Colan v. Cutler-Hammer, Inc., CUTLER-HAMME

• Decision Date: 25 March 1987
• Docket Number: INC,CUTLER-HAMME,No. 86-2013,86-2013
• Citation: 812 F.2d 357
• Parties: Fed. Sec. L. Rep. P 93,146 David COLAN, Plaintiff-Appellant, v., Eaton Corporation, and Koppers Company, Inc., Defendants- Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 357

812 F.2d 357

Fed. Sec. L. Rep. P 93,146

David COLAN, Plaintiff-Appellant, v. CUTLER-HAMMER, INC., Eaton Corporation, and Koppers Company, Inc., Defendants- Appellees.

No. 86-2013.

United States Court of Appeals, Seventh Circuit.

Argued Jan. 9, 1987.

Decided Feb. 24, 1987.

Rehearing and Rehearing En Banc Denied March 25, 1987.

Arthur T. Susman, Joseph, Susman & Myers, Chicago, Ill., for plaintiff-appellant.

Larry L. Thompson, Bell, Boyd & Lloyd, Lynne M. Raimondo, Mayer, Brown & Platt, Chicago, Ill., for defendants-appellees.

Before CUMMINGS and FLAUM, Circuit Judges, and ESCHBACH, Senior Circuit Judge.

PER CURIAM.

The plaintiff, David Colan, brings this derivative action on behalf of Eaton Corporation, pursuant to Sec. 16(b) of the Securities and Exchange Act of 1934, 15 U.S.C. Sec. 78p(b) (1982), to recover short-swing profits allegedly obtained by defendant-appellee Koppers Company through transactions made in 1978 in the stock of Cutler-Hammer, Inc. Due to a merger between these two companies, Cutler-Hammer's assets are now owned by Eaton. The district court entered summary judgment for Koppers and we affirm.

The plaintiff alleges that Koppers and Eaton entered into a secret agreement pursuant to which Eaton would defer the Cutler-Hammer shareholders' meeting and the closing of the merger between Cutler-Hammer and Eaton in order to shield Koppers from Sec. 16(b) liability. The district court rejected the plaintiff's allegations, and granted the defendant Kopper's motion for summary judgment.

On appeal the plaintiff argues that the district court erred in granting summary judgment, because significant issues of material fact existed as to the alleged secret agreement. The plaintiff also contends that the district court erred in its conclusion that, even if a secret agreement existed, there was no sale for Sec. 16(b) purposes, because significant conditions precedent to the closing remained unfulfilled.

After examining the record and the briefs and hearing oral argument, we conclude that the grant of summary judgment in this case was proper. In reviewing a grant of summary judgment we must decide whether the record shows that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. See DeValk Lincoln Mercury, Inc. v. Ford Motor Co., 811 F.2d 326, 329-30 (7th Cir.1987). We agree with the district court that after drawing all reasonable inferences in the light most favorable to the plaintiff, see Bartman v. Allis-Chalmers, 799 F.2d 311, 312-13 (7th Cir.1986), no genuine issues of material fact exist. Because Judge Nordberg's opinion contains an excellent discussion and analysis of this case, we believe that any additional discussion by this court is unnecessary, and thus we adopt the district court's opinion as our own. The district court's opinion follows in an appendix to this opinion.

AFFIRMED.

                APPENDIX
                No. 80 C 4118
                IN THE UNITED STATES DISTRICT COURT
                FOR THE NORTHERN DISTRICT OF ILLINOIS
                EASTERN DIVISION
                

MEMORANDUM OPINION AND ORDER

JOHN A. NORDBERG, District Judge.

Plaintiff, David Colan, brought this action under Section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. Sec. 78p(b) (1982), on behalf of Eaton Corporation ("Eaton"), of which he is a shareholder. ¹ Eaton's subsidiary, New CHI, Inc. ("New CHI") is the surviving corporation in the merger of New CHI and Cutler-Hammer, Inc. ("Cutler-Hammer"). Colan brought this action against Koppers Company, Inc. ("Koppers") to recover alleged short-swing profits realized by Koppers upon the purchase and sale of Cutler-Hammer stock during 1978. This matter is now before the court on Koppers' motion for summary judgment. ² For the reasons set forth below, the court grants Koppers' motion for summary judgment.

I. MOTION FOR SUMMARY JUDGMENT

On a motion for summary judgment, the moving party has the burden of establishing that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Cedillo v. Int'l Ass'n of Bridge and Structural Iron Workers, 603 F.2d 7, 10 (7th Cir.1979). In determining whether any material fact remains in dispute, the court must view all inferences in the light most favorable to the non-moving party. Regner v. City of Chicago, 789 F.2d 534, 536 (7th Cir.1986). However, the nonmoving party may not merely rely on conclusory pleadings to withstand summary judgment. In responding to a motion for summary judgment, a non-moving party must set forth specific facts in affidavits or otherwise show that there is a genuine issue of material fact that must be decided at trial. First National Bank of Arizona v. Cities Services Co., 391 U.S. 253, 289, 88 S.Ct. 1575, 1592-93, 20 L.Ed.2d 569 (1968); Posey v. Skyline Corp., 702 F.2d 102, 105 (7th Cir.), cert. denied, 464 U.S. 960, 104 S.Ct. 392, 78 L.Ed.2d 336 (1983).

Koppers has moved for summary judgment. Therefore, this court must view all inferences in the light most favorable to Colan. Colan contends that there are genuine issues of material fact that preclude this court from granting Koppers' motion for summary judgment. Drawing all reasonable inferences that can be made in Colan's favor, the court finds that there are no genuine issues of material fact and that Koppers is entitled to summary judgment as a matter of law.

II. FACTS

A. THE PARTIES

Cutler-Hammer was a Delaware corporation involved in the manufacture of electronic equipment. Cutler-Hammer stock was traded on the New York Stock Exchange. During all times relevant to this action, Edmund B. Fitzgerald was the Chairman and Chief Executive Officer of Cutler-Hammer, and also an outside director of Koppers. The Wisconsin law firm of Michael, Best & Friedrich represented Cutler-Hammer in the negotiation and preparation of both the sale of convertible preferred stock to Koppers and the merger of Eaton and Cutler-Hammer. The investment banking firm of Morgan, Stanley & Co., Inc. represented Cutler-Hammer in the sale of stock to Koppers.

Eaton is an Ohio corporation predominantly engaged in the manufacture of heavy industrial equipment. Eaton stock is traded on the New York Stock Exchange. At all times relevant to this action, Edward Mandell DeWindt was the Chairman and Chief Executive Officer of Eaton. On August 23, 1978, DeWindt became a director of Cutler-Hammer. Robert G. Brown is the former Vice-President of Corporate Development at Eaton, and as such, handled Eaton's acquisitions and divestitures. Brown took notes of several discussions which Colan now alleges evidence a secret agreement between Eaton and Koppers. Brown also became a Cutler-Hammer director on August 23, 1978. Eaton employed the investment banking firm of Lehman Brothers to accomplish its merger with Cutler-Hammer. Peter G. Peterson, the former Chairman and President of Lehman Brothers, headed the Lehman team hired to assure the successful merger of Eaton and Cutler-Hammer.

Koppers is a Pennsylvania corporation principally engaged in the manufacture of industrial chemicals. Koppers' stock is traded on the New York Stock Exchange. At all times relevant to this action, Fletcher L. Byrom was the Chairman of the Board of Koppers. The investment banking firm of First Boston Corporation represented Koppers in the merger negotiations with Eaton.

B. KOPPERS' PURCHASE OF CUTLER-HAMMER STOCK IN 1978

In March of 1978, Cutler-Hammer learned that Tyco Laboratories, Inc. had begun making large anonymous open market purchases of Cutler-Hammer common stock. On March 19, 1978, Fitzgerald and Byrom, along with others, met in Pittsburgh to discuss whether Koppers would like to purchase Cutler-Hammer stock. Koppers' Board of Directors met on March 27, 1978 to discuss the possible investment in a new issue of Cutler-Hammer convertible preferred stock in the amount of approximately 25 to 30 million dollars. The Koppers Board authorized the investment within certain general guidelines. The Board also authorized, upon completion of the investment, the purchase of additional Cutler-Hammer common stock sufficient for Koppers to hold 20% of Cutler-Hammer's outstanding stock for equity accounting purposes. Fitzgerald did not attend this meeting, and, because of his position as an outside director of Koppers, abstained from any involvement in the subsequent negotiations between Koppers and Cutler-Hammer concerning the possible investment.

On April 8, 1978, the Cutler-Hammer Board of Directors approved the proposed preferred stock sale to Koppers. On April 9, 1978, the Executive Committee of Koppers' Board reviewed and approved the agreement for the proposed stock purchase. The transaction was closed and the agreement executed on April 10, 1978, when Cutler-Hammer placed an issue of 650,000 shares of convertible preferred Cutler-Hammer stock with Koppers, for a negotiated price of $45 per share. Under the terms of the stock purchase agreement, the preferred dividend rate was the same as the current dividend rate for common stock, the preferred stock was convertible into common stock on a one-for-one basis, and, if converted, the preferred stock represented 9.9% of Cutler-Hammer's outstanding common stock.

After this initial purchase, Koppers began to purchase shares of Cutler-Hammer common stock on the open market. From April 10 until April 14, 1978, Koppers bought 742,500 shares of Cutler-Hammer common stock on the open market at an average price of $44.25 per share. Koppers then held approximately 21 to 22 percent of Cutler-Hammer's stock, if all of the preferred shares were converted to common stock.

On May 31, 1978, Koppers converted 640,000 of its 650,000 shares of convertible preferred shares into common stock. Koppers did not convert all of its preferred shares in order to preserve any special voting rights attached to the class of preferred stock. ³

C. THE MERGER OF EATON AND CUTLER-HAMMER

On June 12, 1978, Eaton purchased Tyco's entire 33% stock...