Lebold v. Inland SS Co., 5694.
| Decision Date | 18 March 1936 |
| Docket Number | No. 5694.,5694. |
| Citation | 82 F.2d 351 |
| Parties | LEBOLD et al. v. INLAND S. S. CO. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Silas H. Strawn, Frank H. Towner, and Raymond O. Mitchell, all of Chicago, Ill., for appellants.
Carl Meyer, Frederic Burnham, and Herbert A. Friedlich, all of Chicago, Ill., for appellee.
Before EVANS and SPARKS, Circuit Judges, and LINDLEY, District Judge.
Appellants, minority stockholders of appellee, brought this suit to enjoin appellee from taking any steps to dissolve or to discontinue its corporate existence or any other action tending to interfere with the usual operation of its business. Appellants claimed that the acts of appellee, its directors and its majority stockholder, the Inland Steel Company, were such as wrongfully to coerce appellants and to bring about legal injury to them as minority stockholders. Appellee filed its answer, and, upon hearing, the court dismissed the bill for want of equity. This appeal followed.
Appellee, incorporated in 1911, having an outstanding capital stock of 1,600 shares, each of the par value of $100, owns and operates three steamships on the Great Lakes. Prior to May, 1935, the Inland Steel Company owned 67.5 per cent. of appellee's stock, and since that time has owned 80 per cent. thereof. Appellants own 295 shares, formerly held by their father, one of the original incorporators. P. D. Block is president and C. B. Randall the vice president of both appellee and the Steel Company. L. E. Block is chairman of the board of the Steel Company. L. E. Block, P. D. Block, C. B. Randall, and one of appellants comprise appellee's board of directors. A former additional director resigned when he sold his stock to the Steel Company. Thus three of appellee's executive officers and four directors are likewise executive officers and directors of its majority stockholder, the Steel Company.
Appellee's business is derived almost entirely from the Steel Company, for which it carries ore, coal, and stone. For several years preceding 1935, dividends of $150 per share were earned and paid, over and above all deductions for interest, depreciation, bond amortization, and other charges. The average earnings, for the years from 1925 to 1934, were $134 per share and the average dividends $103 per share. If we could capitalize the earnings upon the basis of a 6 per cent. return, the value of the shares during those nine years would have been over $2,000. Upon a capitalization of the dividends upon the same basis, the value would be over $1,700 per share. The net earnings have increased as the bonded indebtedness, now $220,000, has been reduced, and for the year 1935, up to the time of the trial, equaled those in the preceding year. There was no express contract between the two companies, but the tonnage was carried by original arrangement, succeeded by tacit understanding, at the going or market rates, which are not governed by statute but are the result of competition.
On December 21, 1934, at the annual stockholders' meeting, the subject of minority holdings for the first time was presented, when P. D. Block announced that the Steel Company had had in mind for some time the purchase of such interests. He appointed Randall and McGean, an officer of the Pioneer Company, which likewise carried freight for the Steel Company, as a committee "to fix the value" of appellee's ships. Appellant F. M. Lebold, learning in the following January of the Steel Company's desire to acquire the minority stock, called upon Block, and was told that the committee had been appointed. In March Randall discussed with the other appellant the purchase of minority interests, saying that in arriving at a valuation earnings could not be considered; that, if the Steel Company should put the ships to hauling coal, they would earn nothing; that, if appellee should meet the lower rates being quoted by some companies, it would earn nothing; but he said, further, that the Pioneer Company had not been required to meet such lower rates.
On May 14, 1935, the committee appointed for the purpose of fixing the value of the ships submitted its report, stating that the Steel Company had said it was unwilling to continue placing traffic with appellee on the then prevailing terms, and that the committee had been appointed to consider the proposal of the Steel Company "to buy the minority stock" and recommending that such stock be "offered at the price of $700.00 per share." It did not report on the value of the ships. It developed that the price recommended had, in fact, been fixed by Randall, who occupied the dual position in the two companies previously mentioned. Block stated that the desire to buy was based upon possible merger of the Steel Company with others, the possibility of enactment of a law discriminating against companies not owning their own vessels, and the fact that other shippers were transporting their freight for less money. It was not shown at any time, however, that lower rates had been actually available to the Steel Company. Randall candidly stated that, if minority stockholders did not sell at $700, the Steel Company, as majority stockholder, would undertake to dissolve appellee, sell its ships, and distribute the proceeds. He testified that the Steel Company would pay no more than necessary, that it would bid enough to realize $700 per share, but that, if a better bid should be made, it would be accepted.
Appellants said that they preferred not to sell; that they objected to selling at $700 per share; but that they would not refuse to sell at a fair price. Block and Randall, representing the Steel Company, refused to make any further offer or to arbitrate the value of appellants' stock. Appellants called Randall's attention to the fact that he and Block were officers of both companies, and Randall replied that, when he dealt with traffic problems, he had at heart the interests of the Steel Company, and that, in his opinion, the Steel Company had been "suckers" and had acted foolishly in permitting the minority to continue to participate in the profits.
Following appellants' refusal to accept the offer and refusal of the Steel Company to arbitrate, notice was given of a special meeting of appellee's board of directors on July 23, 1935, to act upon a resolution to pay a liquidating dividend from the liquid assets, and of a special meeting of the stockholders to consider the proposed dissolution. Thereupon appellants filed this suit to restrain the action contemplated, and a restraining order was entered. The meetings were held, but no definite action was taken. Block advised appellants that he did not see how appellants could gain anything by their action, because, if they won, there was nothing to prevent the Steel Company from placing its tonnage elsewhere. Randall testified that the motive actuating the Steel Company was the desire to avoid continuing paying dividends to the minority. He designated such payments as pouring "a golden stream to the minority stockholders." This, he said, "disturbed him and was unfair to the Steel Company." Admitting that the Steel Company received the greater part of the dividends, he said, "I have my eye on the part that we do not get," and that, since appellants had declined the offer of $700 per share, he had made up his mind definitely that no more traffic would be given to appellee; that this action would result in loss by appellee, which in turn would force dissolution and liquidation. He said these statements were not made in order to coerce appellants, but to advise them of what he had in mind, and that the purpose of the Steel Company was to produce economy in transportation expense by chartering ships at a flat rate, or procuring lower rates from other carriers, or purchasing its own ships, thus assuring to itself all profits resulting from transportation. He had made no computations, however, upon any of these bases, but said that there was a surplus of ships upon the Great Lakes.
The District Judge stated the law as being that, in the absence of actual fraud, a statutory percentage of stockholders may dissolve a corporation regardless of motive; that the stockholders of the Steel Company would have been justified in insisting that the situation be terminated; that the contemplated action would not effectuate a fraud upon the minority stockholders, but would bring about a pro rata distribution of assets. Pointing out that 20 per cent. of the money earned by the transportation of the Steel Company's...
To continue reading
Request your trial
-
Zahn v. Transamerica Corporation
...Clark & Marshall on Corporations, at page 2289." See in particular Lebold v. Inland Steel Co., 7 Cir., 125 F.2d 369. Cf. Lebold v. Inland S. S. Co., 7 Cir., 82 F.2d 351. The law of the States in this respect is illustrated by such decisions as Singer v. Carlisle, Sup., 26 N.Y.S.2d 172; Pear......
-
Swanson v. American Consumers Industries, Inc.
...Rule 10b-5 to disclose to the minority shareholders the facts which it omitted to disclose in the proxy materials. Lebold v. Inland Steel Co., 82 F.2d 351 (7th Cir. 1936) and 125 F.2d 369 (7th Cir. The fiduciary relation exists whether the dominant and controlling shareholder controls throu......
-
Hyman v. Regenstein, 16816.
...held that the plan was "legal and not unfair", "not fraudulently oppressive"; the court distinguished the case from Lebold v. Inland S.S. Co., 7 Cir., 1936, 82 F.2d 351 where "a motive to get rid of the minority was admitted" and, in effect, there was "legal duress * * * on the part of domi......
-
Lebold v. Inland Steel Co., 7578.
...dismissed the complaint and this appeal followed. The events preceding the dissolution and sale were before us in Lebold v. Inland Steamship Co., 7 Cir., 82 F.2d 351. There a bill to enjoin dissolution had been dismissed by the District Court. Upon appeal we held the complaint premature and......