Tracinda Corp. v. Daimlerchrysler Ag

• Decision Date: 18 September 2007
• Docket Number: No. 05-2482.,No. 05-2363.,05-2363.,05-2482.
• Citation: 502 F.3d 212
• Parties: *TRACINDA CORPORATION, Appellant v. DAIMLERCHRYSLER AG, a Federal Republic of Germany Corporation; Daimler-Benz AG, a Federal Republic of Germany Corporation; Jurgen Schrempp, a citizen of the Federal Republic of Germany; Manfred Gentz, a citizen of the Federal Republic of Germany; Hilmar Kopper, a citizen of the Federal Republic of Germany *(Caption Amended as per the Clerk's 8/24/07 Order). In re DaimlerChrysler AG Securities Litigation DaimlerChrysler AG; Daimler-Benz AG, Jurgen Schrempp, and Manfred Gentz, Appellants.
• Court: U.S. Court of Appeals — Third Circuit

502 F.3d 212

*TRACINDA CORPORATION, Appellant v. DAIMLERCHRYSLER AG, a Federal Republic of Germany Corporation; Daimler-Benz AG, a Federal Republic of Germany Corporation; Jurgen Schrempp, a citizen of the Federal Republic of Germany; Manfred Gentz, a citizen of the Federal Republic of Germany; Hilmar Kopper, a citizen of the Federal Republic of Germany *(Caption Amended as per the Clerk's 8/24/07 Order) In re DaimlerChrysler AG Securities Litigation DaimlerChrysler AG; Daimler-Benz AG, Jurgen Schrempp, and Manfred Gentz, Appellants.

No. 05-2363.

No. 05-2482.

United States Court of Appeals, Third Circuit.

Argued on September 26, 2006.

Opinion Filed: September 18, 2007.

Natalie J. Haskins, Esquire, Alan J. Stone, Esquire, Jay N. Moffitt, Esquire, Morris, Nichols, Arsht & Tunnell, Wilmington, DE, Terry N. Christensen, Esquire (Argued), Mark G. Krum, Esquire, Eric P. Early, Esquire, Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP, Los Angeles, CA, Julie E. Kamps, Esquire, William G. McGuinness, Esquire, Fried, Frank, Harris, Shriver & Jacobson, LLP, New York, NY, for Appellant/Cross-Appellee Tracinda Corporation.

Thomas J. Allingham, III, Esquire, Robert S. Saunders, Esquire, Skadden, Arps, Slate, Meagher & Flom, LLP, Wilmington, DE, Jonathan J. Lerner, Esquire (Argued), Lea H. Kuck, Esquire, Joseph N. Sacca, Esquire, Skadden, Arps, Slate, Meagher & Flom, LLP, New York, NY, for Appellees/Cross-Appellants DaimlerChrysler AG, Daimler-Benz AG, Jurgen Schrempp and Manfred Gentz.

Jeffrey A. Barist, Esquire (Argued), Douglas W. Henkin, Esquire, Josh Porter, Esquire, Milbank, Tweed, Hadley & McCloy, LLP, New York, NY, for Defendant/Appellee Hilmar Kopper.

Before: RENDELL, CHAGARES and ROTH, Circuit Judges.

OPINION

ROTH, Circuit Judge:

This appeal arises from the 1998 merger of Daimler-Benz AG, a German corporation and owner of the Mercedes-Benz brand, and Chrysler Corporation, one of the "Big Three" American automakers. Prior to closing, the merger had been billed as a "merger of equals," with management of the new company, DaimlerChrysler AG, to be shared equally between former Daimler-Benz and Chrysler executives. Shortly after the merger, however, several former Chrysler executives left the company, leaving a greater share of control to the former Daimler-Benz executives. In 2000, the CEO of DaimlerChrysler, Jurgen Schrempp, made public statements suggesting that these management changes were exactly what he and other Daimler-Benz executives had wanted prior to the merger. In response, various Chrysler shareholders, including Kirk Kerkorian's investment company, Tracinda Corporation, brought suit against DaimlerChrysler, Daimler-Benz, Schrempp, Manfred Gentz, and Hilmar Kopper (Defendants), alleging fraud, misrepresentation, and other violations of the federal securities laws in connection with the merger. The Chrysler shareholders alleged that, had they known the merger was a takeover, rather than a "merger of equals," they would have demanded a change-in-control premium upon consummation of the merger.

The cases were consolidated before the United States District Court for the District of Delaware. Defendants reached a settlement with most of the plaintiffs. Tracinda's case, however, culminated in a bench trial. In April 2005, the District Court issued a lengthy written opinion, finding in favor of Defendants on all counts. Tracinda appealed that finding, as well as the District Court's pre-trial rulings striking Tracinda's demand for a jury trial and dismissing defendant Hilmar Kopper for lack of personal jurisdiction. Defendants have cross-appealed, contending that the District Court erred in its post-trial decision, levying a half-million-dollar sanction against them for discovery violations. Defendants have also appealed the District Court's denial of their motion for summary judgment on statute of limitations grounds.¹

I. BACKGROUND

None of the District Court's factual findings is challenged on Tracinda's appeal. We derive the factual portion of the following summary from the District Court's post-trial opinion. See Tracinda Corp. v. DaimlerChrysler AG, 364 F.Supp.2d 362, 366-388 (D.Del.2005). Our summary of the procedural history draws from the entire record.

A. Factual Findings

Tracinda Corporation is a holding company, involved primarily in private investment. Its chairman, chief executive officer, and sole shareholder is multi-billionaire Kirk Kerkorian. Prior to the merger of Daimler-Benz and Chrysler Corporation in 1998, Tracinda was the largest holder of Chrysler stock at approximately 14%. Between 1992 and 1996, Kerkorian had a contentious relationship with Chrysler's managers. He frequently pressured them for stock buybacks, stock splits, and dividend increases, and he threatened to initiate a proxy fight in 1995. In 1996, Chrysler and Kerkorian settled their differences with various agreements. Among other things, Chrysler agreed to appoint a Tracinda designee, James Aljian, to the Chrysler Board of Directors.

With Aljian on Chrysler's Board, Kerkorian acquired significant inside information about the company. In 1997, Aljian reported to Kerkorian that he believed Chrysler's managers were inept and the company faced imminent financial trouble. Consequently, Kerkorian considered selling large blocks of Tracinda's Chrysler shares and also looked into the possibility of a merger partner for Chrysler. Kerkorian approached Bob Eaton, the chairman and CEO of Chrysler, to discuss a possible combination with Daimler-Benz. At that time, Kerkorian learned that Eaton had already spoken with Jurgen Schrempp, the chairman of Daimler-Benz's Board of Management, about possibly merging Chrysler with Daimler-Benz. Kerkorian consulted Jerome York, Tracinda's vice-chairman and the former chief financial officer of Chrysler. York advised Kerkorian that "now is the time" for the merger because Chrysler faced imminent financial risk. York analyzed various issues relating to the potential merger, including the tax consequences for Tracinda, and reported his findings to Kerkorian. Kerkorian was enthusiastic about the merger as it would provide tremendous value to Chrysler shareholders.

Schrempp and Eaton were the primary negotiators for Daimler-Benz and Chrysler. Over the course of several meetings, the two CEOs discussed various aspects of the proposed merger, including the tax consequences of incorporating the new company as an American corporation, as a German Aktiengesellschaft (AG), or as a corporate entity in another nation such as Holland. Schrempp and Eaton discussed the feasibility of joint management shared equally among executives from Daimler-Benz and Chrysler. Eventually, the term "merger of equals" was used to describe the proposed transaction.

In a memo to Kerkorian, Aljian described the proposed management composition of the new company, DaimlerChrysler, and also characterized the merger as a "merger of equals" without elaboration. Kerkorian was not concerned with management structure and supported the merger even before the discussions about corporate governance. Kerkorian had some discussions with Eaton about the implementation of the merger, but they were "reasonably general" and "not on a very deep level." Kerkorian understood that the details of the merger would be incorporated into the Business Combination Agreement (BCA).

The Chrysler Board received a fairness opinion from Credit Suisse First Boston (CSFB), assessing the value of Chrysler shares in light of the proposed merger. CSFB analyzed the merger as a strategic business combination, not involving a sale of or change in control which might warrant a control premium.² In determining that the proposed merger was fair to Chrysler shareholders, CSFB considered sixteen previously announced or completed transactions viewed as comparable. For each earlier "merger of equals," CSFB listed one company as the "acquiror" and one company as the "target" and noted that the distribution of seats on the combined company's boards was not always equal between acquiror and target.

On May 6, 1998, the Chrysler Board of Directors unanimously approved the merger and recommended that the Chrysler shareholders do the same. On that same day, simultaneously with the execution of the BCA, Tracinda, Kerkorian, Chrysler, and Daimler-Benz executed the Stockholder Agreement (SHA), which obligated Tracinda to vote its shares in favor of the merger. The SHA contained a jury waiver clause:

Each of the parties hereto ... agrees to waive any right to a trial by jury with respect to any claim, counterclaim or action arising out of or in connection with this Agreement or the transactions completed hereby.

Schrempp signed the SHA on behalf of Daimler-Benz; he did not sign in his individual capacity. The agreement was negotiated at arm's length with both sides represented by counsel and other advisors.

Substantively, the SHA did not use the term "merger of equals" and contained no representations concerning corporate governance. Rather, the SHA referred to the BCA, which described the shared governance structure of the new company. Although the BCA used the term "merger of equals" and contained a lengthy definition section, the BCA did not define that term.

On August 6, 1998, the proxy statement and prospectus (Proxy) — which described the proposed merger between Daimler-Benz and Chrysler and sought shareholder approval for the transaction — was filed with the SEC. The Proxy was mailed to the Chrysler shareholders along with several attached documents, including a cover letter from Eaton, the BCA, and the CSFB opinion. The Proxy stated, among other things, that "DaimlerChrysler AG" would be the surviving entity, it would be incorporated in Germany, and it would have two headquarters (in Auburn Hills, Michigan, and Stuttgart, Germany). The Proxy explained that the German AG form was chosen primarily for its tax advantages. The Proxy...