Rehearing Denied July 27, 1954.
Suit by stockholder for preliminary injunction to restrain corporation from liquidating pending determination of merits of stockholder's complaint seeking restoration of status quo existing prior to sale of corporate assets. The Court of Chancery in and for New Castle County, Seitz, Chancellor, held, inter alia, that where corporation would not be able to repay purchaser of its assets if court directed restoration of status quo ante, preliminary injunction would serve no useful ultimate purpose and would be denied.
Preliminary injunction denied.
Arthur G. Logan (of Logan, Marvel & Boggs), Wilmington, for plaintiff.
Henry M. Canby (of Richards, Layton & Finger), Wilmington, and Frank Chapman (of Robinson, Robinson & Cole), Hartford, Conn., for defendants Pawcatuck Co., Donald C. Cottrell, Ridley Watts, Arthur M. Cottrell, Jr., and Charles P. Cottrell, Jr.
Richard F. Corroon (of Berl, Potter & Anderson), Wilmington, for defendant Harris-Seybold Co.
Plaintiff seeks a preliminary injunction to restrain the defendant, The Pawcatuck Company, from holding a stockholders' meeting called for the purpose of obtaining stockholder approval [34 Del.Ch. 529] to a plan of liquidation, and/or from distributing its assets pending a determination of the merits of her complaint.
In her complaint filed December 4, 1953, plaintiff sought to enjoin the corporate defendant, C. B. Cottrell & Sons Company (called ‘ Old Cottrell Company’ ) from selling its assets to the other corporate defendant, Harris-Seybold Company on the grounds, inter alia, that the value to be received therefor was grossly inadequate and no effort was made to get the best price.
Plaintiff sought and obtained a restraining order on December 8, 1953. Subsequently the old Cottrell Company filed a motion to vacate the restraining order on the condition that a bond be filed to protect plaintiff's possible loss by virtue of the sale. The court indicated orally that the motion would be granted on such condition. Whereupon plaintiff voluntarily moved to vacate the restraining order and the rule to show cause why a preliminary injunction should not issue. This was done by the court's order of December 8, 1953. The sale of assets was then consummated immediately.
Harris-Seybold Company, the purchaser, caused a new corporation to be formed with the same name as the selling corporation, viz., C. B. Cottrell & Sons Company, and caused the assets to be transferred to that company. The purchase price consisted of $2,010,000 in cash, 14,000 shares of Harris-Seybold common stock valued at $35 per share and the assumption of the old Cottrell Company's liabilities in the sum of $1,053,997.33. For this the old Cottrell Company transferred a going concern consisting of land, buildings, machinery, inventory, good will, etc., used in the manufacturing of printing presses.
The selling corporation, having sold its corporate name, took the name The Pawcatuck Company (‘ Pawcatuck’ ) and its new name has been substituted in this action. Later Pawcatuck contracted with certain of its stockholders to purchase their stock at $625 per share and such stock was purchased for cash payments of $1,717,500. This offer was also made plaintiff who refused to accept it. Later the directors voted to redeem and did redeem 2,650 [34 Del.Ch. 530] shares of its 6% preferred stock and paid therefor the sum of $280,900. Plaintiff was aware of and made no objection to these acts.
On March 24 of this year, Pawcatuck filed with the federal government and was subsequently allowed a tax refund of $1,141,159.34 which was received on June 29, 1954. This arose from the loss on the sale of assets. Plaintiff knew that such a claim would be made were the sale consummated.
At a directors' meeting held May 10, 1954, a plan for the liquidation of Pawcatuck was adopted and a special meeting of stockholders called to approve it. This is the meeting plaintiff now seeks to have enjoined. At the same directors' meeting the board authorized its president to sell 7,700 shares of the common stock of Harris-Seybold at $33 per share. This sale was consummated. ...