General Acquisition, Inc. v. GenCorp, Inc.

• Decision Date: 06 May 1994
• Docket Number: No. 92-4043,92-4043
• Citation: 23 F.3d 1022
• Parties: Fed. Sec. L. Rep. P 98,191 GENERAL ACQUISITION, INC., et al., Plaintiffs, v. GenCORP, INC., Defendant-Appellant, Shearson Lehman Brothers, Inc., Defendant-Appellee, Wagner & Brown, et al., Defendants.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1022

23 F.3d 1022

Fed. Sec. L. Rep. P 98,191

GENERAL ACQUISITION, INC., et al., Plaintiffs, v. GenCORP, INC., Defendant-Appellant Shearson Lehman Brothers, Inc., Defendant-Appellee Wagner & Brown, et al., Defendants.

No. 92-4043.

United States Court of Appeals Sixth Circuit.

Argued Nov. 30, 1993.

Decided May 6, 1994.

Melvin D. Weinstein, Shelby M. Steger, Thomas W. Hill (argued and briefed), O. Judson Scheaf, III, Emens, Hurd, Kegler & Ritter, Columbus, OH, for GenCorp, Inc. James E. Pohlman (argued and briefed), Daniel W. Costello, Rex H. Elliott, Porter, Wright, Morris & Arthur, Columbus, OH, Elizabeth S. Stong, Willkie, Farr & Gallagher, New York City, for Shearson Lehman Bros., Inc.

Before: KEITH and NORRIS, Circuit Judges; and ENGEL, Senior Circuit Judge.

ENGEL, Senior Circuit Judge.

This case involves General Acquisition, Inc.'s attempted hostile takeover of Appellant GenCorp, Inc., in March, 1987. Having successfully resisted General Acquisition's overture, GenCorp's directors now seek to hold Appellee Shearson Lehman Brothers, Inc., liable for allegedly disclosing confidential information in conjunction with the takeover bid. ¹ Although GenCorp has not yet established any wrongdoing on Shearson's part, we are asked at this early stage in the proceedings to review a district court order affecting the amount of damages GenCorp might possibly recover if liability can ultimately be proved. That both parties seek to confer appellate jurisdiction upon this court at this time does not relieve us of our independent obligation to scrutinize the basis for appellate jurisdiction. Liberty Mutual Ins. Co. v. Wetzel, 424 U.S. 737, 740, 96 S.Ct. 1202, 1204-05, 47 L.Ed.2d 435 (1976). Because we conclude that we do not possess appellate jurisdiction to review the question on appeal, we cannot address the merits of this dispute. Therefore, we DISMISS the appeal and REMAND for further disposition.

I. Background

Formerly known as the General Tire & Rubber Company, GenCorp is a highly diversified corporate enterprise which participates in the aerospace, defense, plastics, tire, beverage, broadcasting and entertainment industries. ² On March 18, 1987, General Acquisition announced a tender offer for all of GenCorp's outstanding shares at a price of $100 per share. Federal regulations which govern such tender offers required GenCorp's directors to respond to this announcement by evaluating the terms of the offer and advising their shareholders accordingly. 17 C.F.R. Sec. 240.14e-2(a) (1993). ³ After conducting a thorough analysis, GenCorp's directors concluded that the tender price of $100 per share was inadequate when compared to GenCorp's "break up" value, which they estimated between $122 and $137 per share. To dissuade their shareholders from accepting an offer they considered inadequate, the directors implemented a partial stock repurchase at a price of $130 per share. This leveraged self-tender prevented General Acquisition from completing the takeover.

GenCorp seeks to recover from Shearson part of the cost of fending off General Acquisition's hostile bid. In its pleadings, GenCorp makes elaborate factual allegations, almost all of which Shearson vigorously denies, and virtually none of which have been finally resolved by the district court. At this point, with so many genuine issues of material fact in dispute, a brief summary of GenCorp's theory of liability will suffice to establish the background for this appeal.

At one time, Shearson may have owed fiduciary duties to GenCorp. ⁴ In this fiduciary capacity, Shearson purportedly acquired confidential information regarding GenCorp's future business prospects. According to GenCorp, this confidential information was disclosed by Shearson in recommending that General Acquisition seek control of GenCorp. Characterizing this alleged fiduciary breach as the genesis of the takeover bid, GenCorp seeks to hold Shearson responsible for injuries it claims to have suffered as a result of the raid. Specifically, GenCorp seeks to recover part of the cost of implementing the defensive self-tender which ostensibly protected the shareholders from the inadequate tender offer. Although frequently characterized by the parties and by the district court as a claim for "compensatory damages," this claim can more precisely be described as a cause of action for breach of fiduciary duty. In the alternative, GenCorp suggests that a theory of either fraud or negligence entitles it to recover the cost of its self-defense.

To defeat General Acquisition's tender offer, GenCorp's directors hastily implemented a $1.4 billion self-tender. Less than three weeks transpired between the announcement of the hostile tender offer on March 18, 1987, and the announcement of the self-tender on April 5, 1987. GenCorp claims that the need to act swiftly forced it to spend $58.5 million more to execute the self-tender than an identical maneuver would have cost given the luxury of more time. GenCorp claims this $58.5 million expenditure as damages, representing the cost of averting the serious threat posed to the shareholders by Shearson's wrongdoing. The speed-induced costs which GenCorp seeks to recover from Shearson include: (1) $17.8 million in investment banking fees; (2) $16.2 million in financing fees to secure a $1.75 billion loan commitment over the course of a weekend; (3) $13.4 million in severance payments to employees terminated as a result of the emergency restructuring; (4) $4.1 million in legal fees; (5) $1.9 million in prepayment penalties to retire existing loans which obstructed the extension of new credit; and (6) $5.1 million in miscellaneous costs. In the event that GenCorp proves a breach of fiduciary duty, it also seeks disgorgement of $10 million in fees Shearson earned at least in part from the revelation of confidential information about GenCorp.

In response to Shearson's pretrial motion, the district court refused to grant summary judgment on the question of liability, but did grant partial summary judgment to Shearson on the question of damages. General Acquisition, Inc. v. GenCorp, Inc., No. C-2-87-0348 (S.D.Ohio April 8, 1992) (Opinion and Order) ("April Order"). In the view of the district court, GenCorp suffered no compensable injuries as a result of the takeover attempt--despite spending $58.5 million in self-defense--because the alleged wrongdoing benefited the shareholders through a substantial stock price increase. ⁵ This ruling, which embraced a defense theory of essentially damnum absque injuria, reduced by $58.5 million the maximum amount GenCorp can recover from Shearson even if liability is ultimately established. The district court did not dismiss the portion of GenCorp's suit seeking disgorgement of the $10 million in fees Shearson earned advising General Acquisition during the takeover attempt.

The ruling on damages--with no ruling on liability--was obviously not a "final" order conferring appellate jurisdiction on this court, so the trial court sought to certify the April Order for discretionary review pursuant to 28 U.S.C. Sec. 1292(b). ⁶ A unanimous panel of this court denied the parties' joint motion for interlocutory review. GenCorp, Inc. v. Shearson Lehman Bros., Inc., Nos. 92-8320/8321 (6th Cir. May 21, 1992). The panel explained "that an immediate appeal is not likely to materially advance the ultimate termination of this litigation. This is not, therefore, an exceptional case warranting interlocutory review." Id. at 2.

Undeterred by this clear signal from our court, the district court and the parties persevered in their quest for interlocutory review of the April Order. In response to GenCorp's motion for reconsideration, and Shearson's renewed motion for summary judgment, the district court repeated its position that liability remained in dispute but that certain damages would not be recoverable. General Acquisition, Inc. v. GenCorp, Inc., No. C-2-87-0348 (S.D.Ohio Oct. 2, 1992) (Opinion and Order) ("October Order"). The district court then certified the October Order for interlocutory review as a partial final order under Fed.R.Civ.P. 54(b), ⁷ notwithstanding our earlier refusal to review a virtually identical ruling. We believe that this certification, which forms the sole basis for appellate jurisdiction at this time, was erroneous because the requirements for proper Rule 54(b) certification are not satisfied in this case.

II. Appellate Jurisdiction Under Rule 54(b)

Rule 54(b) of the Federal Rules of Civil Procedure permits immediate review of certain district court orders prior to the ultimate disposition of a case. See, e.g., Curtiss-Wright Corp. v. General Electric Co., 446 U.S. 1, 3, 100 S.Ct. 1460, 1462, 64 L.Ed.2d 1 (1980); Liberty Mutual, supra, 424 U.S. at 742-43, 96 S.Ct. at 1205-06; Sears, Roebuck & Co. v. Mackey, 351 U.S. 427, 435, 76 S.Ct. 895, 899-900, 100 L.Ed. 1297 (1956). Although Rule 54(b) relaxes the traditional finality requirement for appellate review, it does not tolerate immediate appeal of every action taken by a district court. The rule is specifically "designed to facilitate the entry of judgment on one or more claims, or as to one or more parties, in a multi-claim/multi-party action." Solomon v. Aetna Life Ins. Co., 782 F.2d 58, 60 (6th Cir.1986).

Rule 54(b) certification requires two independent findings. First, the district court must expressly "direct the entry of final judgment as to one or more but fewer than all the claims or parties" in a case. Second, the district court must "express[ly] determin[e] that there is no just reason" to delay appellate review. Fed.R.Civ.P. 54(b), supra note 7; WRIGHT, MILLER & KANE, FEDERAL PRACTICE AND PROCEDURE: CIVIL 2D Sec. 2655 (1983 & Supp.1993) (hereinafter "Wright, Miller & Kane"). A district court certifying an order under Rule 54(b) must clearly explain why it has concluded that immediate review of the challenged ruling is desirable. Solomon, 782 F.2d...