Lowenschuss v. Kane, 73 Civ. 2021.

• Citation: 367 F. Supp. 911
• Decision Date: 25 July 1973
• Docket Number: No. 73 Civ. 2021.,73 Civ. 2021.
• Parties: Fred LOWENSCHUSS, Trustee for Fred Lowenschuss Associates Pension Plan, Individually and on behalf of all other persons and shareholders of Great Atlantic & Pacific Tea Co., Inc. who are similarly situated, Plaintiff, v. W. J. KANE, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

367 F. Supp. 911

Fred LOWENSCHUSS, Trustee for Fred Lowenschuss Associates Pension Plan, Individually and on behalf of all other persons and shareholders of Great Atlantic & Pacific Tea Co., Inc. who are similarly situated, Plaintiff, v. W. J. KANE, et al., Defendants.

No. 73 Civ. 2021.

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

July 25, 1973.

Fred Lowenschuss Associates, Philadelphia, Pa., Abraham E. Freedman, New York City, for plaintiff by Fred Lowenschuss, Philadelphia, Pa., Charles Sovel, New York City, of counsel.

Olwine, Connelly, Chase, O'Donnell & Weyher, New York City, for defendants W. J. Kane, H. J. Berry, R. M. Brown, Jr., W. Corbus, D. K. David, H. C. Gillespie, J. S. Kroh, E. A. LePage, R. F. Longacre, M. D. Potts, J. M. Schiff, P. A. Smith, H. Taylor, Jr., E. J. Toner, W. I. Walsh, N. F. Whittaker and J. A. Zeigler by William F. Sondericker, Joseph M. Burke, New York City, of counsel.

Cahill, Gordon & Reindel, New York City, for The Great Atlantic & Pacific Tea Co., Inc. by Raymond L. Falls, Jr., Allen S. Joslyn, Miles M. Tepper, New York City, of counsel.

Simpson, Thacher & Bartlett, New York City, for Gulf & Western Industries, Inc. and C. G. Bluhdorn by John A. Guzzetta, New York City, of counsel.

Sullivan & Cromwell, New York City, for Kidder, Peabody & Co., Inc. by William E. Willis, Mark I. Fishman, New York City, of counsel.

OPINION

KEVIN THOMAS DUFFY, District Judge.

All parties have moved for summary judgment in this matter, which was transferred here from the Eastern District of Pennsylvania. The genesis of this action is found in the tender offer of Gulf & Western Industries, Inc. (hereinafter "G & W"), for a portion of the stock of the Great Atlantic & Pacific Tea Co., Inc. (hereinafter "A & P"). That tender offer was never consummated because of an order of this Court. See Gulf & Western Indus., Inc. v. Great Atlantic & Pacific Tea Co., Inc., D.C., 356 F.Supp. 1066, aff'd, 476 F.2d 687 (2nd Cir. 1973).

The defendants fall into three classes: (1) the officers and directors of A & P and A & P itself; (2) the chief executive officer of G & W and G & W itself; and (3) Kidder, Peabody & Co., (hereinafter "Kidder, Peabody"), the managing agent-broker-dealer of the tender offer.

The plaintiff is a lawyer who has created a pension fund for himself and his associates. He is suing in his capacity as trustee of that pension fund.

The tender offer by G & W for the A & P shares was approved by the Board of Directors of G & W and announced on February 1, 1973, with full publicity of the offer circulated on the following day, February 2, 1973. The offer provided for the purchase of 3.75 million shares of A & P stock if tendered on or before February 13, 1973, at a price of $20 per share. Needless to say, as of February 2, 1973, the price of A & P stock was below the tender offer price.

On February 2, 1973, two things happened: (1) the management of A & P announced its opposition to the tender offer and indicated that it would take legal action to prevent the consummation of the tender offer; and (2) the plaintiff placed an order for 2000 shares of A & P stock, which order was executed in two transactions on the New York Stock Exchange. I make no finding as to which of these events took place first.¹ Thereafter, but before February 13, 1973, plaintiff tendered the A & P shares in accordance with the G & W tender offer.

On February 5, 1973, G & W filed a complaint charging A & P with violation of the Williams Act, § 14, of the Securities Exchange Act of 1934, as amended, 15 U.S.C. § 78n because of alleged misrepresentations in its release opposing the tender offer. On the same day, A & P counterclaimed against G & W and Kidder, Peabody, the managing agent of the tender offer, claiming violations of the Williams Act (supra) and also violations of the antitrust laws.

A hearing was held on February 9, 1973, and on February 13, 1973, I filed an opinion and an order prohibiting G & W from the consummation of the tender offer. The defendant Kidder, Peabody was not enjoined as I found that it had acted merely as a "broker-dealer" and no showing had been made that it violated the law. An appeal was immediately taken from my order.

On February 15, 1973, the plaintiff filed this law suit in the Eastern District of Pennsylvania. At no time did the plaintiff or any member of the class which he asserts he represents attempt to intervene in the action before me, although it is clear that he and many others of the class were aware of the litigation. The plaintiff and others representing the alleged class were, however, permitted to intervene in the appeal from my decision and they fully set forth their claims and views there.

The present action sounds in contract. The complaint alleges that the G & W tender offer was an offer of a unilateral contract; that the offer was accepted by the plaintiff and members of the class by tendering A & P shares equal to or greater than the number of shares specified in the tender offer; that the contract was completed by the tender; that A & P, its officers and directors interfered with the contractual rights of the plaintiffs; and that defendants are obligated to pay to plaintiff and the other members of the class the tender offer price for their shares or, in the alternative, damages.

Plaintiff has stipulated to dismiss his complaint as against A & P and its officers and directors. Thus the only defendants left are G & W, Bluhdorn and Kidder, Peabody.

It should be emphasized that this case sounds only in contract. The plaintiff has filed a separate suit against the same defendants for alleged violation of the securities laws and particularly the Williams Act, supra. Although the plaintiff in his brief switches from claims sounding in contract to those in securities law, without compunction, it is clear to me that the question before the Court on this motion is one solely of contract law.² I would suspect that the other action brought by plaintiff which involves allegations of violations of the securities laws will eventually be the subject of a similar motion, but I must defer any decision as to that issue until the question is properly before the Court.³

Before turning to the motions for summary judgment, it appears to me that a threshold question is presented, namely, whether the plaintiff may maintain this action as a "class action". I hold that this is a proper class action under Rule 23 of the Federal Rules of Civil Procedure. See e. g. Feder v. Harrington, 52 F.R.D. 178 (S.D.N.Y.1970). Here there are clearly common questions of law affecting all the members of the class of tendering stockholders; the class is so numerous that joinder of all the tendering stockholders is impractical yet the size and identification of the class is manageable; the claims of the plaintiff are typical of those of the class; and it appears to me that the plaintiff will fairly and adequately represent the interests of the class of tendering stockholders. Finally, the efficacy of a class action in this case is obvious. This is an action where a large number of tendering A & P shareholders may have been injured, but it is unlikely that the individual injuries would rise to a level sufficient to warrant individual suits. A class action provides a method for obtaining redress for these claims.

I must now consider the merits of the various motions. Kidder, Peabody has moved for summary judgment. I am constrained to consider this as a motion to dismiss the complaint under Rule 12(b) of the Federal Rules of Civil Procedure. As I have said, this complaint sounds solely in contract. The plaintiff admits that:

"it is, of course, clear that Kidder, Peabody's role in the making of the tender offer was that of `dealer-manager' and, as such, it was not a party to the contractual relationship between G & W and the tendering shareholders of A & P stock."

No claim is made in the complaint that Kidder, Peabody interfered with the contractual rights of G & W and the plaintiff or the class which he represents. Accordingly, this complaint as against Kidder, Peabody must be dismissed.

The plaintiff's argument against this dismissal is founded in an argument that Kidder, Peabody "aided and abetted" G & W in violating the securities laws. That question must abide a determination on the plaintiff's other complaint where allegations of such violations are set out. In any event, there is no showing on the record before me that Kidder, Peabody knowingly and wilfully aided and abetted any violation of the Williams Act or of any other statute. In acting as dealer-manager of the tender offer, it is true that Kidder, Peabody transmitted the offer to others. But there is not the slightest scintilla of proof, much less a clear allegation, that Kidder, Peabody even knew or had reason to know, of any infraction.

Plaintiff has moved for summary judgment against G & W and Bluhdorn. It is plaintiff's argument that a tender offer is a unilateral contract conditioned only on the fact that sufficient shares be tendered as required by the offer.⁴ The relief sought is "payment for the shares of A & P stock that were tendered to G & W, or, in the event that a determination is made that G & W may not accept the tendered shares that damages be awarded to plaintiff and the members of the class for the losses they have suffered by reason of the failure to complete the tender offer." (Plaintiff's memorandum, pp. 4 and 5; Emphasis in the original).

Plaintiff's first argument which seeks completion of the tender offer must fall. There can be no question that plaintiff cannot demand or force consummation of the tender offer. Inherent in every tender offer is the condition that the offer be held lawful by a court of competent jurisdiction if the tender offer is attacked. The Court of Appeals for the Second Circuit in Gulf & Western Indus., Inc. v. Great Atlantic & Pacific Tea Co., Inc. supra, in dealing with the...