Matter of McKinney (Bush Term. Bldgs. Co.)

117 N.E.2d 256, 306 N.Y. 207, 1954 N.Y. LEXIS 1044

Opinions

Desmond, J.

Petitioners-appellants McKinney are the owners of sizable blocks of both the cumulative preferred stock and the common stock of respondent Bush Terminal Buildings Company. They object to a plan of recapitalization adopted by respondent, which, as briefly described, contemplates the split-up of old $5 par value common stock into fifty shares of new ten-cent par value common, and a (voluntary) exchange of each share of existing $100 preferred stock, plus accumulated dividends, for $100 principal amount of new mortgage bonds plus one share of new $50 par value preferred plus one share of the new ten-cent common stock. This proceeding was brought by the McKinneys for an appraisal of their stock, pursuant to section 21 of the Stock Corporation Law, and was opposed by the corporation, which claimed not only that the proceeding had not been brought within the time limited by subdivision 3 of section 21, but, also, that the proposed plan of recapitalization was not such as to give objecting stockholders a right of appraisal under subdivision 11 of section 38 of the Stock Corporation Law. At Special Term the application was granted and an appraiser appointed. On appeal by the corporation to the Appellate Division, First Department, there was, however, a unanimous reversal on the law with an opinion in which it was held that the application was not made in time. Accordingly, the question as to whether the proposed recapitalization was of such a character as to give objectants a right to an appraisal was not reached by the Appellate Division. Since it is our conclusion that notice of application to the Supreme Court for an appraisal was not served on time, under the plain language of the statute, we do not reach the other question, that is, as to whether any of the provisions of the plan of recapitalization gave rise to a right, in dissenting stockholders like petitioners, to an appraisal as to either their preferred or their common stock.

Section 21 of the Stock Corporation Law contains a precise time table for preliminary objections by nonconsenting stockholders, for demands by them for payment, and for bringing a proceeding for appraisal if those demands for payment are not met. These petitioners made their original objections in time, but did not bring this proceeding in time, as we will show. Since petitioners failed to comply with those mandatory time requirements of the statute, they are put to the necessity of arguing here that the time limitations of the statute are not to be. literally applied when, as here, the approval vote of stockholders is conditioned on a further action by directors, or that, to such a case, the time limitations of the statute are not applicable at all.

Article 4 of the Stock Corporation Law, applicable to various kinds of amendments of certificates of incorporation, including changes in capital stock, is specifically made subject to section 21 of the same law, and section 21 says, in its subdivision 1, that if a corporation’s stockholders have taken action for such a change in capitalization and if any stockholder has made timely objection and demand for payment, the corporation within ten days after the last day on which a demand for payment might have been made, shall mail to the objecting stockholder an offer of payment for his stock. Here, the petitioners made due objection and demand but the corporation did not respond with an offer to pay. That brings up subdivision 3 of section 21 which says that, if the corporation fails to make an offer to buy the stock, the nonassenting stockholder may petition the Supreme Court to determine the value of the stock, but — and here we come to the time question before us on this appeal — such petition, on five days’ notice, shall he made returnable in court on the fiftieth day after the last day ,, the demand of the objecting stockholder for payment might have been made, or on the first succeeding day permitted by the practice of the court. Our first question, then, is as to the date from which that fifty days is to be computed.

Subdivision 11 of section 38, which is part of article 4 (supra), applicable to changes in capitalization, requires that, when at least twenty days’ notice of a stockholders’ meeting on a plan of recapitalization has been given, as was done here, objecting stockholders, in order to have a right to appraisal and payment, must object to the plan and demand payment before the vote authorizing such action. The stockholders’ meeting in this case was held on November 26, 1951, and these petitioners filed their objection and demand on November 6th and 7th, respectively, thus putting themselves in a position to move in court for appraisal if the corporation should not make a satisfactory offer of payment. This corporation did not make any such offer of payment. In that situation, under subdivision 3 of section 21 (supra), petitioners’ only further right as to appraisal was conditioned on their bringing a proceeding in Supreme Court returnable on the fiftieth day after the last day on which their demand for payment might have been made. Since this stockholders’ meeting voted in favor of this plan on November 26, 1951, as aforesaid, that was the last day for petitioners to demand payment, and the fiftieth day after November 26, 1951, was January 15, 1952. However, this proceeding was not begun until these petitioners, on May 1, 1952, served their petition for appraisal returnable May 6, 1952, nearly five months after the fiftieth day. We, in Matter of Marcus (Macy & Co.) (297 N. Y. 38, 44), reminded the Bar that “ the Legislature has clearly prescribed the conditions under which a nonconsenting stockholder may have his stock evaluated and enforce payment therefor. ” Similarly, in Anderson v. International Minerals & Chemical Corp. (295 N. Y. 343, 350), we pointed out that the Stock Corporation Law prescribes the sole method and the sole conditions for appraisal mid payment.

How then do petitioners seek to avoid the effect of their delay? They point out that the notice of such meeting of stock holders called for a vote on a proposed plan of recapitalization but provided, also, as a part of the proposed plan, that,, the approval by^ stockholders was to contain and be accompanied by an'authorization by the stockholders to the directors “ in their discretion, to declare the Plan operative ”. The stockholders did so vote at their meeting — that is, they approved the proposed plan, authorized the amendment of the certificate of incorporation and the execution of a new mortgage, accordingly, but left it to the discretion of the directors to put the plan into operation. The directors determined, later, that the plan should become operative upon receipt of consents for exchange of stock from the holders of at least 80% of the preferred stock but could be declared operative by the directors on receipt of such lesser percentage as the board of directors might determine. In other words, although the stockholders ^approved and authorized the plan as required by law, they | reserved to the directors a power of final action to put the | plan into effect. Petitioners argue that such a conditional X authorization by stockholders is not within the contemplation of the statutes, but we see nothing in any of the statutes forbidding the addition of such a reservation. As pointed out by the Appellate Division, there are a number of reasons why such a reservation might be appropriate, including the pend-ency of proceedings before the Federal Securities and Exchange Commission for registration of the new securities, a proceeding which was required here, and which registration with the commission did not become effective until February 14, 1952, or nearly three months after the meeting of stockholders. There seem to be no decisions in the appellate courts of this State on this precise question, but there are a number of cases in the lower courts holding valid stockholders’ authorizations which were made subject to various conditions, such as subject to the number of objectors (Matter of O’Hara, 133 Misc. 184), or subject to opinion of counsel (Standard Brewing Co. v. Peachey, 202 Misc. 279). In Matter of Isaac (Bohack Realty Corp.) (198 Misc. 85), the situation was much like the one we have here, since there the stockholders’ vote of approval required the affirmative vote of the board of directors to consummate the plan, and objecting stockholders who did not bring their proceeding in time argued, as petitioners do here at one point, that the time would not he set running until the directors should approve the plan. This contention ivas rejected in the Isaac case, under the authority of Matter of Marcus (Macy & Co.) (supra), which says that the precise language of section 21 cannot he altered by the courts.

Petitioners here go so far as to say that the language of paragraph (d) of subdivision 11 of section 38, as to “ the vote authorizing such action ’ ’ should be taken to mean, in a case like this, the subsequent vote of directors putting the plan into final effect. The difficulty is, though, that a reading of the whole of sections 21 and 38 shows that, throughout those statutes, the “ vote ” referred to is a vote of stockholders, and the whole purpose and sense of both statutes is that the various changes described require, for validity, the affirmative \Tote of an appropriate number of stockholders. The fact that this plan required further action by directors cannot change the statutes which condition the right to appraisal on the objectors doing certain things in timely relation to the action taken by the stockholders.

A further argument of petitioners is from sections 36 and 37 of the Stock Corporation Law which state the requirements for the certificate of amendment which ultimately effects the change in capitalization, and require that, in a case like this, the certificate be subscribed by certain corporate officers. Petitioners argue, therefore, that the statutory phrase: “ vote authorizing such action ’ ’, which fixes the time for demand for payment by an objecting stockholder and thus fixes the beginning of the fifty days, must refer here to a vote not of the stockholders but of the directors, since only a directors’ vote can put this plan finally in effect. The answer to this is, as already stated, that sections 21 and 38 cannot be read as referring to any voting except voting by stockholders. The record shows that the resolution passed at the stockholders’ meeting of this corporation contains an authorization to the “ proper officers of the Company * * * to execute and file a Certificate of Amendment ”. In other words, when appellants tell us that what the statute provides for is an authorization by stockholders to officers to execute a certificate of amendment and other necessary papers, they are met by the answer that this is exactly what this stockholders’ meeting did authorize, although the same resolution left it to the discretion of the directors as to when (and whether) to declare the plan operative.

What appellants are really complaining of is this: that, if these statutes be construed so as to require the bringing of this proceeding within fifty days of the stockholders’ meeting even though the day of putting the plan into effect and the question of whether or not to put it into effect have been left to the directors, then, say appellants, dissenting stockholders will be required to bring a proceeding for appraisal at a time when they do not know whether the plan will ever actually go into effect. But their plight is not as bad as it sounds. Any such recapitalization plan can always be abandoned^ by the corporation, it would seem (see Matter of Millard, 246 N. Y. 546, where a proposed sale was dropped after appraisal proceeding’s were under way), in which event objecting stockholders will have been put to the trouble and expense of a useless appraisal proceeding. The statute itself recognizes this possibility, in subdivision 6 of section 21, which starts out by i providing that, after a stockholder has objected and demanded payment, his right to receive dividends, and all his other stock-1 holder’s rights cease. Then the next sentence of subdivision 6 says, among other things, that if the action to which the object-ant objects be abandoned or rescinded, the status of the objecting stockholder shall be restored and he shall then receive any dividends to which he would have been entitled had he not demanded payment and appraisal. A question comes to mind, of course, as to what will or would happen, in a situation like the present one, if the appraisal proceeding was timely brought, but the corporate action, made subject to final decision by the directors, was still in abeyance at the time the proceeding for appraisal came on to be heard at Special Term. The answer is, we assume, that, in such event, the proceeding for appraisal would have to be adjourned to await the action of "directors, and, if the corporate action should finally be abandoned, subdivision 6 of section 21 (supra), would come into play. That is the best available answer, and, if some better protection is to be afforded dissenting stockholders, the Legislature will have to amend the statute. In any event, a non-assenting stockholder who fails to come into court in time can hardly excuse that delay by a showing that the statute which he failed to follow might not have worked out to complete justice for him, had he obeyed its time limitations.

The dissenting opinion in this court takes the position that the corporate action here was defective and ineffective since, it is said, the stockholders could not validly leave to the directors, in their discretion, the ultimate decision as to amending the certificate or not. But there is nothing in the corporation statutes of this State outlawing such an arrangement. No one doubts that, under article 4 (supra), it is the stockholders who must authorize these corporate charter and stock changes, but here such authorization was obtained, in due form. And, when that consent had been given by the owners of the required percentage of stock, the statutory rules for their protection had been obeyed, the statutory intent was satisfied, and those who withheld their assent had their clearly defined remedy. The Legislature has nowhere prohibited — nor would it have any reason for prohibiting — voluntary action by the majority of the stockholders leaving it to the directors, who manage the corporation in other respects (General Corporation Law, § 27) to decide when and if the plan consented to, should go into effect. In most instances, like the present one, the plan itself is initiated by the directors, and the stockholders are merely consenting to a proposal by the directors. It may be that, in some dark and devious manner hinted at but not explained, this device of leaving to the directors the putting into effect of the plan may be used to cheat minority stockholders, but we see no sign here of such chicane, but of routine corporate management only.

The order should be affirmed, with costs.