The opinion of the court was delivered by: LEVET
The plaintiffs in this action have moved the Court for an order enjoining and restraining the defendants, pending the final determination of this action and entry of judgment therein, from transferring, selling, assigning or otherwise disposing of Series B 6% Convertible Income Debentures of the plaintiff, Universal Major Elec. Appliances, Inc. (hereinafter referred to as 'Universal'), in the aggregate principal amount of $ 21,000 registered in the name of the defendant Herbert A. Braasch.
The action is for a judgment directing the defendants Braasch and Anna Morris to deliver to Universal for cancellation certain Series B 6% Convertible Income Debentures in the aggregate principal amount of $ 21,000, registered in the name of Braasch, in exchange for certificates of a certain number of shares of the common stock of the plaintiff, and to enjoin the said defendants from transferring the said Series B Debentures.
It is alleged that on December 20, 1955, defendant Braasch attended a meeting of the Board of Directors of Universal and apparently represented that he owned the aforesaid debentures. On the basis of this representation it appears that Braasch was elected to membership on the Board and took off on such an assignment. The Board acted favorably upon a proposed merger of Universal and Birdsboro Steel Foundry and Machine Company (hereinafter referred to as 'Birdsboro') and the directors unanimously approved the proposal on January 23, 1956, at a meeting at which Braasch attended as a director. One of the conditions under which the merger was proposed by Birdsboro was that the Series B Debentures of Universal must be converted into common stock of Universal. On February 27, 1956, the Board met to approve the merger agreement; Braasch abstained from voting. On February 29, 1956, Braasch is said to have met with an attorney in New York and again represented that he, Braasch, owned $ 21,000 of the aforesaid debentures. On March 2, 1956, Braasch delivered a letter to Birdsboro, dated the same date, in which he agreed to convert as required by the Agreement of Merger.
Universal is insolvent. The proposed merger with Birdsboro is reported to be for the best interests of Universal's creditors, debenture holders, stockholders, etc. The plaintiffs contend that Braasch seeks to avoid his fiduciary duty as a director and derive personal gain by transferring the said debentures to a bona fide purchaser for value prior to or after the consummation of the proposed merger for a price far in excess of the conversion price granted to other debenture holders and that the merger will not be accomplished by reason of this condition now existing.
The defendant Anna Morris contends that she was a bona fide purchaser of the securities for value before Braasch was connected with the company and before the merger plan was initiated. The affidavits and exhibits submitted in opposition to this motion appear to sustain this contention. It appears that on the advice of her stock broker, one Arthur Greenbaum, Miss Morris purchased $ 23,000 of these debentures at a market price of $ 100 for each $ 1,000 bond, thus paying the sum of $ 2,300. This is substantiated by bills from Greenbaum dated November 23, 1955, by a check dated November 28, 1955 and by a withdrawal on November 28, 1955, from an interest account of $ 2,300.
The underlying reasons for the apparent acts of the defendant Braasch do not appear and he, in fact, denies that he represented that he owned debenture bonds at the time he became a director. Apparently, his contention is that he was speaking for various friends.
There is a substantial dispute as to the facts underlying the claim for relief and the probability that plaintiffs will ultimately prevail has not clearly been shown. Under the circumstances, plaintiffs' motion must be denied.
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