Hastings v. H. M. Byllesby & Co.

32 A.2d 490, 27 Del. Ch. 136, 1943 Del. Ch. LEXIS 44
CourtCourt of Chancery of Delaware
DecidedMay 28, 1943
StatusPublished

This text of 32 A.2d 490 (Hastings v. H. M. Byllesby & Co.) is published on Counsel Stack Legal Research, covering Court of Chancery of Delaware primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Hastings v. H. M. Byllesby & Co., 32 A.2d 490, 27 Del. Ch. 136, 1943 Del. Ch. LEXIS 44 (Del. Ct. App. 1943).

Opinion

Harrington, Chancellor:

This case is before the court on the demurrer of Standard Power and Light Corporation to the complainant’s bill. It appears that in and prior to the month of June, 1925, Standard Gas and Electric Company, for whose benefit the suit was brought, was actively engaged in the business of acquiring, controlling and directing the activities of public utility and other companies and corporations, and in dealing in their capital stock and securities. A substantial part of its capital stock was widely owned by the public; but during the greater part of the time covered by the allegations of the bill, H. M. Byllesby and Company controlled Standard Gas and Electric Company and dictated its policies in that all or a part of its directors, officers and employees were at the same time directors, officers and employees of Standard Gas. There was an exception, however, from about June 19th, 1925, to January of 1930, during which time control of Standard Gas was exercised by Byllesby and Company, in conjunction with Ladenburg, Thalmann & Co. When Byllesby controlled Standard Gas, it frequently purchased securities and properties and resold them to that corporation at a substantial profit, though the officers and directors of Standard Gas could have purchased the same properties in the first instance, at the same, or even smaller prices. When these transactions between Byllesby and Company and Standard Gas took place, the former company had purchased the securities and properties with the intent to sell them to the latter company, and with the knowledge that Standard Gas was interested in procuring them, and could be caused to purchase from Byllesby at a cost in excess of the prices paid therefor.

The bill alleges that in each of the transactions hereinafter described the defendants acted pursuant to certain corrupt conspiracies to waste the assets of Standard Gas and Electric Company, and to secure to themselves unlawful and fraudulent profits.

The following facts are also alleged:

[140]*140(1) In the month of June, 1925, United Railways Investment Company, a New Jersey Corporation, controlled Pittsburgh Utilities Corporation, a corporation of the State of New York. Both of these corporations owned large amounts of the voting stock of the Philadelphia Company, a Pennsylvania corporation, which owned and operated extensive utility properties in and around Pittsburgh, Pennsylvania; together, they controlled the Philadelphia Company. Prior to June of 1925, Ladenburg, Thalmann & Co. had acquired 493,876 shares of the preferred stock of the Pittsburgh Utilities Corporation, for which it paid the approximate sum of $6,900,000. Byllesby and Company had also acquired 80,100 shares of the preferred stock of the Pittsburgh Utilities Corporation, for which it had paid $1,328,-495.89; Byllesby had likewise acquired 123,300 shares of the common stock and 71,800 shares of the preferred stock of United Railways Investment Company, for which it paid $6,878,234.21.

In view of these facts, Byllesby and Company and Ladenburg, Thalmann & Co. became apprehensive of the danger to each of them because of the division in the control of the Philadelphia Company. Ladenburg knew that Byllesby controlled Standard Gas and Electric Company, and that Standard Gas had outstanding a large number of securities in the hands of the public.

In.or about the month of June, 1925, after months of negotiations, Ladenburg, Thalmann & Co. and H. M. Byllesby and Company entered into a fraudulent and corrupt conspiracy with the following objects:

(A) To transfer to Standard Gas and Electric Company an interest in the preferred stock of Pittsburgh Utilities Corporation and in the stock of United Railways Investment Company in exchange for:

(a) Enough cash to reimburse Landenburg and Byllesby for all moneys invested by them in the stocks of Pitts[141]*141burgh Utilities Corporation and United Railways Investment Company; and

(b) Millions of dollars profit.

(B) To arrange matters so that Ladenburg and Byllesby would still retain most of the beneficial interests in the stocks of Pittsburgh Utilities Corporation and United Railways Investment Company, held by them.

The objects of the said conspiracy were alleged to have been subsequently carried out by Byllesby and Company and Ladenburg, Thalmann & Co., by means of various transactions engineered by them, the first of which was the organization, under the laws of Delaware, of a corporation, known as Standard Power and Light Corporation. That corporation was authorized to issue 100,000 shares of preferred stock, without voting power, 410,000 shares of A common stock, without voting power, and 30,000 shares of B common stock, which had the sole voting power. The voting stock was issued at the nominal price of $1.00 per share. Landenburg subscribed for 15,000 shares of B common stock, and paid $15,000 therefor. The defendants caused Standard Gas to subscribe for the other 15,000 shares of B common stock, at the same price. At that time Standard Power of Delaware had no property except the $30,000 thus received from the sale of its B common stock. In pursuance of the said conspiracy, it was also arranged that Ladenburg should elect one-half of the directors and that Byllesby should elect the other half.

Prior thereto, a corporation known as Standard Power and Light Corporation, had been organized under the laws of the State of Maryland. At the time of its organization, it had been financed by an issue of 100,000 shares of preferred stock and 100,000 shares of common stock, for all of which Byllesby subscribed, and for which it paid $9,500,000; immediately thereafter, it resold that stock to the public for $10,000,000, thus making a profit of $500,000. [142]*142There were 400,000 shares of common stock, with voting power, and the remaining 300,000 shares were subscribed for by Byllesby and Standard Gas and Electric Company. Byllesby subscribed for 120,000 shares of this stock and paid $800,000 therefor; Standard Gas subscribed for 180,-000 shares of the same stock, for which it paid $1,200,000. By the above operations Standard Power of Maryland had $11,500,000 in cash in its treasury, and no other property, and was controlled jointly by Byllesby and Company and by Standard Gas and Electric Company.

Pursuant to the said conspiracy, Byllesby and Company and Ladenburg, Thalmann & Co. caused Standard Power of Maryland to subscribe for 100,000 shares of the preferred and 410,000 shares of the Class A common stock of Standard Power and Light of Delaware, and to pay therefor $11,400,-000 in cash, which, with the $30,000 that had been paid to Standard Power of Delaware by Ladenburg and Standard Gas left the Delaware corporation with $11,430,000 in cash in its treasury, and no other property. Byllesby and Laden-burg then caused Standard Power and Light of Maryland to exchange the stock of Standard Power and Light of Delaware, for which it had subscribed, for its own outstanding stock. The result was that Standard Power and Light of Delaware had 100,000 shares of preferred stock and 110,000 shares of A common stock owned by the public, 120,000 shares of A common stock owned by Byllesby, 180,000 shares of A common stock owned by Standard Gas and 30,000 shares of B common stock, having all the voting power, equally divided between Ladenburg and Standard Gas.

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Bluebook (online)
32 A.2d 490, 27 Del. Ch. 136, 1943 Del. Ch. LEXIS 44, Counsel Stack Legal Research, https://law.counselstack.com/opinion/hastings-v-h-m-byllesby-co-delch-1943.