# Respondents Brief — United States v. Hilton Hotels Corp.

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386413_0178%3A4

## Record

- **Collection:** Supreme Court brief
- **Document type:** Respondents Brief
- **Published:** January 1, 1970
- **Citation:** 397 U.S. 580

## Text

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 . . .

. . * * -

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386413_0178%3A4. Public record. Not legal advice.