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Brill v. General Industrial Enterprises Inc.

June 20, 1956

FLORENCE W. BRILL, HERMAN CANTER, EDWARD NETTER, FRANCES NETTER AND ROBERT NETTER
v.
GENERAL INDUSTRIAL ENTERPRISES, INC. (FORMERLY THE MIDVALE COMPANY), BALDWIN SECURITIES CORPORATION, MIDVALE-HEPPENSTALL COMPANY, THE HEPPENSTALL COMPANY, HOWARD H. CASEE, WALTER H. LEWIS, LLOYD R. LOEWEN, LEWIS W. METZGER, RICHARD T. NALLE, ADOLPH O. SCHAEFER, EDWARD HOPKINSON, JR., AND C. E. ACKER.



Author: Kalodner

Before GOODRICH, MCLAUGHLIN and KALODNER, Circuit Judges.

Opinion of the Court

By KALODNER, Circuit Judge: Plaintiffs appealed from an Order of the District Court for the Eastern District of Pennsylvania dismissing their stockholders' derivative action to enjoin the sale of the corporation's assets which was premised on their contention that such sale would violate the federal anti-trust laws and thus subject the corporation to civil and criminal liability.

Defendants moved to dismiss the appeal on the ground of "mootness" in that the sale sought to be enjoined by plaintiffs was completely consummated subsequent to the dismissal above stated and prior to the filing of the appeal.

Plaintiffs, in turn, moved to reserve the decision on the Motion to Dismiss until the hearing of the appeal, or, in the alternative, to remand the cause to the District Court to permit the filing of supplemental pleadings.

For the purposes of this discussion the facts may be summarized as follows:

On December 2, 1955, the Midvale Company ("Midvale") entered into an agreement with the Midvale-Heppenstall Company ("Heppenstall") for the sale to the latter of its physical assets which consisted principally of a steel and ordnance plant at Nicetown, Philadelphia, Pennsylvania. Heppenstall agreed to pay Midvale $6,100,000 cash and to assume certain obligations of Midvale including a contract which the latter had with the United States. Midvale was to retain its net liquid assets and the right to certain income tax credits which together totalled approximately $8,000,000.

On December 7, 1955, notice was given to the stockholders of Midvale that a special meeting would be held on December 21, 1955, to approve or disapprove of the proposed sale, and if such approval were given, to act upon a proposal to change Midvale's name to General Industrial Enterprises, Inc. The purpose of this change was to continue the existence of the corporation, utilizing its assets for investment and reinvestment.

On December 19, 1955, the plaintiffs, some of them stockholders of Midvale, others stockholders of Baldwin Securities Corporation (which owned 62% of Midvale's capital stock) instituted their stockholders' action.*fn1

The Complaint contained three counts. The first two counts alleged in substance that the sale price was inadequate and that the sale would not be in the interest of Midvale stockholders. The third count was premised on the allegation that the sale would violate the anti-trust laws.*fn2 The Complaint prayed for an injunction which would prevent the defendants from holding the Midvale stockholders' meeting on December 21, 1955, from voting shares in favor of the proposed sale and from otherwise consummating it, and finally, a decree declaring the proposed sale to be illegal. Following the filing of Answers a hearing on the plaintiffs' motion for a temporary restraining order was begun in the District Court on December 20th, the day before the stockholders' meeting.*fn3

The necessity of having the controversy promptly disposed of was apparent from the beginning of the hearing, not only because the purchase agreement in terms provided for consummation by December 31, 1955, but also because it was expected that a tax benefit of approximately $1,800,000 would be lost if the sale were not effected by that date. In view of this, at the end of the first day of hearing on December 20, 1955, it was agreed, with the approval of the court, that the Midvale stockholders' meeting might be held as scheduled on December 21, 1955, but the hearing before the court should resume on December 22, 1955 as a final hearing, and that upon its conclusion the court would make a ruling which, if favorable to defendants, would be rendered in time to permit consummation of the sale by December 31, 1955.

At their meeting on December 21, 1955, Midvale's stockholders approved the purchase agreement and the transactions contemplated thereby, 431,896 votes having been cast in favor of the sale and 58,373 votes against it. The change in Midvale's name to "General Industrial Enterprises, Inc." was approved also, 432,887 votes to 58,019.

Following the stockholders' meeting the hearing was resumed as a final hearing on December 22, 1955. During the course thereof the plaintiffs in the Brill suit were permitted to amend their third cause of action or count by deleting paragraph 39 of the Complaint, which had stated:

"This cause of action is brought under the Federal Anti-Trust Laws, commonly referred to as the Sherman ...


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