Bangor Punta Operations, Inc. v. Bangor & Aroostook R.R.

417 U.S. 703 (1974)

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Nature of the Case

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Facts

Prior to October 1964, Bangor & Aroostook Corp. (B&A) held 98.3% of the stock of the Bangor & Aroostook Railroad Company (P). In October 1964, B&A sold its BAR stock to Bangor Punta (D). Punta held the stock for five years and then sold it in October 1969 to Amoskeag CO. for $5 million. Later Amoskeag acquired more shares which gave it ownership of more than 99% but less than 100 of BAR. In 1971, BAR filed this action against Bangor Punta in the U.S. District Court of Maine. The complaint specified 13 counts of alleged mismanagement, misappropriation, and waste of P's assets occurring during the period from 1960 through 1967 when B&A and then D owned P. Damages were sought in the amount of $7,000,000 for violations of both federal and state laws. The complaint focused on four intercompany transactions which allegedly resulted in injury to P. Counts I, and II averred that B&A and later D overcharged P for various legal, accounting, printing, and other services. Counts III and IV, V, and VI averred that B&A improperly acquired the stock of the St. Croix Paper Co., which owned through its subsidiary. Counts VII, VIII, IV and X charged that B&A and D improperly caused P to declare special dividends to its stockholders, including B&A and D and also caused D to borrow in order to pay regular dividends. Counts XI, XII, and XIII charged that B&A improperly caused an excuse of payment by B&A and D of the interest due on a loan made by P to B&A. In sum, the complaint alleged that during the period of their control of P, D and its predecessor in interest in B&A exploited it solely for their own purposes and calculatedly drained the resources of P in violation of law for their own benefit. The District Court granted petitioner's motion for summary judgment and dismissed the action. United States Court of Appeals for the First Circuit reversed. The Supreme Court granted petitioners' application for certiorari.