$25,000,000 common stock
Two years later in February, 1915, in pursuance of the scheme of promotion, the following transaction took place as set forth in the bill. Utah Securities Corporation transferred properties which had cost it $1,097,400 to Utah Power & Light Company and cancelled an indebtedness of Utah Power & Light Company of $416,001.68. Utah Power & Light Company in turn issued its notes to Utah Securities Corporation in the amount of $242,314.19, cancelled an indebtedness of Utah Securities Corporation of $900,000, and issued to the latter 50,000 shares of common stock.
Carrying through all of these transactions we now find the following situation as set forth in the plaintiffs' bill and admitted by the defendants' demurrer:
Property and securities received by Utah Power & Light Company at their cost to the promoters
Payments for the above had boon made as follows: 6% three year notes
Other notes
242,314.19
Net amount of indebtedness after inter-company cancellations
483,998.32
Total
$ 5,726.312.51
7% preferred stock par value
3,000,000.00
2nd preferred stock par value
7.837,000.00
Common stock par value
Two years after this, while the balance sheet so far as the...
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...this, and a sufficient one, is that the wrong is a continuing one." 113 Me. at 302, 93 A. at 750. See also Jeffs v. Utah Power and Light Co., 136 Me. 454, 465, 12 A.2d 592 (1940). Although it can be argued that by applying the continuing wrong exception to the contemporaneous ownership rule......
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