Langfelder v. Universal Laboratories, Inc.

The Yadsco Sales Corporation and Delettrez, Inc., a wholly owned subsidiary of the former, were and are corporations organized and existing under the laws of the State of Delaware. On June 29, 1943, the two corporations merged by written agreement and the name of the former as the continuing corporation under the merger was changed to Universal Laboratories, Inc. The agreement was approved by the requisite vote of stockholders representing more than two thirds of the total outstanding capital stock of each of the merging corporations as required by the Corporation Law of Delaware (see §§ 26, 59, 59A, 61, referred to in the complaint and other moving papers) and the merger became effective under that law on the aforesaid date.

The corporate stock of Yadsco Sales Corporation before the ' merger consisted of 7% cumulative preferred stock of a par value of $100 per share and a liquidating value of $110 per share plus accumulated unpaid dividends with interest and certain other preferential rights and common stock of no par value. Delettrez, Inc., had a common stock issue of a par value of $100 per share. The purpose of the merger was to effect a reorganization and recapitalization of Yadsco Sales Corporation. To effect that purpose, by the merger agreement, among other things, the certificate of incorporation of Yadsco and its bylaws are,' in some important respects, amended, its capital stock is reduced and reclassified, its obligation to pay cumulated preferred stock dividends accruing prior to the merger is terminated, the new preferred stock has no par value but a stated liquidating value of $50 per share with annual dividends of $2.50 per share, and the new common stock has a par value of $1 per share. The rights of preferred stockholders are, in some few respects, increased, but, in many more important respects, circumscribed or curtailed and a management committee is given options to purchase common stock over a period of five years at varying prices. Automatically, on the day the merger became effective, each share of preferred stock of Yadsco was converted into one share of the new preferred stock and five shares of the common stock of Universal.

Plaintiffs, residents of New York City, are the owners of 370 shares of the preferred stock of the Yadsco Sales Corporation. They assert that the merger was ineffective under Delaware law to cut off their rights and interests in the preferred stock of Yadsco and that those rights must be determined as they existed prior to the merger. On that theory, it is shown that plaintiffs would be entitled to receive from defendant the difference between $110 and $50 par value and the accumulated annual unpaid dividend of 7% . per share on each share of preferred stock held by them. Plaintiffs, in their complaint in equity, as nonassenting stockholders of Yadsco to the merger and upon appropriate allegations, set out in eight causes of action, seek judgment declaratory of their rights in the premises, that those rights as stockholders as they existed before the merger were not affected by the merger and that defendant be directed to pay them the difference between $110 per share as the declared value of their stock since the defendant reduced the numbér of shares of its stock and $50 per share as fixed in the merger agreement and additionally issue to them one share of the new preferred stock plus five shares of the new common stock or, in the alternative, declaring that the cumu

There are cases in which our courts will entertain jurisdiction in suits against foreign corporations where suitors, even stockholders, are entitled to some relief which the State court is competent to grant. But it is well settled that jurisdiction in any case will be declined either in the absence of jurisdiction in the strict sense or where a determination of the rights of litigants involves regulation and management of the internal affairs of the corporation dependent upon the laws of the foreign State or where the court in which jurisdiction is sought is unable to enforce a decree if made or where the relief sought may be more appropriately adjudicated in the courts of the State or country to which the corporation owes its existence (Fletcher, Cyclopedia of the Law of Private Corporations, vol. 17, §§ 8426-8429; Bichart v. Kelly-Springfield Tire Co., 243 App. Div. 72 ; Travis v. Knox Terpezone Co., 215 N. Y. 259 ; Cohn v. Mishkoff Costello Co., 256 N. Y. 102 ; Sternfeld v. Toxaway Tanning Co., 290 N. Y. 294 ; Nothiger v. Corroon & Reynolds Corp., 293 N. Y. 682 ; Cohen v. American Window Glass Co., 126 F. 2d 111 ).

The fact that the third and seventh causes of action seek a money judgment on the basis of an alleged breach of' the contract under which plaintiffs hold the Vadsco stock, which plaintiffs particularly urge as a ground for entertaining jurisdiction, does not change the application of the above-mentioned rules to this case since recovery thereunder may not be had if the merger agreement is valid and binding on the plaintiffs. A representative action was brought in the Chancery Court of the State of Delaware in behalf of all holders of the preferred stock of Vadsco as their rights in such stock existed before

It follows that the discretion exercised by the lower courts in declining jurisdiction was not abused.

The judgment should be affirmed, with costs. (See 293 N. Y. 767 .)

Lehman, Ch. J., Loughban, Lewis, Conway, Desmond and Thachee, JJ., concur.

Judgment affirmed.