Reifsnyder v. Pittsburgh Outdoor Advertising Co.

• Decision Date: 30 June 1959
• Citation: 152 A.2d 894,396 Pa. 320
• Parties: H. Y. REIFSNYDER, Appellant, v. PITTSBURGH OUTDOOR ADVERTISING CO., a Pennsylvania Corporation, Henry Posner, G. W. McCreary, E. C. Schodde, Eugene B. Strassburger, B. L. Robbins, A. L. Bauers, Henry Posner, Jr., and William Smith.
• Court: Pennsylvania Supreme Court

Page 894

152 A.2d 894

396 Pa. 320

H. Y. REIFSNYDER, Appellant, v. PITTSBURGH OUTDOOR ADVERTISING CO., a Pennsylvania Corporation, Henry Posner, G. W. McCreary, E. C Schodde, Eugene B. Strassburger, B. L Robbins, A. L. Bauers, Henry Posner, Jr., and William Smith.

Supreme Court of Pennsylvania.

June 30, 1959.

John C. Hanna, John A. Metz, Jr., Metz, Cook, Hanna & Kelly, Pittsburgh, for appellant.

William H. Eckert, Roderick G. Norris, Eckert, Seamans & Cherin, Pittsburgh, Elder W. Marshall, Reed, Smith, Shaw & McClay, Pittsburgh, Eugene B. Strassburger, Strassburger & McKenna, Pittsburgh, David M. Gooder, Chicago, Ill., Lord, Bissell & Brook, Chicago, Ill., of Counsel, for appellee.

Before CHARLES ALVIN JONES, C. J., and BELL, MUSMANNO, BENJAMIN R. JONES and BOK, JJ.

BELL, Justice.

This is an appeal from the final decree of the Court of Common Pleas of Allegheny County dismissing plaintiff's complaint in equity.

Plaintiff is a minority stockholder in the defendant Pittsburgh Outdoor Advertising Company. He owns 130 shares. The individual defendants are officers and/or directors of the corporate defendant. The essential facts are undisputed and may be briefly stated:

Pittsburgh Outdoor Advertising Company had outstanding 15,000 shares of which General Outdoor Advertising Company owned 9,252 shares or approximately 61%. This parent-subsidiary relationship between Pittsburgh and General violated the anti-trust laws and resulted in a consent decree being entered in 1929. In September 1955, the entry of another consent decree became imminent, the terms of which would in all likelihood prevent Pittsburgh from taking advantage of profitable expansion opportunities. Thereafter, negotiations began between Pittsburgh and General relative to the purchase of the Pittsburgh stock held by General. After a survey of Pittsburgh's real estate, its Board of Directors determined that the book value of its stock was $233.16 per share.

Henry Posner (President), representing Pittsburgh, Robbins (President), Bauers (Vice President) and Olson (Treasurer), representing General, met in an attempt to negotiate a sale. General carried its 9,252 shares of Pittsburgh stock on its books at a total value of $1. The consent decree of October 21, 1955, required General to dispose of its stock in Pittsburgh at 'not less than a fair market value'. Olson offered General's stock to Pittsburgh for $2,400,000. Posner said that the whole Company 'isn't worth anything over $3,500,000.' After some further conversations Robbins, as President of General, then said 'We have an obligation to our stockholders, to our directors, and there is one fixed figure from which I cannot get away and that figure is $2,150,000 [$232.38 a share]. You either pay that figure or we can't do business.' Thereupon, Posner, in behalf of Pittsburgh, closed the deal at that price.

On October 11, 1955, the Board of directors of Pittsburgh notified all stockholders of a special meeting to be held December 12, 1955 (1) to authorize the purchase of the 9,252 shares at a total price of $2,150,000, and (2) to increase the company's indebtedness from nothing to $2,000,000 in order to finance the stock purchase.

Pittsburgh was unable to secure a loan of $2,000,000. However, the Equitable Life Assurance Society of the United States agreed to lend Pittsburgh $1,650,000. Pittsburgh itself had surplus cash of $175,000, making a total of $1,825,000 available for the purchase of General's stock. In order to secure the $325,000 needed to meet General's price, defendant Posner, Pittsburgh's President, offered to buy 1400 shares of the 9,252 shares which Pittsburgh was buying from General--at $232.38 a share.

On December 1, 1955, the stockholders of Pittsburgh were notified that at the special meeting of December 12, 1955, they would be asked to authorize the sale of the aforesaid shares to Mr. Posner.

At the December 12th meeting, plaintiff's proxy protested the purchase, claiming, inter alia, that the price of $232.3, was excessive. He likewise protested the sale to Posner for the anomalous reason that the price was too low. Posner then offered the 1400 shares to plaintiff at the same price, but plaintiff's proxy declined the offer. Despite plaintiff's objections, all three resolutions were passed. ¹ On December 13, 1955, the loan and the purchases were completed. That same day plaintiff instituted this action.

Plaintiff's basic complaints are three-fold: (1) the price of $232.38 per share was excessive; (2) the directors should have obtained an outside appraisal of the Company and of the value of its closely held stock, and (3) consequently the individual defendants violated their fiduciary duty to the corporation. The Chancellor found that $232.38 per share 'was fair, reasonable and not excessive'; and that 'Pittsburgh's officers and directors acted in good faith and with ordinary prudence and skill'; and these findings were confirmed by the Court en banc

In this closely held Company, in which the officers and directors of Pittsburgh knew the actual value of their stock, we agree with the Court below that under such circumstances it was unnecessary for them to obtain any outside appraisal except an appraisal of the real estate owned by the Company. However, two independent appraisers testified that the fair and reasonable value of the stock was the price at which it was purchased--its reappraised book value.

Moreover, Pittsburgh's directors and stockholders felt that they had to purchase this block of 'control stock' in order to continue the present management and to prevent an outsider or competitor from getting control of the Company. The market value of a large or controlling block of stock is of course materially affected by (a) the condition and the prospects of the Company and (b) the large or limited number of possible purchasers.

We note in passing that the wisdom of this purchase has been made apparent by the fact that since that time the corporation has been very successful. In two years it has repaid Equitable Life Assurance Society $537,000--approximately one-third of the principal of the entire loan which, by its terms, was to be repaid over a period of 12 years--and it is likewise paying dividends to its stockholders of $12 a share. There was no fraud, actual or legal; there was no waste of the Company's assets, or over-reaching, or violation of duty by the directors or by the stockholders of Pittsburgh Outdoor Advertising Company. Cf. Chambers v. Beaver-Advance Corp., 392 Pa. 481, 140 A.2d 808, as to the rights and duties of...