Katt v. Titan Acquisitions Ltd.

• Decision Date: 10 January 2003
• Docket Number: No. 99-CV-655.,99-CV-655.
• Citation: 244 F.Supp.2d 841
• Parties: Lowell KATT, On Behalf of Himself and All Others Similarly Situated, Plaintiffs, v. TITAN ACQUISITIONS, INC.; United Technologies Corporation; William Trachsel, Ari Bousbib, Angelo Messina, Gilles Renaud, and David Fitzpatrick Defendants.
• Court: U.S. District Court — Middle District of Tennessee

244 F.Supp.2d 841

Lowell KATT, On Behalf of Himself and All Others Similarly Situated, Plaintiffs, v. TITAN ACQUISITIONS, INC.; United Technologies Corporation; William Trachsel, Ari Bousbib, Angelo Messina, Gilles Renaud, and David Fitzpatrick Defendants.

No. 99-CV-655.

United States District Court, M.D. Tennessee, Nashville Division.

January 10, 2003.

COPYRIGHT MATERIAL OMITTED

Stanley M. Chernau, Linda F. Burnsed, Chernau, Chaffin & Burnsed, PLLC, Nashville, TN, George Edward Barrett, Barrett, Johnston & Parsley, Nashville, TN, Steven E. Cauley, Cauley, Geller, Bowman & Coates, LLP, Little Rock, AR, Darren J. Robbins, Mark Solomon, Randall J. Baron, William S. Learch, Douglas R. Britton, Rajesh A. Mandlekar, David A. Thorpe, Shawn M. Hays, Patrick J. Coughlin, Milberg, Weiss, Bershad, Hynes & Lerach, LLP, San Deigo, CA, Roger Mark Adelman, Washington, DC, for plaintiffs.

Ames Davis, Mark H. Wildasin, Nancy S. Jones, Waller, Lansden, Dortch & Davis, Nashville, TN, Richard V. Conza, Richard F. Ziegler, David E. Brodsky, Justin S. Anand, Cleary, Gottlieb, Steen & Hamilton, New York City, David M. Meisels, Herrick, Feinstein LLP, Newark, NJ, for defendants.

MEMORANDUM

ECHOLS, District Judge.

Presently pending before the Court are the following motions: (1) Defendants' Motion for Summary Judgment (Docket Entry No. 88); (2) Plaintiffs Motion for Additional Discovery in Support of Plaintiffs Opposition to Defendants' Motion for Summary Judgment (Docket Entry No. 114); (3) Plaintiffs Motion to Strike (Docket Entry No. Ill); and (4) Plaintiffs Motion for Sanctions for Spoliation of Electronic Evidence (Docket Entry No. 105). All motions are opposed except Plaintiffs Motion to Strike.

I. PROCEDURAL HISTORY

This lawsuit began on July 27, 1999, when Plaintiff Lowell Katt, an investor, filed this class action on behalf of himself and similarly situated investors against Defendants Titan Acquisition Ltd. ("Titan"); United Technologies Corporation ("UTC"); William Trachsel, a UTC officer; and Ari Bousbib, Titan's president (collectively, "Defendants"). The initial Complaint (the "Complaint") alleged that UTC was directly involved in the adoption of change in control agreements, familiarly known as "golden parachutes," by International Comfort Products ("ICP") on March 15, 1999, over three months before UTC announced its tender offer for ICP's stock, and that this involvement violated Section 14(d)(7) of the 1968 Williams Act Amendments (the "Williams Act") to the Securities and Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78n(d)(7), and Rule 14d-10 promulgated thereunder, 17 C.F.R. § 240.14d-10 (commonly referred to together as the "Best Price Rule").

Plaintiff's theory, as expressed in the Complaint, was that UTC insisted on or at least was intimately involved in implementing the golden parachutes between ICP and some of its top executives as a form of additional consideration — in essence, a bribe, or as the Plaintiff puts it, "camouflage" — to ICP's executives to induce them to tender their own shares and to sell ICP's stock at an artificially low price.¹ (Docket Entry No. 1, at 1130). Plaintiff also alleged that the transition services agreements between UTC and ICP executives, pursuant to which ICP's departing executives received retention bonuses if they remained with the company during a transition period of three months after completion of the acquisition, violated the Best Price Rule.

The Court referred the management of the case to then-Magistrate Judge Haynes. On September 21, 1999, Defendants moved to dismiss the Complaint. (Docket Entry No. 8). Before the Court rendered judgment on Defendants' motion, Judge Haynes was appointed to the District Court. Upon Judge Haynes' appointment, the Court referred management of the case to Magistrate Judge Brown and, pursuant to the division of the docket upon judicial appointment, reassigned the case to newly-appointed Judge Haynes.

In response to Defendants' Motion to Dismiss, Plaintiff asserted that dismissal was inappropriate because the golden parachutes executed March 15, 1999, and transition services agreements were simply "an elaborate camouflage used to conceal the payments to ICP's top executives in exchange for tendering shares and/or endorsing the tender offer . . ." (PL's Mem. in Supp. of Opp. to Defs.' Mot. to Dismiss, Docket Entry No. 17, at 8). Plaintiff alleged that the agreements were executed at UTC's insistence, in order to ensure that UTC would acquire ICP by way of the tender offer.

On November 17, 2000, Judge Haynes denied Defendants' Motion to Dismiss, expressly relying in part on Plaintiffs allegation that UTC was directly involved in ICP's creation of the golden parachutes for its executives. (See Docket Entry No. 29, at 21-21) (stating, "[t]he Court agrees that as a general rule, incentive contracts between a company and its key officers and executives are not subject to Section 14(d)(7), but these agreements . . . could be found to have been induced by Titan as part of its tender offer for ICP and not as contracts between ICP and its officers").

Plaintiff moved for class action certification on December 15, 2000. Judge Haynes granted the motion and certified this case as a class action on April 19, 2000. Judge Haynes' involvement in the case ended when he recused himself on December 17, 2001, and the case was reassigned to this Court.

On May 13, 2002, Plaintiff amended the Complaint to add Angelo Messina, Gilles Renaud, and David Fitzpatrick as Defendants and to "conform [the Amended Complaint] to the evidence." (See Amended Complaint, Docket Entry No. 78). Specifically, Plaintiff abandoned his initial theory, expressed in the Complaint and reiterated in his opposition to Defendants' argument for dismissal, that UTC was directly involved in ICP's adoption of the March 15, 1999, golden parachutes. Id. at K40 (alleging that UTC was "confronted with" the agreements in May or June 1999, during due diligence after making the tender offer, and that UTC considered them to be a "major find" of due diligence). The Amended Complaint alleges that Defendants violated the Best Price Rule because they "expressly agree[d] to honor [the golden parachutes] as drafted." Id. Thus, in essence, Plaintiff has amended his theory that Defendants violated the Best Price Rule by their alleged involvement with or even insistence upon the golden parachutes to allege instead that Defendants are liable because they honored the agreements as an inducement to the ICP top executives to tender their shares and promote the acquisition.

On October 2, 2002, Defendants moved for summary judgment. That Motion is presently before the Court. In addition, Plaintiff moved the Court on October 29, 2002, to sanction Defendants for spoliation of electronic evidence. On November 1, 2002, Plaintiff moved to strike certain testimony and evidence and also to allow additional discovery in support of his opposition to Defendants' Motion for Summary Judgment.

II. SUMMARY JUDGMENT STANDARD In ruling on a motion for summary judgment, the Court must construe the evidence produced in the light most favorable to the non-moving party, drawing all justifiable inferences in his or her favor. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A party may obtain summary judgment if the evidentiary material on file shows "that there is `no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.'" Id. at 258, 106 S.Ct. 2505 (citing Fed.R.Civ.P. 56(c)). The moving party bears the burden of satisfying the court that the standards of Rule 56 have been met. See Martin v. Kelley, 803 F.2d 236, 239 n. 4 (6th Cir.1986). The ultimate question to be addressed is whether there exists any genuine issue of material fact which is disputed. See Anderson, 477 U.S. at 248, 106 S.Ct. 2505. If so, summary judgment dismissal is inappropriate.

To defeat a properly supported motion for summary judgment, an adverse party "must set forth specific facts showing that there is a genuine issue for trial. If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party." Fed R.Civ.P. 56(e). The non-moving party's burden of providing specific facts demonstrating that there remains a genuine issue for trial is triggered once the moving party "show[s] — that is, point[s] out to the district court — that there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

III. RELEVANT FACTS

Viewing them in the light most favorable to the Plaintiff, as the Court must do, the facts from which this case arises are as follows:

A. Background to the ICP Sale

ICP is a Canadian corporation based in Franklin, Tennessee. It manufactures heating, ventilation, and air conditioning ("HVAC") systems for home and commercial use. ICP was a publicly traded company before its acquisition by and merger into UTC in 1999. ICP now is a whollyowned subsidiary of another UTC subsidiary, Carrier, which is the market leader in the HVAC industry.

ICP suffered significant losses in the early and mid 1990's. In an effort to revitalize the company, ICP's Board of Directors began hiring a new management team in September 1994. ICP hired Michael Clevy as Chief Operating Officer and then promoted him to Chief Executive Officer in January 1996. Once the new management team was installed, ICP's Board adopted an executive compensation and incentive strategy in 1997 that was performance-based and intended to be competitive with plans offered by similar companies. Under this strategy, ICP provided change in control employment agreements to nine executives between 1994 and 1997. The agreements guaranteed between 12 and 24 months of salary and benefits in the event of a change in control. In late 1997 and 19...