Lou v. Belzberg

• Decision Date: 16 January 1990
• Docket Number: 86 Civ. 6638 (RWS).,No. 86 Civ. 5304 (RWS),86 Civ. 5304 (RWS)
• Parties: A. Jacques LOU, Plaintiff, v. William BELZBERG, et al., Defendants, Ashland Oil, Inc., Nominal Defendant. Joan STAHL, Plaintiff, v. ASHLAND OIL, INC., et al., Defendants.
• Court: U.S. District Court — Southern District of New York

728 F. Supp. 1010

A. Jacques LOU, Plaintiff, v. William BELZBERG, et al., Defendants, Ashland Oil, Inc., Nominal Defendant.

Joan STAHL, Plaintiff, v. ASHLAND OIL, INC., et al., Defendants.

Nos. 86 Civ. 5304 (RWS), 86 Civ. 6638 (RWS).

United States District Court, S.D. New York.

January 16, 1990.

COPYRIGHT MATERIAL OMITTED

Milberg Weiss Bershad Specthrie & Lerach, New York City, Gene Mesh & Associates, Cincinnati, Ohio, Law Offices of David B. Gold, San Francisco, Cal. (Jerome M. Congress, Wendy K. Goidel, Patricia A. Kindel, Jacquetta M. Bardacos, of counsel), for plaintiffs.

Davis Polk & Wardwell, New York City (Richard E. Nolan, Daniel L. Brockett, James P. Rouhandeh, of counsel), for the Belzberg defendants.

Olwine, Connelly, Chase, O'Donnell & Weyher, New York City (John O'Donnell, of counsel), for defendant Ashland Oil, Inc.

Cravath, Swaine & Moore, New York City (Douglas Broadwater, of counsel), for director defendants.

SWEET, District Judge.

Defendants, William Belzberg, Hyman Belzberg, Samuel Belzberg, Marc Belzberg, First City Financial Corporation Ltd., First City Trust Company, Roxboro Investments 91976) Ltd., Bel-Fran Investments Ltd., Bel-Cal Holdings Ltd. and Bel-Alta Holdings Ltd. (collectively "First City") have moved pursuant to Federal Rule 56(c) for summary judgment, and Federal Rules 9(b) and 12(b)(6) for dismissal (the "First City Motion") of the Consolidated Amended Class Action and Shareholders' Derivative Complaint ("the Complaint"). Defendant Ashland Oil, Inc. ("Ashland"), and defendants John R. Hall, Robert T. McCowan, William R. Seaton, Charles J. Luellen, Samuel C. Butler, Eugene W. Erickson, James B. Ferley, Robert D. Gordon, Jr., Walter W. Hillenmeyer, Jr., Don T. McKone, Harold S. Mohler, Grover E. Murray, Jane C. Pfeiffer, Robert S. Reigeluth, James R. Rinehart, F.H. Ross, Jr., Robert B. Stobaugh, Richard L. Terrell, and James W. Vandeveer (the "Directors") have also moved (the "Ashland Motion") pursuant to Federal Rule 12(b)(6) for dismissal of the derivative claims contained in the Consolidated Amended Complaint. For the reasons set forth below, these motions are granted in part and denied in part as set forth below.

Parties

Plaintiff A. Jacques Lou ("Lou") bought 1,000 shares of Ashland common stock on March 27, 1986. Lou was a shareholder of Ashland at the time the transactions complained of herein took place and continues to hold shares of Ashland common stock.

Plaintiff Joan Stahl ("Stahl") was the owner of Ashland's common stock (in her representative capacity as Custodian for Danielle Stahl) during the time of the challenged transaction and she continues to hold Ashland shares.

The First City defendants, include certain members of the Belzberg family and the companies they control as listed above. First City is an investment corporation with financial, manufacturing, and real estate subsidiaries in the United States and Canada.

The Ashland defendants ("Ashland"), include members of the Board of Directors, listed above, and Ashland, as the nominal defendant in the derivative claims. Ashland is a corporation organized and existing under the laws of the Commonwealth of Kentucky.

Prior Proceedings

Stahl initially filed an action (the "Stahl Action") in the Eastern District of Kentucky on April 14, 1986. On the same date, Lou filed an amended complaint ("Lou Action") in California State Court. After protracted litigation in California bearing on whether the claims were properly in a federal court, on May 12, 1986, First City, Ashland Oil, and Drexel moved to change venue of the Lou Action pursuant to 28 U.S.C. § 1404(a) to the United States District Court for the Southern District of New York. By order of May 14, 1986 the motion to transfer was granted. On May 22, 1986 Ashland moved to transfer the Stahl Action to the United States District Court for the Southern District of New York and by order of August 8, 1986 the motion was granted. On October 18, 1988 the Amended Consolidated Complaint (the "Complaint") combining both the Lou and Stahl Actions was filed. On March 16, 1989 Ashland moved to dismiss the derivative claims in the complaint and on March 17, 1989 First City moved for dismissal and Summary Judgment. Oral Argument on both motions was heard on October 20, 1989, and the motions were considered fully submitted as of that date.

Facts

First City began purchasing Ashland stock in February of 1986. Between February 11, and March 25, First City acquired approximately 1.4 million shares of Ashland common stock as well as options to purchase an additional 1.2 million shares.

On March 24, 1986, First City informed Ashland that First City had accumulated between 8% and 9% of Ashland stock and that First City was filing a Schedule 13D with respect to these purchases. First City proposed a meeting between Samuel Belzberg and Ashland's Chairman, defendant John R. Hall ("Hall"), with respect to a possible transaction involving Ashland. The next day, Ashland issued a press release announcing First City's holdings, resulting in a rise in the market price of Ashland shares.

Also on March 25, Samuel Belzberg sent a letter to Hall stating:

Based on our study of publicly available information concerning Ashland and our analysis of its business and prospects, we are prepared today to enter into an agreement providing for the acquisition of 100% of the stock of Ashland by First City at a price of $60.00 per share of common stock. If you enter into good faith negotiations with us, we believe that working together we can negotiate a higher price for Ashland's stockholders. If you reject out proposal and our offer to negotiate we will consider all available alternatives.

The closing price of Ashland's stock on March 25, 1986 was $52 per share, an increase of $3.75 per share from the previous day.

On the morning of March 26, a representative of Ashland telephoned a representative of First City, stating that, while Ashland was not interested in discussing any transaction with First City, Ashland was mindful of its duties to its stockholders. The Ashland representative further reported that Hall was not interested in meeting the week of March 25, as had been requested and suggested the possibility of a meeting at the end the week of March 31.

On the afternoon of March 26, First City filed its Schedule 13D, disclosing that First City had acquired 9.2% of Ashland's common stock. First City also stated that, had the requested meeting taken place, First City intended to propose, subject to the approval of Ashland's Board of Directors, the acquisition of Ashland by First City at a price of $60 per share. A copy of Samuel Belzberg's letter to Hall was attached as an exhibit to the Schedule 13D.

The Schedule 13D also disclosed that First City was considering a number of available options with respect to its future course of action:

First City's future course of conduct will depend upon the receptivity of the management and Board of Directors of the Issuer, the availability of other opportunities for the use of the resources of First City, market conditions and other relevant developments.... Pending a determination by First City as to its future course of conduct with respect to the Issuer, it may increase or decrease or continue to hold or to dispose of its position in the Issuer and may seek to obtain representation on the Issuer's board of directors.

On March 27, First City filed a Hart-Scott-Rodino Notification and Report Form with the Federal Trade Commission and the Department of Justice seeking antitrust clearance to acquire more than 50% of Ashland's stock.

Following First City's proposal, Ashland began intensive efforts to encourage passage of and ultimately obtained "anti-take-over" legislation in Kentucky which severely restricted the ability of Kentucky corporations, such as Ashland, to effect mergers or other business combinations by an acquiror for a period of five years when such a combination had not been approved in advance by the company's board of directors. After securing the passage of this legislation Ashland informed First City that Ashland would not, under any circumstances, enter into good faith negotiations with respect to First City's proposal. Ashland also stated that, if required, Ashland would take whatever additional actions were necessary to ensure its independence.

On March 31, 1986, Ashland's financial advisor, First Boston, proposed to First City's financial advisor, Drexel Burnham, that Ashland purchase the shares held by First City. After discussions, First City agreed to sell its stock to Ashland at a price of $51 per share (the "Agreement"). This price was $.50 per share less than the price of Ashland common stock at the close of the market on March 31.

First City agreed to sell its shares to Ashland, and Ashland undertook to provide value to all shareholders. A representative of Ashland stated that management would recommend to the Ashland Board that Ashland purchase, apart from First City's shares, an additional fifteen to twenty percent of Ashland's common stock from other stockholders in the open market. In addition, First City agreed to a standstill arrangement, under which it promised not to acquire any voting shares of Ashland for a period of ten years, and Ashland released First City from any liability arising out of the stock purchase transaction.

The Ashland Board approved the Agreement and stated the following reasons in the minutes of the Board meeting:

(1) That the Corporation and its shareholders would be better served by remaining independent than by having the Corporation acquired at a price of $60 per share. In reaching this conclusion, the Board considered the Corporation's business as a whole (including, among other things, management's own internal evaluations and outside advice indicating that a price of $60 for the Corporation's Common Stock did not reflect the full value of the Corporation), the

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