to voting rights not to be found in the statute itself.
As I have made more than plain, I am afraid, at too great length, the statute by itself does not seem to me to give comfort to either argument. (I must add, of course, that there is no claim in this case of fraud-except in the ultimate sense that it is asserted that the proxy materials misrepresent, because they are based on faulty legal premises-there is no claim that this is a transaction which is fraudulently disparaging of the rights of the first series preference stock or of anybody else; and much that is involved in the Pennsylvania cases which I have not canvassed that led up to Farris is very much oriented toward that fraudulent beginning. Nor do I find anything remotely categorizable as "fundamental unfairness" in what has been undertaken).
Without repeating my analysis of section 5(d), I think it clear that what has been undertaken in this transaction is not in significant derogation or, indeed, literally in any derogation, of plaintiffs' entitlements.
Now, in rejecting the de facto merger doctrine as it would be sought to be applied by plaintiffs in this case, I have not ignored the cases which plaintiffs have relied on, In Re: Jones & Laughlin, 488 Pa. 524, 412 A.2d 1099 (1980), in the Pennsylvania Supreme Court; Judge Adams' decision in Knapp v. North American Rockwell Corp., 506 F.2d 361 (Third Circuit 1974), and Chief Judge Lord's decision in In re: Penn Central Securities Litigation, 367 F. Supp. 1158 (E.D.Pa.1973), here in this court.
Suffice it to say that Jones & Laughlin is a case in which the question of fraud was an ingredient and Farris was referred to by the Supreme Court of Pennsylvania in noting the relevance of fraud antecedent to the statutory language to which I have referred. That doesn't seem to me to offer any independent ground for saying that Farris in the broad sense contended for by plaintiffs still walks abroad in the Commonwealth.
Chief Judge Lord's case was also, in a sense, a fraud case but, in any event, it was an exposition of 10(b)(5) and it was a determination of standing under federal law-standing which the Chief Judge quite properly found not to be circumscribed by the mere forms of corporate arrangements and re-arrangements. And, finally, the Third Circuit's case is one which, indeed, utilizes Farris and cases antedating Farris to assist it to reach its result of piercing, if you will, the corporate demise or resuscitating a deceased corporation-but, for a purpose entirely unrelated to what we have here. The question there was one of essentially the survivorship of tort liability and one would certainly hope that courts would look to that issue in an entirely different way from the analysis that goes to determining the rights of shareholders to dissent and to vote.
The distinctness of the problems is, I think, made clear in a little article by Winthrop in 6 Securities Regulation Law Journal 195 written in 1978, entitled "Structuring a Corporate Acquisition to Avoid the De Facto Merger Doctrine." Mr. Winthrop is addressing the very sort of question which the Third Circuit was addressing, though I believe principally with other cases, and he noted the distinctness of Farris as it related to questions of the entitlement of shareholders.
(Now, I think it's fair to say parenthetically that Mr. Winthrop in his brief reference to Farris seemed to suggest that it had or might reasonably be found to have a larger continuing life in its own domain than I find it to have, but to the extent that Mr. Winthrop is suggesting that rather than simply making plain the difference between two sets of problems, I am rejecting Mr. Winthrop's wisdom).
What have we ultimately concluded then? That triangular mergers are a device of considerable utility in the business world and have been pursued actively, especially since 1967 and the change in the Delaware Corporation Law followed by comparable changes in other states, including Pennsylvania.
Whether the policy of denying rights of dissent and rights of voting participation with respect to transactions of the sort contained in the Penn Central/Colt arrangement-whether that is good policy or bad is, I suppose, beyond the proper purview of a court, especially a court which, sitting in diversity, is merely meant to emulate, as best one can, what can be expected in the Pennsylvania courts. Obviously, there are wide differences of opinion as to the utility of devices such as appraisal rights in whatever range they properly obtain. One needs to compare, for example, the writings of Dean Manning, former Dean Manning, back when he was a mere professor, in 72 Yale with the subsequent writings of his sometime colleague, Professor Deutsch, in volume 20 of Villanova. Those very, very challenging perceptions of both students are surely outside my proper purview. What I think is within my proper purview is simply to point out in the closing of this aspect of my opinion-and I hasten to add there are not many more aspects-that there is a coherent set of reasons for denying the sorts of entitlements asserted by plaintiffs in this proceeding and that set of reasons, whether one agrees with them or not, are voiced again in the note in Virginia to which I have referred before.
I now quote from pages 1244 to 45 of volume 57 of the Virginia Law Review. "A more important problem with the traditional merger form is that statutes normally require that proposed mergers be approved by vote of the shareholders, and that those who oppose the plan be given appraisal rights. The necessity of submitting a plan to shareholders for approval is always inconvenient, but rarely fatal to an acquisition. The prospect of having to buy out shareholders who oppose the acquisition, on the other hand, can cause the entire transaction to be aborted. Especially when the merging corporations are illiquid, the opposition of even a small minority of one party's shareholders may have a profound effect. In order to avoid this unpleasant aspect of the traditional merger form, parties were often forced into stock acquisitions (B reorganizations) or asset acquisitions (C reorganizations). Now, by using the three-party merger technique, the impact of voting and appraisal requirements can be substantially mitigated in a merger, thus obviating the need to resort to stock or asset acquisitions. In a three-party merger, the shareholders of the acquirer-parent are denied voting and appraisal rights, since the parent-acquirer is the only shareholder of the merging subsidiary capable of voting and dissenting. The parent-acquirer's shareholders have no voice in the merger transaction."
In the instant transaction Penn Central's shareholders are to be afforded a voice by virtue of Penn Central's view that conformity with requirements of the New York Stock Exchange is called for. That is not an entitlement that approximates at all the entitlements which plaintiffs have believed themselves entitled to. I have found plaintiffs' claim to be unwarranted either under section 5(d) of the amended articles or under the New York Business Corporation Law or under the Pennsylvania Business Corporation Law or under the doctrine, to the extent that it still has any place, of de facto merger in the courts of Pennsylvania.
What I have said covers the first three counts in plaintiffs' complaint. The fourth count is essentially merely recapitulatory of the claims under the first three counts, asserting that if there is validity in any or all of those claims, then the proxy materials are misleading.
Since I have concluded that there is no merit in any of the first three counts, I also conclude that there is no merit in the fourth count and, accordingly, for the reasons that I have recited at such very great length and with apologies to my very patient audience, I shall enter an order denying the relief requested by the plaintiffs and dismissing the complaint. That order will be entered tomorrow.
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