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TROUPIANSKY v. HENRY DISSTON & SONS

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF PENNSYLVANIA


May 9, 1957

Harry TROUPIANSKY and William B. Weinberger
v.
HENRY DISSTON & SONS, Inc., and H. K. Porter Company, Inc.

The opinion of the court was delivered by: DUSEN

This matter comes before the court on the motion of defendant Henry Disston & Sons, Inc. (hereinafter called 'Disston') to dismiss plaintiffs' complaint, and on the motion of defendant H. K. Porter Company, Inc. (hereinafter called 'Porter') to dismiss the action or for summary judgment.

Plaintiffs are the record holders of shares of common stock of defendant Disston and bring suit for the fair value of their stock as of November 14, 1955, the day prior to the special meeting of shareholders of Disston at which an 'Agreement and Plan of Reorganization' dated October 15, 1955 (Exhibit 'A-1' attached to Porter's motion to dismiss) was approved by a majority of the shareholders.

 Plaintiffs were notified, both on October 14, 1955, and October 21, 1955, by Disston of such special meeting of shareholders for the purpose of voting on the 'Agreement and Plan of Reorganization' and, prior to the scheduled date of the meeting, they notified Disston in writing that they objected to and dissented from the proposed agreement. Plaintiffs did not vote in its favor and promptly after the consummation of the plan made demand upon both defendants for payment of the fair value of their stock in Disston.

 Defendants have refused to pay to plaintiffs the fair value of their stock in Disston and plaintiffs bring this suit for such sums, plus interest and costs.

 Pursuant to the Agreement and Plan of Reorganization made between Disston and Porter, Disston agreed to transfer substantially all of its assets (including the right to use the name 'Henry Disston & Sons, Inc.,' as a division of Pittsburgh or Porter) to H. K. Porter Company, Inc. of Pittsburgh (herein called 'Pittsburgh'), a wholly-owned subsidiary of Porter, in exchange for Porter's agreement to issue and deliver to Disston 60,000 shares of unissued cumulative preferred stock (par value $ 100 per share) of Porter and that it shall cause Pittsburgh to assume and become liable for all of Disston's indebtedness, obligations and liabilities at the time of the closing. Disston further agreed that promptly after the closing it would take steps to 'effect its corporate dissolution and to distribute its then property to its shareholders.'

 Plaintiffs allege that, although defendants have failed to comply with Section 908 of the Pennsylvania Business Corporation Law, 15 P.S. § 2852-908, the transfer of the assets of Disston constituted a de facto merger.

 Defendants, to the contrary, contend that this transfer of assets is governed by Section 311 of the Pennsylvania Business Corporation Law, 15 P.S. § 2852-311, which regulates the voluntary transfer of corporate assets. As this latter section grants no remedy *fn1" to stockholders protesting against the sale of all the corporate assets, and since Section 908 of the Corporation Code does give certain rights to dissenting shareholders to a plan of merger or consolidation, defendants allege that plaintiffs are without any statutory rights and their complaint, therefore, fails to state a claim for relief.

 In view of the fact that Disston has agreed to dissolve and will cease to exist as a corporate entity, abandoning its name and legal identity, becoming a division of Porter, with all of its stockholders becoming stockholders of Porter, and Pittsburgh assuming the liabilities of Disston, this transaction was in effect a de facto merger. See the unreported opinions dated 9/4/54 and 2/17/55 of Chief Judge Kirkpatrick in Marks v. Autocar Co., and White Motor Co., D.C., 153 F.Supp. 768; 152 F.Supp. 408; cf. Bloch v. Baldwin Locomotive Works, C.P.Del.Co., 1950, 75 Pa.Dist. & Co.R. 24, 1950.

 Under the Marks case, supra, whether Disston's transfer of its assets to Pittsburgh be labelled by Disston and Porter as a merger or a sale, the 'exclusive' remedy of Section 908, subd. C does not preclude this action or the jurisdiction of this court. Section 901 et seq. provides a procedure by which statutory merger may be accomplished, and if the corporations choose to use such procedure, dissenting shareholders are restricted to the remedy envisioned in Section 908. *fn2"

 But if the corporations do not choose the statutory method of merger and attempt to follow the procedure under Section 311 so that the transaction should appear to be a sale of assets, rather than a merger, then dissenting shareholders, though defeated from their right to the statutory remedy of appraisal by three disinterested persons appointed by the Court of Common Pleas, still cannot lose their rights to receive payment for their shares under the common law principles *fn3" stated in Lauman v. The Lebanon Valley Railroad Company, 1858, 30 Pa. 42. *fn4" The court there said, 30 Pa. at p. 47:

  'Now, it is plain enough that a dissenting member cannot thus be forced into a new corporation, and that his property in one corporation cannot be taken from him and the stock of another imposed upon him by way of compensation, by the act either of the legislature or of his co-corporators, or of both combined.' *fn5"

 Defendant Porter in addition claims that if, pursuant to the Agreement and Plan of Reorganization, plaintiffs became legally or equitably entitled to the fair value of their stock, such claim exists only against Disston and not against Porter. The theory of the Lauman case, supra, is that Disston is a proper party to sue (see first paragraph of opinion 30 Pa. at page 44) and, further, that a shareholder's 'property in one corporation cannot be taken away from him' in exchange for stock of another corporation so that, apparently, Pittsburgh, which has received Disston's property, would also be a proper defendant. However, counsel have produced no authority justifying the maintenance of such an action against a defendant which has no property of the company in which the dissenting shareholder holds stock. Under such circumstances, the defendant Porter is entitled to judgment in its favor.

 Finally, defendants' motion to dismiss the complaint of plaintiff Weinberger as the amount in controversy does not exceed $ 3,000 will be postponed for determination at the time of trial. *fn6"

 Order

 And now, May 9, 1957, it is ordered that the motion to dismiss of Henry Disston & Sons, Inc., filed March 7, 1956, is denied, and the motion to dismiss or for summary judgment of H. K. Porter Company, Inc., filed March 23, 1956, is granted, and that this action is dismissed, with prejudice, as to defendant H. K. Porter Company, Inc.


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