Lewis v. Oppenheimer & Co.
| Decision Date | 21 December 1979 |
| Docket Number | No. 79 Civ. 2109(MP).,79 Civ. 2109(MP). |
| Citation | 481 F. Supp. 1199 |
| Parties | Harry LEWIS, Plaintiff, v. OPPENHEIMER & CO., Big Bear Stores Company, a Delaware Corporation (formerly called B. B. Stores Company), Big Bear Holding Company, Marilyn Brown Kellough and E. C. Redman as co-executors of the Estate of Wayne E. Brown, Michael J. Knilans, Lawrence E. Mack, Stephen Kellough, David W. Godfrey, E. C. Redman, Individually, and R. D. Wickerham, Defendants. |
| Court | U.S. District Court — Southern District of New York |
COPYRIGHT MATERIAL OMITTED
Wolf, Popper, Ross, Wolf & Jones, New York City, for plaintiff by Robert M. Kornreich, Donald N. Ruby, and Klari Neuwelt, New York City.
Barrett, Smith, Schapiro, Simon & Armstrong, New York City, for defendants (Big Bear Stores Company, Big Bear Holding Company, and Oppenheimer & Co.) by Warren H. Colodner, and Robert C. Macek, New York City.
Cahill, Gordon & Reindel, New York City, for defendants Michael J. Knilans, Stephen Kellough and David W. Godfrey by Michael P. Tierney, Charles A. Gilman, and John C. Koutsos, New York City.
Defendants move to dismiss this complaint pursuant to Fed.R.Civ.P. 12(b)(1), 12(b)(6), and 9(b) for lack of subject matter jurisdiction, failure to state a claim upon which relief can be granted, and failure to plead fraud with the requisite particularity.
At the August 16, 1976 annual meeting of stockholders of Big Bear Stores Company (Old Big Bear), listed on the American Exchange, approximately 95% of the company's more than 5,000 stockholders voted the sale of substantially all of the company's assets for cash, subject to substantially all of its liabilities pursuant to a plan set out in a proxy statement dated July 24, 1976. The sale was made on August 30, 1976, and the assets were transferred to a newly organized company (New Big Bear) which is owned by Big Bear Holding Company, which in turn is owned by Oppenheimer & Co. (Oppenheimer) and its associates. The stockholders of Old Big Bear were given three options under the plan: (1) to remain shareholders in Old Big Bear which was converted into an investment company holding tax free securities and renamed Scioto Investment Company; or (2) to tender their shares at $33 per share to Old Big Bear; or (3) to exercise their rights to an appraisal under the laws of Ohio and obtain the appraised value for their stockholdings.
The plaintiff, owner of an unstated minor number of common shares, tendered his shares pursuant to the plan of sale and received $33 per share therefor on or about September 24, 1976. Almost three years later he instituted this suit on his own behalf and on behalf of others similarly situated whose stock was also tendered and redeemed in 1976 at $33 per share, claiming that this was a grossly unfair and inadequate price and that the conduct of defendants in arranging such a tender and redemption violated Rules 14a-9 and 10b-5 promulgated under the Securities Exchange Act of 1934, as amended. No class designation has been presented or authorized as yet.
The defendants are New Big Bear, a Delaware corporation, which purchased the assets of Old Big Bear; the Big Big Holding Company, which owns the stock of New Big Bear; Oppenheimer, which owns 70% of the stock of the Holding Company; and three individuals, Michael J. Knilans, Stephen Kellough, and David W. Godfrey, who were former officers and directors of Old Big Bear.
The claim essentially turns on the alleged deceptive inadequacies and misrepresentations in the proxy statement for the 1976 annual meeting, and on alleged delay in disclosure of favorable operating results for fiscal 1976. The plaintiff asserts that the disclosure was delayed in order to hold down the market price of the stock until after the announcement of the $33 offer to stockholders as part of the plan of the company to sell its assets and go private.1
The defendants contend that the proxy statement was proper in all respects and that there were no improper omissions or deception in the disclosures.
The motions may be considered under Fed.R.Civ.P. 56 in the light of the proofs that have been submitted. For the reasons shown hereafter, defendants are entitled to summary judgment dismissing the complaint.
Old Big Bear operated 54 supermarkets in Ohio and West Virginia. Through subsidiaries it also operated a chain of 12 discount department stores and two drug stores in Ohio, West Virginia, and Kentucky; a central bakery and a trading stamp distributor to supply its supermarkets; and 16 redemption centers where the trading stamps are redeemed for premiums. The company also owned its own fleet of trucks to deliver merchandise to its stores.
Old Big Bear's net sales for fiscal 1976 (ending on February 28, 1976) were approximately $319,000,000, up from approximately $288,000,000 the year before. Its common dividend, based on earnings of $5.63 per share, was $1.21 per share in 1976, up from $1.12 for the preceding year. In both years there were 1,070,768 class A common shares outstanding, held in 1976 by more than 5,000 public shareholders. These shares traded on the American Stock Exchange at prices ranging between $12.00 and $24.75 per share in 1974; between $12.12 and $25.25 in 1975; and between $22.00 and $32.00 in 1976 up to July 20, the last date for which information was included in the July 24, 1976 proxy statement.
Chronologically, the questioned transaction developed as follows:
Plaintiff contends that the proxy material omits or misrepresents certain information which "a reasonable shareholder would consider . . . important in deciding how to vote." T.S.C. Industries, Inc. v. Northway, 426 U.S. 438, 449, 96 S.Ct. 2126, 2132, 48 L.Ed.2d 757 (1976). The alleged omissions consist of the expected future compensation for the directors of New Big Bear (former officers and directors of Old Big Bear), the income tax basis of the stock owned by Wayne E. Brown (Old Big Bear's founder and majority shareholder), the identities of the owners of a 30% interest in the Holding Company, the buyers' method of financing the purchase, Old Big Bear's future prospects, and certain past transactions with the Ohio Company, an investment banking firm that reviewed and approved the sale and recommended it to the shareholders.
Careful examination reveals that each of the matters allegedly omitted was sufficiently disclosed in the proxy itself or in the materials accompanying the same furnished to each stockholder, or was immaterial for the consideration of the cash transaction involved.
As part of the sale transaction, the buyers and the top management of Old Big Bear entered into a Partnership and Management Agreement, by which the former directors and officers of Old Big Bear would continue to run the business for New Big Bear and share in an incentive profit fund that would be computed according to a certain formula. Plaintiff alleges that this compensation arrangement was the motivating factor behind the directors' approval of the proposed sale, and that this motivation was insufficiently disclosed to Old Big Bear's shareholders in the course of soliciting their proxies.
It is well established, however, that for purposes of the federal securities laws, the actual subjective motives behind a controlling shareholder's recommendation of a transaction need not be disclosed, as...
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...423 (1964). Second, the Proxy Rules do not require the disclosure of the motives behind certain proposals. See Lewis v. Oppenheimer & Co., 481 F.Supp. 1199, 1204 (S.D.N.Y.1979) (securities laws require disclosure of facts not motives); see also Panter v. Marshall Field & Co., 646 F.2d 271, ......
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...ignore that, as explained by this Court, "`[m]anipulation is a term of art with a narrow definition.'" Lewis v. Oppenheimer & Co., 481 F.Supp. 1199, 1202 n. 1 (S.D.N.Y.1979) (Pollack, J.) (quoting Piper v. Chris-Craft Indus., 430 U.S. 1, 42, 97 S.Ct. 926, 51 L.Ed.2d 124 (1977)); see also SE......
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...that, as explained by this Court, "`[m]anipulation is a term of art with a narrow definition.'" Lewis v. Oppenheimer & Co., 481 F. Supp. 1199, 1202 n. 1 (S.D.N.Y. 1979) (Pollack, J.) (quoting Piper v. Chris-Craft Indus., 430 U.S. 1, 42 (1977)); see also SEC v. Martino, No. 98 CV 3446(MP), 2......
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