Holly Farms Corp. v. Taylor

• Decision Date: 11 October 1989
• Docket Number: Civ. A. No. 89-466-CMW.
• Citation: 722 F. Supp. 1152
• Parties: HOLLY FARMS CORPORATION, a Delaware corporation, Plaintiff, v. R. Lee TAYLOR, II, individually and as a class representative for the participants in the Holly Farms Restricted Stock Long-Term Performance Bonus Plan, Defendant.
• Court: U.S. District Court — District of Delaware

722 F. Supp. 1152

HOLLY FARMS CORPORATION, a Delaware corporation, Plaintiff, v. R. Lee TAYLOR, II, individually and as a class representative for the participants in the Holly Farms Restricted Stock Long-Term Performance Bonus Plan, Defendant.

Civ. A. No. 89-466-CMW.

United States District Court, D. Delaware.

October 11, 1989.

Anthony W. Clark, and Randall S. Thomas, of Skadden, Arps, Slate, Meagher & Flom, Wilmington, Del. (C. Joseph Giroir, Jr., of Giroir & Gregory, Little Rock, Ark., of counsel), for plaintiff.

R. Franklin Balotti, William J. Wade, and Gregory V. Varallo, of Richards, Layton & Finger, Wilmington, Del. (Shaw, Pittman, Potts & Trowbridge, Washington, D.C., of counsel), for defendant.

OPINION

CALEB M. WRIGHT, Senior District Judge.

The defendant, R. Lee Taylor, II, filed a notice of removal¹ to this Court on August 29, 1989. By this petition, Taylor sought to remove, from the Delaware Court of Chancery (the "Delaware court") to this Court, an action (the "Delaware state action") that plaintiff Holly Farms Corporation ("Holly Farms") had filed on August 18, 1989. Holly Farms, a Delaware corporation, filed the Delaware state action against Taylor individually and as a class representative for the participants in the Holly Farms Restricted Stock Long-Term Bonus Plan (the "stock bonus plan"). In response to Taylor's petition for removal, Holly Farms filed a motion to remand on August 31, 1989.

Defendant Taylor, admittedly a citizen of the State of Tennessee, alleges that Holly Farms' principal place of business changed from Memphis, Tennessee to Springdale, Arkansas after the acquisition of Holly Farms by Tyson Foods, Inc. ("Tyson Foods") under a merger agreement dated June 23, 1989. On this basis, therefore, the defendant asserts that this federal court has subject matter jurisdiction of the Delaware state action pursuant to 28 U.S.C. §§ 1332(a) and 1441(a), by virtue of the parties' diversity of citizenship. Plaintiff Holly Farms vigorously denies that the Tyson Foods' acquisition affected its principal place of business under 28 U.S.C. § 1332(c).

Defendant also filed a motion to dismiss, or alternatively, to transfer or stay proceedings on September 12, 1989.

It is necessary to determine whether the Delaware state action can be properly removed to this federal court. This determination specifically requires the court to ascertain whether Holly Farms' principal place of business was altered by the Tyson Foods' acquisition of Holly Farms.

For the reasons which will be stated herein, the defendant's petition for removal is denied and the plaintiff's motion to remand is granted. Consequently, the Court finds it unnecessary to address defendant's motion to dismiss, or alternatively, to transfer or stay proceedings.

I. FACTS

The present dispute arrived at this Court after a long and bitter corporate takeover battle waged in the Delaware Court of Chancery for control of Holly Farms. Tyson Foods sought, in the fall of 1988, to gain control of Holly Farms. A Tyson Foods' takeover bid for Holly Farms encountered fierce resistance from defendant Taylor, the former Holly Board, and ConAgra, Inc., the favored bidder of Taylor and the former Holly management. The Delaware court issued a series of decisions relating to the struggle between Tyson Foods and ConAgra for control of Holly Farms.²

Ultimately, Tyson Foods prevailed in its quest for control of Holly Farms. The final result of the litigation in the Delaware court was the merger agreement of June 23, 1989. According to the terms of the merger agreement, Tyson Foods and its wholly-owned subsidiary, Holly Acquisition Corporation ("HAC"), agreed to acquire all outstanding stock of Holly Farms in a tender offer (the "tender offer") and merger (the "merger") at $70 per share. Tyson Foods further agreed to cause Holly Farms to perform its obligations under the stock bonus plan according to its terms. As provided by the merger agreement, HAC acquired 97% of the common stock of Holly Farms pursuant to the tender offer on July 18, 1989. In addition, on August 9, 1989, HAC merged into Holly Farms and Tyson Foods obtained the remaining 3% of the Holly Farms stock. Thus, Holly Farms, the surviving corporation, became a wholly-owned subsidiary of Tyson Foods.

Holly Farms has been and remains a holding company for its numerous divisions and subsidiaries located across the United States. Holly Farms and its subsidiaries and divisions are engaged in the business of producing and marketing chickens and chicken products. It is undisputed that, prior to the execution of the merger agreement, Holly Farms' principal place of business was Memphis, Tennessee.

Holly Farms conducts most of its activities through its wholly-owned subsidiaries. Prior to the merger agreement, Holly Farms employed about 15 people at its principal place of business in Memphis. The employees at the Memphis office included defendant Taylor as chief executive officer, Ted Bailey, Elbert Thomas, Jr., John Stout, Sr., as Vice-Presidents, James Thompson as Secretary and Treasurer, and a small number of support staff.³ Its major assets were and are the stock of its operating subsidiaries, which are viable operating companies employing more than 16,000 people and real estate in Memphis valued at several millions of dollars. Taylor, the other officers of Holly Farms, and the small staff at Memphis maintained operational direction of the many Holly Farms subsidiaries.

Shortly before August 18, 1989, Don Tyson believed that Taylor was not acting in the best interests of Holly Farms in connection with the transition under way as a result of the merger. On August 18, 1989, Holly Farms filed its suit in the Delaware Court of Chancery seeking equitable relief from R. Lee Taylor, II's alleged breaches of fiduciary duties in connection with the stock bonus plan. Holly Farms further sought a declaratory judgment to interpret the dispositive provisions of the stock bonus plan. On August 23, 1989, Taylor filed suit in Tennessee State Court, raising essentially the same issues of interpretation of the stock bonus plan pending in the Delaware state court action.

On the same day suit was filed by Holly Farms in the Delaware Court of Chancery, Taylor and Ted Bailey were notified that their employment by Holly Farms was terminated. The termination of Taylor's employment as chief executive officer sparked the dispute as to the location of the principal place of business of Holly Farms as of August 18, 1989.

The consummation of the merger agreement required the establishment of a parent-subsidiary relationship between Tyson Foods and Holly Farms. Changes in the Holly Farms Board of Directors occurred. All of the former directors, including the defendant Taylor, were ousted in favor of Tyson Foods designees in July of 1989. The new Holly Farms board has acted by written consent but has not held any meetings.

In the two weeks prior to August 31, 1989, Elbert Thomas, Jr., financial vice-president of Holly Farms, was notified he would be terminated as of August 31, 1989. Thomas, as financial vice-president in addition to his other duties, approved all expenditures, authorized checks to be issued and, on August 23, 1989, wrote a letter to Shaw, Pittman, Potts & Trowbridge, Holly Farms' attorneys in Washington, D.C., terminating their services as attorneys for Holly Farms. Second Supplemental Declaration of James B. Blair, Exhibits A & B.

Elbert Thomas, Jr. was terminated as of August 31, 1989, in order to allow him to take advantage of certain severance benefits. However, he was subsequently re-employed and continues to perform duties he was previously performing. See Declaration of Gerald Johnston, executive vice-president, finances, Tyson Foods, Inc.

James Thompson, Holly Farms' secretary and treasurer, has remained in those positions at all times since the merger, and on August 31, 1989, was appointed chief executive officer. Thompson, as secretary and treasurer, performed and still performs such tasks as supervising Holly Farms' cash management, managing and administering Holly Farms' insurance contracts and pension plans and overseeing Holly Farms' investor relationships and accounting activities. See Supplemental Declaration of James B. Blair, pp. 2-4.

The involvement of Don Tyson and Tyson Foods in the management of Holly Farms and its subsidiaries after the merger agreement is unclear. Don Tyson began to discuss certain business transactions and changes he wanted to make in the operations of Holly Farms and its subsidiaries after completion of the merger agreement. At about the same time, he formed two teams of Tyson Foods executives to conduct inspection tours of various Holly Farms' plants and operations. While Taylor remained chief executive officer of Holly Farms, his duties diminished as Don Tyson's involvement in Holly Farms increased. However, Tyson consulted with Taylor about the Holly Farms businesses generally, and certain proposals Tyson had in mind for changes for Holly Farms by Tyson Foods, Inc. See Deposition of Donald Tyson at 27-29, 31, 35-38, 41-42, and 48.

In late June, Taylor had met with Don Tyson at Memphis and Tyson announced his intention to close the Memphis office on July 13, 1989. It became apparent that this could not be done by that date and the closing was postponed to September 1, 1989. Prior to September 1, 1989, it also became apparent that there were some questions as to when the principal place of business of Holly Farms could be moved. There was no space at Springdale, Arkansas, and the move for the present at least was impractical. When the removal of this case from the Delaware court to this Court arose, a final decision was made not to consider moving Holly Farms' principal place of business. All plans for the departure from Memphis were cancelled. The Court notes that no executive employees of Holly Farms were ever transferred from Memphis to...