Gimbel v. Signal Companies, Inc.

• Decision Date: 10 January 1974
• Citation: 316 A.2d 599
• Parties: Louis S. GIMBEL, III, Plaintiff, v. The SIGNAL COMPANIES, INC., et al., Defendants.
• Court: Court of Chancery of Delaware

Page 599

316 A.2d 599

Louis S. GIMBEL, III, Plaintiff, v. The SIGNAL COMPANIES, INC., et al., Defendants.

Court of Chancery of Delaware, New Castle County.

Jan. 10, 1974.

Opinion on plaintiff's application for preliminary injunction; granted; amount of security fixed.

Rodney M. Layton, and Charles F. Richards, Jr., of Richards, Layton & Finger, Wilmington, Denis G. McInerney, F. Arnold Daum, W. Leslie Duffy, William T. Lifland, and Allen S. Joslyn, of Cahill, Gordon & Reindel, New York City, for plaintiff.

Richard F. Corroon, Robert K. Payson, and Peter M. Sieglaff, of Potter, Anderson & Corroon, Wilmington, Alan N. Halkett, of Latham and Watkins, and Brewster L. Arms, Los Angeles, Cal., for defendant Signal Companies, Inc. and Signal Oil and Gas Co.

S. Samuel Arsht, of Morris, Nichols, Arsht & Tunnell, Wilmington, William J. Manning, and Charles D. Edelman, of Simpson, Thacher & Bartlett, New York City, for defendant Burmah Oil Inc.

QUILLEN, Chancellor:

This action was commenced on December 24, 1973 by plaintiff, a stockholder of the Signal Companies, Inc. ('Signal'). The complaint seeks, among other things, injunctive relief to prevent the consummation of the pending sale by Signal to Burmah Oil Incorporated ('Burmah') of all of the outstanding capital stock of Signal Oil and Gas Company ('Signal Oil'), a wholly-owned subsidiary of Signal. The effective sale price exceeds 480 million dollars. ¹ The sale was approved at a special meeting of the Board of Directors of Signal held on December 21, 1973.

The agreement provides that the transaction will be consummated on January 15, 1974 or upon the obtaining of the necessary governmental consents, whichever occurs later, but, in no event, after February 15, 1974 unless mutually agreed. The consents evidently have been obtained. On Monday, December 24, 1973, on the occasion of the plaintiff's application for a temporary restraining order, counsel for Signal and Signal Oil reported to this Court that the parties would not consummate this transaction prior to this Court's decision on the plaintiff's application for a preliminary injunction or January 15, 1974, whichever should occur first.

In light of that representation, no temporary restraining order was entered and the matter was set down for a hearing on plaintiff's application for a preliminary injunction. Affidavits and depositions were submitted. The matter was briefed and a hearing was held on January 4, 1974. By agreement, additional affidavits were filed on January 7th and January 9th. This is the Court's decision on plaintiff's application for a preliminary injunction to prevent the sale of Signal Oil to Burmah pending trial on the merits of plaintiff's contentions. It should be noted that the only parties who have appeared thus far are the plaintiff, Signal, Signal Oil and Burmah. It should also be noted that the plaintiff is part of an investment group which has some 2,400,000 shares representing 12% Of the outstanding stock of Signal.

While the amount of money involved in this litigation is enormous and the values involved hotly disputed, the issues are basically simple to isolate and the Delaware law to be applied is, for the most part, well established and not open to question. I regret that time has not permitted needed editing and that this opinion is therefore longer than desirable. In applying the law to the transaction in question, the Court believes it is first desirable to review the standards for a preliminary injunction.

An application for a preliminary injunction 'is addressed to the sound discretion of the court, to be guided according to the circumstances of the particular case.' High on Injunctions, (4th Ed.) Vol. 1, Sec. 11; Nebeker v. Berg, 13 Del.Ch. 6, 9, 115 A. 310, 311 (Ch.1921). Furthermore, the preliminary injunction constitutes extraordinary relief generally employed 'to do no more than preserve the status quo pending the decision of the cause at the final hearing on proofs taken.' Williamson v. McMonagle, 9 Del.Ch. 380, 386, 83 A. 139, 140 (Ch.1912); High on Injunctions, Supra, at Sec. 5a.

In exercising its discretion, the Court must ask itself two familiar questions, which have long constituted the backdrop for evaluating the merits of any plaintiff's plea for a preliminary injunction.

Stated briefly, the first question is: 'Has the plaintiff satisfied the Court that there is a reasonable probability of his ultimate success on final hearing?' Chancellor Josiah O. Wolcott, in an early case involving the sale of corporate assets, discussed the movant's burden with regard to this question:

'It is well settled that a preliminary injunction will not issue unless the complainant satisfies the court that there is at least a reasonable probability of ultimate success upon a final hearing. This rule has been announced not only in cases where the improbability of ultimate success is because of a question of law (citations omitted), but as well where it appears from an examination of evidence upon a disputed question of fact (citations omitted).'

Allied Chemical & Dye Corporation v. Steel & Tube Co., 14 Del.Ch. 117, 122, 123, 122 A. 142, 158 (Ch.1923). See also David J. Greene & Co. v. Schenley Industries, Inc., Del.Ch., 281 A.2d 30 (1971); High on Injunctions, Supra, at Sec. 8.

The second question can be stated as follows: 'Has the plaintiff satisfied the Court that he will suffer irreparable injury if the Court fails to issue the requested preliminary injunction?'

In his treatise on injunctions, James L. High spoke of this concern of equity:

'Substantial and positive injury must always be made no appear to the satisfaction of a court of equity before it will grant an injunction (at Sec. 9) . . . An injunction, being the 'strong arm of equity' should never be granted except in a clear case of irreparable injury, and with full conviction on the part of the court of its urgent necessity.' (at Sec. 22).

See also, Bayard v. Martin, 34 Del.Ch. 184, 193, 101 A.2d 329, 334 (Supr.Ct.1953), cert. den. 347 U.S. 944, 74 S.Ct. 639, 98 L.Ed. 1092 (1954). Consolidated Fisheries Co. v. Consolidated Solubles Co., 34 Del.Ch. 24, 99 A.2d 253 (Supr.Ct.1953).

Moreover, this second question of irreparable injury to the plaintiff should injunctive relief be denied has a corollary which requires the Court to consider potential hardship to the defendant. In this regard, Judge Rodney once wrote:

'In the exercise of a sound judicial discretion in the award or denial of a preliminary injunction, the court should balance the conveniences of the parties and the possible injuries to them according as they may be affected by the granting or the withholding of the injunction. Yakus v. United States, 321 U.S. 414, 440, 64 S.Ct. 660, 88 L.Ed. 834.'

Aldridge v. Franco Wyoming Oil Co., 9 F.R.D. 278, 279 (D.Del.1949). See also Pauley Petroleum, Inc. v. Continental Oil Co., 43 Del.Ch. 366, 231 A.2d 450 (Ch.1967), aff'd 43 Del.Ch. 516, 239 A.2d 629 (Supr.Ct.1968); High on Injunctions, Supra, at Sec. 13.

And, it is the plaintiff's duty to 'tip' that balance:

'While the relative convenience and inconvenience of the parties will prompt courts to consider questions of harm in exercising the discretionary power of injunction, yet a probable case must asways be made out in support of the moving side before the writ will issue.'

Allied Chemical & Dye Corp. v. Steel & Tube Co., Supra, 14 Del.Ch. at 122, 122 A. at 158. See also, Gerity v. Cable Funding, 372 F.Supp. 679 (D.Del.1973).

Justice Tunnell, in his frequently cited opinion in Bayard v. Martin, Supra, capsulized the task this Court faces in this case:

'In acting upon applications for preliminary injunctions, a court of equity is bound to 'balance the conveniences' of the respective parties . . . (citations omitted). The probability of ultimate success, being of obvious practical importance, is one of the elements which must always be weighed in the balance, along with the probability of any harm, to be suffered by one party or the other on account of giving the requested temporary relief, or withholding it, as the case may be.'

34 Del.Ch. at 190, 101 A.2d at 333.

Citing Judge Caleb Wright's decision in American Smelting and Refining Co. v. Pennzoil United, Inc., 295 F.Supp. 149 (D.Del.1969), the plaintiff has contended that, at this stage in the proceedings, 'where the likelihood of irreparable harm is (as) great as it is herein, . . . a finding of probability of success is not essential' to justify a preliminary injunction (Plaintiff's Brief at p. 20). Although, in certain cases, the 'harm' element may weigh more heavily than the 'probability of success' element in a court's deliberations, it would clearly be unwise equity practice to completely ignore either consideration. Judge Wright did not ignore the 'probability of success' element. In fact, in the very case relied upon, Judge Wright said: 'In other words, plaintiff must demonstrate a reasonable probability of success on final hearing.' 295 F.Supp. at 152. This Court will not ignore it either. Rather, the Court will attempt to weigh and balance both probability of success and probability of irreparable harm in reaching its decision.

'These two elements of probability are in fact inseparable, and since in practice they appear in blends of infinite variety, the weighing and balancing of the strength of one against the weakness of the other is often a matter of the utmost delicacy, calling for a mastery of the technical rules of law as well as a penetrating common sense in practical affairs.'

Bayard v. Martin, Supra, 34 Del.Ch. at 192, 101 A.2d at 334.

A preliminary injunction is 'a form of relief which will never be granted unless earned.' Lenahan v. National Computer Analysts Corp., Del.Ch., 310 A.2d 661, 664 (1973). In order for the plaintiff here to 'earn' his preliminary injunction against the sale of Signal Oil to Burmah, the Court must be satisfied, on the present record, that the...