Jacobs v. Pabst Brewing Co.
| Decision Date | 07 October 1982 |
| Docket Number | Civ. A. No. 82-200. |
| Court | U.S. District Court — District of Delaware |
| Parties | Irwin L. JACOBS, Gerald A. Schwalbach, Dennis M. Mathisen, Daniel T. Lindsay, and the "Shareholders' Committee to Revitalize Pabst," an unincorporated association, Plaintiffs, v. PABST BREWING COMPANY, a Delaware corporation, and Torray Clark & Co. Incorporated, a Maryland corporation, Defendants. PABST BREWING COMPANY, a Delaware corporation, Counterclaim Plaintiff, v. Irwin L. JACOBS, Gerald A. Schwalbach, Dennis M. Mathisen, Daniel T. Lindsay, Ralph Klein, Rodney P. Burwell, Sam Singer, Francis A. Tarkenton and the "Shareholders' Committee to Revitalize Pabst," an unincorporated association, Counterclaim Defendants. |
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R. Franklin Balotti and Jesse Finkelstein of Richards, Layton & Finger, Wilmington, Del., and Yvette Miller of Weil, Gotshal & Manges, New York City, of counsel, for plaintiffs.
A. Gilchrist Sparks III and Lawrence A. Hamermesh of Morris, Nichols, Arsht & Tunnell, Wilmington, Del., and Wachtell, Lipton, Rosen & Katz, New York City, and Michael, Best & Friedrich, Milwaukee, Wis., of counsel, for defendant Pabst Brewing Co.
Henry N. Herndon, Jr. and P. Clarkson Collins, Jr., of Morris, James, Hitchens & Williams, Wilmington, Del., and Jean S. Moore of Hogan & Hartson, Washington, D.C., of counsel, for defendant Torray Clark & Co. Inc.
Joseph J. Farnan, Jr., U.S. Atty., John X. Denney, Jr., Asst. U.S. Atty., Wilmington, Del., and Edward F. Greene, Gen. Counsel, Jacob H. Stillman, Associate Gen. Counsel, David A. Sirignano, Sp. Counsel and Robert Mills and Elisse B. Walter, Attys., Securities and Exchange Com'n and Paul Gonson, Sol., Securities and Exchange Com'n, Washington, D.C., as amicus curiae.
This action arises out of a hard-fought proxy contest for control of Pabst Brewing Company ("Pabst"), between the incumbent management and an insurgent group, the Shareholders' Committee to Revitalize Pabst ("Revitalization Committee"). Plaintiffs Irwin L. Jacobs, Gerald A. Schwalbach, Dennis M. Mathisen, Daniel T. Lindsay, and the Revitalization Committee ("Jacobs Group") have filed a First Amended Complaint against Pabst and Torray Clark & Co. Incorporated ("Torray Clark"), alleging six causes of action.1 The first three causes allege that Torray Clark, an investment advisor, did not comply with Sections 13(d) and (g) of the Securities and Exchange Act of 1934 ("the Exchange Act"), 15 U.S.C. § 78m(d) & (g) (Supp.1980), and the rules and regulations promulgated thereunder. The fourth cause of action alleges that Pabst failed to comply with the requirements of Section 14(a) of the Exchange Act, 15 U.S.C. § 78n(a) (1976), and the rules and regulations promulgated thereunder. The fifth cause alleges that Pabst and Torray Clark violated Delaware common law by conspiring to cast proxies through misleading and illegal promises. Finally, the sixth cause alleges that Torray Clark breached the fiduciary duty which it owed to its investment clients, when Torray Clark failed to vote proxies for the slate of directors selected by its clients. (Id.)
The Jacobs Group requests this Court enter an order: (1) enjoining Torray Clark from casting any proxies for Pabst which it obtained in connection with the April 1982 election of Pabst directors; (2) declaring the proxies cast by Torray Clark in favor of Pabst directors to be null and void; (3) declaring that certain photocopied proxies received from various investment clients of Torray Clark, which were presented by the Revitalization Committee, to be valid and counted in determining the results of the 1982 annual election of Pabst directors; (4) declaring that all the proxies received by Pabst management by virtue of its misrepresentations to be null and void or, in the alternative, declaring the election to be invalid; (5) appointing a Master to supervise a new election, if the Court decides to declare a new election, and awarding damages to the Jacobs Group for the costs of the initial proxy contest; (6) granting plaintiffs' judgment against the defendants in the amount of the plaintiffs' attorneys' fees and disbursements incurred by virtue of defendants' wrongful conduct; (7) determining the validity of the 1982 election of Pabst directors and declaring those persons entitled to hold positions on the Board of Directors of Pabst; and (8) granting such other relief as may be just and proper.
Torray Clark has moved, pursuant to Rules 9(b) and 12(b)(6), F.R.Civ.P., to dismiss the Jacobs Group's amended complaint as to it upon the grounds that the complaint: (1) fails to state a cause of action against Torray Clark under the Exchange Act, the Delaware General Corporation law, or the Delaware common law; (2) fails to plead claims of fraud with sufficient particularity; (3) seeks injunctive relief that is inappropriate for violations alleged; and (4) is barred by doctrines of unclean hands and laches. (D.I. 27.)
Prior to the 1982 Annual Meeting of Pabst ("Annual Meeting"), held on April 13, 1982, the Revitalization Committee, an unincorporated association owning approximately 16.1% of the outstanding common stock of Pabst, waged a fierce proxy battle with the incumbent management of Pabst. Both incumbent management and the Revitalization Committee proposed competing slates of nominees for election to Pabst's Board of Directors and solicited proxies from Pabst shareholders. (D.I. 51, ¶ 17.)
During the course of this proxy contest, representatives of the Revitalization Committee and representatives of the incumbent management contacted and met with Torray Clark and its principals on various occasions to solicit the proxies of Torray Clark's clients.2 As a result of meetings with these representatives and in the overall context of the proxy solicitation efforts, Torray Clark became aware sometime on or before March 1982 that its clients, who accounted for over 15 percent of the issued common stock of Pabst, possessed the "swing vote" in the proxy contest. (D.I. 51, ¶ 19.)
According to the Jacobs Group, the events which immediately preceded the Annual Meeting demonstrated that Torray Clark attempted to use its "swing vote" power in order to effectuate a change of control of Pabst and to cause Pabst to enter into an extraordinary corporate transaction, such as a merger. Specifically, plaintiffs allege substantially the following facts:
(See D.I. 51, ¶¶ 21-25.) The amended complaint further alleges that Torray Clark: (1) engaged in conversations with Pabst management, the Revitalization Committee and others, in which it expressed its approval of, and desire to see the consummation of a Pabst/Schmidt combination or merger; (2) promised to deliver its clients' proxies in favor of the Revitalization Committee's slate of nominees only if the Revitalization Committee would support Schmidt's cash offer and/or undertake to sell Pabst; (3) met with representatives of Pabst to discuss a proposed sale of Pabst or a solicitation of offers to purchase all Pabst shares; (4) insisted that Pabst be sold and threatened to buy Pabst if Pabst was not sold; and (5) increased its clients' holdings of Pabst stock by the rapid accumulation of nearly 175,000 shares immediately prior to the record date for the Annual Meeting.
The question becomes whether these factual allegations of the amended complaint sufficiently state causes of action against Torray Clark under federal securities law or Delaware law.
IMPLIED CAUSE OF ACTION UNDER SECTION 13(d)
The first question that this Court must address is whether an implied cause of action exists under Section 13(d). The Jacobs Group asserts that a shareholder may seek injunctive relief under Section 13(d) of the Exchange Act. Torray Clark disagrees.
At the outset, the Court notes that neither the United States Supreme Court nor the Court of Appeals for the Third Circuit has expressly determined whether an implied, private right of action exists under Section 13(d). Several Courts of Appeals, however, have either expressly or implicitly found that such an action exists.3 Likewise, many district courts have held that a private right of action is implied under Section 13(d).4 Other district courts, however, recently have been holding that some parties may not pursue a claim based upon Section 13(d).5 Thus, although the bulk of the decisional authority supports the Jacobs Group's position, the recent restrictive trend by the Supreme Court with respect to the availability of an implied cause of action requires this Court to make its own in-depth analysis whether such a right of action exists for shareholders seeking injunctive relief pursuant to Section 13(d).
Implying a private right of action has long been recognized as a means of effectuating the overall goals of a statute. The Supreme Court first invoked the doctrine in Texas and Pacific Railway Co. v. Rigsby, 241...
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