Zahn v. Transamerica Corporation, 490.
| Citation | 63 F. Supp. 243 |
| Decision Date | 05 September 1945 |
| Docket Number | No. 490.,490. |
| Parties | ZAHN v. TRANSAMERICA CORPORATION. |
| Court | U.S. District Court — District of Delaware |
Samuel Handloff, of Wilmington, Del., for plaintiff.
Hugh M. Morris and Edwin D. Steel, Jr. (of Morris, Steel & Nichols), all of Wilmington, Del., for defendant.
This is an action by plaintiff as a class A stockholder of Axton-Fisher to recover damages for defendant's fraud in causing Axton-Fisher to redeem its class A stock at $80.80 per share on July 1, 1943, instead of permitting the class A stockholders to participate in the liquidation of Axton-Fisher, which occurred in June of 1944. Plaintiff charges that if the class A stock had not been redeemed at $80.80 per share the class A stockholders would have received upon liquidation of Axton-Fisher, pursuant to its charter,1 not less than $240 per share, and that defendant, by causing the redemption of the stock and thus precluding its holders from participating in the liquidation, enriched itself as the majority and dominant class B stockholder in the amount of $2,451,202.
The complaint purports to state two causes of action: The first, on behalf of plaintiff and all other class A stockholders who surrendered their certificates and received the redemption price of $80.80 per share; and the second, on behalf of plaintiff and all other class A stockholders who have not surrendered their certificates for redemption. Plaintiff alleges that he surrendered part of his class A holdings for redemption but that he still holds certificates for 20 shares which have not been surrendered. The matter is before the court upon defendant's motion to dismiss the complaint. The facts made by the complaint and motion to dismiss so far as they relate to the cause of action by plaintiff as holder of certificates which were not surrendered pursuant to the redemption will be recited.
In May, 1941, defendant purchased 80,160 shares of class B common stock of Axton-Fisher, which was over 70% of that class, and 46% of the total voting stock of Axton-Fisher. By March 31, 1943, defendant had increased its class B holdings to about 80% of the issue and had also acquired 30,168 shares of class A stock. Later defendant converted all of its class A common stock into a like number of class B stock and purchased additional shares of class B stock. As a result of these purchases and exchanges defendant, by May 31, 1944, owned virtually all of the class B common stock.
In the latter part of 1942 and in the spring of 1943, the principal asset of Axton-Fisher was its leaf tobacco which cost $6,361,981 and which was carried on its books in that amount. As a result of the sharp increase in the market price of leaf tobacco, due to war conditions, the inventory of Axton-Fisher in March and April of 1943 amounted to about $20,000,000. This fact was unknown to the public holders of class A common stock of Axton-Fisher.
To appropriate to itself virtually all of the benefits of the extraordinary rise in the market value of the tobacco inventory and of the other assets of Axton-Fisher, defendant determined to effect a merger or dissolution of Axton-Fisher and an accompanying sale, liquidation or transfer of all of its assets; but in order to make it appear that the redemption was incident to the continuance of the business as a going concern, defendant determined to defer the merger, dissolution or liquidation until after the redemption of the class A stock had been completed. On April 30, 1943, defendant caused Axton-Fisher to call for redemption on July 1, 1943, all of its issued and outstanding class A stock at a price of $60 per share and accrued dividends of $20.80 per share, or a total of $80.80 per share.
On May 31, 1944, defendant caused Axton-Fisher to be dissolved. On June 20, 1944, defendant caused Axton-Fisher to sell to Philip-Morris Company, Ltd., Inc., substantially all of the factories, plants and facilities and a substantial part of the inventory of cigarettes and tobacco owned by Axton-Fisher. At the same time, defendant caused Axton-Fisher to distribute to its class B stockholders warehouse receipts representing all of the cigarette and tobacco inventory not included in the sale to Philip-Morris. At the time of the distribution, the defendant owned nearly all of the outstanding class B stock of Axton-Fisher and, as a consequence, defendant has been the recipient of substantially all of the entire proceeds of the sale and substantially the entire tobacco inventory represented by the warehouse receipts distributed in liquidation.
If the class A stock had not been called, the class A stockholders, upon the liquidation of Axton-Fisher, would have been entitled to have been paid their accrued dividends before any distribution was made to the class B stockholders and, in addition, the class A stockholder would have been entitled to receive twice as much upon each share of A stock as was paid upon each share of B stock.
The complaint charges that at all times since May 16, 1941, defendant has dominated the management, directorate, financial policies and affairs of Axton-Fisher; that all acts of Axton-Fisher complained of were performed under the direction, domination and control of defendant. It further charges that because of defendant's position as dominant controlling stockholder of Axton-Fisher, it owed a fiduciary obligation to all class A stockholders. It is charged that when defendant caused the class A stock to be called solely for its self aggrandizement, it violated that fiduciary obligation. Finally, it is charged that since redemption of the class A stock was not made in good faith or in contemplation of continuance of Axton-Fisher as a going concern, it was a fraudulent action and hence invalid and of no force and effect.
The complaint charges that, as a result of the actions of defendant, it has appropriated to itself at least $2,451,202 which legally and equitably belongs to the class A common stockholders, in addition to the purported redemption price of $80.80 per share which they have received.
The second cause of action is brought by plaintiff as a former holder of certificates representing 215 shares of class A stock which were surrendered pursuant to the redemption. The complaint, as it relates to this cause of action, embodies all the allegations of the other cause of action. In addition, it is charged that on June 16, 1943, the directors of Axton-Fisher attempted to make the redemption of the class A stock optional with the class A stockholders rather than mandatory, as contemplated by an earlier action of the directors; but that ...
To continue reading
Request your trial
-
Tobacco and Allied Stocks v. Transamerica Corp.
...judgment filed in that case. Such an affidavit was supplied.110 Wharton, Edelstein and Cohen read the first Court of Appeals decision in the Zahn case,111 handed down August 13, 1946, sustaining the validity of the complaint as a cause of action. The Court specified no date for the concepti......
-
Speed v. Transamerica Corp.
...in Geller v. Transamerica Corp., D.C.Del., 53 F.Supp. 625; Id., 63 F.Supp. 248, affirmed 3 Cir., 151 F.2d 534; Zahn v. Transamerica Corp., D.C.Del., 63 F.Supp 243, reversed 3 Cir., 162 F.2d 36, 172 A.L.R. 495; Friedman v. Transamerica Corp., D.C.Del., 63 F.Supp. 247; Id., 5 F.R.D. 115; Spee......
-
Zahn v. Transamerica Corporation
...Transamerica filed a motion to dismiss. The court below granted the motion holding that Zahn had failed to state a cause of action. See 63 F.Supp. 243. He The facts follow as appear from the pleadings, which recite provisions of Axton-Fisher's charter. Prior to April 30, 1943, Axton-Fisher ......
-
Speed v. Transamerica Corporation
...resulting from a call was the legal fact which made the call irrevocable. This is primer corporate law. In Zahn v. Transamerica Corp., D.C.Del., 63 F.Supp. 243, at page 246, I accepted the legal fact the charter did not prohibit a call which would deprive A shareholders of the right to exer......