600 California Corporation v. Harjean Co.

• Decision Date: 03 April 1968
• Docket Number: Civ. A. No. 4-902.
• Citation: 284 F. Supp. 843
• Parties: 600 CALIFORNIA CORPORATION v. HARJEAN CO.
• Court: U.S. District Court — Northern District of Texas

284 F. Supp. 843

600 CALIFORNIA CORPORATION v. HARJEAN CO.

Civ. A. No. 4-902.

United States District Court N. D. Texas, Fort Worth Division.

April 3, 1968.

Cantey, Hanger, Gooch, Cravens & Scarborough, Fort Worth, Tex., for plaintiff.

Crenshaw, Dupree & Milam, Lubbock, Tex., and Hardeman, Smith & Kever, San Angelo, Tex., for defendant.

OPINION

BREWSTER, District Judge.

600 California Corporation is in the final stages of a corporate combination with a subsidiary of Tenneco, Inc., with the requisite approval of its board of directors, the overwhelming majority of its stockholders and the appropriate state and governmental authorities. As might be expected in the case of a corporation with about 4,323,000 outstanding shares of common stock distributed among more than 17,000 different owners, there are a few disgruntled shareholders. A small group of them who own a combined total of a small fraction of one per cent of all the stock have been trying to delay or block the consummation of the corporate reorganization plan by multiforum, repetitious injunction suits, while the remaining owners of more than ninety-nine per cent of the stock are waiting helplessly for their stock to be exchanged in accordance with the terms of the plan. Such actions have been dismissed or have become dormant as the preliminary hearings held therein disclosed that the complaining stockholders had little or no chance of success. Decisions adverse to the complainants in those preliminary hearings have accomplished little, however; for activity in other similar cases already pending or filed shortly thereafter in courts from Nebraska to Texas to California have had the attorneys, officers and witnesses of 600 California Corporation spending most of their time going from one preliminary hearing to another fighting delay actions. On one occasion, a state court in Midland, Texas, had to grant a recess of several days in a preliminary hearing then being held in one of the actions to allow the attorneys to attend a preliminary hearing in another of such cases in a federal court in Lincoln, Nebraska. Sometimes, the named plaintiffs have been the same in different suits a thousand miles apart, and sometimes they have been the actual parties in only one case. The attorney most active for the plaintiff in each of the cases, however, has been the same person, flying from the scene of one lawsuit to that of another, sometimes in a chartered jet, claiming that previous adverse judgments were no obstacle because they were not final. It is apparent that the obvious expenses of the litigation in some instances will exceed the entire value of the plaintiff shareholder's stock, and in all instances will be more than the difference between the claimed value and the figure he is getting under the reorganization plan. The plaintiffs in those cases have insisted that they did not expect to be held responsible for the expenses, and have claimed that they did not know who was putting up the money for such expenses. Some of those suits were still pending at the time of the hearing in this case, and the plaintiff here alleges that others will in reasonable probability follow, all to its irreparable injury.

The plaintiff here alleges that such type of litigation, with no hope of success from either a practical or a legal standpoint, is maintained only for the purpose of delaying the consummation of the plan for reorganization and is therefore for vexation and harassment. It has brought this class action against Harjean Co., individually and as a representative of the shareholders of 600 California Corporation, seeking to enjoin the further prosecution of suits now pending and the filing of any further actions asking that the closing of the plan be restrained or rescinded.

The defendant denies that the litigation in question has been or is being prosecuted for the purpose of vexation and harassment, and says that, in any event, 28 U.S.C.A. § 2283 deprives a federal court of the authority to enjoin the character of state court proceedings here involved.

This Court granted a temporary restraining order that maintained the status quo until the hearing could be had on the application for temporary injunction. A full evidentiary hearing has been held, and the Court has the benefit of a detailed background of this controversy through affidavits, oral testimony and documentary evidence received in such hearing. The facts and inferences in this opinion are sifted from that mass of evidence, which includes, among other things, the pleadings and the transcripts of the proceedings in the pertinent litigation hereinafter described. Considerable time and effort have been spent assembling and organizing these matters, and the Court has had to make a choice between a short opinion dealing with them summarily or one setting them out in some detail. In view of the importance of the case, the Court has chosen the latter course, even at the expense of a lengthy opinion, believing that in the long run it will be more convenient for a court having occasion to review this case to have the complete story in one instrument.

The Court is of the opinion that the application for temporary injunction should be granted with the limitations and to the extent hereinafter indicated.

600 California Corporation was formerly Kern County Land Company, a nationally known and publicly held corporation chartered by the State of California in 1890. Kern's stock was listed on both the New York and the Pacific Coast stock exchanges. Its main office and its books and records have been in San Francisco at all times. It operated highly successful, diversified businesses in the oil, agricultural, cattle, manufacturing, and land ownership and development fields. Some idea of the value and extent of its properties and business operations can be gained from the public tender offer of Occidental Petroleum Corporation hereinafter discussed, whereby Occidental obligated itself to pay around $83,500,000.00 for a little more than one-fifth of the issued and outstanding shares in Kern.

Kern's stockholders, directors and officers were apparently satisfied with the Kern corporate structure for operating its business until they realized in the spring of 1967 that radical action was necessary to keep from being taken over by Occidental on Occidental's own terms. Occidental was at that time apparently engaged in a very aggressive expansion program embracing, in part, the acquisition of other successful corporations. Around the middle of April, 1967, a relatively short time after Occidental had taken over the Permian Corporation, a sizeable oil company in Texas, Occidental's President and its Executive Vice President went to the office of the President of Kern in San Francisco and told him they were there to talk terms on which Kern would be merged with Occidental. Mr. Davis, the Executive Vice President referred to, had been President of Permian at the time of its take over, and was apparently present to give testimony as to how painless the process was. The President of Kern was indignant about the efforts of Occidental to "raid" his company, and refused to discuss the matter. About three weeks later, on May 8th, Occidental made a public cash tender offer to buy Kern stock at $20.00 per share in excess of the price at which it was then listed on the New York Stock Exchange on a first come, first served basis, until it acquired 500,000 shares. On the last trading day prior to that time, Kern stock was listed on the Exchange at approximately $63.50. Occidental offered brokers $1.50 per share for all Kern stock secured for it by them, making each share so bought cost $85.00. The tender came without warning and as a complete surprise to Kern. Its officers then realized that Occidental was out to take over Kern. They sent out a letter to the shareholders in Kern advising that they believed a much better offer could be obtained, and suggested that the owners not be stampeded into selling their stock to Occidenal. The first tender was filled within only a day or so, and Occidental immediately made a second tender to buy up to 500,000 additional shares at the same price it had paid under the first offer. By the middle of May, Occidental had become the owner of 886,623 shares, or over 20% of the corporate stock in Kern then issued and outstanding. Mr. Davis testified in one of the Midland cases that those tenders came about as a result of the refusal of the officers of Kern "to talk with us about any merger" and that "We felt like if we owned some stock, we might get their attention." Occidental's spending of more than $70,000,000.00 for the purchase of Kern stock did get the attention of Kern's officers, and further conferences were held. The minutes of the meeting of the Kern directors on May 19th state that Occidental made an oral proposal to the President of Kern on May 17th of terms on which Occidental would take over Kern. It was a blitz type offer, with the limitation that it would expire at 5:00 P.M., Pacific Daylight Time, May 19th. Occidental's original offer would have resulted in realization of not more than around $83.50 cash per share by Kern stockholders, leaving them with income tax problems arising as a result of any cash profits.

Kern saw that it was facing a crisis of being taken over then or later, and that the only apparent solution was to attempt to get a better offer. Its first step was to retain Morgan Stanley & Co., a widely known and reputable New York investment banking, corporate appraisal and financing firm. Morgan Stanley & Co. was already familiar with Kern's last public financing. Information then assembled indicated that on May 19, 1967, Kern could possibly liquidate for $127.00 per share under the most ideal conditions. Costs of liquidation and taxes estimated at $34.00 per share would have meant a distribution of $93.00 per share to the stockholders, with liability for income...