Trounstine v. Remington Rand, Inc.

• Citation: 22 Del.Ch. 122,194 A. 95
• Court: Court of Chancery of Delaware
• Decision Date: 21 July 1937
• Parties: LEWIS J. TROUNSTINE, v. REMINGTON RAND, INC., a corporation existing under the laws of the State of Delaware

194 A. 95

22 Del.Ch. 122

LEWIS J. TROUNSTINE, v. REMINGTON RAND, INC., a corporation existing under the laws of the State of Delaware

Court of Chancery of Delaware, New Castle

July 21, 1937

BILL TO INVALIDATE TWO RECLASSIFICATIONS OF THE CAPITAL STOCK of the defendant, to compel a restoration of the capital structure of the defendant to its original form, and to require the defendant to pay to the complainant certain dividends which had accumulated, prior to the first reclassification, on the shares of the preferred stock then held by the complainant.

The defendant filed a plea and the hearing before the Chancellor was on the sufficiency of the plea in law, under Rule 47 of this court.

Plea sustained.

Stewart Lynch and Jacob K. Javits, Selig J. Levitan, and Emanuel Becker, all of New York City, for complainant.

Caleb S. Layton, of the firm of Richards, Layton & Finger, for defendant.

OPINION

THE CHANCELLOR:

On a hearing such as this, the well pleaded allegations of the bill are taken as true, and the plea is taken to be true in fact. If the plea were a negative plea, the rule, in respect of the allegations of the bill, would necessarily be different.

Briefly the facts shown by the bill and plea are as follows.

The defendant was incorporated under the General Corporation Law of this State on January 1, 1927. The capital stock consisted of a seven per cent cumulative first preferred stock of the par value of one hundred dollars per share (156,840 shares outstanding), an eight per cent cumulative second preferred stock of the par value of one hundred dollars per share (18,554 shares outstanding), and a common stock of the par value of one dollar per share (1,290,967 shares outstanding).

The complainant held one hundred and fifty shares of the first preferred stock prior to July 30, 1935.

On the last named date the arrears in cumulative dividends on the first preferred stock amounted to twenty-six dollars and twenty-five cents, and on the second preferred stock to thirty dollars, per share.

On that date the stock of the defendant was reclassified by an amendment to the charter to which two-thirds or more of each class of stock consented. The complainant did not consent. He voted his shares in opposition. By the amendment each share of the old classes became automatically changed into shares of a different character. The details are not necessary to describe, except that the important point should be mentioned that the first preferred shares which the complainant had held were declared to be turned into shares having different rights and preferences from the old and the dividends of twenty-six dollars and twenty-five cents cumulated thereon were extinguished by the reclassification. This, the complainant contends, was in violation of his contractual rights and beyond the power of the corporation to accomplish. Keller, et al., v. Wilson & Co., Inc. 21 Del.Ch. 391, 190 A. 115.

Before the plan of reclassification was voted upon, the complainant filed a suit in the Supreme Court of New York to enjoin the defendant and its directors from doing anything in furtherance of the plan. After suit was filed and before the meeting was held, the complainant was advised by his lawyer that this court had lately, viz., on May 24, 1935, decided in a similar suit (see Keller, et al., v. Wilson & Co Inc., 21 Del.Ch. 13, 180 A. 584) adversely to the complainant's contention in the New York suit and that the decision so made would be binding on the New York Supreme Court. Acting on this advice the complainant withdrew his motion for injunction in the New York court.

The complainant alleges, however, that he continued to protest against the proposed reclassification. But nearly one year later, to be exact on April 13, 1936, the complainant transmitted his first preferred shares to the corporation with the request that certificates be issued to him in lieu thereof for the kinds of stock which he was entitled to receive in accordance with the plan of reclassification which he had theretofore opposed. On that date, the new stocks received in lieu of the old stock had a market value in excess of the latter's redemption value, including accumulated dividends. The complainant says that he made the exchange because of the duress practiced upon him by the defendant. What the alleged duress consisted of appears to be this, that the defendant, in assuming to make the reclassification was asserting an unlawful power, and that it threatened to pay dividends thereafter only on the new stock created by such reclassification and not on the old first preferred stock. It is not necessary to pause in order to demonstrate that such acts cannot constitute duress as that term is understood in the law.

For the one hundred and fifty shares of old first preferred stock, the complainant received certificates for one hundred and fifty shares of a new five per cent preferred stock, one hundred and fifty shares of a new six per cent preferred stock and seventy-five shares of common stock. Prior to April 13, 1936, when the complainant finally concluded to turn in his old stock for new, the defendant had declared dividends on the new preferred stocks. When the complainant made the exchange he received two back dividends of cash on the new five per cent preferred stocks and two stock dividends that had been declared on the new six per cent preferred stock. After April 1, 1936, the complainant received cash dividends on his two preferred stocks until another recapitalization of the defendant was effected on September 22, 1936, and a cash dividend on the common stock and a scrip representing rights to a fractional share of common stock.

Whether the complainant after the second reclassification of stock in September, 1936, exchanged his then holdings for the new securities provided for in the second reclassification, does not appear. He accepted dividends, however, of cash and scrip as the same were declared, which were payable to him in right of the stocks he received out of the reclassification of July, 1935.

The complainant contends that the reclassification of September, 1936, was based upon the reclassification of 1935. As the latter, he contends, was void, the former which is integrated with it is also void. The complainant's whole attack centers on the validity of the 1935 reclassifying amendment to the charter.

On November 10, 1936, the Supreme Court of this State reversed the decision of the Chancellor in Keller, et al., v. Wilson & Co., 21 Del.Ch. 391, 190 A. 115, and immediately thereafter the complainant demanded that the defendant's recapitalization or reclassification of stock be set aside, and that no dividends be paid on any class of stock until the dividends accumulated on the original seven per cent first preferred stock had been fully paid.

The bill has a double aspect. It prays first that the arrearages which had accumulated on the old seven per cent cumulative first preferred stock be paid to the complainant and others in like situation with him, and that the arrearages which had accumulated on the old eight per cent cumulative preferred stock be paid to the old holders of that stock. The second aspect of the prayers is that the two reclassifications be declared absolutely void in law, that the defendant be compelled to restore its capital structure to its original form, and that, in order completely to restore the status quo ante, the defendant shall call in all the shares now outstanding, issue to the holders thereof their original equivalents and force from everybody who has received dividends under either of the reclassifications the respective amounts received by them.

The defendant by its plea contends that under the facts as they have been hereinbefore briefly recited, the complainant is barred from maintaining his suit, because he has acquiesced in the acts complained against by tendering his stock in exchange and receiving dividends on the new stock; and secondly because he has been guilty of laches.

The complainant raises the point that the plea should be overruled because it is double. The alleged duplicity consists in this, that it presents two grounds for a bar, viz., acquiescence and laches. It is of course fundamental that a plea should be single. The rule of singleness is not offended because of a variety of circumstances or a number of facts which it may set up, if they all tend to one point. 1 Daniel Chancery Practice, (4th Am. Ed.) 603, 607. There are cases, however, where a double plea is entirely proper. Where the bill presents a claim that is itself double or in the alternative, it is permissible for a plea to be filed addressed to each of the two alternatives of the bill. 1 Daniel Chancery Practice, (4th Am. Ed.) 609. The instant case is just such a case. The complainant seeks (a) complete rescission of the two reclassifications, and (b) that he be paid the arrearages on the old seven per cent preferred stock. It is entirely conceivable that the right to (a) might be denied and yet the right to (b) granted. The plea of laches is very appropriately applicable to (a) and the plea of acquiescence to (b). The plea, as I consider it, advances a single point in defense of each of the two claims or alternatives made by the case which the bill presents.

I examine now the first alternative above designated as (a) viz., the relief of restoration of the original capital structure of the defendant. That the complainant is barred by laches from securing that relief, seems to me to admit of no doubt. The averments of the plea supplement the allegations of the bill and together they show that the...