Chromalloy American Corp. v. Sun Chemical Corp.

• Decision Date: 14 December 1979
• Docket Number: Nos. 79-1741,79-1757,s. 79-1741
• Citation: 611 F.2d 240
• Parties: , Fed. Sec. L. Rep. P 97,204 CHROMALLOY AMERICAN CORPORATION, Appellant, v. SUN CHEMICAL CORPORATION and Norman E. Alexander, Appellees. CHROMALLOY AMERICAN CORPORATION, Appellee, v. SUN CHEMICAL CORPORATION and Norman E. Alexander, Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 240

611 F.2d 240

57 A.L.R.Fed. 790, Fed. Sec. L. Rep. P 97,204

CHROMALLOY AMERICAN CORPORATION, Appellant, v. SUN CHEMICAL CORPORATION and Norman E. Alexander, Appellees.

CHROMALLOY AMERICAN CORPORATION, Appellee, v. SUN CHEMICAL CORPORATION and Norman E. Alexander, Appellants.

Nos. 79-1741, 79-1757.

United States Court of Appeals Eighth Circuit.

Submitted Oct. 12, 1979.

Decided Dec. 14, 1979.

Thomas J. Guilfoil, Guilfoil, Symington, Petzall & Shoemake, St. Louis, Mo., for Chromalloy American Corp.; Thompson & Mitchell, St. Louis, Mo., Whitman & Ransom, New York City, and Skadden, Arps, Slate, Meagher & Flom, New York City, on brief.

David Hyde, Cahill, Gordon & Reindel, New York City, for Sun Chemical Corp., et al.; Bryan, Cave, McPheeters & McRoberts, St. Louis, Mo., on brief.

John Ashcroft, Atty. Gen., and B. J. Jones, Asst. Atty. Gen., Jefferson City, Mo., amicus curiae brief.

Before LAY, HEANEY and HENLEY, Circuit Judges.

HENLEY, Circuit Judge.

This case, arising under disclosure provisions of the Securities Exchange Act of 1934, 15 U.S.C. § 78m(d) (1977), requires us to decide whether the district court ¹ erred in the partial grant and partial denial of preliminary injunctive relief.

Plaintiff-appellant Chromalloy American Corporation (Chromalloy) appeals the denial of injunctive relief which would compel defendant Sun Chemical Corporation to disclose its proposals for control of Chromalloy, and which would halt the purchase of Chromalloy stock by Sun for ninety days. Defendants-appellees Sun Chemical Corporation (Sun) and Norman E. Alexander cross-appeal from the district court's order that Sun disclose an intention to obtain control of Chromalloy.

We assume jurisdiction on appeal pursuant to 28 U.S.C. § 1292(a). Finding no error of law and no abuse of discretion in the district court's actions, we decline to reverse.

I. Procedural and Factual Background.

In January, 1978 Sun Chemical Corporation began purchasing significant amounts of Chromalloy stock on the New York Stock Exchange. Chromalloy is a diversified corporation with revenues in fiscal year 1978 of nearly.$1.4 billion and net earnings of $47 million, while Sun is a considerably smaller corporation with 1978 revenues of $394 million and net earnings of $20 million. Norman E. Alexander is Chief Executive Officer and Chairman of Sun's Board of Directors, and has been instrumental in instigating and furthering the purchase of Chromalloy stock by Sun Chemical Corporation.

By February 5, 1979 Sun had acquired 605,620 shares, or 5.2 per cent, of Chromalloy's total outstanding shares. ² Sun was therefore required to comply with the disclosure provisions of § 13(d) of the Securities Exchange Act, 15 U.S.C. § 78m(d)(1) (1976). ³ Pursuant to the disclosure requirements, Sun on February 5, 1979 filed its first Schedule 13D. Sun stated that its acquisitions were for investment; that it had no present intention of seeking control of Chromalloy; that it presently intended to continue to increase its holdings; that the amount of such increase had not been determined; that Sun had been discussing with certain directors and members of Chromalloy management the possible increase in Sun's holdings; and that Sun might "at any time determine to seek control of Chromalloy." In four subsequent amendments to the Schedule 13D between April, 1979 and late July, 1979 Sun reported its plans to purchase additional stock, its unsuccessful attempt to gain representation on the Chromalloy Board, and its negotiations regarding a "stand-still" agreement whereby Sun would limit its purchases for a period of time as a condition of representation on the Chromalloy Board. In each of the amendments to its Schedule 13D Sun disclaimed any intent to control Chromalloy.

By late July, 1979 Sun's ownership had increased to nearly ten per cent of Chromalloy's outstanding stock. Following a large block purchase of stock by Sun at the end of July, Chromalloy filed the present action for injunctive and declaratory relief, alleging violations of Sections 13(d) and 14(d) of the Securities Exchange Act, the Missouri Take-Over Bid Disclosure Act, and § 203 of the Delaware General Corporation Law. Only the Count requesting injunctive relief pursuant to Section 13(d) of the Securities Exchange Act, 15 U.S.C. § 78m(d), is relevant to this appeal.

On August 1, 1979, when Chromalloy's verified complaint was filed, the district court granted a temporary restraining order which halted all purchases of Chromalloy stock by Sun and prohibited Sun's use of already-acquired stock to influence Chromalloy management. After an evidentiary hearing on August 14, 1979, the court on August 20, 1979 issued its findings of fact, conclusions of law and order, granting in part and denying in part Chromalloy's request for a preliminary injunction.

The district court found that Norman Alexander and Sun "have had the intent to control Chromalloy from the beginning," and that "(d)efendants have intended to exert considerable influence over the Board of Directors of Chromalloy, and, through this influence, direct the policies and management of Chromalloy." Pursuant to 15 U.S.C. § 78m(d), the court enjoined further acquisition of Chromalloy stock until Sun's Schedule 13D was amended to reflect this intention.

On August 21, 1979 Chromalloy was granted leave to brief the issue of whether further injunctive relief was required. Chromalloy sought further disclosures by Sun, the mailing of a corrected disclosure statement to Chromalloy stockholders at Sun's expense, and a "cooling off" period of ninety days during which Sun's purchases would be enjoined while information was disseminated to investors and the public. On August 29, 1979 the court denied Chromalloy's request for additional injunctive relief, at the same time approving Sun's version of an amended Schedule 13D.

In the court-approved Schedule 13D, Sun acknowledged its "intention to continue to seek representation on the Board of Directors of (Chromalloy) and to exercise, if possible, considerable influence over the Board of Directors of (Chromalloy) and thereby seek to direct the policies and management of (Chromalloy)." Sun stated its intention to acquire sufficient shares of Chromalloy stock to utilize the equity method of accounting, that is, twenty per cent of the combined voting power of all classes of Chromalloy stock. Sun disclosed that insofar as "a combination of arithmetic and influence constitutes control of (Chromalloy), it is Sun's intention, absent unforeseen contingencies, to attempt to ultimately obtain control of (Chromalloy)."

Upon being advised that this amended Schedule 13D had been filed with the Securities and Exchange Commission, the district court lifted the preliminary injunction then in effect to allow appellees to resume purchasing Chromalloy stock.

On September 4, 1979 Chromalloy obtained from this court an interim stay to prevent the lifting of the district court's injunction pending argument before this court's full administrative panel. On September 12, 1979 the administrative panel denied Chromalloy's motion for a stay, quashed the interim stay, and ordered expedited hearing of the present appeal.

II. The Standard of Review.

The scope of our review on appeal is limited. Traditionally, a party seeking a preliminary injunction must prove (1) substantial probability of success on the merits, and (2) irreparable injury if injunctive relief is not forthcoming. Planned Parenthood of Minnesota, Inc. v. Citizens for Community Action, 558 F.2d 861, 866 (8th Cir. 1977); Minnesota Bearing Co. v. White Motor Corp., 470 F.2d 1323, 1326 (8th Cir. 1973). However, in Fennell v. Butler, 570 F.2d 263, 264 (8th Cir.), Cert. denied, 437 U.S. 906, 98 S.Ct. 3093, 57 L.Ed.2d 1136 (1978), this court directed the district court on remand to apply what may be slightly different standards for a preliminary injunction used in the Second Circuit. The Second Circuit has held that a preliminary injunction should issue upon a clear showing of either (1) probable success on the merits And possible irreparable injury, Or (2) sufficiently serious questions going to the merits to make them fair ground for litigation and a balance of hardships tipping decidedly toward the party requesting the preliminary relief. Sonesta International Hotels Corp. v. Wellington Associates, 483 F.2d 247, 250 (2d Cir. 1973). See also Minnesota Association of Health Care Facilities, Inc. v. Minnesota Dept. of Public Welfare, 602 F.2d 150 (8th Cir. 1979); Young v. Harris, 599 F.2d 870 (8th Cir. 1979); Dakota Wholesale Liquor, Inc. v. Minnesota, 584 F.2d 847 (8th Cir. 1978); William Inglis & Sons Baking Co. v. ITT Continental Banking Co., 526 F.2d 86, 88 (9th Cir. 1975).

On review, the grant or denial of a preliminary injunction may be reversed only if, under the applicable standard, the trial court abused its discretion or based its decision on an erroneous legal premise. FTC v. National Tea Co., 603 F.2d 694, 696 (8th Cir. 1979); Dakota Wholesale Liquor, Inc. v. Minnesota, supra, 584 F.2d at 849; Modern Controls, Inc. v. Andreadakis, 578 F.2d 1264, 1270 (8th Cir. 1978). We consider the present appeal in this limited context and find no ground for reversal under either standard.

III. Issues on Appeal.

Chromalloy's position on appeal is that the district court correctly ordered Sun to disclose a control intention, but abused its discretion in refusing to order further disclosures. The disclosures sought by Chromalloy include Sun's wish to use Chromalloy money to pay for transactions with Sun, as allegedly required by Item 3 of Section 13D; ⁴ Sun's plans upon obtaining control to cause Chromalloy to acquire the assets of Sun, as allegedly required by Item 4 of Schedule 13D; ⁵ Sun's proposals to sell various divisions of Chromalloy as allegedly required by Item 4 of Schedule 13D; ⁶ and Sun's offer to "take care of" certain Chromalloy officers in return for...