Treadway Companies, Inc. v. Care Corp., 1276
| Citation | 638 F.2d 357 |
| Decision Date | 17 November 1980 |
| Docket Number | D,No. 1276,1276 |
| Parties | Fed. Sec. L. Rep. P 97,603, Fed. Sec. L. Rep. P 97,705 TREADWAY COMPANIES, INC., Plaintiff-Appellant, v. CARE CORPORATION, Robert W. Browne, Daniel Cowin and Philip deJourno, Defendants-Appellees. CARE CORPORATION, Robert W. Browne and Philip deJourno, Counterclaim Plaintiffs-Appellees, v. FAIR LANES, INC., Treadway Companies, Inc., Daniel Parke Lieblich, John R. McDonnell, Simon Gluckman, Norman Brassler, Murray L. Cole, Samuel B. Dobrow and Bernard Mills, Counterclaim Defendants-Appellants. CARE CORPORATION and Philip deJourno, suing derivatively in the right and for the benefit of Treadway Companies, Inc., Counterclaim Plaintiffs-Appellees, v. FAIR LANES, INC., Daniel Parke Lieblich, John R. McDonnell, Simon Gluckman, Norman Brassler, Murray L. Cole, Samuel B. Dobrow and Bernard Mills, Counterclaim Defendants-Appellants, and Treadway Companies, Inc., Nominal Counterclaim Defendant. ocket 80-7335. |
| Court | United States Courts of Appeals. United States Court of Appeals (2nd Circuit) |
Gerald J. Fields, New York City (Samuel R. Pierce, Jr., Raymond J. Soffientini, Richard S. Lawch, William Bruce Johnson, Battle, Fowler, Jaffin, Pierce & Kheel, New York City, on the brief), for appellants Treadway Companies, Inc., Daniel Parke Lieblich and Murray L. Cole.
Robert M. Blum, New York City (Thomas R. Berner, Jonathan J. Fink, Neil T. Rimsky, Robert A. Ladanyi, Danziger, Bangser, Klipstein, Goldsmith & Greenwald, New York City, on the brief), for appellants Norman Brassler, Simon Gluckman and John R. McDonnell.
Daniel S. Greenfeld, New York City (Stephen B. Camhi, Michael L. Hirschfeld, Joseph H. Adams, Marshall, Bratter, Greene, Allison & Tucker, New York City, on the brief), for appellees Care Corp., Robert W. Browne and Philip deJourno.
Michael H. Diamond, New York City (Douglas M. Kraus, Robert W. Wien, Skadden, Arps, Slate, Meagher & Flom, New York City, on the brief), for appellee Daniel Cowin.
Before FEINBERG, Chief Judge, and NEWMAN and KEARSE, Circuit Judges.
Treadway Companies, Inc. ("Treadway") and five of its directors appeal from judgments of the United States District Court for the Southern District of New York, Gerald L. Goettel, Judge, entered in favor of Care Corporation ("Care"), two of its directors, and Daniel Cowin, in this action After a bench trial of the claims and counterclaims, but while the case was still sub judice, Care waged a proxy fight with Treadway's incumbent management for the election of six of Treadway's eleven directors. Fair Lanes' 230,000 shares were voted in favor of management's nominees for the board, with the result that management's nominees were elected by a margin of 105,000 votes. Shortly thereafter, the district court issued its opinion, ruling in favor of Care and Cowin on all claims. The court ordered that the 230,000 votes cast by Fair Lanes not be counted toward the election of directors, and declared Care's nominees to be the new directors of Treadway.
arising out of a struggle for control of Treadway. The complaint, filed by Treadway after Care had acquired nearly 31% of Treadway's common stock, including a large block purchased from Cowin, alleged that Cowin had conspired with Care and others to seize control of Treadway by unlawful means. Treadway sought an order requiring Care to divest itself of its stock and requiring all defendants to account to Treadway for their profits. Care filed counterclaims seeking to enjoin the issuance and sale of 230,000 Treadway shares to a third company, Fair Lanes, Inc. ("Fair Lanes"), on the ground that Treadway's board had approved the sale for the improper purpose of perpetuating its control over the corporation. Care's motion for a preliminary injunction against this sale was denied and the sale was consummated.
Treadway filed this appeal, and on May 1, 1980, this Court stayed the judgment of the district court and ordered that the appeal proceed on an expedited schedule. We now affirm so much of the district court's judgment as held that Care and Cowin had not violated any duty to Treadway, but reverse the determination that the issuance of shares to Fair Lanes was improper.
The sequence of events is largely undisputed on this appeal. The principal factual controversies center on the purposes for which each side took certain actions, and the information possessed by each at the time the actions were taken.
Treadway is a New Jersey corporation engaged principally in the operation and management of bowling alleys and motor inns. Daniel Parke Lieblich is Treadway's chairman and president. Murray Cole is Treadway's Secretary, General Counsel and a member of its board of directors. John R. McDonnell, Simon Gluckman and Norman Brassler are directors of Treadway. Treadway and these five directors are the appellants here. 1
Daniel Cowin is an investment banker who was a director of, and financial consultant to, Treadway from September 1974 until December 1978. By late 1977, Cowin had become Treadway's largest shareholder, controlling (in conjunction with his wife, and with a partner) 176,000 shares, or 14%, of the outstanding Treadway common stock.
Care is a Delaware corporation engaged in the operation of health care and recreational facilities, including bowling alleys. Robert W. Browne is Care's chairman. Philip deJourno was Care's president until April 1979, when he became Care's vice chairman. During a part of the time pertinent herein Browne and deJourno have also been directors of Treadway.
In January 1978, Care had a large amount of cash on hand and started looking for ways to invest it. Browne asked Chauncey Leake, an investment banker and securities analyst, to prepare a study of companies, including Treadway, involved in the bowling industry. As it happened, Leake had known Cowin professionally for many years, and knew that Cowin was a At this meeting, Browne told Cowin, among other things, that Care had a "considerable amount" of cash on hand, and that it intended to buy a "reasonable amount" of Treadway stock. Browne asked for Cowin's opinion whether Care should continue to purchase stock on the open market or whether a tender offer would be "a more proper way to do it." Cowin responded (according to Browne's testimony at trial) that Care "could acquire a limited amount of stock . . . in a tender offer at a reasonable premium over the market, but that (Care) probably could acquire in the open market as well." 2
director of Treadway. With Browne's approval, Leake contacted Cowin and told him about Browne and Care, and stated that Care was considering buying Treadway stock. Leake then arranged for Cowin to meet with Leake, Browne and John Bouwer, president of Care's bowling subsidiary, Concordia Corporation, on March 21, 1978.
At about this time, in late March 1978, Leake's brokerage firm started to buy Treadway stock for the account of Care. Initially, Leake bought in small amounts, and near the bid side, so as to avoid putting upward pressure on the price of the stock. Leake met again with Cowin in early April 1978, and once more discussed the purchases of Treadway stock. Also during the month of April, Bouwer visited most of Treadway's motor inns and bowling alleys, and wrote a detailed report on each.
During the early part of 1978, while Care was investigating Treadway and was beginning to acquire its stock, Treadway was actively considering the possibility of a spin-off of its unprofitable Inns Division. Treadway had Helmsley-Spear, Inc., prepare a report on the liquidation value of Treadway's motor inns. Cowin and Lieblich discussed this report with representatives of Helmsley-Spear; it was also discussed at Treadway's March 8, 1978, board of directors meeting. On April 7, 1978, Lieblich sent to all of Treadway's directors, including Cowin, a letter marked "Confidential" in which Lieblich stated that the liquidation value of the Inns Division greatly exceeded its going concern value, although its earnings were improving. On May 26, 1978, Treadway announced publicly that it was considering a spin-off of that division. 3 On June 6, Cowin met with Leake and discussed the likelihood that the spin-off would actually be carried out.
Care's ownership interest in Treadway soon approached 5% of the outstanding shares. When its holdings reached that point Care would be required to file a Schedule 13D with the Securities and Exchange Commission ("SEC") pursuant to § 13(d) of the Securities Exchange Act of 1934 ("1934 Act"), 4 stating, among other
things, its purpose in acquiring Treadway stock. On June 30, 1978, at Leake's suggestion, Browne met with Lieblich to introduce himself and to explain, prior to the filing, Care's intentions regarding Treadway. Browne told Lieblich that Care had bought the stock for investment purposes only. Lieblich asked whether Browne was interested in becoming a Treadway director, but Browne said that he was not. Lieblich also raised the possibilities of a Care-Treadway merger and of a sale to Treadway of Care's bowling interests. Browne responded that Care was not interested. No mention was made, at this meeting, of Care's prior contacts with Cowin. On July 17, 1978, Care filed its Schedule 13D with the SEC, reporting that Care then owned 7.16% of Treadway's common stock, and stating that Care's current purpose in obtaining the stock was as an investment.
Late in the summer of 1978, Cowin began to consider selling his Treadway stock. He discussed the possibility of such a sale with his lawyer, Fred Gerard, but took no further steps toward carrying it out. Cowin did not inform Treadway that he was considering selling. Indeed, at the Treadway board meeting of August 24, 1978, in a discussion of an application for a tax ruling on the Inns Division...
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