GEORGIA-PACIFIC v. GREAT NORTHERN NEKOOSA

• Decision Date: 16 January 1990
• Docket Number: Civ. No. 89-0264 P.
• Citation: 728 F. Supp. 807
• Parties: GEORGIA-PACIFIC CORPORATION, et al., Plaintiffs, v. GREAT NORTHERN NEKOOSA CORPORATION, et al., Defendants.
• Court: U.S. District Court — District of Maine

728 F. Supp. 807

GEORGIA-PACIFIC CORPORATION, et al., Plaintiffs, v. GREAT NORTHERN NEKOOSA CORPORATION, et al., Defendants.

Civ. No. 89-0264 P.

United States District Court, D. Maine.

January 16, 1990.

David A. Soley and Robert H. Stier, Bernstein, Shur, Sawyer and Nelson, Portland, Me., and Stuart J. Baskin, Shearman & Sterling, New York City, for plaintiffs.

Robert A. Moore, Verrill & Dana, Portland, Me., and Bernard W. Nussbaum, Wachtell, Lipton, Rosen & Katz, New York City, for defendants.

MEMORANDUM AND ORDER DENYING PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT

GENE CARTER, Chief Judge.

This action arises out of Georgia-Pacific's attempt to take over the Great Northern Nekoosa Corporation by a cash tender offer commenced on October 31, 1989. In its complaint Georgia-Pacific seeks declaratory and injunctive relief against certain impediments to Georgia-Pacific's offer, which has been twice rejected by Great Northern's Board of Directors. These allegedly unlawful impediments include Great Northern's "poison pill" stock purchase rights plan. Before the Court now is Georgia-Pacific's Motion for Partial Summary Judgment on the grounds that a portion of Great Northern's rights plan, the so-called "flip-in" provision, violates the Maine Business Corporation Act, 13-A M.R.S.A. § 101 et seq., and is, therefore, void. The motion has been thoroughly briefed, and the Court has heard oral argument on it by the parties and counsel for the shareholders.

The challenged rights plan, adopted by Great Northern in October 1988, provided for the declaration of a dividend of one preferred share purchase right for each outstanding share of common stock. Each right entitles the holder to purchase one one-hundredth of a share of Series A Participating Preferred Stock for $150. The Great Northern Board may redeem the rights for one cent each at any time prior to the acquisition by any person of 20% or more of Great Northern's outstanding common stock.

The flip-in provision, which is designed to combat unapproved takeover attempts, only becomes effective if an acquiring person accumulates 20%¹ or more of Great Northern's outstanding common stock. If that occurs, the rights become rights to buy shares of Great Northern's common stock at a 50% discount from the market price. Thus, under the plan, the rights holder can buy $300 worth of Great Northern common stock for $150. The rights held by an acquiring person who crosses the 20% threshold become void so that he is not entitled to buy common stock at a discount. While the rights trade with the shares of common stock initially, they are evidenced by separate certificates and may be traded separately after a triggering date which relates to the accumulation of 20% of the common stock by an acquiring person.

Great Northern's Form 8-K filing with the SEC describes the anti-takeover effect of the rights plan as "causing substantial dilution to a person or group that attempts to acquire the Company on terms not approved by the Company's Board of Directors."² Georgia-Pacific argues here that these anti-takeover dilution effects can only be achieved by treating the acquiring company and its shares differently from other shareholders of the same class of stock and that such discrimination violates the Maine Business Corporations Act (MBCA).

Section 501(1) of the MBCA provides:

Each corporation shall have power to create and issue the number of shares stated in its articles of incorporation. Such shares may be divided into one or more classes, any or all of which classes may consist of shares with par value or shares without par value, with such designations, preferences, limitations and relative rights as shall be stated in the articles of incorporation. The articles of incorporation may limit or deny the voting rights of, or provide special voting rights for, the shares of any class to the extent not inconsistent with this Act.

13-A M.R.S.A. § 501(1). Section 501 has never been construed by the courts of Maine. Georgia-Pacific, however, argues that because the statute expressly permits corporations to discriminate between classes of stock but the statute is silent concerning discrimination within classes, different treatment of individual shareholders within any class is forbidden.

In support of its construction of the statute, Georgia-Pacific cites East Boothbay Water District v. Inhabitants of Town of Boothbay Harbor, 158 Me. 32, 36-37, 177 A.2d 659 (1962). In that case the Law Court stated:

In all grants by the government to individuals or corporations, of rights, privileges and franchises, the words are to be taken most strongly against the grantee, contrary to the rule applicable to a grant from one individual to another. Another rule is, that one who claims a franchise or exclusive right or privilege in derogation of the common rights of the public, must prove his title thereto by a grant clearly and definitely expressed, and cannot enlarge it by equivocal or doubtful provisions, or probable inferences. "Every reasonable doubt is to be resolved adversely. Nothing is to be taken as conceded but what is given in unmistakable terms, or by an implication equally clear. The affirmative must be shown. Silence is negation, and doubt is fatal to the claim. This doctrine is vital to the public welfare." Northwestern Fertilizing Co. v. Hyde Park, 97 U.S. 659 666 24 L.Ed. 1036 (1878).

Id. (quoting The Rockland Water Co. v. The Camden and Rockland Water Co., 80

Me. 544, 563, 15 A. 785 (1888). Georgia-Pacific also urges upon the Court the more general old construction chestnut "expressio unius est exclusio alterius," i.e., the expression of one thing means the exclusion of another.

Having read East Boothbay Water District, the cases upon which it relies, and its slender progeny, the Court is satisfied that the rule of statutory construction it sets forth pertains to corporations organized or chartered under special laws, such as those for public utilities, which provide rights, privileges and immunities derived from the state. The Court, therefore, declines to accept the East Boothbay rule as governing this case brought under the general corporation law set forth in the MBCA. The Court also cannot accept the proffered maxim as the fundamental rule of statutory construction which must determine this statute's meaning. Maine courts have made clear that it is a "handy tool" to be used "at times" in ascertaining the intention of the Legislature. Wescott v. Allstate Insurance, 397 A.2d 156, 169 (Me. 1979).

The Law Court has repeatedly stated that its "cardinal rule" of statutory construction is to ascertain and effectuate the intent of the Legislature. State v. Hudson, 470 A.2d 786, 788 (Me.1984); State v. Edward C., 531 A.2d 672, 673 (Me.1987). The best means for doing this is through examination of the statutory language. State Farm Mutual Automobile Insurance Co. v. Universal Underwriters Insurance Co., 513 A.2d 283, 286 (Me.1986). Obviously, therefore, if section 501 of the MBCA had expressly prohibited poison pills or discrimination among shareholders, the Court's task would be easy. There is no such express prohibition, however. Thus, in order to determine the Legislature's intent with regard to the asserted anti-discrimination provision of section 501, the Court must look to the statutory scheme as a whole so that all of the provisions of the MBCA are read in harmony and are effectuated. Faucher v. City of Auburn, 465 A.2d 1120, 1124 (Me.1983).

Corporations organized under Maine law are specifically empowered to create rights. Section 508 provides in pertinent part:

1. Unless this section or the articles of incorporation otherwise provide, a corporation, by action of its board of directors, may create and issue, whether or not in connection with the issue and sale of any of its shares or other securities, rights or options entitling the holders thereof to purchase from the corporation shares of any class or classes, whether authorized but unissued shares, treasury shares, or shares to be purchased or acquired by the corporation. The consideration and payment for shares to be purchased under any such right or option shall comply with the requirements of sections 506 or 507.

2. Such rights or options shall be evidenced by an instrument or instruments in such form as may be approved by the board of directors, which shall set forth or shall incorporate by reference the terms and conditions upon which, such shares may be purchased from the corporation upon the exercise of any such rights or options.

....

In addition to permitting the creation of rights, the statute specifically allows the corporation to set the terms and conditions for the exercise of the rights to purchase stock. Georgia-Pacific argues, however, that this express grant of the authority to issue rights is limited by the implicit prohibition against discrimination within shares of the same class set forth in section 501. The Court disagrees.

Because there is no Maine law on the subject, the Court will look to constructions of similar statutes by other states. The Court notes, too, that in a very recent case, the Law Court looked to Delaware's interpretation of its similar corporation laws as a guide to construction of the MBCA. See In re McLoon Oil, 565 A.2d 997, 1001-02 (Me.1989).³ Under an analog to section 501, Del.Code Ann. tit. 8, § 151, the Delaware courts have long distinguished between discrimination among shareholders and discrimination among shares, finding the former permissible:

In the final analysis, these restrictions are limitations upon the voting rights of the stockholder not variations in the voting powers of the stock per se. The voting power of the stock in the hands of a large stockholder is not differentiated from all others in its class; it is the personal right of the stockholder to exercise that power that is altered by the size of his holding.

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