Williams v. Bartell

MoNally, J. The appeals are consolidated and disposed of as follows: The orders dated February 9, 1962 and February 13, 1962 are modified, on the law and on the facts, without costs, and the [23] motions for injunctions pendente lite granted to the extent of restraining defendants-respondents Macfadden Publications, Inc. (hereinafter referred to as Macfadden), a New York corporation, and Bartell Broadcasting Corporation (hereinafter referred to as Broadcasting), a Delaware corporation, from using the assets or credits of Macfadden in behalf of Broadcasting or Macfadden-Bartell Corporation, a Delaware corporation, pending the trial of these actions and for at least five days after the entry of final judgment therein provided that within 10 days of the entry of this order in each action the plaintiffs serve and file a joint surety company bond in the principal sum of $75,000 to indemnify the respondents from damages resulting from said injunctions, and, as so modified, affirmed. In these actions plaintiffs seek to enjoin the merger and consolidation of the defendants-respondents Macfadden and Broadcasting. Plaintiffs own approximately 10,500 shares of Macfadden. Defendants Bartell own in excess of 80% of the outstanding shares of stock of Broadcasting. Broadcasting owns 22.4% of the outstanding Macfadden stock. Defendants Gerald A. Bartell and Lee B. Bartell are members of and control the board of directors of both corporations. The agreement of merger and consolidation dated January 11, 1962 provides that the surviving corporation, which has since materialized in the form of Macfadden-Bartell Corporation, shall issue two shares of capital stock for each outstanding share of capital stock of Macfadden and one share of capital stock for each outstanding share of capital stock of Broadcasting. Plaintiffs allege that the merger will defraud the stockholders of Macfadden and unjustly enrich the defendants Bartell and Broadcasting. Defendants caused to be prepared and disseminated among the stockholders of the constituent corporations a proxy statement for a special meeting of stockholders to be held February 9, 1962. The meeting was had and the consolidation and merger approved. On the same day pending the appeals herein, on consent and by stipulation of the parties, the respondents were restrained by this court from commingling the funds and assets of the respective corporations. Plaintiffs allege the proxy statement prepared and disseminated among the stockholders by the defendants understates materially the assets of Macfadden and the liabilities of Broadcasting ; overstates the assets of Broadcasting; and omits to set forth material facts with regard to the liabilities of Broadcasting. Plaintiffs also allege defendants caused Macfadden to purchase 55,000 shares of its stock at $12 per share in order to eliminate the voting of these shares in opposition to the merger; [24] that the proxy statement did not adequately apprise the stockholders of Macfadden that the issue by Broadcasting to the defendants Bartell of 250,000 shares of stock on December 5, 1961 served to insure them of majority control of the surviving corporation. Additionally, plaintiffs allege Broadcasting is without working capital and it is the purpose of the defendants to make available to the surviving corporation the working capital of Macfadden to pay the current debts of Broadcasting. The presence of common directorates in respect of the constitutent corporations in the light of the adverse and conflicting interests requires the most careful scrutiny of the transactions here involved. (Chelrob, Inc. v. Barrett, 293 N. Y. 442, 461; Pink v. Title Guar. & Trust Co., 274 N. Y. 167, 174; Globe Woolen Co. v. Utica Gas & Elec. Co., 224 N. Y. 483, 490; Continental Ins. Co. v. New York & Harlem R. R. Co., 187 N. Y. 225, 238-239; Farmers’ Loan & Trust Co. v. New York & Northern Ry. Co., 150 N. Y. 410; Sage v. Culver, 147 N. Y. 241, 246-247; Turner v. American Metal Co., 268 App. Div. 239, 261; Marian v. Mariani, 276 App. Div. 205, 208.) We do not at this time pass or express any opinion on the merits of the contentions of the plaintiffs. However, enough appears to warrant the scrutiny consequent on a trial on the merits. We are not unaware of the relevancy of the approval of the stockholders at the meeting held February 9, 1962. Nevertheless, whether the approval of the stockholders was with knowledge of the relevant facts is to be determined upon the trial (Brooklyn Heights R. R. Co. v. Brooklyn City R. R. Co., 151 App. Div. 465, 477); as is the effect of the provision of the certificate of incorporation of Macfadden authorizing directors to act when pecuniarily interested providing the interest is disclosed (Everett v. Phillips, 288 N. Y. 227, 237). On this appeal counsel for defendants-respondents stated that the surviving corporation, Macfadden-Bartell Corporation, will appear in these actions. Plaintiffs have expressed their desire and readiness for an immediate trial. In the circumstances the trial of these actions should proceed expeditiously. Settle order making provision for the joining of Macfadden-Bartell Corporation as a defendant and with provision for an immediate trial if the defendants so stipulate.