Briggs Manufacturing Company v. Crane Co.

• Decision Date: 28 May 1960
• Docket Number: Civ. A. No. 20055.
• Citation: 185 F. Supp. 177
• Parties: BRIGGS MANUFACTURING COMPANY, a Michigan corporation, Plaintiff, v. CRANE CO., an Illinois corporation, Defendant.
• Court: U.S. District Court — Western District of Michigan

185 F. Supp. 177

BRIGGS MANUFACTURING COMPANY, a Michigan corporation, Plaintiff, v. CRANE CO., an Illinois corporation, Defendant.

Civ. A. No. 20055.

United States District Court E. D. Michigan, S. D.

May 28, 1960.

Byron D. Walter, Henry M. Campbell, III, Monaghan, Monaghan & Crawmer, Detroit, Mich., Joseph W. Louisell, Detroit, Mich., of counsel, for plaintiff.

James E. Tobin, Emmett E. Eagan, Richard B. Gushee, Miller, Canfield, Paddock & Stone, Detroit, Mich., for defendant.

Alan B. Hobbes, Assistant General Counsel, Rufus E. Wilson, Francis C. Mayer, Gerald Harwood, for Federal Trade Commission, Washington, D. C., amici curiae.

LEVIN, Chief Judge.

Briggs Manufacturing Company (hereinafter referred to as Briggs), a Michigan corporation with its principal place of business within this district, filed this action against the Crane Co. (hereinafter referred to as Crane), an Illinois corporation doing business within this district, alleging that certain purchases of Briggs stock by Crane violated Section 7 of the Clayton Act (15 U.S.C.A. § 18). Treble damages and injunctive relief were requested under Sections 4 and 16 (15 U.S.C.A. §§ 15 and 26).¹

There is now before the Court a motion for a preliminary injunction to enjoin Crane from soliciting proxies and from voting its shares of Briggs stock at a shareholders meeting scheduled for June 17, 1960, or at future shareholders meetings, pending a decision on the merits or a final adjudication of a current Federal Trade Commission complaint against Crane charging violations of Section 7 of the Clayton Act and Section 5 of the Federal Trade Commission Act.² A brief from the F.T.C. as amicus curiae in support of the application for temporary injunction has been received.

I have the benefit of numerous affidavits and exhibits submitted by both parties and extensive and able oral arguments. Plaintiff's counsel proffered testimony of ten witnesses but, after agreement with Crane's counsel, submitted affidavits instead.

Briggs has been manufacturing, selling and distributing plumbing fixtures, fittings and supplies in interstate commerce since 1935. The products are sold directly to over 500 independent wholesale distributors throughout the country and to some large chain store outlets. It appears that Briggs ranks as the sixth largest seller of plumbing fixtures, fittings and supplies in the country, accounting for approximately 6 per cent of the national market in those products.

Crane likewise is engaged in the manufacture, sale and distribution in interstate commerce of plumbing fixtures, fittings and supplies, in addition to other related products. Crane's gross revenue in 1958 was $336,196,279 of which an estimated $30,000,000 was from the sale of plumbing fixtures, fittings and supplies, and in 1959 the gross revenue from these products was estimated to be $35,000,000. Plaintiff alleges that Crane is the fifth largest seller dollarwise of plumbing fixtures, fittings and supplies and accounts for approximately 10 per cent of the total dollar volume in the industry.

Briggs, a publicly held corporation listed on the New York Stock Exchange, has 1,078,834 outstanding shares of voting common stock. Crane, as of May 10, 1960, held of record 231,674 shares, and it has freely admitted, both in communications from Mr. T. M. Evans, its Chairman of the Board, to the Briggs management and in the answer to the complaint, that its intention never was to obtain the Briggs stock as an investment.³ Rather, the defendant's purpose was to submit to the Briggs directors and shareholders proposals concerning the sale of the Briggs assets to Crane. Crane felt that acquiring the Briggs plants in Michigan and Ohio would be preferable to building new plants to serve its own middle west market. As Mr. Evans stated, the Briggs plants would "make a logical addition to Crane's manufacturing facilities * * *."

The decision of Crane to absorb Briggs followed a financial and marketing analysis of Briggs' organization. Crane commenced purchasing Briggs stock in the open market on August 25, 1959. Crane's intentions were given extensive publicity in the Wall Street Journal, trade journals and daily newspapers, causing disturbances in the industry and among Briggs' distributors and employees in particular. On November 23, 1959, Crane made an offer to the Briggs Board of Directors for the outright purchase of all the Briggs assets. This offer was rejected.

Thereafter, in a letter to the president of Briggs, Crane requested a list of Briggs shareholders in order to enable it to solicit from them directly an additional 100,000 shares and to make possible "such other steps as we think might be advisable." The Circuit Court for Macomb County, State of Michigan, ordered Briggs to open its shareholder list to Crane. "Such other steps" consisted of two proposals filed with the Securities and Exchange Commission to be included with the proxy materials submitted to Briggs shareholders for action at the annual meeting in June, 1960. The two proposals if approved would authorize the directors to sell all of Briggs' assets to Crane and surrender its corporate franchise.

The filing of the F.T.C. complaint and the complaint in this case caused Crane to reconsider its proposals to purchase outright the assets of Briggs.

Crane then concentrated upon the election of its nominees to the Briggs Board of Directors. Between the dates of issuance of the F.T.C. complaint (March 18) and filing of its answer to this action (May 11), Crane purchased over 50,000 shares of Briggs stock at abovemarket prices.

Any consideration of the possible injury to Briggs by the election of Crane candidates to the Board must be viewed against the background of Crane's systematic efforts to acquire Briggs.

The climax of Crane's efforts to dominate or control Briggs will be the shareholders meeting of June 17th. Because of the cumulative voting provisions of the Michigan General Corporation Act, 21 Mich.Stat.Ann., Sec. 21.32, Comp. Laws 1948, § 450.32, Crane will elect at least one, and probably two, members to the Briggs Board of Directors.

Crane, apparently to avoid suspicion that its nominees would be puppets, has asked seven Briggs shareholders, none of whom is a shareholder of Crane, to be nominees for the Briggs Board. Each nominee filed an affidavit stating that Mr. T. M. Evans asked him to be a nominee for the Briggs Board of Directors but only if he would act as an impartial and independent director serving the best interests of Briggs and all of its shareholders and would not be responsible in any manner to Crane.

Of the seven nominees, none owned stock prior to August 28, 1959, which was several days after Crane commenced buying Briggs stock in the open market. Two of them purchased their shares after the filing of the complaint in this action and during or after the week in which Evans reportedly asked the seven to be nominees.

It is not denied that two and possibly even three nominees purchased Briggs stock at the suggestion of Crane in order to enable them to be nominees for the Briggs Board of Directors.

I have no reason to doubt the integrity of the Crane nominees. However, considering the history of Crane's attempts to acquire Briggs and its method of selection of several of the nominees, I find it difficult to believe Crane would support nominees who were not sympathetic to its objectives. Every decision of a Briggs director will have an immediate or remote effect upon the competitive relationship with Crane. Even if only one or two of Crane's nominees should become directors, the other directors and the management would feel the same degree of restraint in their deliberations, particularly on confidential matters, as they would if a direct representative of Crane were on the Board.

It seems to me that, since the two companies are competitors, the Briggs Board would be unable to perform its proper functions in connection with the management of the company without divulging to a competitor confidential information with respect to the development of processes and techniques; plans for improvement of products and plans for sales and promotion campaigns. See American Crystal Sugar Co. v. The Cuban-American Sugar Co., D.C.S.D. N.Y.1957, 152 F.Supp. 387, at page 394, affirmed 2 Cir., 1958, 259 F.2d 524:

"Any such representation on plaintiff's Board of Directors would give the nominee of defendant an opportunity to be thoroughly acquainted with the business and plans of the plaintiff company and thereby to limit the effectiveness of the competition between them."

In Hamilton Watch Co. v. Benrus Watch Co., Inc., D.C.Conn.1953, 114 F. Supp. 307, affirmed 2 Cir., 1953, 206 F. 2d 738, Chief Judge Hincks felt it unnecessary to decide whether Benrus' representative on Hamilton's Board would in fact act in a manner antagonistic to the interests of Hamilton, and said at page 314 of 114 F.Supp.:

"A director on Hamilton's board elected by Benrus would be in a position to obtain confidential information of value to Benrus as a competitor, the disclosure of which would be harmful to Hamilton and would materially impair its competitive position. In participating in the management, such a director would be subjected to frequent conflicts of loyalties involving decisions dependent upon the exercise of his judgment faculties many of which would be of such a nature that it would be impossible to demonstrate the presence or extent of the Benrus influence if that had been a factor."

It is interesting to note that the record in that case disclosed that the management of Benrus suggested to Hamilton that it was Benrus' intention to elect a director to the Hamilton Board who would be "independent" of Benrus. The District Court, however, did not even discuss Benrus' proposal.

The election of Crane nominees to the Briggs Board will make it difficult for Briggs to deny that Crane has a role in formulating Briggs'...