Merrit v. Libby, McNeill and Libby

Decision Date05 April 1976
Docket NumberD,No. 1035,1035
Citation533 F.2d 1310
PartiesFed. Sec. L. Rep. P 95,498 Manes MERRIT et al., Appellants, v. LIBBY, McNEILL & LIBBY, et al., Appellees. ocket 76-7136.
CourtU.S. Court of Appeals — Second Circuit

Stuart D. Wechsler and Edward Labaton, New York City (Kass, Goodkind, Wechsler & Gerstein, Shatzkin, Cooper, Labaton, Rudoff & Bandler, Nemser & Nemser, and Wolf Popper Ross Wolf & Jones, New York City, of counsel), for appellants.

R. John Cooper, New York City (Cravath, Swaine & Moore, New York City), for appellees.

Before OAKES and GURFEIN, Circuit Judges, and PIERCE, District Judge. *

GURFEIN, Circuit Judge:

This is an appeal from the denial of plaintiffs' motion for a preliminary injunction to restrain a short-form merger that was scheduled to take place on March 29, 1976 pursuant to a statutory thirty-day notice to shareholders and holders of convertible debentures under Section 904 of the Maine Business Corporation Act. The United States District Court for the Southern District of New York, Richard Owen, Judge, refused preliminary injunctive relief as unjustified under the tests set forth in Sonesta International Hotels Corp. v. Wellington Associates, 483 F.2d 247 (2 Cir. 1973). He found that there was no showing of likelihood of success on the merits and no showing of likely irreparable injury, and that there was also no showing that the claims going to the merits suggested by the plaintiffs created "a fair ground for litigation" combined with "a balance of hardships tipping decidedly toward the party requesting the preliminary relief." 483 F.2d at 250.

The denial of the injunction by the District Court followed upon a similar refusal of the New York State Supreme Court (Greenfield, J.) to enjoin the merger. That decision was not appealed. Tanzer Economic Associates, Inc. Profit Sharing Plan v. Universal Food Specialties, Inc., Misc.2d, 383 N.Y.S.2d 472 (Sup.Ct. 1976). We affirm the denial of a preliminary injunction by the District Court primarily on the ground that there is an adequate remedy at law.

In June and July of 1975, several class actions were begun in the Southern District challenging, under the federal securities laws, a tender offer made on May 29, 1975 by UFS Specialties, Inc. ("UFS") 1 for the outstanding common stock and convertible debentures of Libby, McNeill & Libby ("Libby"). At the time of the tender offer, UFS, a wholly-owned subsidiary of Nestle Alimentana, S.A. ("Nestle"), owned 61% of Libby's common stock. The tender offer was for $8.125 per share. The Offer to Purchase stated that if UFS obtained more than 90% of Libby's common stock, UFS intended to merge Libby into UFS. The Maine statute, which is generally known as a "short form merger" statute, permits the compulsory buyout of the remaining shareholders for cash. Soon after UFS had obtained about 92% of the common stock pursuant to the tender offer, its Board of Directors adopted a plan of merger under which the remaining Libby shareholders are to receive $8.125 per share, the same price as in the tender offer, subject to a right of appraisal under the Maine statute.

Despite the clear statement in June of ultimate intention to effect the merger, no effort was made during the pendency of the offer to restrain the tender offer or its possible concomitant, the merger which was to follow. Eight months went by, until on January 27, 1976, a few days before UFS was to mail the 30-day notice papers necessary to consummate the merger under Maine law to the remaining Libby shareholders (who now owned only about 8% of the company), plaintiffs moved for a preliminary injunction in the State Supreme Court. 2 The decision denying the injunction came down on March 10. On March 19 plaintiffs moved for an injunction in the District Court on the ground of alleged violations of the Securities Exchange Act of 1934, over which the state court has no jurisdiction. It is from the denial of that motion that this appeal was taken on March 26, three days before the scheduled consummation of the merger. We have, accordingly, expedited our decision.

The plaintiffs contend that the matter is governed in their favor by our recent decisions in Marshel v. AFW Fabric Corp., 533 F.2d 1277 (2 Cir. Feb. 13, 1976), and Green v. Santa Fe Industries, Inc., 533 F.2d 1283 (2 Cir. Feb. 18, 1976), rehearing en banc denied, 533 F.2d 1309 (2 Cir. Mar. 10, 1976). We must distinguish between the two cases.

Green involved an appeal from a dismissal of the complaint and did not involve an order denying a preliminary injunction. We simply remanded for trial. In the case at bar we are not called upon to decide whether summary judgment or judgment on the pleadings is available, as was the case in Green. In Marshel, we reversed the denial of a preliminary injunction against a proposed merger under New York law. If Marshel is on all fours with this case, it is a binding precedent. But Marshel involved "a scheme by the appellees, having previously taken advantage of public financing, to appropriate for their personal benefit the entire stock ownership of Concord at a price determined by them and paid out of the corporate treasury at a cost of over $1,600,000." 533 F.2d at 1280. The defendants had admitted that "AFW was organized solely as a vehicle to effectuate, in essence, a forced cash repurchase by Concord of its public stockholders' shares at a time and price determined entirely by the controlling stockholders and for their sole benefit." We said that "AFW has no function other than as a device facilitating the Weinsteins' attempt to utilize the state merger statute to accomplish indirectly what would be impossible to achieve through normal corporate processes because of settled law prohibiting the elimination of minority shareholders by vote of the majority." We held in Marshel that "(s)uch conduct is proscribed by the language of Section 10(b) (of the Securities Exchange Act of 1934) and Rule 10b-5." Id. at 1280.

Once we assumed, in Marshel, that such conduct was in violation of the federal securities laws, the ultimate result was a foregone conclusion, and, hence, a preliminary injunction was in order.

The case for the plaintiffs is not clear, as it was in Marshel, for several reasons. This is not a case where a shell corporation is used as a conduit for a forced merger by the simple device of transferring the shares owned in the transferor corporation to the transferee shell and the controlling shareholders put up no money but use corporate funds for their personal advantage. It is also not a case where the defendants admit that their sole motive is to rid themselves of the minority.

On the contrary, Nestle, the parent of UFS, has bought control of Libby by various methods. It bought stock in the open market, by a stand-by arrangement to pick up surplus shares on a subscription offer made by Libby to its shareholders and latterly by its own tender offer through UFS, for a total expenditure of about $100 million. The last tender offer alone required a fresh investment of about $34 million. Thus, we do not have the stark situation where the defendants clearly have chosen to force the elimination of the minority by the use of corporate funds solely for their personal advantage and for no business purpose. Indeed, the appellees plausibly assert that their primary purpose was to benefit the corporations, including Libby, by the merger.

The appellants have, through discovery, obtained a confidential report to the Board of Nestle by its president outlining the pros and cons of the contemplated...

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9 cases
  • Valuation of Common Stock of Libby, McNeill & Libby, In re
    • United States
    • Maine Supreme Court
    • August 16, 1979
    ...Plan v. Universal Food Specialties, Inc., 87 Misc.2d 167, 383 N.Y.S.2d 472 (Sup.Ct., March 10, 1976); Merrit v. Libby, McNeill & Libby, 533 F.2d 1310 (2d Cir., April 5, 1976), the merger was completed on April 6, 1976. From among those who had rejected the UFS offer of $8.125 per share, 110......
  • Austell v. Smith
    • United States
    • U.S. District Court — Western District of North Carolina
    • May 6, 1986
    ...would not necessarily resolve the valuation issue in the federal action. As the Second Circuit stated in Merrit v. Libby, McNeill & Libby, 533 F.2d 1310, 1314 (2d Cir.1976), the "restrictive theories of valuation used in state appraisal proceedings are not binding on federal courts when act......
  • Merrit v. Libby, McNeill & Libby
    • United States
    • U.S. District Court — Southern District of New York
    • January 26, 1981
    ...a total of 20% of the Libby common stock through a tender offer. The agreement provided that upon Nestle's acquisition of a 20% interest in Libby, the Nestle, Paribas, and Fasco interests would nominate representatives of the trust to positions on the Libby Board of Directors. This voting t......
  • Zoll v. Anker
    • United States
    • U.S. District Court — Southern District of New York
    • May 20, 1976
    ...were jostled by parents and their automobile was hit and shaken. 9 See N.Y.Educ.Law § 2590-l1(a). 10 See, e. g., Merrit v. Libby, McNeill & Libby, 533 F.2d 1310 (2d Cir. 1976); Gresham v. Chambers, 501 F.2d 687, 691 (2d Cir. 1974); Sonesta Int'l Hotels Corp. v. Wellington Assoc., 483 F.2d 2......
  • Request a trial to view additional results

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