Berman v. Gerber Products Co.
| Citation | 454 F. Supp. 1310 |
| Decision Date | 19 July 1978 |
| Docket Number | G77-440 and G77-489.,G77-404,Civ. A. No. G77-402 |
| Parties | Larry BERMAN, Plaintiff, v. GERBER PRODUCTS COMPANY, George M. Burditt, Dena C. Cedarquist, Harrington M. Cummings, J. Russell Fowler, Arthur J. Frens, Daniel F. Gerber, Floyd N. Head, Richard L. McAuliffe, William L. McKinley, Carl G. Smith, Gloria S. Spitz, John C. Suerth, Raymond A. Weigel and Charles F. Whitten, Defendants. Mary Oliver SHANNON, Plaintiff, v. George M. BURDITT et al., Defendants. Joan WEISBERG, Plaintiff, v. George M. BURDITT et al., Defendants. LULLABY INFANT'S WEAR COMPANY, INC., on behalf of itself and all others similarly situated, Plaintiffs, v. GERBER PRODUCTS COMPANY, INC., et al., Defendants. |
| Court | U.S. District Court — Western District of Michigan |
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Rabin & Silverman by I. Stephen Rabin, New York City, De Groot, Kalliel, Triant & Conklin by A. Ray Kalliel, Grand Rapids, Mich., for Larry Berman.
Hillman, Baxter & Hammond, Douglas W. Hillman, Grand Rapids, Mich., for Mary Oliver Shannon; Pomerantz, Levy, Haudek & Block, New York City, of counsel.
Murphy, Burns & McInerney by Gerald F. Burns, Grand Rapids, Mich., William I. Weisberg, New York City, for Joan Weisberg.
Kass, Goodkind, Wechsler & Gerstein by Stuart D. Wechsler, New York City, Shatzkin, Cooper, Labaton, Rudoff & Bandler, Edward Labaton, New York City, for Lullaby Infant's Wear Co., Inc.
Warner, Norcross & Judd by William K. Holmes, Peter L. Gustafson, John D. Tully, Grand Rapids, Mich., for Gerber Products Co.
Cholette, Perkins & Buchanan, Grant J. Gruel, Grand Rapids, Mich., for all defendants except Gerber Products Co.
These actions arise as a result of Gerber Products Company's opposition to a proposed cash tender offer by Anderson, Clayton & Co. Plaintiffs here are stockholders of Gerber. They allege that Gerber's efforts to halt the tender offer violated section 14(e) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(e), (the '34 Act) as well as common law principles of fiduciary duty and various state statutes. They seek damages in excess of $100 million.
On April 18, 1977, Anderson, Clayton publicly announced its intention to purchase through a cash tender offer any and all of the outstanding shares of Gerber common stock at a price of $40 per share, a figure well above the market price for Gerber stock. Anderson, Clayton had informed Gerber management of the proposed offer the previous week, and pursuant to § 14(d) of the Securities Exchange Act of 1934 had filed a Schedule 13D statement containing the terms of the offer with the Securities and Exchange Commission. The Gerber board of directors responded initially on April 18 by declaring that no statement regarding the tender offer would be made until the board met later in the week. On April 20, 1977, the board did meet and issued a press release indicating that it had determined not to recommend the proposed offer to Gerber shareholders. The press release further stated that the board would have an opportunity "to evaluate all possible alternatives" insofar as the offer would remain open for 60 days from its effective date.
On April 25, the Gerber board issued another press release, announcing that it was recommending that Gerber stockholders reject the proposed tender offer by Anderson, Clayton. The release also stated that On the same day Gerber filed suit in this court seeking to enjoin the tender offer. Gerber's complaint was based on alleged violations of federal securities and antitrust laws. During the next several weeks both the parties and the court spent a great deal of time attempting to produce a workable arrangement with respect to discovery of what Anderson, Clayton called "sensitive payments." One of Gerber's primary allegations was that Anderson, Clayton had not disclosed in its offering materials sufficient information regarding an illegal payments operation abroad. The basis for the allegation lay in the following background:
In May, 1976, Anderson, Clayton filed a Form 8-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. This type of voluntary reporting program was initiated by the SEC in response to the discovery of payments by U.S. corporations to foreign government officials. As an alternative to formal litigation, the voluntary program permits corporations to conduct investigations of their own operations to determine the extent of any improper foreign payments. Anderson, Clayton had commenced such an investigation in early April, 1976. The Form 8-K Report indicated that the investigation had revealed that "there were certain transactions in connection with foreign sales and operations which involved payments to agents under circumstances where it is reasonable to assume that the agents used part of such funds to make payments to foreign government officials, although no employee of the Company has actual knowledge that such payments were in fact made." Form 8-K also indicated that "certain directors and officers were generally aware of the practice" of making these "sensitive payments," and that "entries in the Company's records were not fully descriptive of the transactions." Substantially identical disclosures were made in the tender offer materials prepared for distribution to Gerber stockholders.
Gerber contended that disclosure in the tender offer materials of the identities and locations of Anderson, Clayton employees who were involved in the sensitive payments operation is mandated by section 14(e) of the '34 Act, part of the 1968 Williams Act amendment. Section 14(e) makes it "unlawful for any person to make any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made . . . not misleading . . . in connection with any tender offer . . .." Anderson, Clayton argued that the identities and locations were not material and need not be disclosed. It was deemed sufficient to satisfy § 14(e) that "generic disclosure" had been made including information that foreign payments had transpired, had been covered up on the corporate books, and that some members of management had been generally aware of the practice.
It was within this framework of facts and allegations that the parties were working. Gerber sought discovery of identities and locations of Anderson, Clayton employees involved in the foreign payments operation. Anderson, Clayton opposed such discovery, seeking a protective order preventing Gerber's acquisition of any documents relating to what it referred to as "sensitive payments."
On June 2, 1977, I issued a protective order requiring Anderson, Clayton to produce for copying and inspection any foreign payments documents, but imposing various conditions upon Gerber's dissemination of information contained in those documents. Under the terms of the order, Gerber was required to notify both Anderson, Clayton and the court of any intention to disclose information contained in the foreign payments documents. Upon a motion for a protective order by Anderson, Clayton prohibiting disclosure, I would review the information in camera and make a ruling on the protective order within 48 hours. If I declined to issue the protective order, Gerber would have been free to disclose the information.
Anderson, Clayton disobeyed the protective order and refused to release the relevant documents for discovery purposes.
On June 7, 1977 an order was issued enjoining Anderson, Clayton from commencing its tender offer until it either produced the documents in question or received a favorable ruling from the Sixth Circuit Court of Appeals.
On June 21, 1977 the parties stipulated that (1) Anderson, Clayton would produce the documents pursuant to the June 2 order; (2) Gerber would make no public disclosure of any information regarding foreign payments until after this court's decision on a proposed motion for a preliminary injunction; (3) Anderson, Clayton would not pursue the tender offer until after a decision on a motion for a preliminary injunction; (4) Anderson, Clayton would dismiss its appeal of the June 7 order. I entered an order which included all stipulations. A hearing for a preliminary injunction was set for mid-September 1977.
On August 1, 1977 Anderson, Clayton announced that it was reducing its offer from $40 to $37 per share, citing as its principal reasons that Gerber's quarterly earnings had dropped significantly and that opposition to the proposed offer had resulted in increased expenses.
On September 14, 1977 I issued an order bifurcating the action into two parts, one involving securities law issues and the other involving antitrust claims. As was stated in that order, the initial thrust of Gerber's complaint involved the securities law question, chiefly the issue of the extent of disclosure of the foreign payments operation. I exercised my discretion to bifurcate this action pursuant to the well recognized policy of judicial economy and diminution of the parties' litigation expenses.
Resolution of the securities law issue could have made it unnecessary to pursue the matter further since it might have been dispositive of the case. The question of full disclosure was clearly the initial cardinal issue. If it were determined that Anderson, Clayton must fully disclose the foreign payments information in its offering materials, and such disclosure did not take place, the tender offer would have been permanently enjoined and there would have been no need to become involved in the complex and time consuming antitrust issue. Moreover, expeditious...
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