In re Com. Oil/Tesoro Petroleum Corp. Sec. Lit.
| Decision Date | 25 January 1979 |
| Docket Number | M.D.L. No. 347. |
| Citation | 467 F. Supp. 227 |
| Parties | In re COMMONWEALTH OIL/TESORO PETROLEUM CORPORATION SECURITIES LITIGATION. |
| Court | U.S. District Court — Western District of Texas |
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Steven B. Rosenfeld, Paul, Weiss, Rifkind, Wharton & Garrison, New York City, for Tesoro Petroleum Corporation, Robert V. West, Jr., Robert G. Reed, Charles R. Roberts, James F. Smith, James C. Phelps, Dean M. Bloyd, L. Robert Fullem and John Rote.
Vaughn C. Williams, Skadden, Arps, Slate, Meagher & Flom, New York City, for Gary W. Davis.
George Weisz, Cleary, Gottlieb, Steen & Hamilton, New York City, for Deloitte, Haskins & Sells.
Thomas F. Curnin, Cahill, Gordon & Reindel, New York City, for E. F. Hutton & Co., Inc. Leo T. Kissam, Kissam, Halpin & Genovese, New York City, for Norman C. Keith.
Robert A. Meister, Milgrim, Thomajan & Jacobs, P. C., New York City, for Commonwealth Oil Refining Company, Inc.
Roger L. Waldman, Webster & Sheffield, New York City, for Peter M. Detwiler.
George J. Wade, Shearman & Sterling, New York City, for George F. Bennett and William A. Lockwood.
Sullivan & Cromwell, New York City, for Sol L. Descartes and J. Howard Laeri.
No appearance for Sergio Camero, Ian K. MacGregor, Dr. Rafael Pico, Tom R. Ragland, Angel M. Rivera and John A. Walstrom.
John E. Skogland, Jr., McGown & McClanahan, San Antonio, Tex., for David Jaroslawicz (A-1).
Richard deY. Manning, Manning & Carey, New York City, for Morton S. Bouchard, et al. (A-2).
Jules Brody, Stull, Stull & Brody, New York City, for Harry Lewis (A-3).
Daniel W. Krasner, Wolf, Haldenstein, Alder, Freeman & Herz, New York City, for Seymour Joseph (A-4).
Table of Contents
Page
I. NATURE OF THE LITIGATION 233
II. BOUCHARD 235
A. Facts 235
1. Parties 235
2. Motions 236
B. Discussion 236
1. The Federal Claims 237
a. Section 14(a) Claims 237
b. The 10b-5 Claims 238
c. The Section 14(e) Claims 240
(i) The Tender Offer Letters 240
(ii) The Joint Press Release and Amended Tender Offer 243
2. Summary of Federal Claims 247
3. State Law Claims 247
C. Summary 249
III. JAROSLAWICZ AND LEWIS 249
A. Pertinent Facts 249
B. Rule 9(b): Its Requirements and Purposes 250
1. Count I 251
a. The Role of the Defendants 251
b. Omissions and Misrepresentations 252
(i) Omissions 252
(ii) Misrepresentations: The Documents and Their Contents 254
2. Count II 254
3. DH&S 254
C. 12(b)(6) Motions?€”Causation 256
D. Motion for Summary Judgment 256
IV. JOSEPH 257
A. Motion to Intervene 257
1. Intervention 258
2. Limitations 258
Pursuant to an order of the Judicial Panel on Multidistrict Litigation entered September 26, 1978, four separate actions have been transferred to this court for coordinated or consolidated pretrial proceedings. Three of the actions were originally filed in the United States District Court for the Southern District of New York. They are Morton S. Bouchard, et al. v. Tesoro Petroleum Corp., et al, No. 77-Civ.-2037; Harry Lewis v. Norman C. Keith, et al, No. 77-Civ.-3402; and Seymour Joseph v. Peter M. Detwiler, et al, No. 77-Civ.-3809. The other action, David Jaroslawicz v. James C. Phelps, et al, No. SA-78-101, was commenced in the United States District Court for the Western District of Texas.
These actions are brought under the federal securities laws and various common law doctrines, and they focus in large measure upon a 1975 tender offer pursuant to which Tesoro Petroleum Corp. (Tesoro) purchased approximately 5.5 million shares of Commonwealth Oil Refining Co. (Corco), and upon the actions of those corporations and their directors leading up to and following the tender offer.
The primary defendants in these actions are Corco; Tesoro; present and former officers and directors of Corco and Tesoro; E. F. Hutton Co., Inc., the stockbroker that handled the 1975 tender offer for Tesoro (named as a defendant in Bouchard only); and Deloitte, Haskins & Sells, Corco's accountant (named as a defendant in Lewis and Jaroslawicz only). In general, the actions are based on alleged violations of the antifraud provisions of the federal securities laws and upon state law theories of mismanagement and breach of fiduciary duty. Three of the actions ?€” Bouchard, Lewis, and Jaroslawicz ?€” are brought individually and on behalf of various classes of Corco shareholders. The Joseph case is brought by a shareholder of Tesoro who also seeks to represent a class.
Pretrial motions have been filed in each of the four actions, and these motions are the subject of this Order. Before considering the motions, and before considering in greater detail the scope and nature of each of the cases, a brief chronology of the events and circumstances that underlie the allegations in the various complaints is in order.
The story must begin with a general description of the principal actors. The leading roles are played by the Commonwealth Oil Refining Company (Corco) and the Tesoro Petroleum Corporation (Tesoro). Corco is the largest industry in Puerto Rico. The company is principally engaged in the operation of a major oil refinery and petrochemical complex at Guayanilla Bay on the southern coast of Puerto Rico. The oil refinery, which commenced operation in 1955, has capacity to refine approximately 161,000 barrels per day. The eight petrochemical plants have been added during the years since 1956. Corco is also engaged in several joint ventures in the petrochemical field.
During the 1960's, Corco entered into several fixed-price arrangements ?€” with PPG Industries, W. R. Grace & Co., and the Puerto Rico Water Resource Authority ?€” that largely as a result of rapidly increasing crude oil costs, proved financially harmful. In addition, Corco has been beset with financial difficulties stemming from a perverse confluence of various laws and regulations. The fact that Corco's products have been subject to price controls applicable to oil refined on the mainland United States, coupled with the high cost of transporting Corco oil from Puerto Rico to the mainland (in U.S. vessels carrying U.S. crews in compliance with the Jones Act) has substantially undermined Corco's competitive position in the petroleum industry. In addition, Corco has been subject to an import fee of $2.00 per barrel imposed by the Government of Puerto Rico, a fee which it could not pass on to its customers under federal pricing regulations.
As a result of these and other financial difficulties, during the past several years Corco's earnings have declined. For the year 1975, for instance, Corco reported a net earnings loss of over 24 million dollars. Eventually, Corco became unable to service its substantial debts, and in March, 1978, filed a voluntary petition under Chapter XI of the Bankruptcy Act in the Western District of Texas.
During the decline of Corco's financial fortunes, significant changes in the control and management of Corco took place. In 1972, defendant Norman C. Keith became president and chief executive officer of Corco, as well as its largest stockholder. Plaintiffs in the Bouchard action allege that during his tenure as president, Keith charged to Corco extravagant and unreasonable perquisites amounting to approximately $400,000 per year. By early 1975, perhaps because an arhythmic management pulse was sensed or for other reasons, several corporations became interested in acquiring control of Corco through a tender offer or other means. These included the Ashland Oil Corporation, The Charter Company, and the Tesoro Petroleum Corporation.
On April 18, 1975, Tesoro, an integrated oil company engaged in the exploration, development, and production of oil and gas reserves and in the refining of petroleum products, announced a tender offer for 5.5 million shares of Corco at $11.50 per share. In response to that offer, Keith published two full-page advertisements in the Wall Street Journal in the form of letters to Corco shareholders (the Keith tender offer letters) urging rejection of the offer.
In the first of these letters, published April 22, 1975, Keith expressed confidence in Corco's long-term earnings prospects and...
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