Champion Parts Rebuilders, Inc. v. Cormier Corp.

• Decision Date: 01 June 1987
• Docket Number: No. 86 C 8906.,86 C 8906.
• Citation: 661 F. Supp. 825
• Court: U.S. District Court — Northern District of Illinois
• Parties: CHAMPION PARTS REBUILDERS, INC., Plaintiff, v. CORMIER CORPORATION, et al., Defendants.

661 F. Supp. 825

CHAMPION PARTS REBUILDERS, INC., Plaintiff, v. CORMIER CORPORATION, et al., Defendants.

No. 86 C 8906.

United States District Court, N.D. Illinois, E.D.

April 9, 1987.

Preliminary Injunction Order May 26, 1987.

As Amended June 1, 1987.

Randall L. Mitchell, Peter V. Baugher, Paul E. Lehner, Phillip Fertik, Adams, Fox, Adelstein & Rosen, Chicago, Ill., William G. McGuinness, William H. Freilich, Fried, Frank, Harris, Shriver & Jacobson, New York City, for plaintiff.

Richard C. Nelson, Ovide M. Lamontagne, Manchester, N.H., Donald K. Stern, Russell B. Stevenson, Jr., Hale & Dorr, Boston, Mass. and Washington, D.C., John J. Enright, Arvey, Hodes, Costello & Burman, Stephen J. Landes, Holleb & Coff, Ltd., Chicago, Ill., for defendants.

MEMORANDUM OPINION AND ORDER

SHADUR, District Judge.

Champion Parts Rebuilders, Inc. ("Champion") seeks a preliminary injunction against a large number of defendants:

1. "Cormier Defendants," comprising Odilon Cormier ("Cormier"), his company Cormier Corporation, Claude, Monique, Daniel, Nicole and Pierre Cormier and Suzanne Arena;

2. "Navon Defendants," comprising Morris Navon ("Morris"), his brother Herman ("Herman") and Blanche, Samuel, Valerie, Renee, Ruben and Stephanie Navon;

3. Rieger, Robinson, Harrington & Co., Inc. ("RRH"); and

4. Scott Hodes ("Hodes");

all stemming from claimed violations of Securities Exchange Act of 1934 ("1934 Act") § 13(d), 15 U.S.C. § 78m(d) and 1934 Act § 14(a), 15 U.S.C. § 78n(a). After extensive accelerated discovery by the litigants, this Court conducted an evidentiary hearing (the "Hearing"), and the still-active litigants¹ submitted post-Hearing findings of fact with supporting legal memoranda. In conformity with Fed.R.Civ.P. ("Rule") 52(a), what follows are this Court's findings of fact ("Findings") and conclusions of law ("Conclusions").²

Findings of Fact³

A. Parties and General Background

1. Champion is an Illinois corporation with its principal place of business in Oak Brook, Illinois.⁴ In addition to its head-quarters in Oak Brook, Champion operates four main plants located in various parts of the country and employs some 2400 persons nationwide. It is the largest domestic independent remanufacturer of products for the automobile, truck and farm equipment aftermarket, with 1986 sales of approximately $110 million (Schwartz Tr.).⁵

2. In exchange for each rebuilt automotive part sold by Champion, it is obligated to take back, and issue a credit for, an old part (the "core"). Cores are the raw material for Champion's rebuilt products. Champion's customers, in turn, rely on prompt identification and receipt of credit for the returned cores and prompt delivery of the rebuilt product. Champion thus depends on its reputation for reliability and consistency of supply. Its market is competitive and profit margins are narrow (Schwartz Tr.; PX 27, 28).

3. Sales to original equipment manufacturers are Champion's most important emerging business development (Schwartz Tr.). In 1986 Champion netted $5 million in sales to Chrysler Corporation ("Chrysler") alone (Savini Tr.). Chrysler is the customer with the greatest potential for Champion (Schwartz Tr.; Savini Tr.). Through sales to Chrysler and other original equipment manufacturers, Champion obtains access to valuable technical information, including parts specifications and manufacturing processes, and receives back into inventory the cores from warranty repairs, which provide a valuable supply of late model parts (Schwartz Tr.).

4. Champion has approximately 2.4 million common shares issued and outstanding (1.9 million before a September 18, 1986 5-for-4 stock split). Its shares are registered with the SEC pursuant to 1934 Act § 12(g). They have been and are publicly traded as a NASDAQ National Market Issue in the over-the-counter market under the identifying symbol "CREB" (Schwartz Tr.).

5. Before June 1986 Champion's shares were widely held, with the exception of two significant blocks: one (approximately 16% of the outstanding shares) held by the Bass family interests, and the other (approximately 18% of the outstanding shares) held by the Gross family interests. Schwartz held, and still holds, approximately 4% of the outstanding shares (107,000 shares) (Schwartz Tr.). Trading in Champion's shares was orderly, with relatively constant volume and small price fluctuations. Trading volume was in the hundreds or thousands of shares per day and the bid-asked spread was narrow, reflecting an active or liquid market (Schwartz Tr.).

6. Cormier Corporation is a New Hampshire corporation engaged in the manufacture of textile products, with its principal place of business in Laconia, New Hampshire. Cormier is its chief executive officer and the principal owner of it and other corporations. Cormier Defendants also comprise Claude, Monique, Daniel, Nicole and Pierre Cormier and Suzanne Arena, all members of Cormier's family residing in New Hampshire (Cormier Tr.).

7. Navon Defendants comprise Morris, Herman, Blanche, Samuel, Valerie, Renee, Ruben and Stephanie Navon, all members of the same family residing in New York (M. Navon Tr.).

8. RRH, a Delaware corporation with its principal place of business located in New York, is a registered investment advisor. Jackson Robinson ("Robinson") is President of RRH (PX 6).

9. Hodes is a partner in the Chicago law firm of Arvey Hodes, Costello & Burman and resides in Chicago, Illinois. Hodes concentrates his legal practice in corporate and federal securities law (Hodes Tr.).

B. Pre-Existing Relationships

10. All activities of Cormier Defendants, Navon Defendants and RRH looking toward their acting in concert in connection with Champion, and ultimately in Cormier's asserting control over Champion, were coordinated by two brokers at Oppenheimer & Co., Inc. ("Oppenheimer") — Daniel O'Neil ("O'Neil") and Peter ("Tony") Russ ("Russ") — operating literally from a single office at Oppenheimer in New York City. O'Neil was the broker for Cormier, Herman Navon and RRH and their numerous customers in whose accounts he placed Champion stock during the summer of 1986 and whose "support" was later claimed by Cormier when he, acting for the group, demanded control of Champion. Russ was also the broker for Hodes and Sheldon Gray ("Gray"). It was O'Neil and Russ — and other Oppenheimer brokers — who initially targeted Champion as a takeover candidate. Through their broker-agents, Cormier Defendants, Navon Defendants and RRH thereupon set their sights upon acquiring substantial shareholdings in Champion.

11. This was not the first instance in which the same parties had invested and acted together in a corporate control contest. Only a few months earlier in 1986 Cormier, Morris and Herman, a number of O'Neil's clients, some of Cormier's friends and associates, some of the Navons' friends and associates and RRH were all shareholders in United Federal Savings Bank of Manchester, New Hampshire, and joined in opposing a merger of that bank with another institution (Robinson 9-14; M. Navon Tr.).⁶ Cormier and Robinson, just as they later agreed to do (and did) with respect to Champion, split the legal fees and other expenses incurred in opposing the merger (Cormier Tr.). On the night before the shareholders' meeting at the end of May 1986, Cormier, Robinson, O'Neil (and, according to Robinson, Morris) met in Manchester to coordinate their strategy for the meeting (Cormier Tr.; Robinson 16-19, 25-31). Next day the merger was approved over their opposition, but they resolved never again to enter such a contest without first having "all the chips on their side of the table" (a clear reference to having lined up all their votes) (Gray 136-37), thus setting the stage for their present foray.

C. Initial Oppenheimer Interest in Champion

12. Early in May 1986 Russ saw Champion appear on a "Metz-Weinger" screen for companies displaying certain financial characteristics (Russ 10). That screen is used by Oppenheimer personnel to identify companies that "are worth a lot more dead than alive" — companies with "significantly understated values vis-a-vis what they're being carried on the books for versus what they might be sold" (Russ 79-80). As Gray perceived it, such companies' asset liquidation or breakup values are greater than their values as operating companies (Gray 41).

13. After Champion appeared on the "better dead than alive" screen, Russ began to discuss Champion with O'Neil (with whom he shared an office and a secretary), David Rosin ("Rosin," another Oppenheimer broker), Michael Metz ("Metz," an Oppenheimer Senior Vice President) and then Whitney George ("George," another Oppenheimer broker). Russ told O'Neil, Metz, George and Rosin he had a prior relationship with Champion and was familiar with the company (Russ 10-11; O'Neil 18-19).

14. Russ and O'Neil discussed Champion's supposedly substantial real estate holdings and other "hidden" asset values (O'Neil 18-24, 37-38). They were particularly interested in determining the liquidation value of Champion's real estate (O'Neil 22). Russ went to see Metz in early May and brought Metz the public information he had assembled (Russ 10-11, 39, 88; Metz 11-12). Metz concluded one of the "primary reasons" Champion was so "cheap" was that it "had an unusually high amount of real estate ... a lot of which looked like it was not necessary for use in the business" (Metz 12). About the time of those conversations, Metz made informal appraisals of the real estate and determined the probable breakup value of Champion (PX 14). Russ and Metz concluded "that if all of the real estate were sold and all of the other assets were liquidated, we would realize at least $19 per share" (Russ 79-80, emphasis added; PX 14). Russ reported the breakup analysis conclusions to his office-mate O'Neil (Russ 11).

15. Russ and O'Neil began to form a plan to capitalize on the value of Champion's assets. When asked how the "hidden...