Suit by stockholder to enjoin proposed liquidation and sale of corporate assets. On motion for preliminary injunction, the Court of Chancery, Marvel, Vice Chancellor, held that the evidence failed to establish basic elements of a case on ground of conflict between director's duty and self-interest not disclosed to stockholders in management proxy statement.
Temporary restraining order dissolved and motion for preliminary injunction denied.
[35 Del.Ch. 199] Stewart Lynch (of Hastings, Lynch & Taylor), Wilmington, and Muccia & Muccia, New York City, for plaintiff.
Aaron Finger (of Richards, Layton and Finger), Wilmington, and Winslow M. Lovejoy (of Lovejoy, Morris, Wasson & Huppuch), New York City, for defendant.
[35 Del.Ch. 200] MARVEL, Vice Chancellor.
Plaintiff seeks a preliminary injunction enjoining defendant, a Delaware corporation, from liquidating and making a cash distribution to its stockholders in the amount of $29 per share as a corollary to a proposed sale of its principal assets to North Central Corporation, a recently formed Delaware corporation. The agreement of sale of assets, the consummation of which plaintiff also seeks to enjoin, covers defendant's assets other than cash and United States Government securities, subject to a so-called retained production payment payable out of the operation of defendant's oil and gas interests. Filiorum Corporation, a California corporation, has agreed to purchase this payment from defendant for $4,250,000. The proposed undertakings of the defendant and of the purchasers and the tax consequences of the proposed arrangements are such as to assure payment of $29 per share to defendant's stockholders in the event that defendant's plans for going out of business which include dissolution are consummated.
Plaintiff, one of defendant's stockholders, makes her basic attack on the corporate actions sought to be enjoined on the grounds that stockholders authorization of such actions was obtained by means of inaccurate and incomplete information furnished to stockholders in a management proxy letter of March 11, 1955, and that the proposed liquidation and sale are not, as represented by the proxy statement, in the best interests of the corporation.
In her attack on the proxy statement, plaintiff charges that defendant failed to disclose to its stockholders that William Ewing Jr., a former director of defendant and a partner of Morgan, Stanley and Co., a stockholder of the proposed purchaser, had played a [35 Del.Ch. 201] central role in the negotiations between buyer and seller prior to his resignation as a director of defendant. On this same theme of interest plaintiff argues that other directors and officers of defendant breached their fiduciary duty to defendant in voting for the sale and liquidation, after negotiations had been carried on at less than arm's length and that as such
self-interest was not disclosed to stockholders, the proposed agreement of sale of assets is void.
Plaintiff further contends that the proxy statement was misleading in that it disclosed the book value of defendant's non-producing properties rather than their actual value. The complaint also alleges that the proxy statement incorrectly stated that the estimates of reserves set forth in an appraisal of defendant's assets made by Robert W. Harrison and Co. for the proposed purchasers were in substantial accord with defendant's own estimates.
Finally, insofar as information furnished to stockholders is attacked, plaintiff questions the accuracy of the proxy statement's gloomy picture of defendant's future prospects in the light of the corporation's past and prospective earnings, the availability of new producing properties, and the market for its stock.
Going outside the proxy statement the complaint charges that defendant should have obtained an independent appraisal of its assets and not relied on the purchasers' appraiser whose estimates plaintiff questions. While plaintiff urges that defendant's past and prospective earnings do not warrant liquidation and sale of defendant's assets, she insists that were such actions desirable a better price than $29 per share for defendant's stock could be obtained.
The Chancellor declined to enjoin the holding of a meeting of stockholders called to approve the proposed liquidation and contract of sale but he did restrain temporarily the carrying out of such acts in the event of stockholder ...