CRTF Corp. v. Federated Dept. Stores, Inc.

• Decision Date: 14 April 1988
• Docket Number: 88 CIV 1548 (LBS).,No. 88 CIV 0487 (LBS),88 CIV 0487 (LBS)
• Citation: 683 F. Supp. 422
• Parties: CRTF CORPORATION, Plaintiff, v. FEDERATED DEPARTMENT STORES, INC., Charlotte Beers, Philip Caldwell, Robert A. Charpie, Daniel W. LeBlond, Howard Goldfeder, Howard W. Johnson, Norman S. Matthews, G. William Miller, Donald J. Stone and Will M. Storey, Defendants. R.H. MACY & CO., INC. and FDS Acquisition Corporation, Plaintiffs, v. CAMPEAU CORPORATION, CRTF Corporation and Robert Campeau, Defendants.
• Court: U.S. District Court — Southern District of New York

683 F. Supp. 422

CRTF CORPORATION, Plaintiff, v. FEDERATED DEPARTMENT STORES, INC., Charlotte Beers, Philip Caldwell, Robert A. Charpie, Daniel W. LeBlond, Howard Goldfeder, Howard W. Johnson, Norman S. Matthews, G. William Miller, Donald J. Stone and Will M. Storey, Defendants.

R.H. MACY & CO., INC. and FDS Acquisition Corporation, Plaintiffs, v. CAMPEAU CORPORATION, CRTF Corporation and Robert Campeau, Defendants.

Nos. 88 CIV 0487 (LBS), 88 CIV 1548 (LBS).

United States District Court, S.D. New York.

April 14, 1988.

Cravath, Swaine & Moore, New York City (Frederick A.O. Schwarz, Jr., Robert F. Mullen, Ronald S. Rolfe, Allen Finkelson, Sandra Grannum, Robert A. Kindler, of counsel), and O'Sullivan Graev & Karabell, New York City (Henry B. Gutman, J. Douglas Richards, John S. Beckerman, of counsel), for CRTF Corp., Campeau Corp. and Robert Campeau.

Skadden, Arps, Slate, Meagher & Flom, New York City (Stuart L. Shapiro, Samuel Kadet, Rodman Ward, Jr., Edward Welch, Constance Huttner, Joseph Guglielmelli, Jeremy Berman, David Cohen, Anthony Clark, of counsel), and Morris, Nichols, Arsht & Tunnell, Wilmington, Del. (A. Gilchrist Sparks, III, Lawrence A. Hamermesh, Kenneth J. Nachbar, Michael Houghton, Robert J. Valihura, Jr., of counsel), for Federated Dept. Stores, Inc. and other named defendants.

Weil, Gotshal & Manges, New York City, Dennis J. Block, Joseph S. Allerhand, Andrea J. Roth, David J. Berger, for R.H. Macy & Co., Inc. and FDS Acquisition Corp.

OPINION

SAND, District Judge.

SUMMARY

We summarize herein several rulings made in open court during the course of proceedings in connection with Plaintiff's application for preliminary injunctive relief. We restate these rulings substantially as set forth in our oral Opinions with minor stylistic changes and additional citation of authority. Although the controversy has since been resolved by a consensual agreement among the parties, the issues presented herein appear to be sufficiently recurring to warrant issuance of this Opinion.

We have held:

A) that in determining a tender offeror's standing to challenge a target company's "Poison Pill" and/or a state's takeover statute, a court should determine whether the offer is a good-faith, realistic offer; to this end, the court may consider all of the facts and circumstances relating to the Plaintiff's past history, if any, its current financing capability, and the extent of its investment in the instant project;

B) that as part of the obligation of a Board of Directors of a Delaware corporation to conduct an "auction" in a manner which will maximize the benefits to the shareholders once the corporation is the target of competing takeover bids and the Board has determined that the corporation is to be sold, the Board may selectively invoke or waive rights under a previously adopted "Poison Pill" in order to further the auction and to raise the bidding;

C) that the Court would not overrule the Board of Directors' determination that the auction was still in progress, especially in the absence of a representation by the bidding party seeking preliminary injunctive relief that it believes its bid is the higher (or highest), and that in the absence of a still higher, later, competing bid, it has made its highest and final bid;

D) that the revision of an offer from a single-tier, all-cash offer to a two-tiered all-cash offer constitutes an "amended" offer rather than a "new" offer, and therefore can have an expiration date of ten rather than twenty business days after its promulgation.

INTRODUCTION

Recent experience has shown us that the early resort to litigation in the typical hostile takeover struggle places the courts in a unique and sometimes anomalous posture.¹ This occurs primarily because the initial tender offer is likely to be a mere opening bid regarded by the parties and the financial markets as a tentative feeler. Despite this volatile state of affairs, either the offeror or the target is likely to seek immediate judicial relief, seeking to enlist the court as its ally in the battle being waged in the marketplace. Thus, although courts usually are involved when the parties have exhausted their efforts to resolve a controversy and are at an impasse, here judicial intervention is sought at the earliest stages of the dealings between the parties.

The relief sought may be a challenge by the target to the accuracy of the offeror's SEC or state law filings, or an application by the offeror to enjoin the target from utilizing defensive measures available to it under its by-laws (such as a "Poison Pill") or recently adopted state takeover statutes. The offeror may also seek to prevent the target from entering into arrangements with third parties that would frustrate the offer.

The tender offer usually has an early expiration date. Enormous sums of money are often at stake. Stockholders and the financial community at large are concerned and seek guidance and certainty from any source and especially from the court. The pressures to rush into the fray are therefore great indeed. Counter-balancing these pressures are a strong reluctance to interfere with the unfettered forces of the market, and a concern that a premature adjudication will be merely an advisory opinion rendered while negotiations are still underway.

In striking a balance between the apparent urgent need for prompt adjudication and the desire not to be a mere player on the takeover scene, courts have invoked a number of concepts designed to test and measure the appropriateness of judicial intervention. These include the requirements that a case and controversy in fact exist between the parties; that the controversy be one which the Plaintiff has standing to bring to the courts; that the controversy be ripe for adjudication and, where injunctive relief is sought, that the movant would suffer irreparable injury absent judicial intervention.

OPINION OF FEBRUARY 11, 1988 (MOTION TO DISMISS)

On January 25, 1988, CRTF Corp. ("CRTF"), a New York subsidiary of Campeau Corp., commenced a cash tender offer for all shares of Federated Department Stores ("Federated"), originally at a price of $47 per share. In supplemental filings made to the Court today, the Court is advised that the amount of that cash offer was revised upward.

On the same day it filed the tender offer, CRTF filed suit against Federated in this Federal District Court, seeking injunctive and declaratory relief against Federated and some of its officers and directors:

1) claiming breach of fiduciary duty and demanding invalidation of a Rights Plan that Plaintiff describes as a "Poison Pill"; and

2) claiming violation of the federal securities law, § 14(e) of the Securities Exchange Act of 1934, alleging that Federated's press release of January 21, 1988 was false and misleading and was made in anticipation of a tender offer.

CRTF also sought expedited discovery at that time.

The tender offer is due to expire on February 22 unless extended and was originally conditioned on several things, including:

1) approval of the offer by the Board of Directors, a condition which recent supplemental filings indicate has now been removed;

2) the invalidation of the Poison Pill or the redemption of the Rights by the Board of Directors;

3) the absence of valid conflicting legislation; and

4) CRTF's obtaining sufficient financing.

Defendants moved promptly to dismiss on several grounds, including:

1) ripeness and standing issues, asserting that:

a) the lack of committed financing precluded ripeness, standing and the existence of a case or controversy;

b) the complaint is to some extent based on what Plaintiff expects the directors to do in the future;

c) Plaintiff should proceed by shareholders' derivative suit; and

d) certain of the alleged wrongs occurred prior to Plaintiff's ownership of stock in the company;

2) the existence of indispensable parties not joined in this action, whose joinder would destroy diversity jurisdiction;

3) a lack of pendent jurisdiction because of the inapplicability of the federal securities claim; and

4) a claim that the Court should in its discretion refrain from taking jurisdiction because of the "internal affairs doctrine."

Finding the ripeness and standing issues to be troublesome, the Court on February 2 wrote to the Securities and Exchange Commission ("SEC") requesting that that agency submit an Amicus Curiae Brief as to those threshold questions. The letter of the Court to the SEC has previously been marked as a Court Exhibit in these proceedings, and the SEC's brief is also on file with the Court. (Relevant excerpts from the brief are quoted below.)

Also on February 2, Plaintiff filed a First Amended Complaint, adding a challenge to the constitutionality of the Delaware takeover statute, enacted that very day.

Certification under 28 U.S.C. § 2403(b) was forwarded to the Attorney General of the State of Delaware on February 3, and the Attorney General of Delaware has been advised of today's proceeding. We were advised by telephone within the past hour that there is en route to the Court a communication from the Attorney General, the substance of which is that, because the motion now before the Court might be dispositive, his office sees no need to intervene in the case at the present time, as such intervention would be premature.

Upon receipt of a telephone call yesterday from the SEC informing us that its brief would arrive today, the Court advised the parties that it would rule today on the motion to dismiss. It also invited the parties to supplement the record with respect to any changes that might have occurred and as to any filings and financing arrangements entered into over the past few days. Affidavits were received midday today, apprising the Court of some recent developments and including copies of subsequent SEC filings, that is, subsequent to the last appearance of the parties before me.

The issues raised by the motion to...