Granader v. Public Bank

• Decision Date: 17 November 1967
• Docket Number: Civ. No. 29240.
• Citation: 281 F. Supp. 120
• Parties: Harry GRANADER, in his individual capacities of his separate businesses and as a stockholder and director of Public Bank, and as a member of the following classes: the classes being the stockholders of Public Bank, a Michigan Banking Corporation, and the Directors of the Public Bank, a Michigan banking corporation, Plaintiff, Irwin J. Kasoff and Rose Kasoff, Individually and on behalf of the Public Bank Shareholders Protective Association and for other stockholders similarly situated as a class, Plaintiffs-Intervenors, v. PUBLIC BANK, a Michigan banking corporation, et al., Defendants.
• Court: U.S. District Court — Western District of Michigan

281 F. Supp. 120

Harry GRANADER, in his individual capacities of his separate businesses and as a stockholder and director of Public Bank, and as a member of the following classes: the classes being the stockholders of Public Bank, a Michigan Banking Corporation, and the Directors of the Public Bank, a Michigan banking corporation, Plaintiff Irwin J. Kasoff and Rose Kasoff, Individually and on behalf of the Public Bank Shareholders Protective Association and for other stockholders similarly situated as a class, Plaintiffs-Intervenors, v. PUBLIC BANK, a Michigan banking corporation, et al., Defendants.

Civ. No. 29240.

United States District Court E. D. Michigan, S. D.

November 17, 1967.

William I. Liberson, Peter P. Gilbert, Detroit, Mich., for plaintiff.

Harry H. Young, Detroit, Mich., for Kasoffs, plaintiffs-intervenors.

Frank J. Kelley, Atty. Gen. of Mich., Lansing, Mich., Harry M. Nayer, Detroit, Mich., for financial institutions of Michigan (defendant).

George E. Parker, III, Detroit, Mich., for Federal Deposit Insurance Corp.

Edward B. Harrison, Detroit, Mich., for Touche, Ross, Bailey & Smart, defendants.

Avern Cohn, Detroit, Mich., for Federal Deposit Ins. Corp., defendant.

William H. Merrill, Detroit, Mich., for Bank of the Commonwealth, defendant.

OPINION ON DEFENDANTS' MOTION FOR A SUMMARY JUDGMENT AND/OR MOTION TO DISMISS

KAESS, District Judge.

This is an action arising out of the sale of all the assets of Public Bank, a Michigan banking corporation, to the Bank of the Commonwealth, another Michigan banking corporation, on October 12, 1966. The sale took place after Wayne County Circuit Judge Benjamin D. Burdick declared the Public Bank to be insolvent and appointed Federal Deposit Insurance Corporation as the Receiver of said bank on October 11, 1966. A subsequent hearing on the validity of the receivership proceeding and the adequacy of the sale of the assets had been scheduled before Wayne County Circuit Judge Blair Moody, Jr., for April, 1967. On September 29, 1967, Judge Moody in an exhaustive opinion, which findings are incorporated in this opinion, as all interests were properly represented, determined that, among other things, Public Bank was on the brink of collapse, that the receivership proceeding was valid and that the sale of the assets was adequate and proper and, in fact, had the sale not taken place, the public would have suffered greatly. Thus, we have before the court a unique situation, in that a court of competent jurisdiction (the Wayne County Circuit Court) had conducted extensive hearings regarding this particular sale, in order to determine if the appointment of a receiver was necessary in light of the surrounding circumstances. This court will not reiterate those findings, but will attach the opinion of Judge Moody as an appendix to this opinion.

The plaintiffs are maintaining this action under Title 15, U.S.C. § 15 and § 26, alleging in their complaint violations of the Federal Anti-trust Laws, more specifically Sections 1 and 2 of the Sherman Act and Section 7 of the Clayton Act, and a violation of the Fourteenth Amendment to the United States Constitution and are seeking treble damages and a restraining order prohibiting the transfer of assets of Public Bank. The defendants move to dismiss the complaint or, in the alternative, the granting of summary judgment in their favor.

In construing a complaint in a private anti-trust action, this court adopts those principles enunciated by the United States Supreme Court in Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 79 S.Ct. 705, 3 L.Ed.2d 741 (1959); Radiant Burners, Inc. v. Peoples Gas Light & Coke Co., 364 U.S. 656, 81 S.Ct. 365, 5 L.Ed.2d 358 (1960), that to state a claim upon which relief may be granted, allegations merely have to be sufficient to show a violation. It is the position of this court to read the complaint in the light most favorable to the plaintiffs.

Thus, the issue for this court to decide is whether the plaintiffs' complaint states a claim upon which relief could be granted.

In resolving the motion, this court will determine if all the facts constitute a violation of the 14th Amendment, §§ 1 and 2 of the Sherman Act, or § 7 of the Clayton Act.

Section 7 of the Clayton Act provides:

"Sec. 7. That no corporation engaged in commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no corporation subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of another corporation engaged also in commerce, where in any line of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.

"No corporation shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no corporation subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of one or more corporations engaged in commerce, where in any line of commerce in any section of the country, the effect of such acquisition, of such stocks or assets, or of the use of such stock by the voting or granting of proxies or otherwise, may be substantially to lessen competition, or to tend to create a monopoly.

"This section shall not apply to corporations purchasing such stock solely for investment and not using the same by voting or otherwise to bring about, or in attempting to bring about, the substantial lessening of competition. Nor shall anything contained in this section prevent a corporation engaged in commerce from causing the formation of subsidiary corporations for the actual carrying on of their immediate lawful business, or the natural and legitimate branches or extensions thereof, or from owning and holding all or a part of the stock of such subsidiary corporations, when the effect of such formation is not to substantially lessen competition. * * *"

The purpose of § 7 was to arrest incipient threats to competition which the Sherman Act did not reach. United States v. E. I. Du Pont De Nemours & Co., 353 U.S. 586, 77 S.Ct. 872, 1 L.Ed. 2d 1057 (1957); United States v. Penn-Olin Chemical Co., 378 U.S. 158, 84 S.Ct. 1710, 12 L.Ed.2d 775 (1964); United States v. Continental Can Co., 378 U.S. 441, 84 S.Ct. 1738, 12 L.Ed.2d 953 (1964). Section 7 is extended to cover three types of mergers: Vertical, Conglomerate, and Horizontal,¹ and is applicable to bank mergers.² And under Section 7, both the acquirer and acquired must be engaged in commerce. The section is broadened to cover both the acquisition of a corporation's stock, as well as its assets. In fact, there is no need for actual anticompetitive effects â merely a reasonable probability of a substantial lessening of competition or a tendency toward monopoly, and this is often referred to as the incipiency doctrine.³ The clear object of § 7 being to nip monopolistic tendencies in their incipiency.

There are certain exclusions from a Section 7 violation, such as where purchases are solely for investment⁴ and the formation of a subsidiary corporation.

There also exist certain defenses to Section 7, and one such defense is urged upon this court â the "failing company" defense. The court sustained the defense of a failing company in International Shoe Co. v. Federal Trade Commission, 280 U.S. 291, 50 S.Ct. 89, 74 L.Ed. 431 (1929), although this was under the old Section 7 prior to amendment. After amendment Congress did not expect that Section 7 would prevent a company in a failing or bankrupt condition from selling out.⁵ And it was not the intention of Congress to preclude a merger between a corporation which was financially healthy and a failing corporation which no longer could be a vital factor in the market.⁶ There are two views on whether it's an absolute defense to § 7 violation to merely show a company in bankruptcy. Some say if the acquirer is the only one in a position to a company, the defense is adequate; others hold the defense would not be proper until it is determined who else would or could purchase the business.

This court has before it a unique situation, in that it has the benefit of the findings of Judge Moody. Judge Moody conducted a most extensive hearing to determine whether the receivership appointment, sale of the assets, and transfer, was done in accordance with the governing laws and did not violate anyone's rights, and, in effect, determined this precise issue, whether Public Bank was a failing company and whether the acquirer provided the best offer to the receiver. The hearing was open to all parties concerned and every interest was represented. To now, at this time, make a new fact determination as to whether the Public Bank was on the brink of bankruptcy and the sale to the Bank of the Commonwealth was done in order to protect the interests of the general public would, in effect, be attacking the work of Judge Moody. The plaintiffs are asking this court to disregard the judgment and opinion of a court of competent jurisdiction. The plaintiffs have not set forth any new justiciable issue which was not determined in the Circuit Court. They have presented to this court the same issue already determined in the Circuit Court, whether Public Bank was in such financial condition as to require the appointment of a receiver. And it was determined that Public Bank was on the brink of bankruptcy with no possibility of recovery, and in order to protect the public interest, the receiver should be appointed and a sale commenced. The sale of the assets occurred only after all offers were duly considered and the Bank of the Commonwealth provided the best offer. This court will accept the judgment of the Circuit Court and the plaintiffs may not use this court to attack the findings of the Circuit Court. Southern Md. Agr. Ass'n of Prince George's County v. United States, 147 F.Supp. 276, 137...