19 Del. Ch. 426 | New York Court of Chancery | 1933
The corporations for which receivers pendente lite are sought are holding companies. Annenberg holds fifty per cent, of the voting stock of each and is in control of their management. Each has four directors in office. He and his son are on the boards of each. So are Bannon and Murrhy, who hold the other fifty per cent, of the voting stock. From an investment
The part of the business in which the holding companies are interested and with which we are immediately concerned, is that of -publishing. Through subsidiaries they publish daily - newspapers which cater to the followers of horse-racing. The publications wholly controlled by them are “Daily Racing Form,” published in New York City and Chicago, and “Daily Running Horse,” published in New York. They own and control also a fifty per cent, interest in “The Morning Telegraph,” a daily newspaper published in New, York City, which specializes not only in racing news but also in theatrical and motion picture news. All three of these publications are therefore competitors.
Annenberg, Bannon and Murray have been associated together as publishers for about ten or eleven years, as I recall. They started their business in a small way, investing only one hundred thousand dollars of capital therein. The business was highly profitable. They have taken out of it several millions in dividends, and have invested more millions of profits in expanding and acquiring additional properties.
In 1932, however, they encountered certain very troublesome difficulties with the United States Government in connection with a publication called “Brevities” which was printed by one Joseph Ottenstein in one of the plants owned by “Daily Running Horse.” Indictments were found against Annenberg, Bannon and Murray. These indictments were later nolle prossed. The returning of the indictments brought on a rather bitter controversy, Bannon and Murray taxing Annenberg with the entire responsibility for allowing. “Brevities” to be published in the plant of
It is charged by Bannon and Murray that Annenberg desired to get rid of them as associates, that he sought to buy their stock, that they refused to sell out, and that he thereupon threatened to so manage the business that it would cease to be attractive to them and that then he would get their stock at his own terms. That is the substance of the charge made by Bannon and Murray. They say that Annenberg has been conducting the business since that threat in such manner as to show .him to be insidiously at work in carrying it out. They are powerless, because of the deadlocked situation both in stockholders’ meetings and in the boards of directors, either to oust Annenberg from his possession of and control over the executive management which the controversy found him vested with, or to alter the allegedly destructive policies he has been pursuing. And so they ask for a receiver pendente lite to take possession of each of the corporations and save it from Annenberg’s alleged malicious designs.
The relief asked for is. drastic. It is sought at a preliminary stage of the suit. If granted, it means that this court must in the last analysis take active chárge temporarily of the conduct of a going publishing business of considerable size which has hitherto been highly prosperous and which, so far as the argument discloses, I am entitled to believe continues to be of great value. A court should never wrest control of a business from the hands of those who have demonstrated their ability to manage it well, unless it be satisfied that no course, short of the .violent one, is open as a corrective to great and imminent harm.
This court has on various occasions given expression to views which indicate with what delicacy of caution the
The cases cited by the solicitors for the complainants are not, when examined, at variance with this rule. The first of them are two English cases decided on the same day by Sir R. Malins, V. C. They are Featherstone v. Cooke, 16 L. R. Equity Cases 298, and Trade Auxiliary Co. v. Vickers, 16 L. R. Eq. Cases 303. It appears that in those cases the dissensions had resulted m such injury to the company’s business as to lead to its complete cessation in the former case and to violence and disorganization in the latter. Temporary relief was afforded in both cases during the short interval necessary for a meeting of the stockholders to be convened for the purpose of settling the controversy over the personnel of the management. The principle which he announced as controlling his judgment was expressed by him as follows (p. 305), the “court will not interfere with the internal affairs of joint stock companies unless they are in a condition in which there is no properly constituted governing body, or there are such dissensions in the governing body thaii it is impossible to carry on the business with advantage to the parties interested”—a principle which is in no sense at odds with the views of the Vice-Chancellor of New Jersey, as expressed in Sternberg v. Wolff, supra. Neither are the other cases cited by the solicitors for the complainants at odds with that rule. In Boyle v. Superior Court, 176 Cal. 671, 170 P. 1140, L. R. A. 1918D, 226, for instance, the business of the corporation was under enforced suspension due to dissensions; in Boothe v. Summit Coal Mining Co., 55 Wash. 167, 104 P. 207, 19 Ann. Cas. 1255, there was fraud practiced by the head of the management, and in Eureka Coal Co. v. McGowan, 72 Colo. 402, 212 P. 521, the report states the corporation to have been mismanaged—whether under circumstances amounting to fraud, the opinion does not say. Because of the meagreness of the report that case is not of much assistance.
With these principles in mind, what is the answer I should make to the pending motions? Certainly if it had not been for the alleged threats which Annenberg is charged with having uttered, every act which he has done in the management of the newspapers and every policy he has insisted upon pursuing could be referred to a perfectly honest exercise of business judgment. The complainants disagree with him as to the wisdom of his course. But they take the view and appear very earnest in entertaining it, that Annenberg’s policies are so palpably at variance with sound business judgment, that they cannot be accounted for as honestly entertained by him, and that they must therefore be explained on the theory that they are but the visible steps he is taking to carry out his alleged malevolent threats of destruction of the business. Of course if that were true, the court should without hesitancy wrest the management from him and place it in the hands of a conserving receiver.
But I am unable to persuade myself on the present showing that the motives underlying the actions of Annenberg in the management of the business are tainted with the malice charged against him. I shall not discuss the details of his management that have been pointed out by the complainants as sustaining their charge of malevolence on Annenberg’s part. I listened to them discussed throughout a long day of argument and I believe I have a fair
That being so, I come down to this—should a receiver pendente lite be appointed or an injunction issued in the case of an active and prosperous corporation simply because of dissensions among its owners over questions of business policy? Now on a question of that sort, no one I take it would for a moment contend that a court would be justified in interfering.
I am of the opinion that the drastic remedies sought at this preliminary stage of the case should be refused. In reaching this conclusion I do not of course mean to inti
All that I now determine is that I see no occasion on the present showing and at this preliminary stage for this court to undertake the operation of the newspapers in question. I am not persuaded at the present juncture that the subject matter in dispute is in danger of such loss or depreciation in value, or that such an emergency exists, as to call for conservation orders.
The rules will be discharged.