Harnischfeger Corp. v. Paccar, Inc., 79-C-441.

• Decision Date: 10 July 1979
• Docket Number: No. 79-C-441.,79-C-441.
• Citation: 474 F. Supp. 1151
• Court: U.S. District Court — Eastern District of Wisconsin
• Parties: HARNISCHFEGER CORPORATION, Plaintiff, v. PACCAR, INC., Paccar Machinery Corporation, Charles M. Pigott, James C. Pigott, Citicorp, and Citibank, N. A., Defendants.

474 F. Supp. 1151

HARNISCHFEGER CORPORATION, Plaintiff, v. PACCAR, INC., Paccar Machinery Corporation, Charles M. Pigott, James C. Pigott, Citicorp, and Citibank, N. A., Defendants.

No. 79-C-441.

United States District Court, E. D. Wisconsin.

July 10, 1979.

Frank J. Pelisek, David J. Cannon, Michael E. Husmann, Michael, Best & Friedrich, Milwaukee, Wis., Walter T. Kuhlmey, Garrett B. Johnson, Leslie D. Locke, John T. Hickey, Jr., Kirkland & Ellis, Chicago, Ill., for plaintiff.

Maurice J. McSweeney, David J. Hase, Richard S. Florsheim, Foley & Lardner, Milwaukee, Wis., for Paccar, Inc., Paccar Machinery Corp., Charles M. Pigott and James C. Pigott.

Laurence C. Hammond, Michael J. Spector, Bruce R. Bauer, Quarles & Brady, Milwaukee, Wis., John E. Hoffman, Jr., Clarence W. Olmstead, Jr., Andrew S. O'Connor, Shearman & Sterling, New York City, for Citicorp and Citibank, N.A.

MEMORANDUM AND ORDER

WARREN, District Judge.

The complaint in the above-entitled action, together with plaintiff's motion for a preliminary injunction, was filed on June 14, 1979, three days after defendant Paccar announced its intention to make a tender offer for plaintiff Harnischfeger's common stock. The complaint alleges violations of section 14 of the Securities Exchange Act of 1934, 15 U.S.C. § 78n, section 7 of the Clayton Act, 15 U.S.C. § 18 and breaches of fiduciary duties by defendant Citibank.

On June 28 and 29, 1979, an evidentiary hearing was held on plaintiff's motion for a preliminary injunction. At the conclusion of that hearing, the Court rendered an oral decision granting the injunction requested. In a case of this magnitude, it seems appropriate that the oral decision be reduced to a formal written opinion. The following memorandum constitutes this Court's findings of fact and conclusions of law pursuant to rule 52 of the Federal Rules of Civil Procedure.

A preliminary injunction is an extraordinary remedy which a Court should not issue unless the plaintiff carries its burden of persuasion as to all of the four prerequisites. These prerequisites are: (1) the plaintiff has no adequate remedy at law and will be irreparably harmed if the injunction does not issue; (2) the threatened injury to the plaintiff outweighs the threatened injury the injunction may inflict on the defendant; (3) the plaintiff has at least a reasonable likelihood of success on the merits; and (4) the granting of a preliminary injunction will not disserve the public interest. Fox Valley Harvestore, Inc. v. A. O. Smith Harvestore Products, 545 F.2d 1096 (7th Cir. 1976).

Although these requirements have been applied very stringently in many cases involving contests for corporate control, the standard with respect to the likelihood of success on the merits is somewhat flexible in the Seventh Circuit. Mullis v. Arco Petroleum Corporation, 502 F.2d 290, 293 (7th Cir. 1974).

Irreparable Injury and Balance of Harm

With respect to the issue of irreparable injury, three separate groups are, in fact, involved. On the one hand, the defendants would suffer harm if a preliminary injunction issued because the issuance of an injunction may very well be fatal to the success of any tender offer. On the other hand, plaintiff corporation would also be harmed if an injunction did not issue. Obviously, the management group, insofar as they represent any interest, would be harmed. However, in a case involving a tender offer, the interests of the target company's shareholders, in receiving a cash premium for their shares, may differ sharply from the interests of the target company's management in preventing the tender offer from ever being made to those shareholders. The Court obviously must consider all these interests.

With respect to the balancing of the harm, plaintiff Harnischfeger and its management, if an injunction should issue, obviously will not sustain any harm. The shareholders, however, might lose the value of a premium offer which might never again be made. Defendant Paccar, if history is any guide to us, would suffer harm if the injunction issues since the injunction might be fatal to the offer.

The Court finds that plaintiff would be irreparably harmed if the injunction does not issue and that the balance of harm weighs in favor of the plaintiff in this case.

The Public Interest

With respect to the public interest, I think the public interest here is clearly set forth by section 7 of the Clayton Act. 15 U.S.C. § 18. There is a deep and abiding public interest in maintaining viable competition in this country and that, of course, is the purpose of the antitrust laws. There also is public purpose and interest in maintaining confidentiality of bank records and the viability of the federal securities laws.

The Court concludes that the granting of an injunction pending a final resolution on the merits of this action will not disserve the public interest.

Likelihood of Success on the Merits

The Court opines that the likelihood of success on the merits is really the crucial question and the one which the Court must discuss in detail.

The first of the three major issues in the case concerns the claimed breach of a fiduciary duty by defendant Citibank. The plaintiff argues that defendant Citibank is to be treated "as an entity," and that as an entity, it has a fiduciary duty to plaintiff which has been breached.

Case law in this area presents contrasting views. The Court in Washington Steel Corp. v. T. W. Corp., 465 F.Supp. 1100 (W.D.Pa.1979), in a similar case found a breach of duty. That decision is currently under appeal. No breach of fiduciary duties were found in the Humana cases. Humana, Inc. v. American Medicorp, Inc., 445 F.Supp. 613 (S.D.N.Y.1977); American Medicorp, Inc. v. Continental Illinois Bank & Trust Co., No. 77-C-3865 (N.D.Ill.1977).

In listening to the evidence, the Court was unable to find any evidence that persuaded it, by a preponderance of the evidence, that there was, in fact, a breach of the so-called Chinese Wall.¹ The less than truthful answer of Mr. Constanza to Mr. Harnischfeger over the telephone may not be in the highest traditions of banking integrity, but the Court does not think that there was a duty existing at that time such that that evidence in and of itself would constitute any breach of a fiduciary duty, such as to lead the Court to act on this cause of action.² In substance, as to the allegations of a breach of fiduciary duty, the Court is simply unable to find a basis for it in the evidence presented.

The second issue concerns the Securities Exchange Act of 1934. Plaintiff alleges that defendant's disclosures are inadequate to comply with the full and fair disclosure requirements of the Federal and Wisconsin securities laws. Since the original complaint was filed, defendant has filed an amended form of the offer to meet some of plaintiff's objections.

There are, however, certain objections that still remain. Plaintiff contends that there is a failure on the defendant's part to disclose an agreement among the Pigott family members not to sell their Paccar stock without first advising other family members and that there is a failure on Paccar's part to disclose its intent to liquidate Harnischfeger's construction equipment division.

There has been a great deal of discussion about the evidence on these issues. The defendants presented clear and unequivocal testimony by Mr. Pigott that there was no agreement. On the other hand, Paccar continued to offer documents to the Securities and Exchange Commission to disclose the stock holdings of various Pigott family members. The Court cannot come to any conclusion that leads me to believe that there has been any proof of an agreement between the Pigott family members. The evidence merely shows a history of a cohesive family with apparently parallel goals and common action.

As to the liquidation, the evidence again presents a conflict. Mr. Pigott testified that the issue was brought up, but that he did not like the idea and was not going to liquidate the division. On the other hand, members of Paccar's staff, subsequent to Mr. Pigott's decision, continued to generate documents that reflect the possibility of the liquidation. The Court is unable to draw from this evidence anything that convinces me that there has been a failure to disclose an intent to liquidate the construction equipment division such that the Court would issue a preliminary injunction on that basis.

The third aspect of the case and the one that the Court finds the most troublesome, involves the antitrust claims. Plaintiff alleges a violation of section 7 of the Clayton Act in at least two product markets: (1) a market relating to large mining excavator loaders, and (2) a market relating to winches for hydraulic cranes.

Section 7 provides that any corporate acquisition is unlawful 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," 15 U.S.C. § 18. The phrase, "in any line of commerce, in any section of the country," has been interpreted to refer to a relevant market which has both production and geographic boundaries. 3 Von Kalinowski, Antitrust and Trade Regulations § 18.01 at 18-2 (1979).

The first order of business is to examine whether, for the two products relied upon by plaintiff in its complaint, relevant markets have been established. As to geographic boundaries, the parties are in general agreement. All of the figures and all of the evidence has related to a world market that was essentially the western world, namely the United States, with some sales abroad.

The more difficult question is whether or not we have a product market that exists. Plaintiff has alleged and sought to establish a product market for primary digger loading tools in the mining industry.

The evidence deals primarily with the machines manufactured by defendant Paccar and by plaintiff Harnischf...