Litton Industries v. Lehman Bros. Kuhn Loeb Inc.
| Decision Date | 07 August 1991 |
| Docket Number | No. 86 Civ. 6447 (JMC).,86 Civ. 6447 (JMC). |
| Citation | 767 F. Supp. 1220 |
| Parties | LITTON INDUSTRIES, INC., Plaintiff, v. LEHMAN BROTHERS KUHN LOEB INCORPORATED, Dennis Levine, Ira B. Sokolow, Robert M. Wilkis, Bank Leu International, Ltd., Bank Leu A.G., Bernhard Meier, John R. Lademann, Bruno Pletscher, Jean-Pierre Fraysse, and Christian Schlatter, Defendants. |
| Court | U.S. District Court — Southern District of New York |
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Dilworth, Paxson, Kalish & Kauffman, Washington, D.C. by Michael I. Smith, Lawrence D. Berger, Scott R. Shepherd and M. Miller Baker, for plaintiff Litton Industries, Inc.
Fried, Frank, Harris, Shriver & Jacobsen, Washington, D.C. by Henry A. Hubschman, for defendants Bank Leu Intern., Ltd. and Bank Leu A.G.
Paul, Weiss, Rifkind, Wharton & Garrison, New York City by Martin Flumenbaum and Brad S. Karp, for defendant Dennis Levine.
Willkie, Farr & Gallagher, New York City by Jeanne M. Luboja, Jonathan P. Wolfert, Jonathan D. Bassett and Michael H. Ochs, for defendant Lehman Bros. Kuhn Loeb Inc.
Litton's motion for partial summary judgment is denied. Fed.R.Civ.P. 56. Lehman Brothers' cross-motion for partial summary judgment is granted in part and denied in part. Fed.R.Civ.P. 56. Litton's motion to strike the reply affidavit of Judith MacDonald is denied. Fed.R.Civ.P. 6(d), 56(e); Local Civil Rule 3(c)(2). Litton's motion for the entry of final judgment is granted. Fed.R.Civ.P. 54(b). The joint motion by Litton, BLI, and BLZ for the entry of final judgment is denied. Fed. R.Civ.P. 54(b). Litton's motion to reverse or modify Magistrate Judge Gershon's denial of its renewed motion to compel the deposition testimony of Dennis Levine is denied. 28 U.S.C. § 636(b)(1)(A) (1988); Fed.R.Civ.P. 72(a).
This substantial and complex securities litigation is one of the first civil actions to be filed following the Securities and Exchange Commission's the "SEC" well publicized charges that Dennis Levine wrongfully misappropriated inside information. Thus, it is not surprising that this matter has generated a protracted pretrial motion practice. The action has been before the Court on numerous prior motions and, therefore, complete familiarity with the facts is assumed. Nevertheless, a brief review of the underlying facts and extensive procedural history is crucial to a proper understanding of the instant motions.
This action arises out of plaintiff Litton Industries, Inc.'s "Litton" successfully negotiated acquisition of Itek Corporation "Itek" in January 1983. On September 20, 1982, defendant Lehman Brothers Kuhn Loeb Inc. (now known as Shearson Lehman Brothers) "Lehman Brothers" made an initial presentation to Litton concerning possible acquisition candidates in the electronic warfare industry, including Itek. Thereafter, the Litton Board of Directors decided to attempt a friendly takeover of Itek. On October 15, 1982, as a first step toward a possible tender offer, Litton began to purchase Itek stock in the open market. In order to establish a firm toehold in Itek, Litton set out to purchase in the open market 4.9% of the outstanding Itek common stock. In early November 1982, Litton informed Lehman Brothers that it wanted to hire Lehman Brothers as its investment banker for the possible acquisition of Itek.
On November 12, 1982, Lehman Brothers sent a letter to Litton proposing terms for its engagement by Litton. The letter stated that it shall become a binding agreement when executed by Litton. Litton reviewed the letter with its general counsel and thereafter requested certain modifications by Lehman Brothers. On November 23, after incorporation of the modifications, Joseph Casey, Litton's chief financial officer, executed the letter. The agreement, marked "CONFIDENTIAL" on each page, delineates the investment banking services to be rendered by Lehman Brothers and expressly provides that it "represents the entire understanding between the parties, and all other prior discussions and negotiations are merged in it."
The gravamen of Litton's third amended complaint is that defendant Ira B. Sokolow, an employee in Lehman Brothers' mergers and acquisitions department, leaked confidential information regarding Litton's proposed Itek acquisition to defendant Levine, also an employee in the mergers and acquisitions department. It is undisputed that Levine conducted massive amounts of trading based on material nonpublic information during his employment at Lehman Brothers. In particular, the complaint alleges that Levine purchased 50,000 shares of Itek stock through defendant Bank Leu International Limited (now known as Leu Trust and Banking (Bahamas) Limited) "BLI" in advance of the public disclosure of Litton's tender offer. The complaint also alleges unlawful open market purchases of Itek common stock by defendants Sokolow, Jean-Pierre Fraysse (BLI's managing director), Bernhard Meier and Christian Schlatter (BLI employees), Robert Wilkis (investment banker with Lazard Freres & Company), and BLI itself. Nontrading defendants who allegedly assisted Levine in his insider trading include Bank Leu A.G. "BLZ", John R. Lademann (BLI board member and BLZ management board member), and Bruno Pletscher (BLI's managing director). Although Litton is satisfied with its acquisition of Itek and does not seek to undo the transaction, it contends that defendants' illegal purchases artificially inflated the market price of Itek common stock, thereby causing Litton to pay more than it should have to acquire its toehold purchases of Itek stock in the open market and to complete its tender offer for and subsequent merger with Itek.
The third amended complaint asserts ten counts for various violations of the federal securities laws and RICO, as well as violations of state statutory and common law. Litton asserts the following four measures of damages: (1) against all defendants for the amount Litton overpaid for its tender offer and merger purchases of Itek common stock as a result of the artificial inflation in the market price allegedly caused by defendants' illegal trading the "tender offer/merger purchase damages"; (2) against all defendants for the amount Litton overpaid for its open market purchases of Itek common stock on November 19 and 22, 1982 as a result of defendants' illegal trading the "open market purchase damages"; (3) against Levine, Sokolow, Wilkis, Fraysse, Schlatter, Meier, and BLI for disgorgement of all profits, fees, and commissions earned as a result of their illegal trading the "disgorgement damages"; and (4) against Lehman Brothers, in the approximate amount of $2.4 million, for the return of all fees paid to Lehman Brothers under their contract for services relating to the Itek acquisition the "fee damages". In connection with its common law claims, Litton also seeks punitive damages against all defendants.
Defendants initially moved for partial summary judgment on all counts to the extent they sought tender offer/merger purchase damages. By Memorandum and Order dated March 27, 1989, the Court granted defendants' motion, finding as a matter of law that Litton failed to establish a causal connection between defendants' insider trading and the price Litton paid for Itek common stock during the tender offer and subsequent Litton/Itek merger. See Litton Indus., Inc. v. Lehman Brothers Kuhn Loeb Inc., 709 F.Supp. 438 (S.D.N.Y.1989) the "March 27 Order". Based on the Court's finding of no causation, Lehman Brothers moved for partial summary judgment on those counts asserted against it to the extent they sought to recover tender offer/merger purchase damages. By Memorandum and Order dated August 4, 1989, the Court granted the motion, relying principally upon the March 27 Order. See Memorandum and Order, at 4-7, 86 Civ. 6447 (JMC), 1989 WL 162315 (S.D.N.Y. Aug. 4, 1989) the "August 4 Order".
Thereafter, Litton moved for certification of the March 27 Order pursuant to 28 U.S.C. § 1292(b). The defendants opposed the motion and cross-moved for the entry of final judgment pursuant to Rule 54(b) of the Federal Rules of Civil Procedure. The August 4 Order denied both motions, finding that the dismissed claims seeking tender offer/merger purchase damages were not properly the subject of an interlocutory appeal. The August 4 Order also denied Litton's motion for reconsideration and vacatur of the March 27 Order.
Defendants BLZ, BLI, Lademann, Pletscher, Schlatter, Fraysse, and Levine moved for partial summary judgment on Litton's securities fraud claim seeking disgorgement of all profits, fees, and commissions earned on the purchase and sale of Itek common stock. By Memorandum and Order dated April 18, 1990, as modified on June 27, 1990, the Court granted the motion as to all defendants except Levine, finding as a matter of law that Litton is not entitled to a disgorgement measure of damages because these defendants previously disgorged to the SEC the full amount of their trading profits from the purchase and sale of Itek securities. See Litton Indus., Inc. v. Lehman Brothers Kuhn Loeb Inc., 734 F.Supp. 1071 (S.D.N.Y.1990) the "April 18 Order", modified, Memorandum and Order, at 2-3, 86 Civ. 6447 (JMC) (S.D.N.Y. June 27, 1990) the "June 27 Order". As to Levine, the Court found that a genuine issue of material fact existed as to whether the amount previously disgorged to the SEC constituted all illegal profits realized by Levine.
Litton seeks disgorgement damages against the trading defendants as an alternative remedy to its tender offer/merger purchase damages and its open market purchase damages. As a result of the April 18 Order as modified, the disgorgement measure of damages remains against only Levine and the trading defe...
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