Energy Ventures, Inc. v. Appalachian Co.

• Decision Date: 11 May 1984
• Docket Number: Civ. A. No. 84-200-JLL.
• Parties: ENERGY VENTURES, INC., Plaintiff, v. The APPALACHIAN COMPANY, Defendant. The APPALACHIAN COMPANY, Counterclaim and Third-Party Plaintiff, v. APCO OIL CORPORATION LIQUIDATING TRUST, John G. McMillian, individually and as Trustee of Apco Oil Corporation Liquidating Trust, Thomas W. diZerega, individually and as Trustee of Apco Oil Corporation Liquidating Trust, Marshall A. Crowe, Sidney S. Lindley, Walter A. Lubanko, Rush Moody, Jr., Charles P. Neidig, and Energy Ventures, Inc., Counterclaim and Third-Party Defendants.
• Court: U.S. District Court — District of Delaware

587 F. Supp. 734

ENERGY VENTURES, INC., Plaintiff, v. The APPALACHIAN COMPANY, Defendant.

The APPALACHIAN COMPANY, Counterclaim and Third-Party Plaintiff, v. APCO OIL CORPORATION LIQUIDATING TRUST, John G. McMillian, individually and as Trustee of Apco Oil Corporation Liquidating Trust, Thomas W. diZerega, individually and as Trustee of Apco Oil Corporation Liquidating Trust, Marshall A. Crowe, Sidney S. Lindley, Walter A. Lubanko, Rush Moody, Jr., Charles P. Neidig, and Energy Ventures, Inc., Counterclaim and Third-Party Defendants.

Civ. A. No. 84-200-JLL.

United States District Court, D. Delaware.

May 11, 1984.

Howard M. Handelman and Jeffrey Weiner of Bayard, Brill & Handelman, P.A., Wilmington, Del., and David A. Donohoe, Clint Batterton, Bruce S. Mendelsohn, Alan J. Statman, Christopher S. Vaden, Oscar de la Guardia of Akin, Gump, Strauss, Hauer & Feld, Washington, D.C., of counsel, for plaintiff Energy Ventures, Inc. and Third-Party Defendants, McMillian, diZerega, Crowe, Lindley, Lubanko, Moody and Neidig.

Martin P. Tully, Lawrence A. Hamermesh, and Peter W. Laberee of Morris, Nichols, Arsht & Tunnell, Wilmington, Del., for The Appalachian Company.

R. Franklin Balotti, William J. Wade, Gregory P. Williams, and Gregory V. Varallo of Richards, Layton & Finger, Wilmington, Del., Richard E. Hill and Barbara A. Pollack of Steptoe & Johnson, Chartered, Washington, D.C., of counsel, for third-party defendants, The Apco Oil Corporation Liquidating Trust, McMillian and diZerega.

OPINION

LATCHUM, Senior District Judge.

This action is before the Court on plaintiff's and defendants' motions for a preliminary injunction. On April 11, 1984, the plaintiff, Energy Ventures, Inc. ("Ventures"), filed a complaint against The Appalachian Company ("Appalachian") seeking declaratory and injunctive relief for violations of Sections 13(d), 14(d) and 14(e) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78n in connection with Appalachian's acquisition of stock of Ventures. (Docket Item "D.I." 1.) On April 12, 1984, following the submission of briefs and affidavits of both parties, this Court denied Ventures' motion for a temporary restraining order ("TRO") based on the charges that Appalachian was conducting an unlawful tender offer for Ventures stock in violation of Sections 14(d) and (e) and failed to meet the disclosure requirements of Sections 13(d) and 14(d). (D.I. 10.) Ventures took an expedited appeal the following day, but the Court of Appeals by a written opinion on April 17, 1984, dismissed the appeal for lack of jurisdiction.

On April 19, 1984, Appalachian filed its answer, counterclaim and third-party complaint against Ventures, its directors John G. McMillian ("McMillian"), Thomas W. diZerega ("diZerega"), Marshall A. Crowe ("Crowe"), Sidney S. Lindley ("Lindley"), Walter A. Lubanko ("Lubanko"), Rush Moody, Jr. ("Moody"), and Charles P. Neidig ("Neidig"), as well as The Apco Oil Corporation Liquidating Trust ("Apco Trust") and McMillian and diZerega as trustees of the Trust. (D.I. 21.)

Appalachian's counterclaim and third-party complaint allege that the third-party defendants have formed a group within the meaning of Section 13(d) and have violated that section by failing to file a Schedule 13D reflecting the formation of the group and disclosing the information required by that Schedule. The counterclaim and third-party complaint also charges the directors of Ventures with breach of fiduciary duty and manipulation of Ventures to perpetuate themselves in office. (Id.)

After the denial of the TRO, the parties were granted expedited discovery and the Court scheduled a hearing on Ventures' motion for a preliminary injunction for May 3, 1984.

Ventures' motion for a preliminary injunction is based on its claims under Sections 13(d) and 14(d) in that Appalachian's acquisition of Ventures stock amounted to an unlawful tender offer in violation of Sections 14(d) and (e) and that Appalachian violated Section 13(d) because it failed to disclose its true intentions. (D.I. 25.)

On May 1, 1984, Appalachian also moved for a preliminary injunction on its counterclaim and third-party complaint seeking to enjoin Ventures and the third-party defendants from acquiring additional Ventures shares pending filing full disclosure of the group as required by Section 13(d). (D.I. 30.) The Court heard arguments on both motions on May 3, 1984, but at that time the Apco Trust, the trustees (D.I. 40), and the individual third-party defendants (D.I. 43) moved to dismiss the third-party complaint for (1) failure to state a claim upon which relief could be given, (2) improper venue, (3) lack of jurisdiction, and (4) insufficient service of process.

I. VENTURES' MOTION FOR A PRELIMINARY INJUNCTION

A. The Facts

In the late fall of 1983, it was generally known in the energy field and by Appalachian's management that the Williams Company would probably offer its block of Ventures stock for sale. (D.I. 36 at 7-8.) It was not, however, until January, 1984 that Appalachian's management began to focus upon acquiring the Ventures shares. (Id. at 10-12.) On January 25 or 26, 1984, Appalachian's Board Chairman Millard discussed with President Orlofsky the possibility of acquiring Ventures shares which had been suggested to Millard by third-party defendant McMillian. (D.I. 27 at A-12.) Appalachian then enlisted the aid of David Butters of Shearson American Express to approach the Williams Company with a view toward purchasing its Ventures shares. (Id. at A-15.) Butters was successful and negotiated a private Stock Purchase Agreement with Northwest Energy Company ("Northwest"),¹ dated February 6, 1984, under which Appalachian acquired 610,843 shares of Ventures common stock (about 22% of the outstanding shares) for $10.50 per share. (Id. at A-13 to A-15.) On February 7, 1984, Appalachian acquired an additional 350,000 Ventures shares from Mutual Shares Corporation through a broker's transaction on the over-the-counter market, at a price of $10.9375 per share, including broker's commissions. (D.I. 1, Ex. 1 at A-8.) Appalachian made additional purchases of Ventures stock in a broker's transactions in the over-the-counter market on February 10 and 13, 1984, of 7,145 and 65,000 shares, at market prices of $10.6875 and $10.9375 per share respectively, again including broker's commissions. (Id.) By these purchases between February 6 and 13, 1984, Appalachian acquired approximately 37% of Ventures outstanding common stock. Two days later, on February 15, 1984, Appalachian filed a Schedule 13D disclosing the purchases, as well as the other information called for by that Schedule. (D.I. 1, Ex. 1.) Specifically, Appalachian disclosed the following with respect to the purpose of its acquisition:

Item 4. Purpose of Transaction.

The purpose of Appalachian's purchase of Common Stock of Energy Ventures is to acquire a substantial equity interest in Energy Ventures and thereby to be able to exercise a controlling influence on the management of Energy Ventures by seeking representation on the board of directors and in the management of the Company through discussions with members of such board and management, pursuant to which Appalachian might carry out such purpose. In the future, depending upon the success of Appalachian's discussions with members of the board of directors and management of Energy Ventures, Appalachian may attempt to join together with other stockholders of Energy Ventures, by proxy solicitation or otherwise, to elect a majority (or more) of the board of directors of Energy Ventures or to influence or change its management. While Appalachian may have such discussions with other stockholders whether or not its discussions (as described above) with Energy Ventures' representatives are successful in achieving the purpose of Appalachian's purchases, Appalachian has no understanding, arrangement, agreement or proxy relationship with any other stockholder of Energy Ventures at present (other than the Stock Purchase Agreement with, and the letter granting a right of first notice from, Northwest Energy Company, as described in Item 5) and is not able to predict the willingness of other stockholders to join with it in the future in any such understanding, arrangement, agreement or proxy relationship for any purpose. Depending on market conditions and Appalachian's financial means or the availability of financing, Appalachian may consider in the future additional purchases of shares of Common Stock in privately negotiated transactions, in the open market or otherwise. There can be no assurance that such purchases will be made.

D.I. 1, Ex. 1 at A-5 & A-6 (emphasis added).

Between February 16 and March 26, 1984, Appalachian acquired 54,703 shares of Ventures stock in broker transactions in the over-the-counter market at prices ranging from $10.8125 to $12.5625 per share in blocks ranging in size from 1,000 to 11,500 shares. (D.I. 1, Ex. 2.) These additional purchases increased Appalachian's ownership of Ventures stock to about 39% of the outstanding shares. The dates, amounts and terms of these additional market purchases were disclosed in Amendment No. 1 to its Schedule 13D, filed on March 26, 1984. (Id.)

Again from March 27 through April 2, 1984, Appalachian purchased an additional 42,600 shares of Ventures stock in broker transactions in the over-the-counter market at prices ranging from $12.5625 to $12.8125 per share and in blocks ranging in size from 1,000 to 24,500 shares. (D.I. 1, Ex. 3.) These purchases were also disclosed by Appalachian in Amendment No. 2 to its Schedule 13D, filed on April 9, 1984. (Id.) Amendment No. 2 also disclosed that Appalachian had then acquired 40.48% of Ventures common stock. (Id.)

Prior to filing Amendment No. 2 to its Schedule 13D, Appalachian's and Ventures' representatives discussed in person and by telephone Appalachian's publicly announced desire to be represented on the board of directors of...