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Elward v. Peabody Coal Co.

MARCH 9, 1970.




Appeal from the Circuit Court of Cook County; the Hon. NATHAN M. COHEN, Judge, presiding. Judgment affirmed.


Rehearing denied April 6, 1970.

This action was initiated by a complaint in chancery by James J. Elward, who was the owner of 800 shares of preferred stock of the defendant, Peabody Coal Company. Plaintiff brought suit in his representative capacity for all other preferred shareholders who were the owners of 188,071 preferred shares of the defendant corporation. Plaintiff sought to have a plan of liquidation, which had been adopted by the stockholders, declared null and void, and also sought an order directing the corporation to pay an additional $1 redemption premium to each of the preferred shareholders upon the surrender of their stock certificates, as required by the company's liquidation procedure.

The trial court dismissed plaintiff's complaint for want of equity following a motion for summary judgment. The cause was submitted upon the pleadings, documents produced through discovery procedures, an agreed statement of facts and arguments of counsel.

In 1966 the defendant corporation entered into negotiations for its sale to the Kennecott Copper Company. In the latter part of 1967, the negotiations had reached a point where a consummated transaction seemed likely. On October 14, 1967, the shareholders of Peabody were notified of a special meeting of shareholders to be held on November 7, 1967, for the purpose of considering a number of resolutions, among which were the approval of the sale to Kennecott and the adoption of a plan of complete liquidation. The proxy statement that accompanied the notice of the meeting contained pertinent information for the proposed meeting. Exhibit C of the statement was entitled "Plan of Complete Liquidation of Peabody Coal Company" which recited an adopted resolution of the board of directors that was to be submitted for shareholder approval of the sale of Peabody to Kennecott and a plan of voluntary dissolution of the corporation.

The dissolution plan provided that upon approval of two-thirds of the shareholders, the distribution of its assets in cancellation of all its shares would entitle the preferred shareholders a preferential liquidating dividend of $25 par value per share plus any unpaid cumulative dividends accrued, and the payment of the remainder of the assets on a pro rata basis to the holders of the common stock of Peabody.

The meeting scheduled for November 7, 1967, was continued several times and finally held on January 26, 1968. On this latter date, both the common and preferred shares voted as a single class with the result that 9,135,242 shares were voted for adopting the resolution, while 136,876 shares voted against the proposal. The resolution, as adopted, read as follows:

"RESOLVED that the shareholders of the Company (a) have considered the advisability of voluntarily dissolving the corporation and do hereby approve and adopt a Plan of Complete Liquidation of the Company (the `Plan') providing for the complete and voluntary liquidation and dissolution of the Company and the sale of its business assets, said Plan to be in the form, or substantially in the form, of the Plan of Complete Liquidation of the Company appended as Exhibit C to the Proxy Statement of the Company. . . ."

On March 29, 1968, the sale to Kennecott was consummated. On that same day, defendant corporation filed with the Secretary of State, a statement of intent to voluntarily dissolve the corporation, pursuant to sections 76 and 77 of the Illinois Business Corporation Act (Ill Rev Stats 1967, c 32, §§ 157.76-157.77). This statement recited the exact words of the resolution as set out above and also an explanation of the voting which approved the resolution. The voting was broken down into the number of shares of each class voting for and against the resolution.

In early February of 1968, the plaintiff had complained to Peabody about the propriety of the liquidation procedure which had been adopted. Plaintiff then filed his complaint on February 15, 1968, which was subsequently amended and supplemented. Plaintiff's allegations challenged the procedure used in adopting the resolution in question, claiming that the proposal was so incomplete as to render it null and void and that the corporation and its directors had breached their fiduciary duties with regard to the preferred shareholders. The same allegations are urged before us on this appeal. Plaintiff further argues that the trial court erred in granting the defendant's motion for judgment on the pleadings. More specifically, plaintiff contends that the defendant did not sustain his burden of proof with regard to an alleged affirmative defense and that the trial judge used extra-judicial knowledge to incorrectly influence his decision on what plaintiff characterizes as the "controlling issue" in this case.

Defendant meets these contentions by asserting no impropriety arose from the judge's decision in this matter. As to the allegations regarding the impropriety of the plan of liquidation, defendant maintains that the preferred stockholders were given their contractual rights, pursuant to the corporate charter. The contractual rights of the corporate stockholders, as written in the Restated Articles of Incorporation of Peabody and also printed on the back of the preferred stock certificate of the plaintiff provide as follows:

"R-V 2. (A) (ii) Redemption Premium. The amount per share which the holders shall be entitled to receive as a premium in the event of redemption shall, in the case of the 5% Prior Preferred Shares, be one dollar.

"R-V 2. (C) Preferences on Liquidation. In the event of any liquidation, dissolution or winding up of the Company (whether voluntary or involuntary), the holders of the 5% Prior Preferred Shares then outstanding shall, to the extent of the full par value of their shares and unpaid cumulative dividends accrued thereon be entitled to priority of payment out of the Company's assets over the holders of the Common Shares then outstanding. After such payment to the holders of the 5% Prior Preferred Shares, the remaining assets shall be distributed pro rata to the holders of the Common Shares then outstanding.

"R-V 2. (D) Redemption. The Company, upon the sole authority of its Board of Directors, may at any time redeem and retire all or any part of the 5% Prior Preferred Shares at any time outstanding by paying or setting aside for payment for each share so called for redemption the sum of $26.00 plus a sum equal to the ...

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