Abrams v. Occidental Petroleum Corporation
| Decision Date | 18 February 1971 |
| Docket Number | No. 67 Civ. 2858,67 Civ. 4042 and 67 Civ. 4977.,67 Civ. 3291,67 Civ. 2858 |
| Parties | Stephen ABRAMS, Plaintiff, v. OCCIDENTAL PETROLEUM CORPORATION et al., Defendants, and Kern County Land Company, a Delaware Corporation, et al., Defendants to Counterclaims. Action No. 1 Isaac MUKAMAL, Plaintiff, v. OCCIDENTAL PETROLEUM CORPORATION et al., Defendants, and Dwight M. Cochran et al., Defendants to Counterclaims. Action No. 2 KERN COUNTY LAND COMPANY, a Delaware Corporation, Plaintiff, and Stephen Abrams, Plaintiff-Intervenor, v. OCCIDENTAL PETROLEUM CORPORATION, a California Corporation, Defendant, and Tenneco Inc., a Delaware Corporation, et al., Defendants to Counterclaims. Action No. 3 COLONIAL REALTY CORPORATION, Plaintiff, v. OCCIDENTAL PETROLEUM CORPORATION et al., Defendants. Action No. 4 |
| Court | U.S. District Court — Southern District of New York |
Cahill, Gordon, Sonnett, Reindel & Ohl, New York City for defendants Tenneco, Inc. and Tenneco Corp. and plaintiff KCL Corp., David R. Hyde, New York City, of counsel.
Kaufman, Taylor, Kimmel & Miller, New York City, for plaintiff Mukamal; Stanley L. Kaufman, New York City, of counsel.
Wolf, Popper, Ross, Wolf & Jones, New York City, Gen. Counsel for plaintiffs (other than KCL Corp.); Benedict Wolf, New York City, of counsel.
Pomerantz, Levy, Maudek & Block, New York City, for plaintiff Colonial Realty Corp.; Abraham L. Pomerantz, New York City, of counsel.
Davis, Polk & Wardwell, New York City, for defendants Kern County Land Co., Dwight M. Cochran and George Montgomery; S. Hazard Gillespie, New York City, of counsel.
Phillips, Nizer, Benjamin, Krim & Ballon, New York City, for defendant Occidental Petroleum Corp.; Louis Nizer, Simon Rose, New York City, of counsel.
These proceedings relate to the liability under Section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b), of Occidental Petroleum Company (Occidental) for short-swing profits from the purchase and sale of securities. Several motions for summary judgment are presently before the Court. They grow out of four suits initiated in this court against Occidental for its part in a series of transactions between May and December, 1967, relating to Occidental's attempt to take over a prosperous California corporation, the Kern County Land Company (Old Kern); and Old Kern's subsequent merger with a subsidiary of Tenneco Inc. (Tenneco). Three of the suits, 67 Civ. 2858, 67 Civ. 3291, and 67 Civ. 4977 (Actions Nos. 1, 2 and 4 respectively), were brought by stockholders of Old Kern; the remaining suit, 67 Civ. 4042 (Action No. 3), was brought by the subsidiary of Tenneco which succeeded to the business and assets of Old Kern. As the discussion, findings and conclusions which follow indicate, this Court rules in favor of the plaintiff in Action No. 3.
Old Kern, incorporated in California before 1900, had by 1967 developed a multi-million dollar diversified enterprise centered on real estate, oil and gas properties as well as agricultural and livestock interests, located primarily in California; its stock was listed for trading on the New York Stock Exchange and the Pacific Coast Stock Exchange, and between January 1, 1966, and May 5, 1967, had traded at prices between $56.00 per share and $76.25 per share. Occidental is also a California corporation. In 1967 its basic business activity involved the production and sale of petroleum, natural gas, coal, sulphur, and fertilizers. Tenneco, a Delaware corporation, at the time was the parent of a group of companies whose primary activities were the production of petroleum and natural gas in the Gulf Coast region and its distribution by means of an extensive pipeline network to the Northeastern and Midwestern areas of the country. Among Tenneco's subsidiaries was the Tenneco Corporation, which was the immediate parent within the Tenneco family of a new Delaware corporation (hereinafter New Kern) formed to succeed to the business of Old Kern.1
As part of its expansion program, in the early part of 1967, Occidental approached the management of Old Kern to explore merger possibilities. When rebuffed by Old Kern, Occidental made a public tender offer in May, 1967, for the purpose of acquiring over 20 percent of the outstanding common stock of Old Kern at a price more than 30 percent higher than the then-current market price of the stock. The management of Old Kern opposed Occidental's takeover bid, and by way of defensive strategy agreed with Tenneco upon a sale of assets; the agreement was embodied in a document (the Plan) dated June 1, 1967, subject to the approval of the stockholders of both companies. Under the Plan, New Kern was to acquire all of the assets and business of Old Kern; in exchange, the shareholders of Old Kern would receive shares of a new class of Tenneco convertible preference stock on the basis of one Tenneco share for each share held of Old Kern stock. By the end of May, 1967, Occidental had become the holder of 883,381 shares, the largest single block of Old Kern stock and more than 20 percent of the total shares outstanding.
On June 2, 1967, Occidental entered into an agreement with the Tenneco Corporation under which, in substance, Tenneco Corporation acquired an option to purchase the shares of the new convertible preference stock of Tenneco which Occidental would receive as an Old Kern shareholder upon consummation of the sale of assets to Tenneco; Occidental was to be paid $105 per share for its holding in the new Tenneco stock. Occidental thereafter desisted from any further opposition, and in a letter, read at the Old Kern stockholders' meeting of July 17, 1967, at which the Plan was approved, Occidental offered its opinion that the Plan was a favorable arrangement for Old Kern shareowners.
When it became known that the Tenneco-Old Kern Plan was scheduled for a closing within six months of Occidental's purchases of Old Kern stock in May, 1967, Occidental sought a ruling from the Securities and Exchange Commission (SEC) exempting it from any liability under Section 16(b). It was unsuccessful. Numerous suits were brought in various courts in Texas, Nebraska and California, initiated by Old Kern stockholders, owners of miniscule numbers of shares, and which sought to delay or enjoin the closing. These suits notwithstanding, the closing of the Plan was held on August 30, 1967. Old Kern ceased to be a functioning company, and it was formally dissolved in October, 1967. Tenneco Corporation exercised its option to purchase Occidental's holdings of the Tenneco preference stock in December, 1967.
Of the instant suits, Actions Nos. 1 and 2 were filed prior to the closing of the Tenneco-Old Kern Plan, and contained, inter alia, causes of action under Section 16(b). New Kern brought Action No. 3 after the closing and asserted liability only under Section 16(b). Thereafter, another stockholder of Old Kern, Colonial Realty Corporation, initiated Action No. 4 against Occidental, in which it too sought to recover for Old Kern any Section 16(b) profits made by Occidental. In an order dated June 14, 1968, the late Judge Herlands of this Court consolidated Actions Nos. 1, 2 and 4, i. e., those brought by former stockholders of Old Kern, for pre-trial purposes and appointed general counsel to supervise pre-trial matters in those actions. Abrams v. Occidental Petroleum Corp., 44 F.R.D. 543 (S.D.N.Y.1968). In these derivative shareholder actions, profits are sought to be recovered from Occidental by way of motions for summary judgment in favor of Old Kern (Actions 1 and 4) and by a similar motion as well as a prayer for declaratory judgment in favor of Old Kern or New Kern (Action No. 2).
Additionally, New Kern, plaintiff in Action No. 3, has moved for summary judgment on its four causes of action under Section 16(b). Basing its right to receive any recovery on the terms of the Tenneco-Old Kern Plan, and on a specific assignment on August 30, 1967, from Old Kern to New Kern of any Securities Exchange Act claims that might accrue, New Kern argues, and this Court agrees, that Occidental's liability should be predicated upon a matching of the total number of shares of Old Kern stock acquired in the May, 1967 tender offer with the disposition of these shares through Occidental's grant of the June 2 option to Tenneco Corporation and by way of the closing of the Tenneco-Old Kern Plan on August 30, 1967.
Also before the Court is a motion by the defendant Occidental for summary judgment seeking (1) dismissal of all Section 16(b) causes of action in Actions Nos. 1, 2 and 4, on the ground that the stockholder plaintiffs lack standing to sue, or (2) in the alternative, for an order pursuant to Rule 42(b), Fed.R.Civ. P., directing a separate trial on the issue of standing to sue in advance of any trial on the merits.
The findings of fact and conclusions of law which follow are intended to amplify and supplement what is set forth above. There is no genuine issue as to any material facts upon which they are based. Rule 56(c), Fed.R.Civ.P. Now Kern's motion for summary judgment is granted. The summary judgment motions of plaintiffs in Actions Nos. 1, 2 and 4, similarly based upon 16 (b) violations are denied solely because they are deemed moot by the decision in favor of New Kern. The motions of defendant Occidental are denied.
1. In the spring of 1967, Occidental determined to attempt an acquisition of Old Kern. On April 24 and April 28, 1967, Occidental purchased a total of 1900 shares of Old Kern stock on the open market. No Section 16(b) liability is asserted with respect to these shares, since Occidental was not at that time, nor did it become by virtue of those purchases, a beneficial owner of more than 10 percent of Old Kern's issued and outstanding stock.
2. In the belief that ownership of a large block of...
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