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Applestein v. United Board & Carton Corp.

Decided: June 30, 1961.

BENJAMIN APPLESTEIN, PLAINTIFF,
v.
UNITED BOARD & CARTON CORPORATION, A NEW JERSEY CORPORATION, ET AL., DEFENDANTS, AND SAUL L. EPSTEIN AND INTERSTATE CONTAINER CORPORATION, DEFENDANTS. MARTHA U. BEUERLEIN, T/A HENNESEY & CO., INDIVIDUALLY AND ON BEHALF OF A CLASS OF STOCKHOLDERS SIMILARLY SITUATED, PLAINTIFF-RESPONDENT, V. UNITED BOARD & CARTON CORPORATION, A NEW JERSEY CORPORATION, ET AL., DEFENDANTS-APPELLANTS, AND SAUL L. EPSTEIN AND INTERSTATE CONTAINER CORPORATION, DEFENDANTS-APPELLANTS



For reversal and remandment -- Chief Justice Weintraub, and Justices Jacobs, Francis, Proctor, Hall, Schettino and Haneman. For affirmance -- None. The opinion of the court was delivered by Proctor, J.

Proctor

The defendants seek reversal of two Chancery Division orders denying their applications for an injunction to restrain the plaintiff, Martha Beuerlein, from prosecuting a stockholder's derivative action in the Supreme Court of New York.

Events leading up to the institution of the New York action are as follows: the plaintiff, a New Jersey resident and a minority stockholder of the United Board & Carton Corporation (United), a New Jersey corporation, instituted a class action in the Chancery Division to prevent consummation of an agreement for the "exchange of stock" between United and Interstate Container Corporation (Interstate), a corporation of New York.*fn1 Named as defendants were United, its seven directors, and Interstate. Saul L. Epstein, president and sole stockholder of Interstate, and a party to the aforesaid agreement, was permitted to intervene as a defendant. In her complaint, plaintiff charged that the defendants intended to effectuate a corporate merger under the guise of an exchange of stock and in disregard of stockholder rights under the New Jersey merger statute. R.S. 14:12-1 et seq. She also charged that the proposed transaction was illegal because it was unfair, a despoliation and waste of United assets, and the product of bad faith, self-dealing and concealment by the individual defendants. In accordance with her allegations, plaintiff asked for an injunction prohibiting a stockholder meeting previously called by United for approval of the proposed corporate transaction, and a declaration that the agreement between United and Interstate was illegal. She did not ask damages for United or herself.

United answered the complaint and cross-claimed against Interstate and Epstein for a declaratory judgment that the

corporate transaction contemplated by the parties was a merger and that the United-Interstate agreement had lapsed by its terms. Interstate and Epstein answered the complaint and cross-claim, and cross-claimed in turn for specific performance or damages in the alternative. United answered, reaffirming the position taken on its own cross-claim. Certain stockholders of United, who were in favor of the agreement, were granted leave to intervene as defendants, answered the complaints and all cross-claims, and counterclaimed and cross-claimed in turn for a declaratory judgment that the agreement was a valid stock purchase to be followed by a merger. Interstate, Epstein and United answered the intervenors' cross-claim. And the plaintiff was given leave to respond to all cross-claims and counterclaims.

Before the plaintiff filed her responsive pleadings, she and all defendants executed a written stipulation whereby they agreed:

"1. To submit for decision, as if on motions and cross-motions for summary judgment, the issue whether the Agreement * * * between United Board & Carton Corporation, Interstate Container Corporation and Saul L. Epstein, and the transaction * * * [contemplated therein], amount to a merger, entitled dissenting stockholders of United Board & Carton Corporation to an appraisal of their stock, and is therefore invalid * * *

5. All other issues in the case are reserved."

Judge Kilkenny, then sitting in the Chancery Division, consented to decide "as upon motions * * * for partial summary judgment * * * [the] single limited issue" presented by the parties' stipulation. He held in a written opinion that the proposed "exchange of stock" was a de facto merger. 60 N.J. Super. 333 (1960). And he subsequently entered a judgment enjoining the defendants from carrying out the United-Interstate agreement except upon prior compliance with the merger statute. Defendants appealed. We certified the cause before argument was heard in the Appellate Division, and affirmed on the opinion of the Chancery Division. 33 N.J. 72 (1960).

Sixteen days later, the plaintiff instituted the derivative stockholder action in the Supreme Court of New York on behalf of United and against Interstate, Epstein, and the directors of United. In her New York complaint, the plaintiff charged that the defendants, by participating in the United-Interstate agreement and in efforts to consummate the corporate transaction contemplated therein, were guilty of fraud, unfairness, concealment and self-dealing. She sought monetary damages on behalf of United for the corporation's expenses in connection with the proposed merger and resulting litigation, and damages for herself to cover her expenses in the New York suit. United and its directors then applied to the New Jersey Superior Court, Chancery Division, for an order restraining the plaintiff from proceeding with the New York action. Interstate and Epstein also applied for such an order. The applications were made as ancillary to the original New Jersey proceeding. Judge Kilkenny, who rendered the judgment that the proposed corporate transaction was a merger, had been assigned to the Appellate Division. Consequently, another judge of the Chancery Division heard the applications.

The two groups of defendants advanced different reasons for issuance of the injunction. United and its directors argued that plaintiff's New York action is properly a facet of the New Jersey litigation. They contended that for that reason and because all the New York defendants are before the New Jersey court an injunction should issue to prevent the vexation and harassment incident to defending bistate litigation. Interstate and Epstein argued that Judge Kilkenny's judgment terminated the New Jersey proceeding; that the New York and New Jersey actions concern the same controversy; that plaintiff would be precluded under New Jersey law from further litigating in this State the matters which are the subject of her New York action; and that therefore, an injunction should issue to prevent evasion of the New Jersey law by resort to the New York courts. The Chancery Division rejected both contentions and denied the

applications. It reasoned that the defendants were not subject to the harassment of bistate litigation because the judgment entered by Judge Kilkenny terminated the New Jersey proceeding. And it concluded that "the controversy in each case differs; the object in each case is different, and the relief sought is also different."

The defendants separately appealed to the Appellate Division and obtained an interlocutory injunction pending determination of the appeals. The plaintiff then made a motion requesting us to recall the mandate which issued in conformity with our affirmance of the judgment entered by Judge Kilkenny, and to "enter an order expressly and specifically directing that the litigation be in all things terminated, except for the right of counsel to move for the allowance of counsel fees before ...


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