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In re Application for A Dissolution of Evening Journal Association

Decided: February 21, 1949.

IN THE MATTER OF THE APPLICATION FOR A DISSOLUTION OF THE EVENING JOURNAL ASSOCIATION, A CORPORATION OF THE STATE OF NEW JERSEY. POST-STANDARD COMPANY, ET ALS., PETITIONERS-APPELLANTS,
v.
THE EVENING JOURNAL ASSOCIATION, ET ALS., DEFENDANTS-RESPONDENTS (TWO CASES)



On appeals from orders of the former Court of Chancery.

In No. A-88: For affirmance: Chief Justice Vanderbilt and Justices Case, Heher, Wachenfeld, Burling and Ackerson. For reversal: None. In No. A-57: For reversal: Chief Justice Vanderbilt and Justices Case, Heher, Wachenfeld, Burling and Ackerson. For affirmance: None. The opinion of the court was delivered by Ackerson, J.

Ackerson

Appeals are presented from two orders of the former Court of Chancery made in a proceeding instituted by the petition of Post-Standard Company, a New York corporation, Samuel I. Newhouse and Norman N. Newhouse, all three being stockholders, and said natural persons also being directors, of The Evening Journal Association, a corporation of New Jersey, seeking the dissolution of the latter corporation pursuant to R.S. 14:13-15, commonly referred to as the "deadlock" statute. This legislation was passed in 1938 and is entitled "An Act concerning the dissolution of corporations, and supplementing Title 14 of the Revised Statutes." It provides, inter alia, as follows:

"Every corporation organized under Title 14 of the Revised Statutes may be dissolved by the decree of the Court of Chancery when it is made to appear that the corporation has an even number of directors who are equally divided respecting the management of its affairs, and that the voting shares * * * are equally divided into two independent ownerships or interests and one-half thereof is owned or controlled by persons favoring the course or views of part of the directors, and one-half is owned or controlled by persons favoring the course or views of the other directors, or that the persons owning or controlling the voting shares are unable to agree on, or vote for, the election of a board of directors consisting of an uneven number, and, in either such event, the holders of shares entitling them to exercise one-half or more of the voting power shall have voted for such dissolution, or shall have agreed in writing thereto, or shall join in filing the petition for dissolution. The petition for dissolution may be filed by one-half of the directors when there is an even number of directors who are unable to agree as to management, if the holders of one-half or more of the shares have voted for or agreed in writing to such dissolution, or it may be filed by the persons holding one-half of the voting shares when such persons are unable to agree with the persons holding the other half of such shares as hereinabove provided. * * *

"The provisions of chapter thirteen of Title 14 of the Revised Statutes shall be applicable hereto, except so far as they be inconsistent with the provisions hereof."

The petition alleges, in effect, that the entire capital stock of The Evening Journal Association is equally divided between two groups of stockholders, one, consisting of the above named petitioners, controlled by Samuel I. Newhouse, and the other, consisting of the defendants, Dear Publication &

Radio, Inc., J. Albert Dear and his wife Cyrene B. Dear, which group is controlled by the said J. Albert Dear. Each group is represented by two directors on a board consisting of only four members, and because thereof a stalemate exists between the opposing factions on the board representing the aforesaid groups of stockholders with respect to important subjects of corporate management to the great detriment of the corporation and its stockholders. The petitioners therefore pray that the Court of Chancery "assume jurisdiction of The Evening Journal Association", pursuant to the aforesaid statute, appoint "one or more disinterested receivers" to take possession of its property and effects with the authority usually exercised by receivers, "to the end that the business and assets of the [corporation] be liquidated and distributed under the supervision" of the court. Further "that this Court may make such other orders and decrees as may be deemed necessary and proper for the protection of all of the stockholders and all other parties in interest, and as may be agreeable to equity and good conscience".

The Evening Journal Association responded to this petition with an answer, answer in lieu of plea (under the then existing practice), and a counterclaim. The other defendants, Dear Publication & Radio, Inc., Cyrene B. Dear and J. Albert Dear, united in filing similar pleadings asserting substantially the same defenses and counterclaim.

The answers consist of certain admissions and denials, principally a denial of petitioners' assertion that the Newhouse interests own one-half of the capital stock in question. The answers in lieu of plea assert, primarily, that The Evening Journal Association was incorporated prior to the enactment of the legislation here invoked, and therefore the dissolution of the corporation pursuant thereto would be in violation of the defendants' constitutional guaranties. The counterclaims assert, in substance, that the stock alleged to be held by the Newhouse interests was acquired from the former owners, Walter M. Dear and members of his family, under an alleged collusive scheme whereby the sale was not a fully consummated transaction, but payment was arranged for upon

an installment plan basis by which part of the consideration for the stock is being paid for from the treasury of The Evening Journal Association through the guise or device of the employment of said Walter M. Dear as treasurer of the corporation at a salary of $26,000 per year -- a sum alleged to be far in excess of the worth of the services performed and to be performed by him. It is then alleged that so many shares of said stock as were paid for by the excess of said salary over the reasonable value of the services rendered, belong in equity to the defendant The Evening Journal Association, and the court is asked to determine the amount of such over-payment and the number of shares paid for thereby, and to impress a trust on such shares in favor of said defendant and decree the transfer thereof to its treasury. The effect of this, if established by competent proof, would be to sustain the defense raised by the defendants' answers, that the Newhouse interests do not own the jurisdictional amount of stock required to invoke the statute upon which they rely.

The petitioners moved to strike these pleadings on the grounds, among others, that the answers and answers in lieu of plea are sham, frivolous and disclose no defense, and that the counterclaims are addressed to the inherent equitable jurisdiction of the court which cannot be exercised in the statutory proceeding instituted by the petition under R.S. 14:13-15. Specifically it is claimed that the court, under these statutes, acts merely as a legislative agent for ...


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