The opinion of the court was delivered by: BARTELS
This is the second time the court has been required to review the report of the Honorable Arthur H. Schwartz, the Special Master, reappointed on October 12, 1971 (1971 Decree) to hear and report and account for the amount of restitution to be paid by Skogmo to the plaintiffs and those similarly situated. The first report was filed pursuant to an order dated April 26, 1969 (1969 Decree) appointing the Honorable Arthur H. Schwartz Special Master. In this connection reference is made to the opinion of this court, dated March 7, 1969, 298 F. Supp. 66 (E.D.N.Y. 1969), holding Skogmo legally responsible to account and make restitution to the plaintiffs; to the 1969 Decree; to the opinion of this court, dated September 24, 1971, 332 F. Supp. 644 (E.D.N.Y. 1971), concerning the hearings relative to the Master's first report, and also to the 1971 Decree.
Under the 1969 Decree an accounting procedure was prescribed, to which, after hearings before the Master and the filing of the Master's report, both parties belatedly filed objections. In addition, both parties filed briefs and reply briefs in support of their objections, with respect to which the court held a hearing on September 14, 1971. Predicated upon the difficulties of valuation of both Stedman and Claude Neon under the theory of the 1969 Decree, the court concluded that a more equitable accounting formula should be adopted, as more fully set forth in its 1971 Decree. Pursuant thereto, new hearings were held and the present report was filed by the Special Master on January 31, 1972, and again was followed by innumerable objections, briefs and reply briefs by both parties. As noted in the September 24, 1971 opinion, the court was deeply concerned by the delay in plaintiffs' recovery, noting that the record was replete with examples of exhibits which were originally introduced and then had to be modified, changed or revised and brought up-to-date. Again the court notes from the objections of both parties that there have been very few concessions and constant changes in the figures, calculations and theories advanced by the defendant and to a certain degree by the plaintiffs, which in turn caused the Master and court to review a number of the issues two and in some cases three times.
The parties wrangled every inch of the way, which in turn caused considerable delay. Throughout the hearings before the Master, and to some extent at the hearings confirming the Master's report, a certain amount of confusion resulted from the habit indulged in by the defendant of producing exhibits and recalling them to make additions and corrections. One clear example of the repeated modification and revision of exhibits is the defendant's Exhibit M-228 submitted for the purpose of documenting the defendant's claimed post-merger cash losses. During the 1967-1970 hearings as well as during the 1971 hearings, said Exhibit was subject to constant changes, each time on the ground that an error had been discovered. Eventually Exhibit M-228 as revised gave way to a new Exhibit, M-304. This in turn was subsequently modified as M-304-A. Despite the many revisions in the post-merger cash loss exhibit over an extended period, defendant, before the Special Master at the close of the 1971 hearings, argued that there was a newly found error, relating back to M-228, of some $163,420.
Numerous other examples of changed exhibits (including the underlying accounting, M-1, subsequently changed to M-1-A) could be provided. However, suffice it to say that the parties, and in particular the defendant, have not made the task of the Special Master, or of this court, any easier by urging repeated revisions even up to the last moments of this proceeding. The defendant had the burden of presenting the accounting material, since the records were wholly within its control, and the Master was extremely patient and tolerant in permitting the corrected exhibits. It was a most difficult task for the Master, and his report demonstrates his competence.
If the court were to comment upon every objection of both the parties to the present report, many pages of unnecessary explanation would be required. However, there are certain items which the court believes should be modified and others which require some comment as will appear below. Except for those items changed in the following discussion, the court adopts the Master's report and hereby rejects all other objections by the parties.
The most serious objection to the Master's report is made by the defendant and stems from that portion of the 1971 Decree which reads as follows:
(b) That Skogmo shall account for and make restitution for all the assets of General including the value of the shares of stock of Stedman, Claude Neon, and Williams-Thomas, Ltd. as of the date of the merger, provided, however, that where assets were disposed of by Skogmo after the merger and before the final decree is entered herein, then the value of such assets shall be the net proceeds received by Skogmo therefor as of the date of the disposition of said properties;
(c) that Skogmo shall pay interest upon the value of said shares of stock of Stedman, Claude Neon, and Williams-Thomas, Ltd. from the date of the merger, at the value determined as of said date up to and including the entry of the final decree approving the Master's report, at the rate of interest set by the New York State Banking Board for the periods involved;
(d) that Skogmo shall pay interest upon the net proceeds received from the disposition of said post-merger sales (without any deduction for dividends) at the rate of interest set by the New York State Banking Board for the periods involved, up to and including the entry of the final decree approving the Master's report;
(f) that in determining the amount due plaintiffs, Skogmo shall receive a credit for * * * (ii) the market value, as of the time of the October 17, 1963 merger, of the shares of Skogmo preferred stock issued to General stockholders who deposited their shares of stock of General and the shares of such Skogmo stock available for issuance to those stockholders who have not exchanged their shares; (iii) all dividends paid by Skogmo on such shares of Skogmo preferred stock, plus accumulated unpaid dividends on such Skogmo stock available for issuance to non-exchanging General stockholders, provided such shares are delivered and such dividends are paid to such non-exchanging stockholders; (iv) interest on the dividends actually paid by Skogmo to General's stockholders on Skogmo preferred stock at the rate of 5% per annum, but not interest on unpaid dividends;
Following the directions in the decree, the Master fixed the value of the assets of General set forth in paragraph (b) and then computed interest thereon in accordance with paragraphs (c) and (d), arriving at a total of $44,212,215 [Master's second report, chart 3, p. 60]. In order to grant Skogmo the credit to which it was entitled in paragraph (f) of the Decree, the Master then deducted from the above total of $44,212,215 the items set forth in the aforesaid subdivisions (ii), (iii), and (iv) of paragraph (f) of the Decree, aggregating $32,149,799, arriving at a total of $12,062,416 owing to the plaintiffs.
Defendant has two objections to this accounting procedure: the first being directed against the time when the Master made his deductions, claiming that defendant was entitled to credit for the items set forth above in subdivision (ii) of paragraph (f) before the Master computed the interest on the values and proceeds due from the defendant in accordance with paragraphs (c) and (d) of the 1971 Decree; and the second being directed against the New York State Banking Board rate of pre-judgment interest averaging 7% charged against the defendant as compared to the rate of pre-judgment interest of 5% charged against the plaintiffs. As to the first objection, defendant claims that the interest upon any sums due the plaintiffs should not be computed upon the gross ...