E. M. Fleischmann Lumber Corp. v. Resources Corp. Intern., 326

• Decision Date: 16 July 1953
• Docket Number: No. 326,326
• Citation: 33 Del.Ch. 587,98 A.2d 506
• Court: Court of Chancery of Delaware
• Parties: E. M. FLEISCHMANN LUMBER CORP. v. RESOURCES CORP. INTERNATIONAL et al. Civ. A.

Page 506

98 A.2d 506

33 Del.Ch. 587

E. M. FLEISCHMANN LUMBER CORP. v. RESOURCES CORP. INTERNATIONAL et al.

Civ. A. No. 326.

Court of Chancery of Delaware, New Castle County.

July 16, 1953.

William H. Foulk and Herbert L. Cobin, Wilmington and Robert F. Skutch, Jr., (of Weinberg & Green), Baltimore, Md., for plaintiff.

William Marvel (of Morford, Bennethum & Marvel), Wilmington, for defendants.

SEITZ, Chancellor.

This is the decision on the motion of one defendant to dismiss for lack of jurisdiction and on the motions of both defendants to dismiss for failure to state a claim upon which relief can be granted.

Plaintiff is a Maryland corporation. Defendant, Resources Corporation International (hereafter called 'Resources'), is a Delaware corporation while defendant, Vancouver Plywood Company (hereafter called 'Vancouver'), is a Washington corporation.

In view of the nature of the motions it becomes important to narrate the material allegations of the complaint. Those allegations show that plaintiff sued Resources in the Delaware United State District Court for fraud and deceit. The District Court filed certain findings of fact and conclusions of law to the effect that Resources was liable to plaintiff for such damages as plaintiff might prove, D.C., 105 F.Supp. 681. At the time this action was commenced plaintiff's damages had not yet been ascertained in the District Court. Plaintiff claims damages of $400,000.

For some years prior to 1948 Resources owned all of the stock of J. E. Henry and Sons, Company, whose chief asset was a tract of timber land in Mexico. Vancouver conceived a plan to acquire control of this tract and entered into a contract of sale with Resources whereby Vancouver purchased certain other Mexican timber from Resources for $50,000 cash and also purchased the stock of J. E. Henry and Sons for $720,000 of which $100,000 was to be paid in cash and the balance was to be paid in either ten annual installments or by 25% of the net operating profit. Vancouver paid $150,000 to Resources in cash. Resources entered upon its books the $150,000 cash payment and entered as an account receivable the balance due of $620,000.

Vancouver, by virtue of its 35% stock ownership, dominated and controlled Resources and caused Resources on December 5, 1950, after trial but before decision in the United States District Court, to enter into an agreement with Vancouver to rescind the contract of sale just described. This was done by causing Resources books to reflect a debt of $150,000 to Vancouver and the elimination of the $620,000 accounts receivable from Vancouver. I assume that Vancouver also returned the assets received by it.

It is alleged that this rescission agreement, brought about through Vancouver's domination and control of Resources, was for the sole benefit of Vancouver and to the detriment of Resources; that it constituted a fraud upon Resources, its creditors and stockholders and constituted a gift and waste of Resources' assets to Vancouver in derogation of the rights of Resources' stockholders and creditors; that the cancellation was made without a fair consideration and with an intent, actual or in law, to hinder, delay or defraud the creditors of Resources including plaintiff in that it removed valuable assets of Resources so that thereafter the fair salable value of the remaining assets of Resources was and is less than the amount required to pay Resources' existing debts, including plaintiff's claim, as they mature.

The complaint prays that the court seize shares of Resources' stock standing in the name Vancouver; that the court enter judgment rescinding, setting aside and cancelling and declaring null and void the cancellation of the sale of timber and the Henry stock, and reinstating the contract and Vancouver's obligations; that an accounting be had of all damages and loss of profits suffered by Resources by reason of the acts complained of; and that the court grant such other and further relief as may be proper.

Although it is not specifically referred to therein, it is apparent that the complaint is predicated upon the Uniform Fraudulent Conveyances Act now found in 6 Del.C. § 1301 et seq. ¹

Defendant, Vancouver, has moved to dismiss the complaint because it is claimed that 10 Del.C. § 366, under which plaintiff purported to obtain jurisdiction, cannot be used to obtain jurisdiction in this type of action. The court purportedly obtained jurisdiction of Vancouver by seizing the shares of stock of Resources owned by Vancouver. This sequestration took place pursuant to the provisions of 10 Del.C. § 366 and both sides agree that unless there was an effective seizure under that Section the defendant, Vancouver, is not subject to this court's jurisdiction.

Defendant, Vancouver, says that 10 Del.C. § 366 does not apply to this type of complaint because that Section has been construed to apply only to cases 'where a sale is necessary to render effectual the nature of relief which the complainant's bill seeks', citing Wightman v. San Francisco Bay Toll Bridge Company, 16 Del.Ch. 200, 142 A. 783. Since there can be no doubt that the court so held in the Wightman case, it follows that it is necessary to see whether by any fair reading of the present complaint it comes within the statute as construed.

Plaintiff prays for a rescission of the aforementioned agreement of rescission on the ground that it constitutes...