Bershad v. Curtiss-Wright Corp.

• Decision Date: 27 January 1987
• Docket Number: CURTISS-WRIGHT
• Citation: 535 A.2d 840
• Parties: Fed. Sec. L. Rep. P 93,598 John BERSHAD, Plaintiff Below, Appellant, v.CORPORATION, a Delaware Corporation, and Dorr-Oliver Inc., a Delaware Corporation. . Submitted:
• Court: Supreme Court of Delaware

Page 840

535 A.2d 840

Fed. Sec. L. Rep. P 93,598

John BERSHAD, Plaintiff Below, Appellant, v. CURTISS-WRIGHT CORPORATION, a Delaware Corporation, and Dorr-Oliver Inc., a Delaware Corporation.

Supreme Court of Delaware.

Submitted: Jan. 27, 1987.

Decided: Dec. 30, 1987.

Kevin Gross, of Morris and Rosenthal, P.A., Wilmington, and Lawrence Milberg (argued), and Steven Schulman, of Milberg, Weiss, Bershad, Specthrie & Lerach, New York City, of counsel, for appellant.

Robert K. Payson, (argued), and Arthur L. Dent, of Potter, Anderson & Corroon, Wilmington, for appellee Curtiss-Wright Corp.

A. Gilchrist Sparks, III, of Morris, Nichols, Arsht & Tunnell, Wilmington, for appellee Dorr-Oliver Inc.

Before HORSEY, MOORE and WALSH, JJ.

MOORE, Justice.

Plaintiff, John Bershad, brought this action against the defendants, Curtiss-Wright Corporation ("Curtiss-Wright") and Dorr-Oliver Incorporated ("Dorr-Oliver"), in the Court of Chancery, challenging a 1979 cash-out merger of Dorr-Oliver by its parent, Curtiss-Wright. Bershad alleged (1) that the merger was effectuated without a proper business purpose; and (2) that the shareholder vote approving the merger was invalid since Dorr-Oliver's proxy statement failed to inform minority stockholders that Curtiss-Wright had a strict policy against selling its 65% holdings in Dorr-Oliver.

The Vice Chancellor held that under Weinberger v. UOP, Inc., Del.Supr., 457 A.2d 701 (1983), Bershad's improper purpose claim failed. In addition, the trial judge found that defendants did not breach their fiduciary duty of candor since the proxy statement fully informed minority shareholders of all material facts regarding the merger. The Court of Chancery then dismissed the claims of Bershad and all stockholders who either voted in favor of the merger or accepted its benefits by tendering their shares for payment under the merger agreement.

In this appeal, Bershad raises the same issues, and also asserts that Curtiss- Wright, as majority shareholder, owed the minority a fiduciary duty to auction Dorr-Oliver based on our decision in Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., Del.Supr., 506 A.2d 173 (1986). Bershad further contends that Weinberger provides a quasi-appraisal remedy for all informed minority shareholders challenging a cash-out merger effectuated on or before February 1, 1983. We affirm the Vice-Chancellor's rulings and reject Bershad's contentions that in these circumstances Revlon requires a majority shareholder to sell its stock in a subsidiary to the highest bidder. See, Ivanhoe Partners v. Newmont Mining Corp., Del.Supr., 535 A.2d 1334, 1345 (1987). Further, Bershad is not entitled to pursue a quasi-appraisal remedy under Weinberger. An informed minority shareholder, like Bershad, who either votes in favor of a merger or accepts the benefits of the transaction cannot thereafter attack the fairness of the merger price.

I.

In March, 1979 Curtiss-Wright owned 1,642,751 shares of Dorr-Oliver's common stock, representing 65% of the total common stock outstanding. ¹ Curtiss-Wright began acquiring Dorr-Oliver stock in 1968, when it originally bought 261,500 shares, and had a continuing program to purchase up to 80% of Dorr-Oliver's stock. Thus, Curtiss-Wright owned 21.6% of Dorr-Oliver in 1968, 55% in 1969, 63% in 1972, and ultimately increased its holdings to 65% by 1979.

In early 1979, Curtiss-Wright's board decided that a merger with Dorr-Oliver would be beneficial to Curtiss-Wright. ² At a directors meeting in January, 1979, the Dorr-Oliver board adopted a resolution authorizing a study of the proposed merger. Means Johnston, Jr., an outside independent Dorr-Oliver director, advised the board concerning the transaction. ³ Mr. Johnston selected the investment banking firm of Lazard Freres & Company to advise the Dorr-Oliver board on the fairness of Curtiss-Wright's cash-out offer of $23 per share.

In a letter dated March 13, 1979, Lazard Freres rendered the following opinion on the proposal:

In connection with our review of the proposed terms of the combination, we have read financial and operating data with respect to Dorr-Oliver available in published sources and financial and business information relating to Dorr-Oliver supplied to us by the Company. We have also conducted discussions with the management of Dorr-Oliver regarding its business, prospects and financial condition....

We have also considered, among other things, the market value of the common stock of Dorr-Oliver in recent years, its dividend history, net worth, revenues and earnings in recent years and its future prospects.

Based on our analysis of the foregoing and upon such other factors as we deem relevant, including our assessment of general economic, market and monetary conditions, we are of the opinion that the merger exchange rate of $23.00 per share cash for the shares of Dorr-Oliver not presently held by Curtiss-Wright is fair to the shareholders of Dorr-Oliver (other than Curtiss-Wright) from a financial point of view.

At a meeting on March 13, 1979, the Dorr-Oliver board considered this fairness opinion along with other pertinent information. With two directors absent, the board approved the merger agreement at $23 per share by a vote of seven to zero. ⁴ The agreement as approved also required a favorable vote of a majority of Dorr-Oliver's minority stockholders.

On April 10, Dorr-Oliver issued a proxy statement announcing a May 10 shareholder meeting. At that meeting, the merger was approved by a majority of Dorr-Oliver's minority stockholders. Of the 434,280 minority-owned shares, 346, 287 shares (79.7%) approved the transaction. The merger became effective on May 31, 1979.

Although no Dorr-Oliver stockholders filed an appraisal action under 8 Del.C. § 262, plaintiff John Bershad--a minority shareholder of Dorr-Oliver--filed two separate complaints challenging the transaction. Bershad had voted against the merger, but thereafter tendered his 100 shares of Dorr-Oliver stock and received the $2,300 merger consideration. The original complaint alleged (1) that the merger lacked a proper business purpose, and (2) that the $23 per share price paid to the Dorr-Oliver minority was grossly inadequate. In an amended complaint, Bershad alleged that defendants breached their fiduciary duty of complete candor owed to minority shareholders by omitting material facts in Dorr-Oliver's proxy statement, thus making the document false and misleading. Bershad purportedly filed his complaints on behalf of a class of Dorr-Oliver shareholders. However, the class has never been certified.

The Court of Chancery granted summary judgment in favor of the defendants, Curtiss-Wright and Dorr-Oliver. The trial court ruled that under Weinberger v. UOP, Inc., Del.Supr., 457 A.2d 701 (1983), which eliminated the business purpose rule of Singer v. Magnavox Co., Del.Supr., 380 A.2d 969, 979 (1977) and its progeny, Bershad's challenge to the merger on the basis of an improper purpose clearly failed. Bershad v. Curtiss-Wright Corp., Del.Ch., Nos. 5827 and 5830, slip op. at 8 (March 21, 1983) (Longobardi, V.C.). In reviewing the plaintiff's claims the Vice Chancellor concluded that a full and fair reading of the proxy statement revealed that:

(1) From time to time, Dorr and Curtiss had been approached by other parties expressing an interest in the acquisition of Dorr or all or part of Curtiss' holdings of Dorr common stock.

(2) None of the inquiries by third parties developed to the point where any offer was made.

(3) In the event the proposed merger was not consummated, Curtiss had no present intention of proposing a merger or other amalgamation of Dorr on terms or conditions substantially different from those then proposed.

(4) Curtiss had no present intention of selling its interest in Dorr or later selling Dorr or substantially as, an entity.

(5) Curtiss had a long-term program of purchasing Dorr common stock on the open market and, if the merger were not consummated, Curtiss might continue such purchase in the future.

(6) As a result of reading the proxy statement in its entirety, a reasonable investor would have or, at least should have known, that his investment fate was tied directly to the whim of Curtiss.

Id. at 12-13.

Considering the above, the trial judge held that a formal recitation of Curtiss-Wright's policy of resisting any sale would not have significantly altered the total mix of information made available to minority shareholders. Id. at 14. The Vice Chancellor found that there was no breach of any duty of candor, since the proxy statement sufficiently disclosed all material facts concerning the transaction. There being no dispute of any material fact, summary judgment was granted in favor of the defendants.

II.

At the outset we agree with the trial court's conclusion that the issues were appropriate for disposition by summary judgment. The Vice Chancellor reasoned:

The Plaintiffs contend that the proxy statement is inadequate because it does not completely disclose Curtiss' policy of discouraging offers from third parties. In this respect, no additional amount of evidence could or need be produced and none is needed to make a legal determination of the adequacy of the proxy statement. Indeed, the issue is as narrowly drawn today as it would be after a complete trial....

Bershad, slip op. at 9.

Our scope and standard of review on the appeal of a summary judgment decision is one of de novo consideration. We review the entire record including the pleadings and issues raised, affidavits, and other evidence in the record, as well as the trial court's opinion. While reviewing those facts in a light most favorable to the nonmoving party, this Court then draws its own conclusions with respect to the facts if the findings of the trial court are clearly wrong. We consider whether there is an issue of fact necessitating a trial on the merits. If none exists, the matter is ripe for summary...