Gould v. American Hawaiian Steamship Company, Civ. A. No. 3707/3722.
| Decision Date | 17 September 1971 |
| Docket Number | Civ. A. No. 3707/3722. |
| Citation | 331 F. Supp. 981 |
| Parties | Marvyn GOULD, Executor of the Estate of J. Donald Rogasner, and J. David Pincus, on behalf of themselves and all others similarly situated, Plaintiffs, Mary S. McCord and Charles T. McCord, Jr., Intervening Plaintiffs, v. AMERICAN HAWAIIAN STEAMSHIP COMPANY et al., Defendants. |
| Court | U.S. District Court — District of Delaware |
COPYRIGHT MATERIAL OMITTED
William Prickett and Rodman Ward, Jr., of Prickett, Ward, Burt & Sanders, Wilmington, Del., Harold E. Kohn and Aaron M. Fine, of Harold E. Kohn, P. A., Philadelphia, Pa., for plaintiff Gould and all those similarly situated and for intervening plaintiffs.
Ralph F. Keil, of Keil & Keil, Wilmington, Del., for plaintiff Pincus.
S. Samuel Arsht, and William O. LaMotte, III, of Morris, Nichols, Arsht & Tunnell, Wilmington, Del., Richard Nolan and Christopher Croley, of Davis, Polk & Wardwell, New York City, for defendant R. J. Reynolds Tobacco Company.
David F. Anderson and Richard F. Corroon, of Potter, Anderson & Corroon, Wilmington, Del., John W. Castles, III, Roger C. Ravel, Mason G. Kassel, Joseph F. McDonald and Franklin B. Velie, of Lord, Day & Lord, New York City, for defendants American-Hawaiian Steamship Company, National Bulk Carriers, Inc., Litton Industries, Inc., Monroe International Corporation Retirement Plan Trust, Daniel K. Ludwig, Hal A. Kroeger and Joseph T. Casey.
R. Franklin Balotti, of Richards, Layton & Finger, Wilmington, Del., W. Foster Wollen, of Shearman & Sterling, New York City, for defendants Malcolm P. McLean, James K. McLean, Clara L. McLean, Disque D. Deane, Edward A. Hirs, James T. Murff and Beverly R. Wilson, Jr.
CONSOLIDATED OPINION
On November 10, 1970, this Court denied the plaintiffs' and the defendants' motions for summary judgment without prejudice to their respective rights to renew said motions.1 This case is presently before the Court upon the plaintiffs' renewed motion for partial summary judgment on the issue of liability under the Securities Act of 1934, Section 14(a); 15 U.S.C. Section 78n(a), and certain of the defendants' renewed cross-motions for summary judgment. The relevant facts are found in the pleadings, defendants' answers to interrogatories, oral depositions, affidavits, and other documents submitted to the Court.
The basis of this litigation is the merger of McLean Industries, Inc. ("McLean") into R. J. Reynolds Tobacco Company ("Reynolds"). Since the factual background to this case has been summarized in the Court's earlier opinion, 319 F.Supp. at 797-800, there is no necessity for a detailed reiteration of this history. Thus, the Court will limit its discussion of the facts to those specifically pertinent to the issues raised in the summary judgment motions.
The defendants in the case are (1) Reynolds and McLean, (2) the ten members of the board of directors of McLean all of whom voted to approve the merger, and (3) certain shareholders who are alleged to have received favored treatment under the merger agreement, i. e., American-Hawaiian Steamship Company ("American-Hawaiian"), National Bulk Carriers, Inc., ("National Bulk"), Litton Industries, Inc., ("Litton"), Monroe International Corporation Retirement Plan Trust ("Monroe"), and Hal A. Kroeger (sometimes hereafter referred to with no pejorative intent as "the favored defendants").
At all material times the pertinent relationships between the various defendants were essentially as follows. Mr. McLean was president of McLean Industries and a member of its board of directors; Ludwig, Kroeger, Casey, Wilson and the other individual defendants were members of the McLean board of directors. Ludwig was the sole owner of National Bulk. It owned Berkshire Industries, Inc., which in turn owned 90% of American-Hawaiian. Kroeger was a director and chairman of the board of American-Hawaiian. Casey was the senior vice president of Litton and a member of the investment committee of Monroe, a Litton pension fund.2
The various defendants associated with McLean were also stockholders:
Shares of McLean Percentage of
Common Stock McLean Common
Name Owned Outstanding
Mr. McLean 3,609,473 33.9%4
Litton 965,0003 9.1%
Monroe 85,0003 0.8%
National Bulk 250,000 2.4%
American-Hawaiian 1,000,000 9.4%
Mr. Kroeger 4,000 0.0%
_________ _________
5,913,473 55.6%
This suit was commenced as a class action pursuant to Rule 23 of the Federal Rules of Civil Procedure on behalf of all common shareholders of McLean other than the defendants. On February 27, 1970, the Court ordered that the action be maintained as a class action.
The plaintiffs' complaint challenged the then proposed merger of McLean into Reynolds on four counts. The first count alleged that the merger provisions discriminated against the plaintiffs' class in that the favored defendants were to receive $50 for each of their shares of McLean's common stock, while all other common shareholders of McLean would receive one share of a newly issued Reynolds $2.25 Convertible Preferred Stock, allegedly worth substantially less than $50 per share, for each of their shares of McLean common stock. It further alleged that in approving the merger, the defendants, other than Reynolds and McLean, had either breached the fiduciary duty which they owed to McLean stockholders or participated in that breach, and that the defendants' actions were part of a scheme to defraud the plaintiffs' class, carried out through interstate commerce, the mails and the New York Stock Exchange in violation of 10 (b) of the Securities and Exchange Act of 1934 and Rule 10b-5 thereunder and perpetrated by the dissemination of proxy statements containing material omissions designed to effectuate the scheme to defraud plaintiffs' class.
Incorporating the material allegations of Count I, Count II alleges that McLean's proxy materials violated Section 14(a) of the 1934 Act and Rule 14a-9 thereunder.
Counts III and IV both allege breaches of common law fiduciary duty by reason of the matters alleged in Count I. Count III is based on pendent jurisdiction and Count IV on an alleged diversity of citizenship and the requisite monetary amount. Neither count is involved in the instant motions.
The plaintiffs' initial and present motions for partial summary judgment are based upon the claim that the McLean proxy materials relating to the merger were materially false and misleading as a matter of law. The allegedly inadequate proxy statement, including a two-page letter of Malcolm McLean, was mailed April 10, 1969 to all McLean stockholders for the principal purpose of informing shareholders regarding the proposed merger and soliciting their support for it. In these two motions, the plaintiffs have claimed that the proxy materials are deficient in the following respects:
(1) The proxy materials stated that the favored defendants "have agreed to vote for the merger."
(2) The proxy materials stated that the purchases of the shares of the favored defendants at $50 per share in cash "will not be tax-free transactions for the sellers, whereas it is anticipated that the exchange of stock in the merger will be tax free for other holders of McLean Common Stock."
(3) The proxy materials did not disclose an alleged "veto power" which the Litton group and the National Bulk group had over any McLean merger.
(4) The proxy materials did not disclose two alleged "conflicts of interests."
(a) The fact that Mr. McLean negotiated for both the favored defendants and the remaining shareholders.
(b) The fact that the defendants Ludwig, Kroeger, and Casey who were affiliated with the favored defendants had a conflict of interest as members of the McLean board of directors.
The defendants deny that the questioned statements are false or misleading and argue that even if they are found to be false or misleading they are immaterial as a matter of law.
The plaintiffs' initial motion for summary judgment was based on both sections 10(b) and 14(a) of the 1934 Securities Exchange Act and rules adopted to implement these sections.5 After examination of the interrelationship of the sections and the legal standards applicable to both, this Court concluded that if any difference existed between the appropriate standards, § 14 was more favorable to plaintiff than § 10, and considered solely plaintiffs' § 14 claims without prejudice to plaintiffs' rights to assert § 10 claims subsequently. The parties have renewed their initial motions, and § 10 claims may be before this Court. However, since the parties have briefed and argued this motion under § 14(a) and this Court continues to adhere to its initial decision, this motion will be determined solely under § 14(a).
The issues here are identical to those presented in the former motion for summary judgment; (1) whether the attacked statements in the McLean proxy materials are false and misleading or the alleged omissions are necessary in order to make the statements made not false and misleading; and (2) whether the misstatements or omissions are "material." This twofold analysis of the respective alleged material misstatements and omissions is contained in Part III of this opinion, infra.
The standard of materiality applicable here was set forth by the Supreme Court in Mills v. Electric Auto-Lite Co., 396 U.S. 375, 384, 90 S.Ct. 616, 621, 24 L. Ed.2d 593 (1970):
Where the misstatement or omission in a proxy statement had been shown to be "material," as it was found to be here, that determination itself indubitably embodies a conclusion that the...
To continue reading
Request your trial
-
Kellam Energy, Inc. v. Duncan
...not lightly implied, and will only be inserted if the drafters would have directed their attention to it. Gould v. American Hawaiian Steamship Co., 331 F.Supp. 981, 990 (D.Del.1971). See also Danby v. Osteopathic Hospital As'n., 101 A.2d 308, 313 (Del.Ch.1953) ("A promise will not be read i......
-
Valente v. Pepsico, Inc.
...347, 353 (D.Del.1977); National Home Products, Inc. v. Gray, 416 F.Supp. 1293, 1315-1316 (D.Del.1976); Gould v. American-Hawaiian Steamship Co., 331 F.Supp. 981, 995-6 (D.Del.1971), aff'd in relevant part, 535 F.2d 761, 774 (3d Cir. Plaintiffs did not include in their complaint the claim th......
-
Gould v. American-Hawaiian S. S. Co.
...the case and the legal questions involved in a series of opinions filed, respectively, on November 10, 1970, 319 F.Supp. 795; September 17, 1971, 331 F.Supp. 981; June 20, 1972, 55 F.R.D. 475; December 6, 1972, 351 F.Supp. 853; August 17, 1973, 362 F.Supp. 771; June 28, 1974; and December 1......
-
Smallwood v. Pearl Brewing Company
...1968, 403 F.2d 429, 433-434, vacated on other grounds, 1970, 396 U.S. 375, 90 S.Ct. 616, 24 L.Ed.2d 593; Gould v. American Hawaiian Steamship Co., D.Del.1971, 331 F.Supp. 981, 995; Kohn v. American Metal Climax, Inc., D.D.Pa.1970, 322 F.Supp. 1331, 1362, modified on other grounds, 3 Cir. 19......
-
CHAPTER 2 PRELIMINARY AGREEMENTS
...Company v. Elizabeth Arden Sales Corporation, 331 F.Supp. 597 (S.D.N.Y. 1971). [25] Gould v. American Hawaiian Steamship Company, 331 F.Supp. 981 (D.Del. 1971). [26] See O'Halloran v. Oechslie, 402 A.2d 67 (Me. 1979); McPherson v. Warren, 55 So.2d 30 (La.App. 1951). [27] Atlantic Terra Cott......