Leviton Mfg. Co., Inc. v. Blumberg

• Decision Date: 07 August 1997
• Citation: 660 N.Y.S.2d 726,242 A.D.2d 205
• Parties: , 1997 N.Y. Slip Op. 7081 LEVITON MANUFACTURING CO., INC., Plaintiff-Appellant-Respondent, v. Thomas BLUMBERG, et al., Defendants-Respondents-Appellants, Bernard L. Blumberg, et al., Defendants-Respondents.
• Court: New York Supreme Court — Appellate Division

Page 726

660 N.Y.S.2d 726

242 A.D.2d 205, 1997 N.Y. Slip Op. 7081

LEVITON MANUFACTURING CO., INC., Plaintiff-Appellant-Respondent, v. Thomas BLUMBERG, et al., Defendants-Respondents-Appellants Bernard L. Blumberg, et al., Defendants-Respondents.

Supreme Court, Appellate Division First Department.

Aug. 7, 1997.

Arthur Richenthal, for plaintiff-appellant-respondent.

Robert E. Zimet and Scott A. Edelman, for defendants-respondents-appellants.

Robert E. Zimet, for defendants-respondents.

Before SULLIVAN, J.P., and ROSENBERGER, WALLACH, RUBIN and TOM, JJ.

MEMORANDUM DECISION.

Judgment, Supreme Court, New York County (Charles Ramos, J.), entered January 10, 1997, granting defendants' motions to dismiss the complaint pursuant to CPLR 3211(a)(1) and (7), collectively, unanimously reversed, on the law, with costs and disbursements, the motions denied and the complaint reinstated.

The Blumberg family owned 29% of the stock of Leviton Manufacturing Co., Inc., a closely held Delaware corporation that manufactures electrical supplies. Thomas Blumberg was a Vice-President of Marketing and Sales and a member of the executive committee; his wife, Elaine, was a member of Leviton's board of directors. Since 1965, Leviton has been headed by Harold Leviton, son of the firm's founder. He and his wife own the remaining 71% of Leviton stock. Beginning sometime before early 1993, representatives of Thomas and Betts Corporation (T & B), incorporated in New Jersey, based in Tennessee and qualified to do business in New York and whose shares are publicly traded, approached Leviton officials in an attempt to purchase Leviton stock for T & B. Although nothing came of these discussions, T & B made no secret of its desire to gain a controlling interest in Leviton. In 1993, Mr. Blumberg approached T & B about selling his Leviton stock. It is undisputed that these dealings were not disclosed to Mr. Leviton.

In its complaint, Leviton alleges that Blumberg and T & B intentionally kept their dealings a secret to prevent a cut-off of Blumberg's access to internal Leviton documents. It is alleged that documents and information, of a confidential nature, and essential to T & B's evaluation of the proposed transaction, were disclosed to T & B pursuant to a confidentiality and indemnification agreement between Blumberg and T & B. The disclosures allegedly included audited financial statements of Leviton's two main subsidiaries, which were obtained, on a confidential basis, by Elaine Blumberg, as a director, without disclosing her husband's dealings with T & B. Other confidential documents, including purely internal financial documents and strategic planning documents, were also allegedly disclosed. The Blumbergs are alleged to have similarly obtained information from Leviton's accountants. During this period, Blumberg and his financial advisor, acting as legal counsel, negotiated compensation and dividend issues with Leviton, allegedly for the hidden purpose of valuing the Blumberg holdings. Eventually, on July 12, 1994, in a formal stock purchase agreement, the Blumbergs agreed to sell T & B their entire 29% interest in Leviton for $50.6 million; an additional $20 million bonus would be paid to the Blumbergs if and when T & B gained control of Leviton. The sale was accomplished, in part, by a transfer of 90 shares from Elaine Blumberg to the Blumberg children who would then become the nominal sellers of these shares. Earlier, in June 1994, Blumberg learned that T & B sales personnel were spreading the story that T & B was going to be "taking over" Leviton. Concerned that Leviton might learn of their negotiations before execution of the stock purchase agreement, Blumberg and T & B president, Moore, agreed that Blumberg would send a letter to Moore demanding that he take steps to squelch the rumors. A copy of this letter was delivered to Mr. Leviton. Leviton claims that, had it known of Blumberg's duplicity, it could have ended the Blumbergs' access to the corporation's information, offered to buy all of the Blumberg family shares, taken steps to "cash out" the Blumberg family shares pursuant to Delaware law or sought injunctive relief against the Blumberg/T & B transaction. It is uncontroverted that Blumberg was fired when the sale to T & B became known.

Ultimately, T & B's attempt to obtain control over Leviton failed and it remains "locked in" as a minority shareholder. In the course of its efforts to wrest control, T & B sued in Delaware's Court of Chancery pursuant to that state's mandatory corporate inspection statute (8 Del.C. § 220), seeking access to a host of Leviton's documents and meeting with only limited success. (See, Thomas & Betts Corp. v. Leviton Mfg. Co., 685 A.2d 702, affd. 681 A.2d 1026). The Delaware court found that the confidential financial information furnished by Blumberg regarding Leviton and its operations was used by T & B to determine the price it was willing to pay for the Blumberg shares. The court allowed inspection of the shareholder lists so that T & B could explore the possibility of acquiring their shares or selling them its shares, as well as production of Leviton's books and records. On the other hand, the Delaware court rejected T & B's claim that it needed greater inspection to investigate waste and mismanagement within Leviton finding such purpose to be at odds with the corporation's interest. The court granted T & B three-year access to Leviton's audited financial statements, as well as those of its subsidiaries and Leviton's tax returns for the same period.

In its complaint herein, Leviton, emphasizing the trial court's findings in the Delaware action that the purpose...