Crane Co. v. Harsco Corp.

Citation511 F. Supp. 294
Decision Date13 March 1981
Docket NumberCiv. A. No. 81-30.
PartiesCRANE CO., Plaintiff, v. HARSCO CORPORATION and Richard S. Gebelein, the Attorney General of the State of Delaware, Defendants, and HARSCO CORPORATION, Counterclaim Plaintiff, v. Thomas M. EVANS and Crane Co., Counterclaim Defendants.
CourtUnited States District Courts. 3th Circuit. United States District Court (Delaware)

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R. Franklin Balotti, Donald A. Bussard and Samuel A. Nolen of Richard, Layton & Finger, Wilmington, Del., for plaintiff Crane Co.; Fried, Frank, Harris, Shriver & Jacobson, New York City, of counsel.

Rodman Ward, Jr., Stuart L. Shapiro, Stephen P. Lamb and James G. Wiles of Skadden, Arps, Slate, Meagher & Flom, Michael D. Goldman, David B. Brown and Donald J. Wolfe, Jr., of Potter, Anderson & Corroon, Wilmington, Del., for defendant Harsco Corp.; Mudge, Rose, Guthrie & Alexander, New York City, of counsel.

OPINION

CALEB M. WRIGHT, Senior District Judge.

On January 27, 1981 Crane Company ("Crane") commenced a tender offer for approximately 15% of the stock of Harsco Corporation ("Harsco"). This Court denied Harsco's motion to enjoin consummation of this hostile tender offer for alleged violations of federal securities and antitrust laws on February 17, 1981. The tender offer was to have expired on February 25, 1981, but has twice been extended. Crane has now moved for a preliminary injunction to prevent Harsco from completing purchase of 132,300 shares of its common stock from arbitrageurs, and from making any further such purchases during the pendency of this action. Crane argues that Harsco's purchase of its own stock would violate federal securities and Delaware common law. This Court granted a temporary restraining order against Harsco on February 27, but following a hearing on March 3, denied the injunctive relief in an Order issued March 4. This Opinion sets forth the Court's Findings of Fact and Conclusions of Law supporting the denial, in accordance with Rule 52(a) of the Federal Rules of Civil Procedure.

I. Factual Background

The facts concerning the commencement of the tender offer are set out in the Court's earlier opinion in this case. See Crane Co. v. Harsco Corp., 509 F.Supp. 115 (D.Del.1981). The Court finds the follong facts concerning the events which set the stage for this action.

As the original expiration date of Crane's tender offer drew near, Harsco determined that stockholders had tendered fewer than 50,000 shares to Crane, and through consultations determined that arbitrageurs held roughly 400,000 shares. Concerned that these arbitrageurs might tender to Crane, or sell to Crane after the offer expired, Harsco management decided to purchase the stock held by arbitrageurs, if it was offered and proper arrangements could be made.

On February 23, the executive committee of Harsco's board of directors authorized an increase in the number of Harsco shares which management could purchase by 200,000, from 316,000 to 516,000 shares. Harsco had a long-standing policy of treasury stock purchases for use in acquisitions. Around noontime of February 24, Harsco decided that it could legally arrange to purchase up to 500,000 shares from arbitrageurs if it received any unsolicited offers. Shortly afterward, at about 2:00 P.M., Harsco began receiving calls from arbitrageurs who were told that Harsco was interested, but would first have to make the formal arrangements. On February 25, Harsco and an arbitrageur engaged in negotiations concerning the price, amount and means of trading a block of stock composed of his holdings and those of three other arbitrageurs. Agreement on a price of $43 per share was reached sometime after 9:00 A.M., but arrangements to trade the stock on the Pacific Exchange were not completed until mid-afternoon, and the trade was first made at 4:03 Eastern Standard Time ("EST"). Between 10:00 and 4:00 EST, Harsco filed with the Securities Exchange Commission ("SEC") a Rule 13e-1 Transaction Statement, an amendment thereto, and an amendment to its Schedule 14D-9. It also commenced mailing the Rule 13e-1 Statement to its stockholders. The Rule 13e-1 Statement and Schedule 14D-9 amendment stated, in relevant part:

(1).... Professional traders (commonly referred to as arbitrageurs) have contacted the Company to express their willingness to sell their Shares to the Company. To date the Company has not accepted any such proposals; however, if offers from professional traders are received hereafter, the Company may consider them, and, if the terms and conditions of such offers are satisfactory to the Company, the Company may purchase such Shares. In no event will the Company accept offers which would result in the acquisition of an aggregate of more than 500,000 Shares. All such purchases will be privately negotiated transactions. There can be no assurances that any such purchases will in fact be made.

The Rule 13e-1 Statement continued as follows:

(2) Any Shares thus acquired will be held in the treasury of the Company and will be used for general corporate purposes; including without limitation use in the future acquisition of other companies and possible use in the Thrift Plan and in the Dividend Reinvestment Plan. Any acquisition of Shares will also have the effect of preventing Crane Co. from purchasing those Shares.
(3) The funds for stock purchases will be delivered from cash and short-term investments held by the Company.

The amendment to the Rule 13e-1 Statement filed that day stated that "the purchases referred to in paragraph (1) thereof may require use of the facilities of a national securities exchange on which the Common Stock of the Company may be traded." Dkt. 81 at Ex. D and E.

On February 26, at the request of the New York Stock Exchange, Harsco issued a press release describing the transaction. Trading in Harsco stock did not open that day. That same day Crane filed its second amended complaint against Harsco, and moved for a temporary restraining order and preliminary and permanent injunctive relief. Crane alleged that Harsco's intended purchase would violate §§ 9(a), 10(b), 13(e), and 14(e) of the Securities Exchange Act of 1934,EC Rules 13e-1, 13e-4, and 14d-9, and would constitute a waste of corporate assets and a breach of fiduciary duty under Delaware common law.

This Court has jurisdiction over the securities law claims under § 27 of the Securities Exchange Act, 15 U.S.C. § 78aa, and 28 U.S.C. § 1331. The Court has jurisdiction over the Delaware common law count as a pendent claim. See, e. g., UMW v. Gibbs, 383 U.S. 715, 725, 86 S.Ct. 1130, 1138, 16 L.Ed.2d 218 (1966); Panter v. Marshall Field & Co., 486 F.Supp. 1168, 1192 (N.D.Ill. 1980).

II. Legal Questions

In order to grant a preliminary injunction, the Court must determine that Crane has a reasonable likelihood of success on the merits, and would be irreparably injured absent such relief; the Court must also consider whether other parties would be substantially harmed and whether the public interest would be served. A.O. Smith Corp. v. F.T.C., 530 F.2d 515 (3d Cir. 1976). With this standard in mind, the Court will examine each of defendant's alleged violations.

A. Alleged Securities Law Violations
1. Section 13(e) of the Act and SEC Rule 13e-1

Crane charges that Harsco's purchase of its stock will violate § 13(e)(1) of the Securities Exchange Act, 15 U.S.C. § 78(m)(e)(1) and SEC Rule 13e-1, 17 C.F.R. § 240.13e-1 (1980), promulgated thereunder. Section 13(e)(1) is part of the Williams Act, which was intended to protect investors who are confronted with a tender offer. Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 35, 97 S.Ct. 926, 946, 51 L.Ed.2d 124 (1977). Section 13(e)(1) specifically prohibits the target company's purchase of its own shares if this would constitute a fraudulent, deceptive, or manipulative practice.1 Rule 13e-1 requires the target to file with the SEC and send or give to its stockholders certain information before purchasing any of its securities during the period of the tender offer.2 Crane alleges that Harsco has violated § 13(e)(1) and Rule 13e-1 by omitting certain information from its Transaction Statement and by purchasing the stock before the mailed Statement could have reached Harsco stockholders.

a. Standing

Initially the Court must determine whether Crane has standing to raise this cause of action. Though Crane was a stockholder prior to commencement of its tender offer, Crane is not a stockholder to whom a tender offer has been made and thus is not an intended beneficiary of the Williams Act. Piper v. Chris-Craft Industries, Inc., supra at 36 n. 23, 97 S.Ct. at 946 n. 23. In Piper, the Court refused to find that the tender offeror had an implied cause of action for damages under the Williams Act since such was unnecessary "to ensure the fulfillment of Congress' purpose in adopting the Williams Act." Id. at 41, 97 S.Ct. at 949. However, the Supreme Court held "only that a tender offeror, suing in its capacity as a takeover bidder, does not have standing to sue for damages," id. at 42 n. 28, 97 S.Ct. at 949 n. 28. Although the Supreme Court has since taken a more stringent approach to the question of implied rights of action, see Touche Ross & Co. v. Redington, 442 U.S. 560, 99 S.Ct. 2479, 61 L.Ed.2d 82 (1979), and Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 100 S.Ct. 242, 62 L.Ed.2d 146 (1979), these cases, like Piper, have involved actions for damages rather than injunctive relief.

The suggestion of dictum in Piper that the nature of the requested relief will affect the determination whether a statute creates a cause of action still seems valid. In Piper, the Court noted that "in corporate control contests the stage of preliminary injunctive relief, rather than post-contest lawsuits, `is the time when relief can best be given.'", id. at 42, 97 S.Ct. at 949, quoting from Electronic Specialty Co. v. International...

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