Bryan v. Brock & Blevins Co.

• Decision Date: 02 June 1972
• Docket Number: Civ. A. No. 2385.
• Citation: 343 F. Supp. 1062
• Parties: R. J. BRYAN v. BROCK & BLEVINS CO., Inc., et al.
• Court: U.S. District Court — Northern District of Georgia

343 F. Supp. 1062

R. J. BRYAN v. BROCK & BLEVINS CO., Inc., et al.

Civ. A. No. 2385.

United States District Court, N. D. Georgia, Rome Division.

June 2, 1972.

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

Stophel, Caldwell & Heggie, Chattanooga, Tenn., George P. Shaw, LaFayette, Ga., for defendants.

ORDER

O'KELLEY, District Judge.

This action arises under Section 10(b) of the Securities Exchange Act of 1934 15 U.S.C.A. § 78j; and Rule 10b-5 of the Securities Exchange Commission 17 C.F.R. § 240.10b-5 (1964). This Court has jurisdiction of this action under Section 27 of said act, 15 U.S.C.A. § 78aa, as amended. Robert J. Bryan, plaintiff herein, has instituted this action for the purpose of permanently enjoining the proposed merger of Brock & Blevins Co., Inc. with Power Erectors, Inc., defendants herein.

Plaintiff is a citizen and resident of Chattanooga, Tennessee. Defendants, Brock & Blevins Co., Inc. and Power Erectors, Inc., are business corporations, organized and existing under the laws of the State of Georgia. The registered agent for service of process for defendant, Power Erectors, Inc., is George P. Shaw, Attorney at Law, of LaFayette, Georgia.

This matter proceeded to trial before the Court without a jury on the question of a preliminary injunction and on the merits under the provision of Rule 65(a) (2), F.R.C.P. It having been determined that the plaintiff was mentally incompetent at the time of the hearing, the Court appointed Mrs. Amy E. Bryan, wife of plaintiff, as guardian ad litem.

The question presented to the Court is whether the acts of the defendants constitutes fraud so as to be in violation of the Securities and Exchange Act and the rules of the Commission promulgated thereunder.

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 assemblying 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, 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.

On October 14, 1970, the first attempt at such acquisition took place during a visit in Trenton, Georgia, between Bryan and Judge Paul W. Painter, a director of Brock & Blevins. Bryan indictated that he might possibly have contemplated a sale of his stock to the corporation for the purpose of getting new people in the company. The purchase price was to be based only upon agreeable terms, with Bryan's suggestion that an appropriate starting point might be the book value, plus additional factors to arrive at the value of the "going concern," and then take fifteen (15) percent of that calculation to represent his share. This particular meeting laid the foundation for the assumption that Bryan would sell if an attractive and deserving offer were negotiated.

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.

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 & Blevins, 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...