974 F.2d 1156 (9th Cir. 1992), 90-16833, Chevron Corp. v. Pennzoil Co.

Docket Nº:90-16833.
Citation:974 F.2d 1156
Party Name:CHEVRON CORPORATION, Plaintiff-Appellant, v. PENNZOIL COMPANY, Defendant-Appellee.
Case Date:September 09, 1992
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

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974 F.2d 1156 (9th Cir. 1992)

CHEVRON CORPORATION, Plaintiff-Appellant,


PENNZOIL COMPANY, Defendant-Appellee.

No. 90-16833.

United States Court of Appeals, Ninth Circuit

September 9, 1992

Argued and Submitted Feb. 14, 1992.

William I. Edlund, C. Douglas Floyd, and Walter J. Robinson, Pillsbury, Madison & Sutro, San Francisco, Cal., for plaintiff-appellant.

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Stephen V. Bomse, Jonathan P. Hayden, David C. Brownstein, and Mary Ann Yarbrough, Heller, Ehrman, White & McAuliffe, San Francisco, Cal., for defendant-appellee.

Appeal from the United States District Court for the Northern District of California.

Before: SCHROEDER, REINHARDT, and KLEINFELD, Circuit Judges.

SCHROEDER, Circuit Judge:

I. Introduction

The Chevron Corporation appeals from the district court's order granting summary judgment in favor of the Pennzoil Company in Chevron's action seeking injunctive relief to halt Pennzoil's purchase of Chevron stock. Chevron's complaint alleged that Pennzoil's Schedule 13D, filed pursuant to Section 13(d) of the Williams Act, 15 U.S.C. § 78m(d), was materially misleading. Chevron also appeals the district court's partial denial of Chevron's motion to compel discovery of Pennzoil's communications with its tax counsel. Chevron contends that there exist genuine issues of material fact concerning Pennzoil's true purposes in acquiring Chevron stock, and that Pennzoil waived the attorney-client privilege with respect to the communications Chevron sought. We reverse on both issues.

This case arises out of the three billion dollar settlement of Pennzoil's earlier suit against Texaco over Pennzoil's claim that Texaco wrongfully interfered with Pennzoil's contractual agreement to invest in the Getty Oil Company. Pennzoil began reinvesting the proceeds of that settlement in Chevron stock. One of Pennzoil's stated purposes was to defer taxes owed on the settlement proceeds by making a similar reinvestment pursuant to section 1033 of the Internal Revenue Code. 26 U.S.C. § 1033. Chevron filed this suit to enjoin the investment, challenging the adequacy of Pennzoil's statement required under the Williams Act, 15 U.S.C. § 78m(d)-(e). In a nutshell, Chevron claims that Pennzoil's disclaimer in that statement of any intent to exert control over Chevron by election of board members or otherwise was not made in good faith because Pennzoil did intend to attain a control position.

The district court granted summary judgment for Pennzoil on the ground that the affidavits of Pennzoil's directors established that at the time of the Williams Act filing, Pennzoil did not intend to exert control over Chevron management, and that Pennzoil relied in good faith on its counsel's belief that management control was not absolutely necessary to obtain the tax deferral allowed under section 1033. 26 U.S.C. § 1033. The district court ruled that the evidence submitted by Chevron concerning discussions by Pennzoil officials of the possibility of exercising control over Chevron, and Chevron's proffer of expert testimony that Pennzoil could not adequately protect its tax position without regaining the same control position in Chevron that it had sought in Getty, were insufficient to create a genuine issue of material fact as to the good faith of Pennzoil's disclosure.

On appeal, Chevron contends that the district court erroneously granted summary judgment because there are triable issues of fact concerning whether Pennzoil's true but undisclosed purpose was to obtain representation on the board and exercise influence over Chevron management, thereby making Pennzoil's Schedule 13D materially misleading. In addition, Chevron challenges the district court's ruling upholding Pennzoil's claim of attorney-client privilege with respect to communications on which Pennzoil rested its claim that its Schedule 13D was in accordance with attorney advice.

II. Background

The Williams Act, 15 U.S.C. §§ 78l-n, was adopted in 1968 to extend the advance disclosure requirements of the federal securities laws to investors using cash tender offers to effect corporate takeovers. See S.Rep. No. 550, 90th Cong., 1st Sess. 2-4 (1967); H.R.Rep. No. 1711, 90th Cong., 2d Sess. 2-4 (1968); U.S.Code Cong. & Admin.News 1968, 2811-2814; see also Piper

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v. Chris-Craft Industries, Inc., 430 U.S. 1, 22, 97 S.Ct. 926, 939-40, 51 L.Ed.2d 124 (1977). The Act amended Section 13 of the Securities and Exchange Act of 1934 to provide for such disclosures. The purpose of the Act is to insure that, through adequate disclosure, public shareholders confronted by a tender offer or the purchase of a large block of shares by a third party, will be informed about the intentions and qualifications of the third party. See Rondeau v. Mosinee Paper Corp., 422 U.S. 49, 58, 95 S.Ct. 2069, 2075-76, 45 L.Ed.2d 12 (1975); Indiana Nat'l Corp. v. Rich, 712 F.2d 1180, 1183 (9th Cir.1983); S.Rep. No. 550, 90th Cong., 1st Sess. 2 (1967). Thus, the Act is designed to get essential information to investors enabling them to make informed investment decisions. Piper, 430 U.S. at 31, 97 S.Ct. at 944. The Act is not intended "to provide a weapon for management to discourage takeover bids or prevent large accumulations of stock which would create the potential for such attempts." Rondeau, 422 U.S. at 58, 95 S.Ct. at 2076.

This court has held that an issuer corporation has a private right of action for injunctive relief under Section 13(d) of the Act. See Indiana Nat'l Corp., 712 F.2d at 1184. Because the sole purpose of Section 13(d) is to protect shareholders, however, the issuer corporation is deemed to act on the shareholders' behalf in seeking injunctive relief until an accurate Schedule 13D is filed. Id. at 1185.

The Williams Act requires that within ten days after acquiring more than five percent of the outstanding shares of an issuer's stock, the purchaser of such stock must file a Schedule 13D with the issuer, the exchange where the stock is traded, and the Securities and Exchange Commission. 15 U.S.C. § 78m(d)(1). Section 13(d)(1) requires that the Schedule 13D contain, among other things: (1) the "background, and identity" of the purchaser; (2) "the source and amount of the funds or other consideration used or to be used in making the purchases;" (3) "if the purpose of the purchases or prospective purchases is to acquire control of the business of the issuer of the securities, any plans or proposals which [the purchaser] may have to liquidate such issuer, to sell its assets to or merge it with any...

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