DISTRICT 65, UAW v. Harper & Row, Publishers, Inc.
| Decision Date | 30 December 1983 |
| Docket Number | 82 Civ. 4042 (KTD).,No. 82 Civ. 3657 (KTD),82 Civ. 3657 (KTD) |
| Citation | 576 F. Supp. 1468 |
| Parties | DISTRICT 65, UAW, et al., Plaintiffs, v. HARPER & ROW, PUBLISHERS, INC., et al., Defendants. Raymond C. HARWOOD, et al., Plaintiffs, v. HARPER & ROW, PUBLISHERS, INC. et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
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Mittelman & Gordon, Washington, D.C., for plaintiffs Dist. 65, UAW, et al.; Eugene Mittelman, Michael S. Gordon, Washington, D.C., of counsel.
Eisner & Levy, P.C., New York City, for plaintiffs; Eugene G. Eisner, Richard Levy, New York City, of counsel.
Shea & Gould, New York City, for plaintiffs Harwood, et al.; Ralph Ellis, Arthur Felsenfeld, Martha Cohen Kurshan, New York City, of counsel.
Weil, Gotshal & Manges, New York City, for defendants Harper & Row, Publishers, Inc. and Asnes, Bessie, Canfield, Clark Knowlton, B. Lippincott, J. Lippincott, Michelson, Thomas, Cannon, Logan Miller, Aksen, Hutton, Isay and Taylor; Dennis J. Block, Nancy E. Barton, Bonnie K. Wachtel, New York City, of counsel.
Cravath, Swaine & Moore, New York City, Faegre & Benson, Minneapolis, Minn., for defendants Minneapolis Star & Tribune Co., John Cowles, Jr., and Otto A. Silha; Thomas D. Barr, Robert D. Joffe, Turner P. Smith, New York City, Lawrence C. Brown, Minneapolis, Minn., of counsel.
Lawrence F. Landgraff, Henry Rose, James N. Dulcan, Stephen D. Schreiber, Jeffrey Endick, Washington, D.C., of counsel, for Pension Benefit Guaranty Corp.
Reboul, MacMurray, Hewitt, Maynard & Kristol, New York City, for defendant The Prudential Ins. Co. of America; Howard G. Kristol, New York City, of counsel.
These two actions arise primarily from a transaction finalized on December 9, 1981 in which Harper & Row, Publishers, Inc. ("Harper & Row") terminated its Retirement Plan, liquidated the fund and recaptured the excess contributions in order to purchase approximately one-third of the outstanding shares of Harper & Row stock from defendant Minneapolis Star & Tribune Company ("MST") after being notified by MST that it intended to sell the stock. The plaintiffs in the first action ("District 65 action") include District 65 of the United Auto Workers Union ("District 65") which represents approximately 15 percent of Harper & Row's employees and Renee Cafiero and William Monroe who are Harper & Row employees and participants of the employee benefit plans. The second action ("Harwood action") was commenced by Raymond Harwood, a stockholder, former president of Harper & Row and participant in the Retirement Plan. The two other plaintiffs in the Harwood action, Carolyn Reed and Glen Howard, were formerly associated with Harper & Row and are participants in the Retirement Plans. The defendants in both actions are the same with three exceptions. The defendants in common include Harper & Row, MST, and directors on the Board of Directors of Harper & Row.1 Two of the MST defendants in both actions are John Cowles, Jr. and Otto A. Silha who were directors of Harper & Row between February 1, 1981 and July 28, 1981. During this time, they were also directors of MST. Fred A. Taylor, a defendant in the Harwood action, was a director of Harper & Row until August 31, 1981.
Defendants Harper & Row and MST move to dismiss and move for summary judgment in both actions. Defendants Prudential Insurance Company of America ("Prudential") moves alternatively to dismiss and for summary judgment in the District 65 action. The Pension Benefit Guaranty Corporation ("PBGC") moves to dismiss the District 65 Complaint. Defendant Fred Taylor moves alternatively to dismiss and for summary judgment in the Harwood action. Plaintiff UAW moves for summary judgment on its complaint. Additionally, there are several miscellaneous motions pending that concern discovery, amendments to complaints, and class claims.
In February 1981, MST notified Harper & Row that it intended to dispose of its entire position in Harper & Row which consisted of 1,017,630 shares of stock. The MST holdings represented one-third of the outstanding shares of Harper & Row stock. After learning of MST's decision to sell its shares of Harper & Row stock, a committee of outside directors was formed by Harper & Row to review the possibility of purchasing the stock from MST.2 The Board of Directors of Harper & Row engaged Kidder, Peabody & Co. ("Kidder, Peabody"), an investment banking firm, to render a financial opinion regarding the feasibility of purchasing the MST shares.
Harper & Row planned to finance the stock purchase in part by terminating the Harper & Row Publishers, Inc. Retirement Plan.3 After purchasing annuities to provide for the present value of accrued benefits for all employees covered by the Retirement Plan, Harper & Row anticipated an excess fund of $10.2 million. The balance of the purchase price was to be financed from the sale of real property ($5 million), the purchase of Harper & Row stock by the Harper & Row employee profit-sharing plan ($2 million) and loans ($3.1 million). See Letter from Norman L. Cannon, Vice President and Treasurer, Harper & Row, to MST (September 15, 1981) (Plaintiff District 65 Exh. 9).4
Harper & Row thereafter commenced negotiations with MST in July 1981 for the purchase of the shares held by MST and in August 1981 a tentative agreement was reached. In August, the Harper & Row stockholders, current employees and retirees were notified about the tentative agreement and a notice of intent to terminate the Retirement Plan was filed with the PBGC. Harper & Row also applied to the Internal Revenue Service ("IRS") for a determination that the termination of the Retirement Plan would not adversely affect its qualified status under the Internal Revenue Code.
On November 6, 1981, the PBGC issued a Notice of Sufficiency pursuant to Employee Retirement Income Security Act ("ERISA") § 4041(b), 29 U.S.C. § 1341(b), which stated that the assets of the Plan would be sufficient to satisfy all obligations concerning guaranteed benefits. Affidavit of Edward A. Miller ("Miller Affidavit"), Exh. J. On November 20, 1981, the IRS issued a determination letter finding that the termination of the Retirement Plan "does not adversely affect its qualification for Federal tax purposes." Miller Affidavit, Exh. K. The Retirement Plan was terminated effective August 31, 1981. In an agreement dated September 15, 1981, Harper & Row agreed to purchase the 1,017,630 shares of stock at the price of $20 per share. On the same day the Board of Directors held a regular quarterly meeting. At the meeting, the resignations of Directors John Cowles, Jr., Otto A. Silha, and Fred A. Taylor were recorded. The Board also ratified the Plan to purchase the MST shares and the proposed financing of that purchase.
On September 15, 1981, Kidder, Peabody submitted its opinion to Harper & Row in which it stated that "(i) the purchase is an action that the Company can reasonably take without materially and adversely affecting its financial ability to carry out its present plans, and (ii) the Purchase Price represents a fair value for the Shares." Miller Affidavit, Exh. F. On October 7, 1981 the Board of Directors held a special meeting to review the purchase plan and the dissemination of information to shareholders concerning the proposed changes in the employee benefit plans. See Miller Affidavit, Exh. G. On December 9, 1981, the Harper & Row shareholders approved the proposed transactions at its annual meeting. To fund the benefits accrued in the Plan, Harper & Row entered into a contract with Prudential to purchase annuities for the present value of the accrued benefits for those members in the Plan whose accrued benefits had a present value of at least $1,000 and to pay lump-sum amounts to the other participants. The arrangement with Prudential was later amended and those participants with an accrued present value of between $250 and $1,000 could opt to either receive a lump-sum payment or an annuity. As a result of this transaction, approximately $9 million was recaptured by Harper & Row after the retirement fund was liquidated.
Two other transactions are challenged by plaintiffs. Harper & Row's Profit-Sharing Plan purchased 152,588 of the 1,017,633 shares from Harper & Row for approximately $11 5/8 per share for a total of $1.8 million. This purchase occurred after the Profit-Sharing Plan was amended to allow an investment of up to $2 million, but not more than one-half of the Plan assets, in Harper & Row shares.5 The amended Profit-Sharing Plan provided that the price was to be determined by the average of the bid and asked quotation for Harper & Row shares reported in the over-the-counter market at the close of business on the day preceding the purchase. The amendment was approved by the Board of Directors on October 7, 1981 and reviewed again on December 9, 1981. Harper & Row's last transaction relevant to this dispute was the establishment of an Employee Stock Plan by a contribution of 865,045 Harper & Row shares. The creation of the Employee Stock Plan was approved by the Board on October 7, 1981 and approved by the shareholders on December 9, 1981.
The District 65 plaintiffs and the Harwood plaintiffs assert a variety of claims in their complaints arising out of the purchase by Harper & Row of over one million shares of Harper & Row stock held by MST, and the related transactions involving the Retirement Plan, Profit Sharing Plan and Employee Stock Plan. Plaintiffs in both actions allege that defendants' conduct violated ERISA. The District 65 plaintiffs allege in their proposed amended complaint violations of the federal and state securities laws and common law. As preliminary matters, District 65's motion for leave to amend its complaint, the consolidation of the two actions and the class action motions will be discussed.
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