126 Misc. 786 | N.Y. Sup. Ct. | 1926
Plaintiff, a stockholder of the Bay Consolidated Copper Company, has brought suit on behalf of himself and all the stockholders of that company to enjoin a proposed sale of the assets of the company to the Nevada Consolidated Copper Company in return for 3,077,179 shares of stock and the assumption of the Bay Company’s liabilities. The board of directors of both companies had recommended to their respective stockholders that they approve the proposed sale, and stockholders’ meetings had been called for that purpose. Several days prior to November 10, 1925, the date fixed for said stockholders’ meetings, the plaintiff obtained an order which contained a preliminary injunction restraining the defendants from participating in the meeting of the Bay stockholders, or any
The complaint is replete with allegations which might form the basis of various causes of action or charges against some or all of the defendants. It is evident, however, from a reading of the supporting affidavits that the only claim which the plaintiff urges with any apparent degree of seriousness is that the proposed sale is the result of a conspiracy on the part of the directors of the Ray Company, and other defendants, to swindle and cheat the Ray stockholders by giving them, in return for each share of present Ray stock, a share of Nevada stock of much less value. Allegations of the complaint that one of the aims of the conspiracy is to obtain control of the copper industry in the United States in violation of the Sherman Anti-Trust Law, constitute mere conclusions which find no persuasive evidentiary support in the affidavits submitted by the plaintiff. Equally unfounded seem to be the allegations of the complaint which charge the directors of the Ray Company with having been derelict and guilty of breaches of trust in the performance of their duties to the stockholders of the company, unless the misconduct, as claimed, be confined to their alleged participation in a conspiracy to “ unload ” the Nevada Company on the Ray stockholders, to the great benefit of the Nevada stockholders and the obvious detriment of the former. Allegations of the complaint that the Ray-Chino merger consummated early in 1924 constituted a similar “ unloading ” of the Chino Company upon the Ray stockholders can hardly, in themselves, form a basis for granting the injunctive relief here sought with respect to a merger between the Nevada Company and the present Ray Company, which acquired the assets of the Chino Company almost two years ago. The prayer for relief does not demand that the Ray-Chino situation be set aside, and references in the complaint to this already completed transaction are, therefore, at best, merely some evidence of the improper execution of its trust by the Ray directorate. The allegations that there were interlocking directors on the boards of the Ray and Nevada Companies would not, by themselves, even if true, entitle the plaintiff to enjoin a proposed sale whose consummation required, under the laws of Maine, the State of incorporation of the Ray Company, the approval of the majority of the outstanding stock of the company in addition to the approval of the board of directors. Intermingling of directors and even of stock
In order to succeed on the trial of this action, it would be necessary for the plaintiff to establish not only that the contemplated merger is an improvident one from the point of view of the stockholders of the Ray Company but also, to employ the language of Judge Peckham in Gamble v. Queens County Water Co. (123 N. Y. 91, 99), “ that such action is so far opposed to the true interests of the corporation itself as to lead to the clear inference that no one thus acting could have been influenced by any honest desire to secure such interests, but that he must have acted with an intent to subserve some outside purpose, regardless of the consequences to the company and in a manner inconsistent with its interests.” The Court of Appeals there well stated that “ otherwise the court might be called upon to balance probabilities of profitable results to arise from the carrying out of the one or the other of different plans proposed by or on behalf of different shareholders in a corporation, and to decree the adoption of that line of policy which seemed to it to promise the best results, or at least to enjoin the carrying out of the opposite policy. This is no business for any court to follow.” (See, also, Flynn v. Brooklyn City Railroad Co., 158 N. Y. 493; Schwab v. Potter Co., 129 App. Div. 36; affd., 194 N. Y. 409; Colby v. Equitable Trust Co., supra.) Indeed, the plaintiff seems to have realized that mere 'inadequacy of price was. insufficient, per se, to entitle him to the equitable relief which he seeks, for as has already been observed, the complaint also contains allegations that the proposed merger is the result of a conspiracy to defraud, swindle and cheat the stockholders affected.
Passing, for the moment, the question of the adequacy or the inadequacy of the price to be obtained by the Ray stockholders if the proposed merger is consummated, and directing my attention in search of evidence that the directors in recommending it to their stockholders were influenced by motives and interests inconsistent with the welfare of such stockholders, I find that the papers before me are wholly barren in that respect, except for the claims, in large part conclusions, of the plaintiff. It is undenied that at the time the Ray board of directors approved the proposed Ray-Nevada consolidation, there was only one director of the Ray Company who was also a director of the Nevada Company. This common director, Jacklin, president of the Nevada Company, had been in general charge of the Ray, Chino and Nevada companies from the dates when they respectively began operations and he appears to have been, to a great
In the complaint and in the affidavit on which the order to show cause was granted, plaintiff’s attack of fraud is based on an alleged disparity between the number of pounds of copper per share in the ore reserves of the Ray Company and those per share in the reserves of the Nevada Company. Plaintiff’s figures purport to be taken from various statements and reports issued by the respective companies from time to time. From these, the plaintiff has cabcu'iatecl that each share of outstanding Ray stock is represented by 1,977 pounds of copper in the ground, whereas each share of
According to the answering affidavits, the grade of two and three one-hundreths per cent copper assigned to the Ray ore reserves in 1916 was only an advance estimate, arrived at by development drilling. In actual practice the ore, while being mined, is augmented by the lower grade ore surrounding it on the sides and top, and as a result a greater tonnage must be mined with a consequent decrease in the percentage of copper content. In a mine like Ray, “ underground,” the amount of dilution is much larger than in the Nevada mine, for example, where from the surface, steam shovel mining methods are employed to a large extent. Furthermore, the amount of precious metals recovered at the Nevada mine appears
Confronted with these considerations, the plaintiff apparently realized that he could not successfully dispute the inadequacy of -his own method of comparing the values of the properties, or the correctness of those employed by the engineers. Accordingly, he sought to overcome them by various claims, among them that 20,000,000 tons of ore which were involved in condemnation proceedings brought by the Nevada Company, should be deducted from its published figures as to ore reserve. This is seemingly met by the answer of the Nevada engineers that this quantity of ore was never included in Nevada’s definitely computed resources, but, on the contrary, was merely additional. This, and the several other situations, among them, the matter of the declaration of the dividends and the Skinner statistics, upon which the plaintiff relies, might be more elaborately dealt with here, but as they may far more adequately be disposed of at a formal trial, at which the relative rights and equities of the parties could be appropriately developed, I hesitate to enter upon any such task. Besides, under the laws of the State of Maine the plaintiff would seem to have
In the circumstances, however, I feel that the plaintiff is not entitled to injunctive relief and the motion will, therefore, be denied.