Respondents Brief — United States v. Hilton Hotels Corp.

PAGE

Argument ......--ceeeceeeeerceecerceecnscnceneuns 1

Introduction and Summary................e+00- 1

I. The appraisal proceeding did not involve the

acquisition of stock nor was it functionally

eo ee eee eee 3

II. The rules relating to mergers are not appli-

cable to the appraisal proceeding as the mer-

ger and the appraisal were not functionally

NEE ac bb rasa hke carn edie seu ee en beieees 7

III. The appraisal proceedings did not result in

Hilton acquiring a capital asset ............ 11

IV. The lower court cases holding expenses of an

appraisal proceeding deductible are correct. 21

NN 50 bcs sae eet Ae Oe 6 alee soe cA ea es 26

RE Sc vavisctexscedxeveesesavaensanbesasexwns i-iii

CrraTIoNs,

Cases:

Atwater & Co., Inc., William C., 10 T. C. 108....15, 19

Beerman v. United States, 390 F. 2d 638......... 8

Beloff v. Consolidated Edison Co., 300 N. Y. 11, 87

Pk EE As ehh Sead MEd e kc ek hades euexs 6

Boulder Building Corporation v. United States,

ee re Nhs CE KA a mhw dadaanwis bes dance 21

Brasch v. Goldschmidt, 199 A. 2d 760............ 6

Chicago Dock & Canal Co., 32 B. T. A. 231, aff’d

og ke er 21

Collateral Equities Trust, 39 B. T. A. 834........ 25

ii

Columbus Die, Tool & Machine Co., 11 C. C. H.

, eo SS re 17

Commissioner v. Speyer, 77 F. 2d 824, certiorari

, Be x Ws GR kv cass ckuccccecasccauses 15

Commissioner v. Ullmann, 77 F. 2d 827, certiorari

sg Pe ne 15

Des Moines Bank and Trust Co. v. Betchel, 243

2 © & eS © F See 12

Foster, T. J., 25 C. C. H. Tax Ct. Mem. 1390... ... 17

Heller v. Commissioner, 147 F. 2d 376, affirming

2 T. C. 371, certiorari denied, 325 U. S. 868.19, 21, 22

Helvering v. Winmill, 305 U. 8S. 79........ 4, 11, 14, 18

Iowa Southern Utilities Co. v. Commissioner, 333

Ws ee Uo Kh kn kA 0odau kneecacekscussbeaannban 12

Johnson, Isaac G., & Co. v. United States, 149 F. 2d

BE ReweKRERNEKA COR Sens onaseacnescueen 14, 16, i7

Kieselbach v. Commissioner, 317 U. S, 399....... 17

Munson v. MacGinnes, 283 F. 2d 333, certiorari

GmOe, GR Wa Gk GR nv nn cnarccncccccccriace 18, 19

Naylor v. Commissioner, 203 F. 2d 346. . . .15, 18, 19, 22

Petschek v. United States, 335 F. 2d 734... .12,14,15

Pikor v. Cinerama Products Corporation, 25

Wi ts Bh hakch dnd ck dccaceatacdeasscisiseta 6

Reakirt, L. B., 29 B. T. A. 1296, aff’d per curiam

FG Wr I hk Ka ck 84 Cid Rechccheccduncaeces 14

Ruoff v. Commissioner, 277 F. 2d 222........... 15

Smith Hotel Enterprises, Inc. v. Nelson, 236 F.

BI, TBD nan cccecncsscccessscscnccescscsce 21

Southern Production Co. v. Sobath, 87 A. 2d 128.. 6

Spangler v. Commissioner, 323 F. 2d 913. .12, 19, 21, 22

—_

iii

Stempfel v. United States, 23 AFTR 2d 69-685... 21

Stevens Brothers Foundation Inc. v. Commis-

sioner, 324 F’. 2d G33... 1.1... cece ee ee eee 25

Ticket Office Equipment Co. v. Commissioner, 20

OE SD ccckchedcuninndsesddcccenes senteeen 13

Towanda Textiles Inc. v. United States, 180 F.

Mame. STB 20... cccccccccccccccccseccvecssees 13

United States v. Gilmore, 372 U.S. 39..... 4, 7,8, 9, 10

United States v. Morton, 387 F, 2d 441........... 13

United States v. Pate, 254 F. 2d 480............ 13

United States v. St. Joe Paper Co., 284 F. 2d 430.. 19

Usry v. Price, 325 F. 2d 657...............06: 13, 14

Vermont Bank & Trust Co. v. United States, 296

Gem, GR cass cccennccccsanssccncsccnns 7, 21

Voege v. Sumatra Tobacco Corporation, 241 F.

Bam. BED onc ncccccccccncnnenncccesscesceses 6

Statutes :

Internal Revenue Code of 1939, Sec. 23(a)(2)...19, 22

Internal Revenue Code of 1954:

e Fy 8:8 Se | rererrr reir 2, 25

Sec. 212 (26 U. S. ©. 212)..........ee ees 14, 19, 22

Sec. 263 (26 U. S. C. 263). .2, 3, 7, 11, 18, 17, 23, 24, 25

Se g- 3 ek , errr re 13

Tt 8 ee nnnrreees 4

eS FF Fe eS ere Te 12

New York Stock Corporation Law:

SIREN EGAN, = Ab AIOE RNIN 4,6

ELE ANON SE 6

DE sink<caacdkensOonhaccenachssaaiwend acs 6

RSE PSR ARR Spek TB MLS Pate sinsr 4,5

—_——a

|) TRMESAAPTIT TTC TTT CLEC LCT Ee ELE Lee 5

REED Sacccadstansadbaecseceneeeseasecasesa 5

|) Pe rrrrrr rrr rrr eT rere ort Tete T 5

DN -thc cheb chteedueecsdnasercaseseshnns 5

Miscellaneous :

64 American Law Reports, 1513................ 16

4A Mertens, Law of Federal Income Taxation

§ 25A.16 (1966 rev. ed.).......... cece wees 14

3 Nichols on Eminent Domain, § 8.5 (1) & (2)

SE He, hn hecscconncavcnnncnnsavesies 16

Revenue Ruling 68-285 (68-1 Cum. Buu. 147).... 24

Treasury Regulations on Income Tax (1954 Code) :

§ 1.263(a)-2 (26 C. F. R. 1.263(a)-2) .......... 3

IN THE

Supreme Court of the Anited States

Octoner Term, 1969.

UNITED STATES OF AMERICA,

Petitioner,

vs.

HILTON HOTELS CORPORATION,

Respondent.

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF

APPEALS FOR THE SEVENTH CIRCUIT.

BRIEF FOR HILTON HOTELS CORPORATION.

ARGUMENT.

INTRODUCTION AND SUMMARY.

Hilton Hotels Corporation (‘‘Hilton’’) and the Hotel

Waldorf-Astoria Corporation (‘‘Waldorf’’) entered into a

merger agreement. Under the New York law governing

the merger, stockholders of Waldorf voting against the

merger could demand payment for their Waldorf stock.

Certain dissenting Waldorf stockholders demanded pay-

ment and by so doing under the terms of New York law

they lost their status and rights as stockholders of Wal-

2

dorf, and they became creditors of Waldorf for the fair

value of their stock. As a result of the merger Hilton

assumed Waldorf’s debts. Hilton and the dissenters could

not agree on the amount of the debt to the dissenters. An

appraiser was appointed by a court to determine the fair

value of the stock, and thus determine the amount of the

debt.

The problem presented to the Court in this case is

whether the expenses by Hilton in the New York appraisal

proceeding are to be classified as ordinary and necessary

business expenses deductible under § 162' or as non-dedue-

tible capital expenditures described in § 263. As the Gov.

ernment states (U.S. Br. p. 11) there is no dispute between

the parties as to the basic rules of Federal taxation, but the

dispute centers around the application of these rules.

It is the taxpayer’s position that its expenses in the ap-

praisal proceeding are ordinary and necessary expenses

deductible under § 162 because such expenses were not in-

curred to acquire a capital asset, but rather were incurred

solely to determine the amount of the debt of Hilton to the

dissenting shareholders, which debt was created when the

dissenters filed their objection to the merger and demand

for payment of the value of their stock with Waldorf, The

previously accomplished acquisition of the dissenters’

shares was not involved in the appraisal proceeding, said

shares having been acquired when the debtor-creditor re-

lationship was established, with all of the terms of such

acquisition having been determined, including the purchase

price, which was to be the fair value of the dissenters’

shares. All of the attributes of stock ownership were lost

to the dissenters prior to the appraisal and no unilateral

act by them could restore title to the stock to them, nor

change the terms of the acquisition.

Since the origin of the appraisal proceeding was in the

1. All references to section numbers. unless otherwise indi-

cated, are to the Internal Revenue Code of 1954.

es

3

election of the dissenters to receive the fair value of their

shares, and not in the merger, and since the character of

that proceeding was only to determine such fair value, the

appraisal proceeding was not functionally related to the

merger, so as to have the rules relating to capitalization of

merger expenses apply to the appraisal proceeding ex-

penses. Rather, the established Federal income tax rules

relating to the deductibility of expenses in determining the

amount owed by one party to another are applicable to the

instant case.

Many cases hold that where title is not in question but

where merely the agreed amount of the acquisition price is

in question, expenses incurred in determining that amount

are deductible. The expenses are solely for the resolution

of a dispute regarding the amount of a debt. Such a resolu-

tion gives the corporation no permanent benefit as does a

merger or stock acquisition. The expenses are not capital

expenses but rather are properly deductible.

I.

The Appraisal Proceeding Did Not Involve the Acquisition

of Stock Nor Was It Functionally Related to the

Merger.

The Government concedes (U. S. Br. p. 10) that the ex-

penditures by Hilton in the appraisal proceedings having

been made in a business context, are deductible unless they

fall within the ambit of capital expenditures which are de-

fined as ‘‘any amount paid . . . to increase the value of any

property or estate.’’ (§ 263). In this case, the touchstone

in determining whether the expenditure increases the value

of any property or estate is whether the expenditure is

for ‘‘defending or perfecting title to property.’’ (Treasury

Regs. § 1.263 (a)-2(c)).

The Government also concedes (U.S. Br. p. 19) that this

touchstone to the applicability of § 263 is absent in this

4

case by its admission that it agrees ‘‘with Hilton .., jp

terms of the timing of title passage ... [under] New York

law.’’ However, a further analysis of the origin and

character of the New York appraisal proceeding is neces.

sary to aid in evaluating the Government’s arguments (1)

that the origin and character of the New York appraisal

proceedings are such as to bring Hilton’s expenditures jn

the appraisal proceeding within the tax rules applicable to

mergers under the rationale of the Gidmore case? and (2)

that the expenses of the appraisal proceeding are a part

of the acquisition cost of stock under the rationale of the

Winmill case.®

Prior to the meeting of the shareholders of Waldorf to

consider the merger of Waldorf into Hilton, certain share.

holders of Waldorf filed with Waldorf their written objec.

tion to the merger (called a consolidation under New York

law) and demanded payment for their stock. (R. 7, par.

18). The filing of the written objection to the merger and

the demand for payment, had the following results under

New York law as of the date of the vote by Waldorf share-

holders approving the merger (December 28, 1953)‘:

1. The dissenting shareholders lost their status and

all of their rights as shareholders of Waldorf.’

2. The dissenting shareholders had the right only

2. United States v. Gilmore, 372 U. S. 39 (1962).

3. Helvering v. Winmill, 305 U. S. 79 (1938).

4. N. Y. Stock Corp. Law §21(1): ‘‘In the event that the

stockholders of a corporation have taken action pursuant to sec-

tion . . . ninety-one’’ (approved the merger) the New York statu-

tory provisions for determination of the value of the stock of dis-

senting shareholders become effective. R. 7, par. 19.

5. N.Y. Stock Corp. Law § 21(6). Their status as shareholders

could not be restored by withdrawing their demand for payment.

5

to receive the fair value of the Waldorf stock and

thereby became creditors of Waldorf.

The filing of the Certificate of Consolidation with the

Secretary of State of New York on December 31, 1953’ had

the following results under New York law as of said date:

1. Hilton acquired all of the properties of Waldorf,

subject to its liabilities, including Waldorf’s liability

to pay the dissenting shareholders the fair value of

their stock.*

2. The approving Waldorf shareholders became

shareholders of Hilton.®

3. Hilton retained the Hilton stock otherwise issu-

able to the dissenting shareholders.””

In summary, upon the approval of the merger by the

Waldorf shareholders, the relationship between the dis-

senting shareholders and Waldorf became a debtor-credi-

tor relationship, with Waldorf owing the dissenting share-

6. N. Y¥. Stock Corp. Law § 21(6). Dissenting shareholders

were required to submit their Waldorf stock certificates for the

placing of a notation thereon of the fact of their demand for

payment. No transferee of the notated certificate had any right

under the certificate other than the right of the transferor for

payment for his shares. N. Y. Stock Corp. Law § 21(8). However,

if the merger had not been consummated, the dissenters’ status

as creditors would have terminated. N. Y. Stock Corp. Law

§ 21(6).

7. R. 7, par. 20.

8 N. Y. Stock Corp. Law § 85(1), § 91(6).

9. R. 23.

10. Such stock being ‘‘deemed to have been duly issued in

accordance with the terms of such certificate [of consolidation]

and reacquired by the . . . surviving corporation’’ to ‘‘be held

or disposed of by it free of any preemptive rights of stockholders.”’

N. Y. Stock Corp. Law § 21(7).

7

holders the value of their Waldorf stock."' Upon the con-

summation of the merger, Hilton assumed this liability of

Waldorf, together with Waldorf’s other liabilities. Hilton

neither purchased or acquired the Waldorf stock owned by

the dissenting shareholders. Thus, the acquisition, defense

or perfection of title to the dissenters’ shares by Hilton

was not involved in the merger.

6

The statutory scheme in New York required Hilton and

its new creditors to determine by agreement the amount

of the debt owed to the dissenters’? and pursuant thereto

Hilton made a cash offer to the dissenting shareholders."

Had the dissenting shareholders accepted the offer, no ap-

praisal proceeding would have been necessary, and Hil-

ton’s debt would have been liquidated by the payment of its

offer.* However, the Hilton offer having been rejected,

the dissenting shareholders began an appraisal proceeding

under New York law to have the value of their stock deter-

mined.’® The appraisal proceeding thus related function-

ally only to the determination of the amount owed by Hil-

ton to the dissenting shareholders, and would not have

been necessary had the parties agreed on the value of the

stock. The dissenting shareholders initiated the appraisal

proceedings’® independently of the fact of the completion

of the merger, and solely to obtain a judicial resolution of

11. Beloff v. Consolidated Edison Company, 300 N. Y. 11, 87

N. E. 2d 561 (1949) ; Pikor v. Cinerama Products Corporation, 25

F. R. D. 92 (E. D. N. Y. 1960) ; Voege v. Sumatra Tobacco Cor-

poration, 241 F. Supp. 369 (1965); Brasch v. Goldschmidt, 199

A. 2d 760 (Del.) (1964) ; Southern Production Co., Inc. v. Sobath,

87 A. 2d 128 (Del.) (1952).

12. N. Y. Stock Corp. Law § 21(1).

13. R. 7, par. 21.

14. N. Y. Stock Corp. Law § 21(2), § 21(3).

15. R. 7, 8, par. 21. N. Y. Stock Corp. Law § 21(3).

16. Hilton also had the right to initiate the proceedings. N. Y.

Stock Corp. Law § 21(3).

—7"

7

the amount of the debt from Hilton to them. Nothing in

the appraisal proceedings, or the fruitless offer by Hilton

leading up to them, was intended or could in any way

affect the merger or title to the stock of the dissenting

shareholders, and there was no functional relationship be-

tween the appraisal proceeding and the merger.

Il.

The Rules Relating to Mergers Are Not Applicable to the

Appraisal Proceeding as the Merger and the Appraisal

Were Not Functionally Related.

Faced with the problem that § 263 cannot be applied to

the appraisal proceeding when viewed alone, because the

acquisition, defense or perfection of title was not involved

in the appraisal proceeding, the Government argues (U. S.

Br. pp. 14, 15) that the rules applicable to merger costs

should be applied to Hilton’s expenses in the appraisal

proceeding. In support of its argument the Government

cites the Gilmore case, and urges its application to the in-

stant case, stating that the ‘‘origin’’ of the appraisal pro-

ceeding was in the merger (through the dissenters losing

their rights as shareholders) and the ‘‘character’”’ of the

proceeding was the amount to be paid for a capital asset.

In other words, since there would have been no appraisal

proceeding if there had been no merger, the expenses of

the appraisal proceeding are merger expenses.’7 The

Government’s argument is erroneous for two reasons:

(1) It has misinterpreted the Gilmore case, and (2) it has

not correctly characterized the functional relationship of

the appraisal proceeding and the merger.

Mr. Gilmore was unable to deduct a portion of his litiga-

17. See The Vermont Bank and Trust Company v. U. S.; 296

F. Supp. 682, at 684-685 (D. C. Vt. 1969), which discusses this

argument.

a

8

tion expenses in the California divorce proceeding because

both the origin of the proceeding and the character of his

wife’s claim were personal. The origin of divorce litigation

was in the personal marital relationship of the parties. The

character of Mrs. Gilmore’s claim was two-fold: (1) that

she be granted a divorce and (2) that she be granted title

to a greater portion of the community property than she

would have otherwise been granted, based in both cases

upon Mr. Gilmore’s alleged infidelity. Both the divorce

issue and the title issue were determined by the California

court on the basis of the infidelity of Mrs. Gilmore during

the marriage. Neither the origin or the character of the

claim in the Gilmore case was in a business context relating

to profit making activities, and other than the marital

relationship of the parties, title to property was the issue

in the litigation.

In contrast to the Gilmore case, the origin of the New

York appraisal proceeding was clearly in a business con-

text resulting from the failure of Hilton and the dissenting

shareholders to agree on the amount owed to the dissenting

shareholders.'* The debtor-creditor relationship estab-

lished first between Waldorf and the dissenting sharehold-

ers, and later assumed by Hilton, was the origin of the

appraisal proceeding. This debtor-creditor relationship

was created by the dissenting shareholders, and Hilton did

not participate in the creation of the relationship nor ac-

quire anything as a result of the creation of the relation-

ship. Had the merger not been proposed, the debtor-creditor

relationship could not have been established. However,

the causal relationship between the merger and the ap-

praisal proceeding is broken because the appraisal pro-

ceeding was a creature not of the merger, which in itself

would not have caused the appraisal proceeding, but rather

the objection and demand for payment of the dissenting

18. Beerman v. United States, 390 F. 2d 638 (C. A. 6, 1968).

9

shareholders, and the failure to agree on value, caused the

appraisal proceeding. ’

To characterize the appraisal proceeding initiated by the

dissenting shareholders as originating in the merger is an

extension of the holding of the Gilmore case beyond its

intendment, which would cause many expenditures which

may have been incurred by Hilton relating to Waldorf

after the merger to be characterized as capital expenditures

because they would not have been incurred but for the

merger, although such expenses are clearly otherwise de-

ductible as ordinary and necessary expenses. ”

The California divorce proceedings in the Gilmore case

settled property rights based upon the non-business actions

of the parties. By contrast, the New York appraisal pro-

ceedings did not involve title to property, and the deter-

mination of value was based upon business considera-

tions. The New York appraisal proceedings cannot be

characterized as part of the process of acquiring a capital

19. No indirect two step causal determination of origin was

required in the Gilmore case, as the cause of the litigation was

based only on the personal activities of the parties. In addition,

the results of the litigation were also determined by their personal

activities.

20. Such expenses could include: (a) increases in annual fran-

chise taxes resulting from increased capitalization; (b) printing

new stationery, invoices, ete. (c) the legal costs of an amendment

to the pension plan of Hilton to allow the participation of the

former employees of Waldorf who became employees of Hilton;

(d) the installation of a new accounting system in the Waldorf-

Astoria Hotel to permit the following of Hilton’s procedures; (e)

the integration of the Waldorf-Astoria Hotel into the Hilton reser-

vation system; and (f) changes in Hilton’s advertising brochures

to include the Waldorf-Astoria Hotel. The generality of the appli-

eation of this Court’s decision in this case requires consideration of

the classification of such expenses. See the discussion by the Dis-

trict Court on this point. (R. 35)

21. The evidence presented in the appraisal proceeding was di-

rected only to the value of the Waldorf stock, while the evidence

presented in the divorce proceeding related to the alleged marital

infidelity of the parties.

—

10

asset, as all title questions were settled prior thereto, while

who was to acquire or retain title to property was one of

the principal issues in the Gilmore case state litigation.

For the Government to succeed in its argument based

upon the Gilmore case, it must be held that both the “origin

and character’’ of the proceedings are of a capital nature,

The facts do not support a conclusion that either element

is of a capital nature. The origin of the proceedings was

a debtor-creditor relationship and the character of the

proceedings was the determination of the amount of the

debt.

Hilton, in the District Court, conceded (R. 33) that the

cost of the services of Standard Research before the merger

to prepare a study to guide Hilton in determining the fair

basis of merger between Hilton and Waldorf was a merger

cost because functionally a merger could not have been

effected without the exchange ratio of stocks being agreed

upon by the respective corporations. *? The Government

views this concession as affecting the issue before this

Court (U. S. Br. pp. 24-25). However, the services of

Standard Research after the merger with respect to its

expert testimony in the appraisal proceedings were re-

lated solely to the determination of the value of the stock

of the dissenting Waldorf shareholders on the day prior

to approval of the merger. The expenses for such

services of Standard Research are clearly not related func-

tionally to effecting the merger. Such expenses are as

germane to the appraisal proceedings as the expenses

of Hilton in payment of the court appointed appraiser’s

fee and the fees of the attorneys appearing in the proceed-

ing. The fact that Standard Research performed services

with respect to both the merger and the appraisal proceed-

22. R. 5-6, pars. 14, 15 and 16(b).

23, R. 8, par. 23.

——

—

11

ing in no way affects the classification for tax purposes

of Hilton’s expenses relating solely to the appraisal pro-

ceeding.

III.

The Appraisal Proceedings Did Not Result in Hilton

Acquiring a Capital Asset.

The Government contends that Hilton’s expenses in the

appraisal proceeding were incurred as a part of the acquisi-

tion by Hilton of the dissenters’ shares in Waldorf, and

are therefore subject to the provisions of § 263 under the

authority of the Winmill case. ™

The services performed by the broker in the Winmill

case, in bringing the buyer and seller together as the first

step in a purchase of a capital asset, clearly ‘‘constituted

part of the acquisition cost of the securities involved”’.

But there is no analogy between Hilton’s appraisal expense

and the brokerage commission in the Winmill case. The

appraisal proceeding was not necessary for the dissenting

shareholders to cease to be shareholders of Waldorf and

instead become its creditors, as this occurred upon the filing

of their written objections and demand for payment for

their stock. The determination of the amount owed by Hil-

ton to the dissenting shareholders did nothing to add or

subtract from the relationship of the dissenters to Hilton.

In discussing the Winmill decision, the Government cites

many cases showing the application of the Winmill ration-

ale. Most of the cases cited are not relevant to a decision

in the instant case, as it is clear that title to a capital asset

was the subject matter of the state court litigation and

such element is absent in the New York appraisal proceed-

ing. However, two of these cases may appear not to in-

volve title defense or acquisition, and therefore require

further analysis.

24. Helvering v. Winmill, 305 U. S. 79 (1938).

12

One of the cases which may appear not to involve title

acquisition, but which does, is the Jowa Southern Utilities™

ease, which has been characterized as being a case classi.

fying legal expenditures incurred to reduce the cost of

property already acquired.” However, this characteriza.

tion is incorrect because in the stockholders’ derivative

suit in the Iowa courts there were two elements in the liti-

gation: (1) it was necessary for the corporation to estab.

lish the liability of the stockholders and directors for

wrongfully appropriating monies from the corporation in

the guise of sales to the corporation,”’ and (2) it was then

necessary for the corporation to establish the amount of

such wrongful appropriation. Therefore, Jowa Southern

Utilities is another case in which the gist of the state court

action is the recovery of property, that is the assertion of

title to money allegedly wrongfully taken by those defend.

ants who breached their fiduciary duty, and falls within

the long line of cases dealing with the capital nature of

litigation expenses to acquire property. In this decision,

the Eighth Circuit cited with approval the Tax Court

statement that: ‘‘It is well settled that expenses of ac-

quiring, perfecting or recovering title to property are

non-deductible capital expenses’’ and the Eighth Circuit

regarded Spangler v. Commissioner™ as a particular sig-

nificant authority, quoting the following language contained

therein:

‘Since perfection of taxpayer's claim to ownership

was the essence of the suit, the costs of the litigation

25. Iowa Southern Utilities Co. v. Commissioner, 333 F. 2d

382 (C. A. 8, 1964).

26. Petschek v. United States, 335 F. 2d 734 (C. A, 2, 1964).

27. Des Moines Bank & Trust Co. v. Betchel, 243 lowa 1007, at

1015, 51 N. W. 2d 174, at 180 (1952). See also description of the

nature of the litigation by the Eighth Circuit in the Jowa Southern

Utilities case, 333 F. 2d 382 at 383 (1964).

28. 323 F. 2d 913 at 920 (C. A. 9, 1963).

—_,

18

were capital expenditures and, under the authority

cited, were not expenses deductible from ordinary

income.’’

Another case cited by the Government which does not

appear to involve title defense and acquisition is United

States v. Morton,” where it was held that attorneys fees

incurred for the collection of fire insurance proceeds were

not deductible by a corporation in the process of a com-

plete liquidation. However, the analysis of the court in

determining when title passed for the purpose of deter-

mining the applicability of § 337 resulted in a determina-

tion that a fictional sale or exchange occurred because of

the provisions of the Internal Revenue Code relating to

involuntary conversions” at a time not earlier than the

date that the offer of the insurer in settlement of the claim

resulting from the fire loss was accepted by the insured.

Thus, on the basis that title was an integral part of the

proceeding for the collection of the fire insurance indem-

nity, the attorneys fees for such collection were held to be

subject to the rules of § 263. But unlike fire insurance

collection proceedings, title is not involved in the instant

case, so the reasoning in the Morton case is inapplicable.”

The case Usry vy. Price, 325 F. 2d 657 (5th Cir. 1963) is

illustrative of the importance of the absence of the acts of

defending or acquiring title in determining deductibility.

The Price case involved the deductibility of legal fees in

the second case in which the State of Louisiana challenged

29. 387 F. 2d 441 (C. A, 8 1968),

30. § 1033.

31. The Morton case relies heavily on Towanda Textiles, Inc. v.

United States, 180 F. Supp. 373 (Ct. Cl. 1960) involving the same

issue. However, certain cases are contra and hold expenses to de-

termine fire loss amounts deductible. Ticket Office Equipment Co.

v. Commissioner, 20 TC 272, Acq. 1953-2 Cum. Bull. 6, aff’d per

curiam, 213 F. 2d 318 (C. A. 2, 1954) and U.S. v. Pate, 254 F. 2a

480 (C. A. 10, 1958).

14

taxpayer's title to and right to income from certain oi]

wells. In this case, the Fifth Circuit said that it was not

its province to adjudicate the issue of title but rather to

decide whether the issue had been settled and if so at

what time. The Court held that since the issue of title had

been adjudicated in the first Louisiana case and was res

judicata in the second case, the attorney’s fees in the

second case were deductible under § 212.**

What the Second Cireuit said in Petschek v. United

States® is equally applicable to the New York appraisal

proceeding :

. title had been lost long ago and the taxpayer

had no chance of regaining it.’’

Such was the situation of the dissenting shareholders in

the instant case.

There are three lines of cases decided by lower courts in-

volving proceedings which have many elements in common

with the New York appraisal proceeding in the instant case

and therefore are relevant to the application of the Win.

mill case rationale to the New York appraisal proceeding:

1. The cases involving legal expenses in a condem-

nation proceeding, which have generally held that such

expenses must be capitalized ;*

32. The Gov ernment agrees with this analysis of Usry v. Price,

supra, but calls the case peculiar. (U. S. Br. pp. 17, 18, n, 12)

Perhaps it is the case with peculiar cireumstances that best illus-

trates a legal principle.

33, 335 F. 2d 734 at 736 (C. A. 2, 1964). The Second Circuit

‘is said to have rendered an ‘‘able opinion’’ in the case in 4A

Mertens, Law of Federal Income Taxation Section 25 A. 16, page

48 (1966 Rev. Ed.) However, taxpaver does not contend this is

relevant nor does taxpayer consider references to Mertens made

by the Government in its brief as relevant.

34. Isaac G. Johnson & Company v. United States, 149 F. 2d

851 (C. A. 2, 1945) and three cases cited therein similarly holding.

‘But see L. B. Reakirt, 29 BTA 1296 (1934), aff’d per curiam,

84 F. 2d 996 (C. A. 6, 1934), where expenses of successfully re-

sisting illegal condemnation were held deductible.

_

15

9, The cases involving legal expenses in the re-

covery of the value of property confiscated by foreign

governments, which have held such expenses to be

deductible ;* and

3. The cases involving legal expenses in the deter-

mination of purchase price in private contracts under

which the sale has been consummated, which have

held such expenses to be deductible.**

The common elements in all these cases are that an

acquisition has occurred or will occur, either voluntarily

or by unilateral public action, and the purchase price is

determined, either by agreed formula or as fair value. The

New York appraisal proceeding falls somewhere in be-

tween private contracts on one hand, and condemnation

and confiscation proceedings on the other hand, being

quasi-public and quasi-private, in that the rules for the

taking of the stock are set forth by the state, but the

stockholder must elect to come within these rules by

objecting and demanding payment for his stock.

However, the elements of difference are significant:

(1) In private contract and confiscation cases, the

acquisition occurs prior to the proceeding to deter-

mine fair value or the amount of the purchase price

under the agreed formula, while in condemnation

cases the time of the acquisition varies, because of the

variety of state laws under which condemnation pro-

ceedings may occur. For example, title may pass be-

85. Petschek v. United States, 335 F. 2d 734 (C. A. 2, 1964) ;

Commissioner v. Speyer, 77 F. 2d 824 (C. A. 2, 1935). certiorari

denied, 296 U. S. 631; Commissioner v. Ullmann, 77 F. 2d 827

(C. A. 2, 1925), certiorari denied, 296 U. S. 631; see also Ruoff v.

Commissioner, 277 F. 2d 222 (C. A. 3, 1960).

36. Naylor v. Commissioner, 203 F. 2d 346 (C. A. 5, 1953) ;

eign C. Atwater & Co.. 10 TC 218 (1948) (Aeq. 1948-1 Cum.

ull. 1).

16

fore the proceeding to determine the amount of the

award commences, during such proceeding, or only

after the condemnation award is determined.”

(2) Condemnation cases are also distinguishable

from the other cases because the award granted by a

court is not always based solely on the value of the

property taken. Condemnation awards sometimes jp.

clude, for example, (a) compensation for damages to

property not taken by the condemning authority from

the injured party in the case of a partial taking (re.

covery of capital) and (b) damage to the business of

the injured party consequentially caused by the nature

of a particular taking, when the business itself is not

acquired by the condemning authority (loss of in.

come).** However, in contrast, confiscation proceed-

ings, private contracts and the instant appraisal pro-

ceeding require solely the determination of value.

For these reasons, condemnation proceedings are not

completely analogous to private contract and confiscation

cases, or the New York appraisal proceeding, and thus

their precedent value in the instant case is greatly diluted.

Further, the cases deciding the tax classification of ex-

penses in a condemnation proceeding have not recognized

or analyzed the various elements of a condemnation

award, or the significance of the various times of acquisi-

tion, thus weakening any precedent value they may have.”

37. 3 Nichols on Eminent Domain, § 8.5(1) and (2), (3rd Ed.

1965). This is also true of proceedings to determine the fair value

of stock under the variety of state laws and situations which give

an objecting shareholder who demands payment for his stock the

right to appraisal. See footnotes 48 and 51 infra; U.S. Br. p. 23,

n. 7; Br. in Opp. p. 12.

38. 64 American Law Reports, 1513.

39. There appears to have been no intensive analysis of the

nature of various condemnation proceedings, and any such analysis

is absent as well in Jsaac G. Johnson & Co. v. United States, 149

F. 2d 851 (C. A. 2), decided in 1945 before the great body of law

ee7o7~

17

Thus, in the difficult application of § 263, three lines of

cases provide conflicting authority, the confiscation and

private contract cases weighing in favor of deduction, and

the distinguishable condemnation cases weighing in favor

of capitalization. It is the position of Hilton that the law

is clearer and better considered in the private contract and

confiscation cases, and in addition, such cases are more

like the instant case than the condemnation cases, which

have elements in addition to determination of value which

have been neither recognized nor analyzed by the lower

courts.

In the only Supreme Court case dealing with the tax

effect of a condemnation (in an area not relevant here),

Kieselbach v. Commissioner, 317 U. S. 399 (1942), the con-

demning authority first took title to the property and then

the proceeding to determine the award was commenced,

which makes that condemnation proceeding most directly

relevant to the New York appraisal proceeding in the in-

stant case. In the Kieselbach case, the Supreme Court held

that ‘“‘... the purchase price was settled as of January 3,

1933, when the property was taken over.’’ In the same

manner, the purchase price of the Waldorf shares was

settled as of the date the dissenters filed their written objec-

tion and demand for payment with Waldorf. In the in-

stant case the amount of the purchase price (fair value of

Waldorf shares) and all other terms of the acquisition

were set forth in the state statute, and nothing remained

to be agreed upon by the parties as a condition to the ac-

quisition. The New York court was not determining value

in the area which is involved in this ease was developed. The only

two eases which have determined the classification of legal expenses

in condemnation cases since 1945 are Tax Court Memorandum De-

cisions which did not even cite Johnson and contain very little

analysis. The Columbus Die, Tool and Machine Company, 11

CCH Tax Ct. Mem. 1053, 1066 (1952); T. J. Foster, 25 CCH Tax

Ct. Mem. 1390, 1421 (1966).

an

as a requisite to consummate an acquisition, as parties

would in negotiating a sale. An acquisition had occurred,

and only the amount of Hilton’s liability to its creditors

was to be determined in the New York appraisal proceeding,

18

It is the fact that all of the terms of the acquisition of

the Waldorf shares had been settled by state law, and that

the New York appraisal proceeding did nothing to restate

these terms, which removes the expenses of the New York

appraisal proceeding from the Wimmill rationale as ‘a

part of the acquisition cost’’. The problem was not to reach

mutually satisfactory or binding terms of sale. Because

of this, the instant case does not fall within the factual

situation decided in Munson v. Mac Ginnes,” but rather

within the factual situation decided in Naylor v. Commis-

sioner.*' The Munson case involved legal fees incurred in

securing additional consideration for the sale of stock be-

cause the original purchase was induced by fraud and the

Third Circuit commented at page 335 concerning this

factual situation as follows:

‘*More analytically, if terms of sale have been agreed

and subsequent controversy concerns no more than the

enforcement of these terms against a defaulter the

problem is one of ‘collection’. [Citing Naylor v. Com-

missioner] If the problem is to reach mutually satis-

factory or binding terms of sale, the problem is one _

of disposing of the property, not of collection, and the _

question of capitalization must be faced.’’

It is upon this distinction that this case turns in favor of

the deductibility of Hilton’s appraisal expenses, for the

Naylor case is hardly distinguishable from the instant

40. 283 F. 2d 333 (C. A. 3, 1960), cert. den. 364 U. S. 880.

41. 203 F. 2d 346 (C. A. 5, 1953).

7"

19

case.? In the Naylor case an option to purchase the stock

of taxpayer at the ‘‘net asset value’’ thereof was exercised,

but a dispute arose as to the ‘‘net asset value’’ of the stock.

The taxpayer, after the exercise of the option, and the crea-

tion of an enforceable contract of sale, retained a lawyer to

negotiate, and if necessary sue, for what the taxpayer

deemed to be the correct price to be paid for his stock

based upon ‘‘net asset value’’. The lawyer obtained pay-

ment for the stock of the taxpayer of an amount $140,000

greater than stated by the optionee in the exercise of the

option, and the amount paid to the lawyer for his services

was held to be deductible under § 212, because the tax-

payer was incurring his legal expenses only for an enforce-

ment of a claim, resulting from an acquisition which had

already occurred.“

Thus, in the Naylor case, unlike in the Munson case,“

the terms of the acquisition, including purchase price, had

been agreed to by the parties, and the services of the attor-

42. The Government contends that United States v. St. Joe

Paper Co., 284 F. 2d 430 (C. A. 5, 1961) represents the law of the

Fifth Cireuit, rather than the Naylor ease (U. 8. Br. p. 16 n. 11).

However, there does not seem to be any relationship between the

two eases. The St. Joe Paper case involved the deductibility of the

legal fee incurred in the process of a receivership proceeding where-

by title to stock was acquired by the taxpayer in a railroad com-

-pany in which the taxpayer bought bonds in order to obtain a stock

interest. The legal proceeding in the St. Joe Paper case involving

the acquisition of title to stock is in no way comparable to the

Naylor case where acquisition of stock was not involved, but rather

the determination of purchase price was the issue with respect to

an acquisition which had already occurred.

The Government’s comment on the Naylor case being questioned

by the Ninth Circuit in the Spangler case is covered in this brief

at pages 21-22, dealing with a similar reference by the Government

to the Heller case.

43. Formerly § 23(a) (2) of the Internal Revenue Code of 1939.

44. William C. Atwater & Co., 10 TC 218, 248 (Acq. 1948-1

Cum. Bull. 1). ;

45. n. 40 supra.

20

ney were not for the purpose of reopening the terms of

acquisition. So it was with the New York appraisal pro.

ceeding, which was premised on an acquisition at fair

value, and did nothing to reopen the terms of acquisition,

It is here that lack of analysis of the possible variety of

condemnation cases in the lower courts fails to resolve

the basic question concerning Hilton’s expenses in the ap.

praisal proceeding.

The Government correctly states that capital expendi-

tures are usually defined as those outlays made to acquire

a tangible or intangible asset or benefit with a useful life

of more than one year, and the costs incurred in a reorga-

nization, because they have benefit beyond one year, are

within this rule (U. S. Br. pp. 10, 11). This rule is impor-

tant in determining the correct tax classification of the ex-

penditures made by Hilton with respect to the appraisal

proceeding. The purpose of the appraisal proceeding was

not to confer a benefit upon Hilton with a useful life beyond

one year, as the benefits of the merger were unrelated to

the appraisal proceeding and had been conferred upon

Hilton by the laws of the State of New York upon the filing

of the Certificate of Consolidation and the acquisition by

Hilton of the properties of Waldorf. Hilton’s only pur-

pose in the appraisal proceedings was to keep its liability

to the dissenting Waldorf shareholders which it had as-

sumed as a result of the merger to a minimum, a purpose

as ordinary and necessary to its everyday activities as

resisting what it considers unreasonable demands of any

other creditor of Waldorf or Hilton holding a claim against

it. There is no distinction between either activity in terms

of continuing benefit, as both activities could be char-

acterized as having a benefit beyond one year, as the cor-

porate treasury may be enriched in both cases. To char-

acterize Hilton’s expenditures in the appraisal proceed-

46. n. 39 supra.

—,

21

ing as having a continuing benefit beyond one year is to

stretch the concept beyond reason and its intendment.””

IV.

The Lower Court Cases Holding Expenses of an Appraisal

Proceeding Deductible Are Correct.

In addition to the eases before this Court, the problem of

tax classification of appraisal expenses have been the sub-

ject of many cases in lower courts, and all but one of these

cases have held such expenses deductible.”

Uncomfortable with the preponderance of cases in favor

of taxpayers, the Government states that Heller does not

represent the law of the Ninth Circuit and that the Ninth

Cireuit specifically disapproved of its Heller opinion in

Spangler v. Commissioner.” This is not a fair analysis

of the Spangler case. To support its position the Govern-

ment relies upon footnote 15 on pages 919-920 of the

Spangler decision (U. S. Br. pp. 15-16). The statement

notated by the Ninth Circuit was:

“‘The gist of the controversy between taxpayer and

47. Chicago Dock & Canal Co., 32 BTA 231 (1935) aff’d per

curiam, 84 F. 2d 288 (C. A. 7, 1936), holding as deductible the

legal expenses incurred in successfully resisting the imposition and

amount of a special assessment having a continuing benefit to real

estate.

48. Cases favoring taxpayer: Heller v. Commissioner, 147 F. 2d

376 (C. A. 9, 1945), affirming 2 TC 371, certiorari denied, 325

U. S. 868 (shareholder expense upon merger) ; Smith Hotels En-

terprises, Inc. v. Nelson, 236 F. Supp. 303 (E. D. Wise. 1964)

(corporate expense upon sale of assets); The Vermont Bank and

Trust Company v. United States, 296 F. Supp. 682 (D. C. Vt.

1969) (corporate expenses on merger) ; Stempfel v. United States,

23 AFTR 2d 69-685 (M. D. Tenn. 1969) (stockholder expenses on

merger). The case favoring Government: Boulder Building Corp.

v. United States, 125 F. Supp. 512 (W. D. Okla. 1954) (corporate

expenses on extension of corporate charter).

49. 323 F. 2d 913 (C. A. 9, 1963).

22

the managing officers in the state court litigation was

the ownership of the stock.’’

This is to be contrasted with the finding of fact upon which

it based its Heller decision:

‘The Tax Court in its finding of fact found that in

this litigation the taxpayer was not defending or as-

serting its title.’’°

Thus, there was no reason for the Ninth Cireuit to dis

approve of its Heller decision in Spangler, as the cases

were distinguished on their respective facts. Indeed, the

Ninth Cireuit did not disapprove of the Heller case, as

footnote 15 reads:

‘‘The present case is thus distinguishable from those

in which it has been concluded that the primary issue

was not ownership but rather the right to possession

[citations] . . . , or the price to be paid for property

... [eiting Naylor and Heller]. Moreover, as we have

suggested, to the extent that these cases . . . assume

that section 23(a)(2) [now section 212] created a new

category of deductions . . . we think they are based

upon an unsound premise.’’

Footnote 15 is more properly interpreted as an approval

by the Ninth Circuit of its Heller decision as the Heller de-

cision does not assume any ‘‘new category of deductions’’.

The Government tries to distinguish the cases favorable

to the taxpayer which rely on the ‘‘primary purpose’’ test,

stating that in Hilton there was no element other than title

acquisition involved in the New York appraisal proceeding

(U. S. Br. p. 17). Hilton agrees that the instant case is

indeed distinguishable from the cases applying the ‘‘pri-

mary purpose’’ test, because only the amount owed by

Hilton to the dissenters based upon the value of their

Waldorf shares was at issue in the New York appraisal

50. 147 F. 2d 376 at 377 (C. A. 9, 1945).

23

proceeding. Hilton further does not seek to come within

the umbrella of the ‘‘primary purpose’’ test for this rea-

son. However, Hilton agrees with the petitioner in the

Woodward case (No. 412) that the ‘‘primary purpose’’

test is relevant in classifying appraisal expenses in pro-

ceedings which also involve an element of title.

The circumstances under which appraisal proceedings

occur are varied,” and with respect to events which cause

appraisal, the rules of state law may differ,*? and there-

fore passage of title may occur at different times in

relationship to the appraisal proceedings. The Govern-

ment argues since all appraisal proceedings have one

element in common (determination of value) that all ap-

praisal proceedings should be treated in the same manner,

and such expenses should be capitalized without determin-

ing the purpose of the proceeding (U. S. Br. p. 22). But

such an argument cuts both ways, as it may be argued

that since all appraisal proceedings involve determination

of value, the expenses of all such appraisal proceedings

should be deductible. This would bring as much simplicity

and certainty in the administration of the Federal income

tax law as the Government’s position.

However, Hilton believes that neither position is valid.

Courts have been successfully applying the ‘‘primary pur-

pose”? test in determining the application of § 263 since

1913, and there is nothing unique in an appraisal pro-

ceeding which would preclude the application of the test

by looking to the underlying substantive rights of the

parties under state law, and determining the primary issue

being litigated in the state court proceeding. Fairness in

the administration of the Federal income tax laws should

51. Examples are: (1) merger, (2) consolidation, (3) exchange

of corporate shares, (4) sale of all or substantially all of the assets

of a corporation, and (5) continuation of corporate charter.

52. U.S. Br. p. 23, n. 17; Br. in Opp. 12.

24

be a more important goal than simplicity in its adminis.

tration. To the extent that the issue or the transaction

involved in appraisal proceedings differ, each should be

treated in accordance with established tax principles,

The Government argues that such a position by this

Court would allow refinements of title under state law to

govern Federal tax consequences (U. S. Br. p. 22). But

in the cases cited by the Government, it was found there

were no substantive state law distinctions for Federal

income tax purposes in determining when income is real.

ized or the nature of such income, and these cases do not

deal with § 263, which by its terms deals with property

rights, which can only be determined by state law.

In his administration of the tax laws the Commissioner

of Internal Revenue must make determinations of state

law, and this is most appropriately demonstrated by

Revenue Ruling 68-285 involving an appraisal of the

value of dissenters’ stock.” Surely the Government can-

53. The Government states (lj. S. Br. p. 18) that Hilton “...

seems to agree the Woodword was correctly decided ..."’’ How.

ever, Hilton neither agrees nor disagrees with the Woodward de-

cision, and has not addressed itself to that problem in this brief.

The distinctions made between the facts in this case and in the

Woodward case were made in Hilton’s Brief in Opposition solely

for the purpose of attempting to demonstrate there was no conflict

between the Circuits.

54. 68-1 Cum. Bull. 147.

55. Under a state banking law allowing dissenters rights for

the payment of the value of their stock, Bank X acquired in ex-

change for its stock, all of the stock of Bank Y, other than the

25% of the stock of Bank Y owned by dissenting shareholders.

The transaction was held to be a reorganization under § 368(a)

(1)(B) which has two requirements germane to the ruling: (1)

the stock of Bank Y had to be acquired solely for voting stock of

Bank X and (2) after the exchange Bank X had to own at least

80% of the stock of Bank Y in order to meet the control require-

ments of § 368(c).

Bank Y established an escrow fund prior to the exchange from

which payments of cash to the dissenters were made both before

25

not contend that the Commissioner may make determina-

tions of state law in appraisal proceedings to determine

substantive tax questions, but courts should not.

The Government excludes from its statement concerning

refinements of title under state law those cases where ‘‘the

revenue statutes explicitly or implicitly so provide.’’

(U. S. Br. p. 22). Issues to be decided under § 263 must

refer to state law to determine whether there is a defense

or perfection of title and there is an explicit reference in

the statute to the increase in value of an estate, which can

only be determined under state law. All of the ‘‘primary

purpose’’ test cases must by their nature rest on an anal-

ysis of state law. The nature of corporate powers and

status of individuals as stockholders have been determined

by courts in deciding substantive tax consequences.” Thus,

while the Government’s contentions concerning state law

and after the exchange, and any cash not so expended was to be

returned to Bank Y (then a wholly owned subsidiary of Bank X).

Under these circumstances Bank X was determined not to have

aequired any Bank Y stock for cash, and thus met the solely for

voting stock requirement. The Revenue Ruling notes that this

requirement would not have been met if ‘‘the acquiring corpora-

tion pays the dissenting shareholders or reimburses the acquired

corporation for its payment to the dissenting shareholder.’’

A further analysis of state law was required of the Commis-

sioner to determine whether the 80% control requirement was met.

Here the determination was that since ‘‘under the state banking

law, each dissenting shareholder . . . ceased to have any shareholder

rights except to the right to demand payment for the fair market

value of his shares, [T]herefore immediately after the exchange, X

owned all of the outstanding Y stock.”’

Thus detailed analysis of state law was required to determine

substantial income tax consequences, and this analysis resulted in

a determination that Bank X did not acquire any stock of Bank Y,

under the appraisal procedure discussed in the ruling.

56. For example, see Stevens Brothers Foundation, Inc. v.

Commissioner, 324 F. 2d 633 (C. A. 1963); Collateral Equities

Trust, 39 BTA 834 (1939) (Acq. 1939-1 Cum. Bull. 7), which

eases decided the application of the personal holding company tax

based upon state law determinations of a corporation’s powers and

when a person becomes a stockholder.

ae

™

26

are true, they are inapplicable to the cases before this

Court.

In summary, since Hilton did not acquire a capital asset

as a result of the New York appraisal proceeding, and

since there is no functional relationship between the ap.

praisal proceeding and the merger so as to make rules

concerning mergers applicable, the expenses of Hilton in

the appraisal proceeding are deductible as an ordinary

and necessary expense under § 162.

CONCLUSION.

The decision of the Seventh Circuit should be affirmed,

Respectfully submitted,

Mixton A. LEVENFELD,

Burton W. Kanter,

Ricnarp M. Kares,

10 South LaSalle Street,

Chicago, Illinois 60603,

Attorneys for Respondent.

February 14, 1970.

APPENDIX.

New Stock Corporation Law, 58 McKinney’s, Consolidated

Laws of New York, Annotated:

21. Determination of value of stock of objecting stock-

holder.

1. In the event that the stockholders of a corpora-

tion have taken action pursuant to sections . . . ninety-

one ,.. and if any stockholder has objected to such

action and demanded payment for his stock as provided

in section ... ninety-one ... the corporation . .. within

ten days after the last day on which a demand for pay-

ment might have been made, shall mail by registered

mail to such objecting stockholder or deliver person-

ally to him a written offer to pay for such stock in

cash at a price deemed by the corporation to be the

value thereof; and an offer so made to any such ob-

jecting stockholder shal! also be made on the same

terms and conditions and at the same price per share

to all such objecting holders of shares of the same class

of stock ...

* SI * * .

3. ...If the objecting stockholder shall fail to ac-

. cept an offer from the corporation within twenty days

after the mailing or delivery thereof, . . . such stock-

holder or the corporation may petition the supreme

court . . . to determine the value of such stock...

. . . o .

bY

4. ... The court shall . . . proceed to determine the

value of their stock, or shall appoint an appraiser to

determine such value ... For all the purposes of this

section, such value shall be determined as of the close

of business on the day before the taking of the stock-

holders’ vote on the action to which objection was

made, excluding any appreciation or depreciation di-

ii

rectly or indirectly consequent upon such action or the

proposal thereof...

*

6. Any stockholder demanding payment for his

stock shall have no right to receive any dividends or

distributions payable to holders of such stock of record

after the close of business on the day next preceding

the date of the stockholders’ vote in favor of the action

to which such objection was made, and upon such vote

shall cease to have any other rights of a stockholder

of the corporation with respect to such stock, except

the right to receive payment for the value thereof as

in this section provided; and no such demand may be

withdrawn unless the corporation shall consent thereto

. if the action to the taking of which objection was

made shall be abandoned or rescinded, the status of

such stockholder as a stockholder in the corporation

thereupon shall be restored...

7. ...if payment for the stock of an objecting stock-

holder shall have been demanded in consequence of

action taken on a merger or consolidation pursuant to

sections eighty-five, eighty-six or ninety-one, the shares

or other securities of the resulting or surviving cor-

poration into which the shares of the objecting stock-

holder would have been converted had no objection

been made shall, unless the certificate of merger or

consolidation shall otherwise provide, be deemed to

have been duly issued in accordance with the terms of

such certificate and reacquired by the resulting or sur-

viving corporation, and may be held or disposed of by

it free of any preemptive rights of stockholders .. .

. e . *

8. Within twenty days after the last day on which

a demand for payment might have been made, each

stockholder demanding payment, unless the offer of

the corporation to pay therefor shall have been ac-

cepted, shall submit his stock certificate or certificates

to the corporation for notation thereon of the fact of

such demand; and any stockholder who shall fail so to

ini

do shall not be entitled to the relief by this section

provided unless a court of competent jurisdiction, for

good and sufficient cause shown, shall otherwise direct.

Upon any subsequent transfers of such stock on the

books of the corporation prior to payment by the cor-

poration of the value thereof, as herein provided, the

new certificate or certificates issued therefor shall] bear

a similar notation, together with the name of the origi-

nal objecting holder of such stock, and until such pay-

ment shall have been made, no transferee of any such

stock shall acquire any rights of any character whatso-

ever by reason thereof except the rights of the original

objecting stockholder.

§91. Consolidation of domestic with foreign stock

corporations,

7. Any stockholder of a domestic corporation in-

cluded in such consolidation, not voting in favor

thereof, may object to such consolidation and demand

payment for his stock, at any time prior to the vote

... The objecting stockholder or the corporation shall

have the right to have such stock appraised and paid

for in the manner provided, and subject to the condi-

tions imposed by section twenty-one . . .

. . * * -