Bryan v. Brock & Blevins Co., Inc.

• Decision Date: 16 April 1974
• Docket Number: No. 72-3601.,72-3601.
• Citation: 490 F.2d 563
• Parties: R. J. BRYAN, Plaintiff-Appellee, v. BROCK & BLEVINS CO., INC., et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

490 F.2d 563 (1974)

R. J. BRYAN, Plaintiff-Appellee, v. BROCK & BLEVINS CO., INC., et al., Defendants-Appellants.

No. 72-3601.

United States Court of Appeals, Fifth Circuit.

February 27, 1974.

Rehearing and Rehearing Denied April 16, 1974.

Charles J. Gearhiser, Chattanooga, Tenn., George Paul Shaw, Lafayette, Ga., for defendants-appellants.

Frank M. Gleason, Rossville, Ga., for plaintiff-appellee.

Before TUTTLE, THORNBERRY and RONEY, Circuit Judges.

Rehearing and Rehearing En Banc Denied April 16, 1974.

TUTTLE, Circuit Judge:

This appeal raises the question whether the Georgia Merger Statute, Section 22-1001 et seq., including the right of the merged corporation to eliminate a dissenting stockholder upon an appraisal and acquisition of his stock, can be used solely for the purpose of "freezing out" a minority dissenting stockholder.

Jurisdiction in the United States District Court was obtained by virtue of the filing of a complaint in which the plaintiff alleged specific violations of the requirements of Section 10(b) of the Securities Exchange Act of 1934, and Rule 10(b)(5) of the Securities & Exchange Commission. The complaint also alleged, however, that the manner in which the defendants attempted to utilize the Georgia Corporation Merger Statute was, in and of itself, a "device, scheme and artifice to defraud" which the plaintiff, as the holder of a 15% stock interest in the merged corporation could enjoin. Pendent jurisdiction attaches to the second claim and permits the court to consider it independently of the provisions of the Securities Exchange Act, even though jurisdiction of the court was not alleged on diversity grounds.¹

The absence of any claim here by the appellant that there was not sufficient evidence upon which the trial court could make its conclusion that "the sole purpose and intent of the organization of Power Erectors and the proposed merger was the elimination of the plaintiff" and that "the proposed merger itself was a course of business which would operate as a fraud or deceit upon Bryan, in connection with the sale of his stock,"² enables us to repeat some of the findings of the trial court which set out the circumstances leading up to the transaction that is here under attack.

FINDINGS OF FACT

Brock & Blevins Co., Inc., (hereinafter Brock & Blevins), was incorporated in 1950 as a Georgia corporation having its principal place of business in Rossville, Walker County, Georgia. Prior to 1950, Brock & Blevins had operated as a partnership. The business of Brock & Blevins was the manufacture of machinery of all kinds; the maintenance, operation and conducting of foundaries and foundry business; the maintenance and operation of machine shops, and assembly plants; the business of assembling and erecting power plants, chemical plant equipment and other heavy machinery of any kind, character or description; engaging in the general steel and iron construction business; and the carrying on of a general industrial service and erection of all kinds of iron construction and industrial service. The original stockholders of Brock & Blevins were J. A. Brock, W. G. McGlothlin and H. E. Shrader.

Robert J. Bryan, the plaintiff in this action a chemical engineer with a Bachelor of Science Degree from the University of Wisconsin, was employed by Brock & Blevins in 1955. Bryan\'s position with the company at that time was varied in that he was working on special problems, following up sales and contracts, and traveling. He maintained this status with the company for some two and one-half years at which time he was appointed General Manager on June 13, 1957. Bryan began serving on the Board of Directors of Brock & Blevins in 1960 and was elected to the office of Executive Vice-President in that same year. Bryan served on the Board of Directors and as an officer of the company from 1960 until his resignation on October 17, 1970. Bryan\'s resignation was predicated upon a severe problem in company management, and he felt that his termination as an active employee in the management of Brock & Blevins was for the best interest of the company\'s future. Bryan has retained his status as an inactive stockholder in the company up to the time of the threatened merger in December, 1971, of Brock & Blevins with Power Erectors, Inc.

The present company management maintains that there is a long-standing company policy of Brock & Blevins having only "active employees" as shareholders. They have used this policy to support the instigation of the threatened merger which is the foundation of this controversy. Asserting the existence of this company policy, the defendants have made various attempts to acquire Bryan\'s stock by what they describe as a "fair value" offer.

* * * * * *

Bryan was then contacted in May of 1971 by Judge Painter who initiated his interest in purchasing the stock. Bryan responded with a willingness to discuss the matter, but a formal meeting was never arranged. During this same interval of Judge Painter\'s correspondence, Bryan was contacted by Bill Hicks, an individual non-employee, who also expressed an interest in purchasing the stock. This expression of interest also failed to materialize.

Bryan was first approached with a value offer on August 21, 1971, during a luncheon engagement in Chattanooga with Judge Painter. Judge Painter conveyed an offer of $200,000 for the stock on the premise that he was the representative for the other "stockholders." Bryan\'s reaction to the offer was that the price was too low, and Judge Painter responded by saying that he was authorized to offer only $200,000 and that he could not negotiate further.

Bryan was not approached again until November 16, 1971, at which time Frost and Frost, Certified Public Accountants for defendant Brock & Blevins, acting through a partner, Jim Frost, called plaintiff to come to his office to discuss "a problem." It was related that W. G. McGlothlin, president of Brock & Blevins, had engaged a Chattanooga law firm concerning this matter. A meeting was scheduled for November 18, 1971, at the offices of Frost & Frost. This meeting was attended by Sydney W. Carpenter, Attorney for the law firm of Stophel, Caldwell & Heggie of Chattanooga, representing Brock & Blevins; James B. Frost, Certified Public Accountant for Brock & Blevins; and Mr. and Mrs. R. J. Bryan. Carpenter informed Bryan that the "stockholders" wanted to buy his stock, but in so doing, they intended a fair treatment of Bryan. At the meeting, Bryan was given an appraisal prepared by Mr. Daniel W. Lattimore, an S.R.A. and M.A.I. appraiser and real estate consultant from Chattanooga, together with a number of analyzed reports, audits and balance sheets as an indication of Brock & Blevins\' past economic history. Included within these documents was an unaudited calculation of the estimated progress of the company through June 30, 1971. Carpenter then submitted to Bryan two alternate offers, one of which would have to be accepted by noon on Monday, November 22, 1971. The offers were:

(1) Two Hundred Ninety Thousand ($290,000) Dollars cash for his stock or,

(2) Two Hundred Thousand ($200,000) Dollars cash for his stock, plus another Two Hundred Thousand ($200,000) Dollars over a ten-year period in return for an agreement not to compete with Brock & Blevins for the same ten-year period.

Carpenter stated that his law firm had advised McGlothlin that fundamental corporate changes would be necessary in order to acquire Bryan\'s stock if he refused to accept one of the offers, and the necessary legal proceedings would begin immediately upon such refusal. Bryan was fully apprised of the contemplated merger plan which would find him a dissenter and qualified to receive only appraisal remedies under the 1969 Georgia Corporation Statutes. Carpenter advised Bryan that the proposed merger plan would not be carried out if one of the two offers was accepted within the allowable time period. (Emphasis added).

On November 19, 1971, Bryan called Frost to clarify whether or not the two offers were presented as an ultimatum, and Frost advised Bryan that the offers and deadline were intended as such. On November 22, 1971, Bryan let the deadline pass without a decision. Frost called Bryan and asked if a decision had been reached, and Bryan responded in the negative. Frost relayed the message to Carpenter, and on November 23, 1971, Carpenter called Bryan with an offer for more time in which to contemplate a decision. Bryan stated that such a time period would still be far too short and again contended the offer was far below the true value of the stock; and furthermore, he advised that he did not want to sell his stock. Carpenter then advised Bryan that appropriate legal proceedings would commence immediately.

On November 26, 1971, Judge Painter, a member of the Board of Directors of Brock, approached Bryan, "as his friend," in order to admonish Bryan of the probable expenses to be realized when seeking the professional advice of an attorney in a situation of this nature.

On November 29, 1971, the "active" shareholders of Brock & Blevins entered into an agreement to form a new corporation, Power Erectors, Inc. Pursuant to the agreement, all shareholders in Brock & Blevins, except Bryan, exchanged their stock holdings in Brock & Blevins for a proportionate amount of stock in Power Erectors, Inc. As a result of that exchange, Power Erectors, Inc. became the owner of 85 percent of the stock in Brock & Blevins and Bryan remained as the owner of 15 percent of the stock. The initial Board of Directors of Power Erectors, Inc. was, W. G. McGlothlin, Paul W. Painter, J. E. Wright, N. A. Dunn and J. J. Underwood. W. G. McGlothlin was the incorporator and majority stockholder in Power Erectors, Inc. There were no preemptive rights in that company. On November 30, 1971, Power Erectors, Inc. was duly incorporated under the Georgia corporation statutes having its principal place of business in

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