Great Western United Corp. v. Great Western Producers Co-op.

• Decision Date: 28 September 1978
• Docket Number: No. 77-565,CO-OPERATIV,D,77-565
• Parties: GREAT WESTERN UNITED CORPORATION, Plaintiff-Appellee, v. GREAT WESTERN PRODUCERSefendant-Appellant. . III
• Court: Colorado Court of Appeals

Page 380

588 P.2d 380

41 Colo.App. 349

GREAT WESTERN UNITED CORPORATION, Plaintiff-Appellee, v. GREAT WESTERN PRODUCERS CO-OPERATIVE, Defendant-Appellant.

No. 77-565.

Colorado Court of Appeals, Div. III.

Sept. 28, 1978.

Rehearing Denied Oct. 19, 1978.

Certiorari Granted Dec. 26, 1978.

Ireland, Stapleton, Pryor & Holmes, P. C., Hardin Holmes, Kenneth L. Starr, Michael Touff, Denver, Shank, Irwin, Conant, Williamson & Grevelle, Ivan Irwin, Jr., A. B. Conant, Jr., Robert B. Cousins, Jr., Dallas, Tex., for plaintiff-appellee.

Williams & Connolly, Jeremiah C. Collins, John W. Vardaman, Jr., Pierce O'Donnell, Washington, D. C., White & Steele, P. C., Walter A. Steele, James D. Hinga, Denver, for defendant-appellant.

VanCISE, Judge.

In May 1975, plaintiff Great Western United Corporation (United) filed this action for a determination that the agreement for the sale of all of the stock of United's wholly owned subsidiary, the Great Western Sugar Company (Sugar Company), to the defendant Great Western Producers Co-Operative (Co-Operative) had been terminated and abandoned. The Co-Operative denied generally, and, as pertinent here, counterclaimed for damages for breach of United's contractual obligation to use "best efforts" to obtain approval of the sale by its security holders. At trial, the jury held against the Co-Operative on its counterclaim. The court entered judgment dismissing the counterclaim and declaring that the agreement was terminated. We affirm.

There is virtually no dispute as to the facts in this case. United was a holding company, whose principal asset was the Sugar Company. In 1971 the board of directors of United first considered the sale of the Sugar Company as part of a plan of recapitalization. The Co-Operative was formed by sugar beet producers in a seven state area for the purpose of purchasing the Sugar Company. After protracted negotiations, the purchase agreement (the contract) involved in this lawsuit was signed in March of 1974. The Co-Operative agreed to purchase and United to sell all of the outstanding stock of the Sugar Company for a price estimated at $43,500,000 subject to adjustments as spelled out in the contract. Cash amounting to $500,000 was paid as a deposit with the balance to be paid in the form of notes and debentures to be issued by the Co-Operative shortly after closing.

Because the Sugar Company stock was the major asset of United, the sale had to be approved by United's shareholders and debentureholders. The contract provided that "United will use its best efforts to obtain the approval of its shareholders and debentureholders," and that, if these security holders approved the sale, the required documents would be executed by United on or before the October 1 closing date. The "best efforts" clause is the main subject of this appeal.

After the contract was signed, the price of sugar increased significantly, starting in May and continuing through the summer and fall. The escalating price resulted in record high profits for the Sugar Company and a corresponding increase in its value.

The vote on the sale was scheduled for the annual meeting in late September. On August 28, United distributed a 300 page proxy statement/prospectus to its security holders. That document stated that a majority of the board believed the consideration to be received by United for the sale was fair and equitable and recommended approval of the sale, and that United's investment advisor believed the terms of the sale were fair. it also disclosed that a minority of the directors disagreed because of the increased prices of sugar and the estimated increased operating profits of the Sugar Company, that one director believed the proposed sale was unfair, and that three others believed the present value of the Sugar Company exceeded by a substantial amount the value of the consideration to be received from the sale.

On September 9, three other directors signed a document stating that they could not recommend the sale on the terms set forth in the contract. Because a majority of the directors no longer favored the sale, United suspended all proxy solicitation in favor of the sale on September 11.

On September 9 and 11, two stockholder derivative suits were filed against United's directors in the United States District Court for the Southern District of New York, based on alleged violations of the federal securities laws relating to proxy statements and violations of common law fiduciary duties. Both suits sought to enjoin United from convening the annual meeting and from soliciting, voting, or using proxies solicited in connection with the annual meeting.

A special meeting of the board of directors was called for September 14. The majority of the directors voted at that meeting to accept the new forecast of sugar prices and operating expenses. On the basis of that board action, the investment advisor withdrew its opinion letter as to the fairness of the consideration to be received. The directors then, by majority vote, adopted two resolutions, one recommending that stockholders not vote in favor of the sale and the second authorizing a discontinuation of favorable proxy solicitation.

After being informed that a majority of the directors were now recommending against the sale and that some of the figures in the prospectus had become misleading as a result of the increase in the price of sugar, the U.S. District Court in the consolidated stockholder...