Corenco Corporation v. Schiavone & Sons, Inc.

• Decision Date: 26 October 1973
• Docket Number: Dockets 73-2216,521,73-2286.,No. 331,331
• Citation: 488 F.2d 207
• Parties: CORENCO CORPORATION, Plaintiff-Appellant, v. SCHIAVONE & SONS, INC., et al., Defendants-Appellees, and CHESTER K. Twiss et al., Additional Defendants to Counterclaim.
• Court: U.S. Court of Appeals — Second Circuit

488 F.2d 207 (1973)

CORENCO CORPORATION, Plaintiff-Appellant, v. SCHIAVONE & SONS, INC., et al., Defendants-Appellees, and CHESTER K. Twiss et al., Additional Defendants to Counterclaim.

Nos. 331, 521, Dockets 73-2216, 73-2286.

United States Court of Appeals, Second Circuit.

Argued September 26, 1973.

Decided October 26, 1973.

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Jerome Doyle, New York City (Leonard A. Spivak, George Wailand, Cahill, Gordon & Reindel, New York City, Richard L. Brickley, Brickley, Sears & Cole, Boston, Mass., of counsel), for plaintiff-appellant and additional defendants to Counterclaim.

Robert W. Sweet, New York City (Blaine V. Fogg, Thomas J. Schwarz, Edward J. Yodowitz, Skadden, Arps, Slate, Meagher & Flom, New York City, of counsel), for defendants-appellees.

William E. McCurdy, Jr., New York City (Lord, Day & Lord, New York City, of counsel), for defendant-appellee Reed Rubin.

Before MOORE, MANSFIELD and OAKES, Circuit Judges.

MANSFIELD, Circuit Judge:

A familiar defensive tactic increasingly used by target companies to delay or thwart a take-over bid made by a tender offeror has been the institution of a lawsuit against the offeror charging violation of the federal antitrust laws or non-disclosure of material information in violation of the Williams Act, Pub.L. 90-439, 82 Stat. 454, 15 U.S.C. §§ 78m(d), (e), 78n(d)-(f). These actions have presented us with difficult and unusual questions. See, e. g., Gulf & Western Industries, Inc. v. Great Atlantic & Pacific Tea Co., 476 F.2d 687 (2d Cir.1973); Sonesta International Hotels Corp. v. Wellington Associates, 483 F.2d 247 (2d Cir.1973); SEC v. Bangor Punta Corp., 480 F.2d 341 (2d Cir. 1973). See generally E. Aranow & H. Einhorn, Tender Offers for Corporate Control (1973). The present case is no exception. It is novel in two respects. First, the district court, facing a question of first impression, held that the tender offeror, in this case a closely held company, should disclose financial data as to its own past operations, since this information might aid those solicited in deciding whether to tender or withhold their shares. Secondly, the principal appeal is not by the offeror, which has decided to abide by this aspect of the district court's decision, but by the target company, Corenco Corp., after it has successfully obtained a permanent injunction based on the offeror's failure to disclose its financial operations. Corenco appeals from a modification of that judgment which would permit the offeror to cure the deficiency by making the required disclosure to the offerees and giving them a right of withdrawal.

The original judgment entered on August 9, 1973, 362 F.Supp. 939, in favor of Corenco, the target company, after a trial before Judge Ward in the Southern District of New York, permanently enjoined Schiavone & Sons, Inc. ("Schiavone"), its parent company, Michael Schiavone & Sons, Inc. ("Michael Schiavone"), and Bear Stearns & Co., and all persons acting on their behalf (herein collectively referred to as "the Schiavone defendants") from (a) soliciting the tender of any shares of stock of Corenco, (b) acquiring any Corenco shares as a result of the tender offer, (c) further soliciting the proxies of holders of Corenco common stock, (d) voting any shares of Corenco common stock or proxies, (e) otherwise utilizing any such stock or shares of Corenco as a means of gaining control of Corenco "unless and until the Schiavone defendants make full disclosure of financial information about Schiavone and Michael Schiavone." The modification relieved the Schiavone defendants from the injunctive provisions of the order and judgment and permitted them to continue soliciting the tender of Corenco shares upon their filing with the Securities Exchange Commission (the "SEC") an amendment (containing financial statements for Schiavone and Michael Schiavone) to Schiavone's Schedule 13D statement and upon their distribution of an "Extended and Amended Offer to Purchase."

Corenco argues that the modification permitting the tender offer to proceed upon the filing of a curative amendment will encourage minimal disclosure by other tender offerors in the future and that it was based on the district court's mistaken belief that the Schiavone defendants intended to disclose as much financial information as they had furnished to the First Pennsylvania Banking & Trust Co. ("First Pennsylvania") in securing a loan to finance the tender offer.

Both Corenco and the Schiavone defendants also appeal from those portions of the district court's judgment of August 9, 1973, which dismissed certain of their various other claims and counterclaims.¹ Corenco alleges several other violations (besides the failure to disclose financial information about Schiavone and Michael Schiavone) of §§ 14(d) and 14(e) of the Securities Exchange Act of 1934 ("the Exchange Act"), 15 U.S.C. §§ 78n(d) and 78n(e), and claims that prior to the public tender offer the Schiavone defendants together with Reed Rubin, a broker, conspired in violation of § 13(d) of the Exchange Act, 15 U.S.C. § 78m(d), to acquire or hold together more than 5% of Corenco's stock without making the required filings. The Schiavone defendants counterclaim that the Corenco management itself violated § 13(d) of the Exchange Act by failing to file a Schedule 13D statement while acting in concert to defeat Schiavone's offer.

For reasons hereinafter stated we hold that the district court acted well within its discretion in modifying its previous order and in permitting the tender offer to proceed upon the filing of a curative amendment. However, because we believe that the district court may have believed that the Schiavone defendants intended to disclose all of the financial information about themselves that they had previously furnished to First Pennsylvania, we remand for a determination by the district court as to whether the disclosure of Schiavone financial information as to earlier years should be required. In all other respects we affirm the modified judgment of the district court.

Although Corenco has challenged at length some of Judge Ward's findings of fact as contrary to the weight of the evidence, we are here governed by the "clearly erroneous" standard. Rule 52(a), F.R.Civ.P.; United States v. National Association of Real Estate Boards, 339 U.S. 485, 70 S.Ct. 711, 94 L.Ed. 1007 (1950). Under that standard the essential facts appear to be as follows. From time to time during and prior to 1972 Corenco, a publicly held corporation organized under Maine laws and engaged in production of tallow, fertilizers, shortening and industrial oils, offered a "finders fee" to Reed Rubin, a broker employed by Singer & Mackie, Inc., payable upon his finding any company successfully acquired by Corenco. In October, 1972, Rubin arranged a meeting between Corenco representatives and Joel Schiavone, vice-president of Michael Schiavone and president of Schiavone for the purpose of exploring preliminarily a possible acquisition of Schiavone by Corenco. Both Michael Schiavone and its subsidiary, Schiavone, are closely held corporations engaged in the scrap metals business. Although the companies and their industries were discussed generally at this meeting, no concrete proposal or plan emerged for a merger with or an acquisition by Corenco of the Schiavone companies. Thereafter discussions periodically took place between some or all of the representatives of both sides until on April 12, 1973, negotiations were terminated.

In the meantime, in January, 1973, Michael Schiavone began purchasing Corenco stock, initially for investment, using Rubin as its broker. These purchases continued throughout the first half of 1973 so that by July 3 Michael Schiavone held 18,300 shares or 4.8% of the 383,456 Corenco shares outstanding. Prior to March 12, 1973, Rubin himself had also purchased shares of Corenco stock, which were held in various accounts toward which he occupied a special relationship: as trustee of a trust established by Vera Rubin (12,965 shares), as investment "advisor" to his father, Samuel Rubin (4,950 shares),² and as director and treasurer of the Research Institute for the Study of Man (1,000 shares).³ In the aggregate these acquisitions by Rubin totalled 4.996% of Corenco's outstanding shares. Prior to July 17, 1973 (the date when Schiavone made its tender offer) Rubin neither advised the Schiavone companies of these acquisitions nor did he know of Michael Schiavone's purchases of Corenco stock for purposes other than investment. Rubin, of course, was to be remunerated as a finder only if Corenco acquired Schiavone, not if Schiavone acquired Corenco.

On July 17, 1973, Schiavone announced publicly that it was offering to purchase shares of Corenco stock with the intent of gaining control of the corporation. Immediately before the announcement Schiavone filed with the SEC a statement on Schedule 13D as required by § 14(d) of the Exchange Act and an Offer to Purchase dated July 17, 1973. Schiavone offered to pay $33 net⁴ per share for Corenco shares tendered prior to August 2, 1973, except that Schiavone would not be obligated to purchase fewer than 90,000 nor more than 130,000 Corenco shares. The Offer to Purchase also disclosed: that Michael Schiavone had already acquired approximately 4.8% of Corenco's common stock "for investment;" that Schiavone and Michael Schiavone would own approximately 28.6% of the outstanding Corenco shares if 90,000 shares were purchased and approximately 39.2% of the outstanding shares if 130,000 shares were purchased and that Schiavone's purpose in making the offer was to gain control of Corenco with a view to a possible merger or other combination of the two companies. The Offer also included financial information about Corenco and the market value of its stock, and information about the officers and directors of the Schiavone companies and the source of the funds required to finance...