Steigman v. Beery

• Citation: 42 Del.Ch. 53,203 A.2d 463
• Parties: Max STEIGMAN and Joseph Greene, Plaintiffs, v. Harold W. BEERY, A. Ronald Button, Martin Comart, Arnold Gottlieb, Benjamin S. Haggett, Jr., Maurice Hirsch, Carl Madonick, Robert E. Morris, Robert Reale, Frank Satenstein Jerry M. Tenney, H. Roy Penzell, Shirley Tenney, Eric Emory, Louis Monas, Rancho Mirage Realty Company, J. M. Tenney Corporation, Tenney Securities Corporation, Glen-Par Corporation, Glen-Operating Corporation, Tenney-Broff Corporation, Broadway Equities, Inc. and Tenney Corporation, Defendants.
• Decision Date: 18 September 1964
• Court: Court of Chancery of Delaware

Page 463

203 A.2d 463

42 Del.Ch. 53

Max STEIGMAN and Joseph Greene, Plaintiffs, v. Harold W. BEERY, A. Ronald Button, Martin Comart, Arnold

Gottlieb, Benjamin S. Haggett, Jr., Maurice Hirsch, Carl

Madonick, Robert E. Morris, Robert Reale, Frank Satenstein

Jerry M. Tenney, H. Roy Penzell, Shirley Tenney, Eric Emory,

Louis Monas, Rancho Mirage Realty Company, J. M. Tenney

Corporation, Tenney Securities Corporation, Glen-Par

Corporation, Glen-Operating Corporation, Tenney-Broff

Corporation, Broadway Equities, Inc. and Tenney Corporation,

Defendants.

Court of Chancery of Delaware, New Castle County.

Sept. 18, 1964.

William E. Taylor, Jr., Wilmington, and Nemser & Nemser and Nemerov & Shapiro, New York City, for plaintiffs.

Richard F. Corroon, of Berl, Potter & Anderson, Wilmington, and Bodin & Gottlieb, New York City, for defendant Tenney Corp.

S. Samuel Arsht, of Morris, Nichols, Arsht & Tunnell, Wilmington, for defendant Jerry M. Tenney, Carl Madonick, Robert Reale, Arnold Gottlieb, Martin Comart, Frank Satenstein and Tenney-Broff Corp.

Clarence W. Taylor, of Hastings, Taylor & Willard, Wilmington, and Lewis M. Dabney, Jr., New York City, for objecting stockholders Jacobs, Krebs, Zlowe and others.

Frank J. Miller, Jr., Wilmington, and Herman Odell, New York City, for objecting stockholders Singer, Dembitzer, Aronstam, Whitman and Ross.

MARVEL, Vice Chancellor:

This action was commenced on January 3, 1963 on behalf of the defendant Tenney Corporation by Max Steigman, a Class A stockholder of the corporation purporting to act for all other stockholders of the corporation similarly situated and in the right of their corporation. His complaint alleged that such Class A stockholders had been injured at the hands of the defendant Jerry M. Tenney and the other defendants under his control through the alleged misuse of Mr. Tenney's more than 90% ownership of Class B stock which by charter provision elects two-thirds of the board of Tenney Corporation. After setting forth the capital struction of the Tenney Corporation and its relation to its subsidiaries, the original complaint charged that the defendant Jerry M. Tenney by means of his holdings of Class B stock had directed and managed the affairs of the corporation in a manner designed to enrich himself and his associates at the expense of the Class A stockholders. In other words, the complaint alleged that Mr. Tenney as the holder of 275,000 shares of Class B stock out of 300,000 such shares issued and outstanding (there being 1,704,443 Class A shares also outstanding) had the power to elect two-thirds of the directors of Tenney Corporation. It is then charged that by exercise of such power Mr. Tenney first caused Tenney Corporation to acquire interests in real estate from partnerships and other legal entities in which Mr. Tenney held interests in exchange for Class A shares of Tenney Corporation, thereafter causing such corporation to engage in transactions actually injurious to it, while being simultaneously required to pay excessive compensation to Mr. Tenney and other executive officers and directors. Specific transactions complained of involved dealings with Glen-Par Corporation, Airport Associates, and Rancho Mirage Realty Company.

The complaint also alleged that in the course of these transactions a public market for Class A shareswas created in formal compliance with the registration requirements of the Securities and Exchange Act but that the public purchasers of such Class A stock were thereafter victimized by Mr. Tenney through devices such as the diversion to him of excessive underwriting charges on the part of Tenney Securities Corporation, the imposition of unreasonable service charges for the operation of real estate interests acquired by the corporation as aforesaid, the payment of excessive executive compensation, and the issuance of stock options, all of which devices were allegedly designed to benefit Mr. Tenney and his associates with concomitant injury to the Class A stockholders. Additional complaint was also made of an unfair plan devised and improperly foisted on the Class A stockholders by Mr. Tenney and the director defendants by corporate amendment approved on April 27, 1962 for the alleged purpose of diluting the dividend rights and equity of the Class A holders by making Mr. Tenney's corporate control possible through a holding of a mere 20,000 shares of Class B stock and providing for the exchange of Class B stock her Class A stock at a ratio of 1.82 to 1 instead of on a share for share basis.

On September 27, 1963, the filing of an amended complaint was ordered, there being no objection thereto. One of the purposes for the amendment appears to have been to join one Joseph Greene as a plaintiff, he having allegedly become a Class A stockholder of Tenney Corporation in May 1959 upon his acceptance of an exchange offer made to him as a holder of a limited interest in a partnership acquired by Tenney Corporation.

After reviewing the corporate structure of the Tenney Corporation and its subsidiaries, the amended complaint spells out details of the plan alluded to in the original complaint by means of which Mr. Tenney allegedly promoted partnership ventures in real estate and foisted such properties onto Class A stockholders through devices such as false and misleading prospectuses, a plan allegedly made possible by reason of Mr. Tenney's large holdings of the corporation's Class B stock for which he had paid only $.50 per share. Various allegedly fraudulent transactions were then pleaded in addition to the transactions alluded to in the original complaint, accomplished, according to the amended complaint, through corporate entities owned or leased by Mr. Tenney, his wife and associates, namely Lazro Corporation, Sular Realty Corporation, and Treasure Island Daytona Motel, Inc., Tenney Corporation having been allegedly caused to acquire interests in unprofitable operations carried on by such entities in exchange for shares of Class A stock.

Charges concerning the making of a personal profit on Mr. Tenney's part in the sale of an interest in land to Airport Associates and a diversion of money's to an outside interest known as Rancho Mirage Realty Company were expanded, and a separate cause of action based on the Securities Act of 1933 was pleaded. In addition, the details of schemes for funneling secret profits, loans, and excessive service charges into the hands of Mr. Tenney and his associates, the planned concealment of exorbitant executive salaries and bonuses and the use of allegedly false prospectuses to encourage public participation in ventures actually designed to enrich only Mr. Tenney and his friends are set forth in such complaint. By means of the latter the facts on the acquisition of partnership interests, their expected earnings and other relevant information about which potential investors should be informed were allegedly falsified in order to induce the investing public to exchange other securities or to pay cash for Class A stock of Tenney Corporation. A separate claim concerning the abortive purchase by the corporation of a lot on the northwest corner of 38th Street and Second Avenue in Manhattan was pleaded, and the 1962 corporate amendment heretofore complained of, involving the exchange of 1.82 shares of Class A stock for each share of Class B stock was restated.

On January 14, 1964, a second amended complaint was ordered filed herein pursuant to a stipulation of counsel, under the terms of which plaintiffs agreed to confine their claims to two general categories, namely those of a derivative nature and those concerning the 1962 cha...