Hanna Min. Co. v. Norcen Energy Resources Ltd.

• Court: U.S. District Court — Northern District of Ohio
• Writing for the Court: MANOS
• Citation: Hanna Min. Co. v. Norcen Energy Resources Ltd., 574 F.Supp. 1172 (N.D. Ohio 1982)
• Decision Date: 11 June 1982
• Docket Number: No. C82-959.,C82-959.
• Parties: The HANNA MINING COMPANY, et al., Plaintiffs, v. NORCEN ENERGY RESOURCES LIMITED, et al., Defendants.

574 F. Supp. 1172

The HANNA MINING COMPANY, et al., Plaintiffs, v. NORCEN ENERGY RESOURCES LIMITED, et al., Defendants.

No. C82-959.

United States District Court, N.D. Ohio, E.D.

June 11, 1982.

Patrick F. McCartan, Richard W. Pogue, John L. Strauch, Jones, Day, Reavis & Pogue, Cleveland, Ohio, Carl E. Nickels, Jr., John Gurgle, Cleveland, Ohio, for The Hanna Mining Co., for plaintiffs.

James A. Smith, James P. Murphy, Frances Floriano Coins, John E. Lynch, Jr., Squire, Sanders & Dempsey, Cleveland, Ohio, Paul C. Saunders, Cravath, Swaine & Moore, New York City, A.J. Knopp, Baker & Hostetler, Cleveland, Ohio, James M. Tobin, Thomas E. Palmer, Squire, Sanders & Dempsey, Columbus, Ohio, for defendants.

MEMORANDUM OF OPINION

MANOS, District Judge.

On April 5, 1982 plaintiffs, Hanna Mining Company, (hereinafter, Hanna), Carl E. Nickels, Jr., Executive Vice President and a member of Hanna's Board of Directors and John Gurgle, an employee of Hanna and former beneficial owner of seventy (70) shares of Hanna stock, filed the above-captioned case to enjoin a proposed tender offer by the defendant, Norcen Energy Resources Limited, (hereinafter, Norcen), for fifty-one (51) percent of Hanna's issued and outstanding common stock because Norcen and defendants, Conrad M. Black, Chairman of Norcen's Board of Directors and a controlling shareholder, his brother, G. Montegu Black, a member of Norcen's Board of Directors and a controlling shareholder, Edward G. Battle, Norcen's President and Chief Executive Officer and Lehman Brothers Kuhn Loeb Inc., (hereinafter, Lehman Brothers), an investment banker hired by Norcen, committed acts in violation of sections 10(b), 13(d), 14(e) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. ?? 78j(b), 78m(d), 78n(e) and 78t(a); Rule 10b-5 promulgated thereunder, 17 C.F.R. ? 240.10b-5 and OHIO REV.CODE ANN. ? 1707.041(B)(2) (Page 1979). On April 12, 1982 the plaintiffs filed an amended complaint adding William T. Kilbourne, Norcen's Vice President of Administration and Secretary, as a defendant and alleging also that the defendants' conduct violated Title IX of the Organized Crime Control Act of 1970, commonly known as the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. ?? 1961-1968, (hereinafter, RICO), and the Hart-Scott-Rodino Antitrust Improvements Act, 15 U.S.C. ? 18a. Jurisdiction is invoked under 15 U.S.C. ? 78aa¹ and 18 U.S.C. ? 1964(c).² On April 20, 1982 the claims against Lehman Brothers were dismissed without prejudice by stipulation. The case is currently before this court on the plaintiffs' motion for a preliminary injunction on their federal securities claims.³ On the motion the parties rely on affidavits, depositions and on facts developed at an evidentiary hearing.

Hanna is a Delaware corporation with its executive offices located in Cleveland, Ohio. It considers itself as a "leading independent natural resources company involved in ferrous and non-ferrous minerals and metals as well as energy resources such as oil, natural gas and coal."⁴ It is engaged in substantial iron ore mining activities and is the only integrated nickel producer in the United States.⁵ Its business activities and customers are located in the United States, Canada, Latin America, Western Europe and Japan.⁶ Its securities are registered under section 12 of the Securities Exchange Act of 1934, 15 U.S.C. ? 78 l and are traded on the New York Stock Exchange. As of December 31, 1981 Hanna had 8,945,050 shares of common stock issued and outstanding which were owned by approximately 4,390 shareholders.⁷

Norcen is a Canadian corporation with its executive offices located in Toronto, Ontario. Its primary business is "exploration, development and production of oil and natural gas, principally in Canada and distribution of natural gas in Ontario and Manitoba."⁸ "Norcen is one of the larger Canadian owned and controlled companies operating in the oil and gas exploration and production operations of Canada."⁹ Similar to Hanna, Norcen's securities are registered under section 12 of the Securities Exchange Act of 1934. They are traded on the Toronto and Montreal Stock Exchanges. As of March 31, 1982 Norcen had 26,544,886 shares of common stock issued and outstanding.¹⁰

Carl E. Nickels, Jr., is Executive Vice President and a member of Hanna's Board of Directors. He has been employed by Hanna since February, 1953 and is a record and beneficial owner of 2,875 shares of Hanna stock.¹¹ Nickels is a party to this action in his capacity as a Hanna shareholder.

John Gurgle is employed by Hanna as a cash manager. On November 13, 1981 he sold thirty-four (34) shares of Hanna stock. On March 29, 1982 he sold thirty-six (36) additional shares.¹² He remains a beneficial owner of other shares.¹³ Gurgle is a party to this action in his capacity as a former and current Hanna Shareholder.

Conrad M. Black is a Canadian citizen. He is Chairman of Norcen's Board of Directors and Executive Committee and is a "controlling person" for the purposes of section 20(a) of the Securities Exchange Act of 1934. 15 U.S.C. ? 78t(a). In 1967 Black began his business career by purchasing a rural newspaper that was nearly bankrupt. Within two years he purchased two others. These properties prospered and subsequently Black and his associates owned or controlled "a series of other newspapers?€”dailies, weeklies and bi-weeklies?€”in Canada, mainly British Columbia and the West Coast, adding up to a total of about 20 newspapers." Tr., p. 528. During this period, Black, joined by his brother, also invested in a malting company, a securities brokerage firm, "now the largest securities dealer in Canada" and a number of real estate ventures." Tr., pp. 528, 529. Currently, in addition to his controlling interest in Norcen, Black, directly or indirectly, owns or controls the following companies: (1) 75% of Western Dominion Investment Company Limited; (2) 51% of The Ravelston Corporation Limited; (3) 64% of Argus Corporation Limited, all of which are Canadian investment companies; (4) 49% of Standard Broadcasting Corporation, a Canadian radio and television broadcasting company; (5) 52% of Dominion Stores Limited, a Canadian food merchandising company; (6) 93% of Hollinger Argus Limited, a Canadian mining and investment company; and (7) 67% of Labrador Mining and Exploration Company Limited, a Canadian mining and natural resources exploration company. Tr., pp. 263-267. From 1978 through 1980 Black was a director and Chief Executive Officer of Massey-Ferguson Company, "the only great Canadian manufacturing company." Presently, he is a director on the boards of a large number of corporations, including but not limited to: (1) Canadian Imperial Bank and Commerce; (2) Eaton's of Canada Limited; (3) Confederation Life Insurance Company; and (4) Carling O'Keefe Limited. Tr., pp. 530, 269. Although it is apparent that Black is extremely sophisticated in the realm of internal corporate affairs, the essence of his investment philosophy is quite simple ?€” avoid token investments and token control. Tr., pp. 269, 270.

G. Montegu Black is a Canadian citizen. He is a member of Norcen's Board of Directors and of its Executive Committee. He is also President, Chief Executive Officer and a member of the Executive Committee of Argus Corporation Limited; Chairman of the Boards of Directors and member of the Executive Committees of both Standard Broadcasting Corporation and Dominion Stores Limited; Director, President and member of the Executive Committee of Hollinger Argus Limited; and Director, Executive Vice President and member of the Executive Committee of Labrador Mining and Exploration Company Limited.¹⁴

Edward G. Battle is a Canadian citizen. He is a petroleum engineer and has been employed by Norcen and its predecessor since 1957. Currently, he is a Director, member of the Executive Committee and Norcen's President and Chief Executive Officer. He is also a Director of Labrador Mining and Exploration Company Limited.¹⁵

William T. Kilbourne is an American citizen. He is an attorney, admitted to practice in the United States and has been employed by Norcen and its predecessor since 1972. Currently, he is Norcen's Vice President of Administration, Secretary and senior legal officer. He has responsibility for all of Norcen's administrative, legal, human relations and record keeping functions. Tr., pp. 764-768.

The parties to this suit are not strangers to one another. Indeed, they currently maintain the following business relationships: (1) Hanna owns 20% of Labrador Mining and Exploration Company Limited; (2) Hanna, 60% and Hollinger Argus Limited, 40%, are partners in Hollinger North Shore Exploration, Inc., a Canadian mining and energy resources company and equal partners in Hollinger Hanna Limited, a Canadian management company; and (3) Hanna, Hollinger Argus Limited and Labrador Mining and Exploration Company Limited are all shareholders of Iron Ore Company of Canada, an iron ore mining company. Because of these relationships, representatives of Hanna and the Blacks sit on some of the same boards of directors. For example, Robert F. Anderson, a Director and Hanna's President and Chief Executive Officer, Brian Mulroney, a member of Hanna's Board of Directors and President of Iron Ore Company of Canada and Nickels, along with the Blacks and Battle, are Directors of Labrador Mining and Exploration Company Limited.

Another relationship important to this suit is between Hanna and the "Humphrey family." Until his death in June, 1979, Gilbert W. "Bud" Humphrey, Sr., was Hanna's President and Chief Executive Officer. He was also a substantial shareholder. His widow, Louise Humphrey, remains a substantial shareholder, having acquired shares not only from her late husband but also from her father. Her brother, R.L. Ireland, III, a member of Hanna's Board of Directors, is also a substantial shareholder as are her two sons, George M....