Buffalo Forge Co. v. Ogden Corp.
| Decision Date | 27 January 1983 |
| Docket Number | No. CIV-81-29C.,CIV-81-29C. |
| Citation | 555 F. Supp. 892 |
| Parties | BUFFALO FORGE COMPANY, Ampco-Pittsburgh Corporation, and Ampco-Pittsburgh Securities II Corporation, Plaintiffs, v. OGDEN CORPORATION, David R. Newcomb, Raymond J. Popp, Thomas W. Burke, Edward W. Duffy, John H. Gregory, and Frederick S. Pierce, Defendants. |
| Court | U.S. District Court — Western District of New York |
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Paul, Weiss, Rifkind, Wharton & Garrison, New York City (Jay Topkis, New York City, of counsel), and Moot & Sprague, Buffalo, N.Y., for plaintiffs.
Sullivan & Cromwell, New York City (David Tulchin, and John Warden, New York City, of counsel), and Offerman, Fallon, Mahoney & Cassano, Buffalo, N.Y., for defendant Ogden Corp.
Skadden, Arps, Slate, Meagher & Flom, New York City (Vaughn C. Williams, New York City, of counsel), for individual defendants.
This action was commenced in January 1981 with a request for injunctive relief by the Buffalo Forge Company Buffalo Forge. Plaintiff charged the Ampco-Pittsburgh Corporation Ampco with violations of various federal securities, antitrust, and banking laws. The charges arose within the context of an attempt by Ampco to purchase all Buffalo Forge stock at a price of $25 per share.
The request for an injunction was denied on January 26, 1981, on the ground that Buffalo Forge did not demonstrate sufficient preliminary proof to warrant the issuance of an injunction. This decision was affirmed by the United States Court of Appeals for the Second Circuit. Buffalo Forge Co. v. Ampco-Pittsburgh Corp., 638 F.2d 568 (2d Cir.1981).
Throughout these proceedings, Buffalo Forge resisted Ampco's proposed acquisition and rejected the stated price per share. Buffalo Forge searched for an alternate buyer for its stock. On February 9, 1981, Buffalo Forge entered into a merger agreement with a "white knight," Ogden Corporation Ogden.
As part of this agreement Ogden purchased 425,000 of Buffalo Forge treasury shares at $32.75 per share. Ogden paid these shares with a promissory note, payable over 10 years with an annual interest rate of 9 percent. The agreement also granted Ogden a one-year option to acquire an additional 143,400 treasury shares, again for the price of $32.75 per share.
The merger agreement was announced to the public the same day. A flurry of bidding activity followed the announcement. On February 10, Ampco increased its offer from $25 to $34 per share. Ogden then moved by making a cash tender offer of $37 per share for 850,000 shares, to be followed by a tax-free share-for-share merger with Buffalo Forge. Ampco responded by increasing its offer to $37.50 per share, whereupon Ogden withdrew from the bidding war.
Ampco thus acquired control over Buffalo Forge. On March 9, Ogden tendered its 425,000 shares of Buffalo Forge stock. Ampco refused to pay for the shares. The Buffalo Forge Board of Directors had declared a 27 ½ cent dividend per share on March 5. The dividend was not paid to Ogden. In January 1982, Ampco had refused to let Ogden exercise its option to purchase the additional shares of stock. Ampco stated that it would not pay for any stock, nor would it pay the dividend until after a judicial determination regarding the validity of the purchase of the shares. These are the actions underlying this dispute.
In June 1981, after it acquired control over Buffalo Forge, Ampco moved to amend its complaint to delete certain of the claims, primarily those asserted under the federal securities laws, and to realign the parties. The motion was granted, and Ampco was given leave to prosecute the claims against the former directors in the name of Buffalo Forge and the Ampco-Pittsburgh Securities II Corporation (the entity organized by Ampco for the purpose of facilitating the takeover). For purposes of simplification, the plaintiffs shall be referred to as "Ampco."
Basically, Ampco seeks rescission of the sale of the treasury stock and the option to purchase made to Ogden by the former members of the Buffalo Forge Board of Directors. Plaintiffs charge the former members, David R. Newcomb, Raymond J. Popp, Thomas W. Burke, Edward W. Duffy, John A. Gregory, and Frederick S. Pierce (collectively referred to as the individual defendants) with breach of their fiduciary duties to the corporation and with waste of the business assets of Buffalo Forge. Ampco has set forth a number of grounds upon which its claims are based. Ampco alleges that the individual defendants were primarily motivated by their own interest in avoiding a taxable sale of their stock because some of the directors held sizeable quantities of stock at low tax bases. This caused the directors, according to the plaintiffs, to seek out a tax-free, share-for-share exchange, like that offered by Ogden, and reject other tender offers.
In addition, Ampco claims that the failure of the individual defendants and Newcomb, in particular, to negotiate directly with Ampco to obtain a better offer was a breach of their fiduciary duty. Also, that the sale of the 425,000 treasury shares and the purchase option given in exchange for a ten-year, 9 percent promissory note was a "tip" to Ogden, and the contract was entered into in an attempt to stifle bidding competition.
Claiming that Ogden conspired with the individual defendants, with Newcomb, in particular, and their agents, Ampco seeks rescission of the sale of the stock. In the alternative, Ampco seeks damages from the individual defendants.
The defendants have denied any impropriety in the negotiations or in the contract for the sale of the stock. The individual defendants claim that they were acting as reasonable directors at all times and exercised their best business judgment. They contend that their actions were undertaken, in part, upon the professional advice of investment bankers and lawyers and are protected by operation of the provisions of the New York Business Corporation Law §§ 504, 717.
Ogden has filed several counterclaims seeking payment for the 425,000 shares of stock, plus the 143,400 shares available to Ogden under the purchase-option clause of the merger agreement. In its capacity as a shareholder, Ogden demands payment of the dividend of 27 ½ cents per share, declared by the Board of Directors on March 5, 1981, and payable on March 31, 1981.
In addition, Ogden claims that Ampco's refusal to pay for the 425,000 shares on the same basis as was afforded other tendering shareholders constitutes a manipulative practice in violation of the New York Security Takeover Disclosure Act, New York Business Corporation Law §§ 1600 et seq. and its accompanying regulations. Ogden charges Ampco with violations of the provisions of Article 8 of the New York Uniform Commercial Code and various provisions of the Business Corporation Law. Ogden seeks payment with interest at the prime rate.
The case was set for trial after the amended pleadings were filed. In a supplemental memorandum of law submitted in December 1981 and a pretrial conference held on January 6, 1982, the plaintiffs moved again to amend their complaint to state a claim of violation of the federal securities laws. Ampco set forth its argument that the sale of the stock, plus an option to purchase given to one of two competing tender offerors, constituted a "manipulative device" within the meaning of section 14(e) of the Williams Act, 15 U.S.C. § 78n(e), and that the plaintiffs are entitled to rescission of the contract pursuant to 15 U.S.C. § 78cc(b).
Trial on all of these issues was held on January 26, 27, and 28, 1982. Prior to trial, the parties filed a joint stipulation of facts. These stipulations are accepted and made a part of the court's decision. After review of the trial transcripts and memoranda of law, and after examination of the exhibits produced at trial, the court makes the following findings of fact and conclusions of law.
Buffalo Forge Company is a New York corporation, with its principal place of business at 490 Broadway Street, Buffalo, New York. Since July 14, 1981, Buffalo Forge has been an indirect, wholly owned subsidiary of Ampco-Pittsburgh Corporation, which is a Pennsylvania corporation, with its principal place of business at 700 Porter Building, Pittsburgh, Pennsylvania. Also involved is Ampco-Pittsburgh Securities II Corporation A-P II, a wholly owned subsidiary of Ampco, a Delaware corporation, with its principal place of business at 2625 Concord Pike, Wilmington, Delaware. The remaining corporate party is the Ogden Corporation, a Delaware corporation, with its principal place of business at 277 Park Avenue, New York, New York.
Chief amongst the individual litigants is David R. Newcomb who was, until March 30, 1981, President, Chief Executive Officer, and a director of Buffalo Forge. He is currently President of Buffalo Forge and a director of Ampco. Raymond J. Popp, Thomas W. Burke, Edward W. Duffy, John A. Gregory, and Frederick S. Pierce were directors of Buffalo Forge at all times from January 2, 1981, to March 30, 1981. During the time period under question, it is undisputed that the directors held the following shares of Buffalo Forge stock:
Newcomb 24,054
Popp 8,974
Burke 1,000
Duffy 200
Gregory 22,700
Pierce 72,745
All of the directors' stock was held at tax bases below $25 per share.
On Friday, January 2, 1981, Marshall Berkman, Berkman, Chairman of Ampco, telephoned Newcomb to inform him that Ampco was about to announce its intention to make a $25 per share tender offer for Buffalo Forge shares. There had been no prior contact between Ampco and Buffalo Forge. That same day, Ampco issued a press release to announce its proposed $25 offer.
The proposed acquisition was communicated by Newcomb to the remaining members of...
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