Miller v. Steinbach, 66 Civ. 356.

CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
Citation268 F. Supp. 255
Docket NumberNo. 66 Civ. 356.,66 Civ. 356.
PartiesIrving MILLER, Plaintiff, v. Milton STEINBACH et al., Defendants.
Decision Date03 April 1967




Kaufman, Taylor, Kimmel & Miller, New York City, Stanley L. Kaufman and Shephard S. Miller, New York City, of counsel, for plaintiff Miller.

White & Case, New York City, Thomas Kiernan and Michael S. Mathews, New York City, of counsel, for defendant Evans.

Sullivan & Cromwell, New York City, Morgan, Lewis & Bockius, Philadelphia, Pa., Arthur H. Dean, Robert MacCrate, Thomas E. Patton, New York City, of counsel, for all other defendants.


TENNEY, District Judge.

In this action which has been brought derivatively on behalf and for the benefit of Baldwin-Lima-Hamilton Corporation (hereinafter referred to as "BLH"), individually on plaintiff's own behalf and representatively on behalf of all former BLH shareholders similarly situated with plaintiff except for those shareholders who participated in the transactions complained of, defendants have moved for an order: (a) under Rules 9(a) and 12(b) of the Federal Rules of Civil Procedure striking all matter from the complaint purporting to state a claim derivately on behalf of BLH; (b) under Rule 12(b) (6) of said Rules dismissing the complaint (or granting summary judgment pursuant to Rule 56) for failure to state a claim on which relief can be granted; (c) transferring this action, pursuant to 28 U.S.C. § 1404(a) (1964) to the United States District Court for the Eastern District of Pennsylvania if any matters remain for determination after (a) and (b) have been resolved; and (d) compelling plaintiff, pursuant to Rule 19(a) of the Federal Rules of Civil Procedure, to join as an indispensable party one Nathan Saks who is alleged by plaintiff (plaintiff's affidavit of June 21, 1966; see Exhibit A to White affidavit of April 25, 1966) to have been the joint owner with plaintiff of the shares upon which he bases his standing to sue, and if plaintiff fails to join this additional party, to dismiss the complaint under Rule 12(b) (3). The purpose of plaintiff's action is to recover damages for a merger between BLH and Armour & Company (hereinafter referred to as "Armour") which was consummated in July, 1965, and which plaintiff contends was in violation of the Federal Securities Laws and was "unfair".

Plaintiff was the joint owner with Nathan Saks of BLH shares since October 5, 1960 (Miller affidavit of June 21, 1966; cf. Complt. ¶ 3) until the 1965 merger at which time his shares were exchanged for Armour securities as will be more fully developed infra. The defendant Armour is a corporation organized and existing under the laws of the State of Delaware. It is authorized to do business and does business in the State of New York.1 Defendant William Wood Prince was a director of BLH and a member of its executive committee, chairman of the Armour board of Directors, Armour's president, and a member of said defendant's executive committee (Complt. ¶¶ 4, 5). The defendant George A. Rentschler was a director of BLH and chairman of its executive committee as well as a member of the Armour executive committee (Complt. ¶¶ 4, 6). The defendant Milton Steinbach was similarly a director of BLH, a member of the executive committees of both BLH and Armour and was also a partner in Wertheim & Company (hereinafter referred to as "Wertheim") which company's alleged role in the "conspiracy" will be discussed more fully hereinafter (Complt. ¶¶ 4, 7). The defendant Francis L. Elmendorf, another director of BLH, was a limited partner of and consultant to Wertheim and a director of International Packers Ltd. (hereinafter referred to as "Packers") a company in which Armour has a substantial financial interest (Complt. ¶¶ 4, 8). The defendants Perry A. White, James M. White and Andrew Liston, directors of BLH, were president and vice presidents, respectively, of that corporation (Complt. ¶¶ 4, 9). Arthur Littleton, named as a defendant in the within action, was both a director of BLH and a member of the Law firm of Morgan, Lewis and Bockius, Esqs., counsel to BLH (Complt. ¶¶ 4, 10).

The defendant Goldman, Sachs & Company (hereinafter referred to as "Goldman, Sachs") is a New York partnership engaged in investment banking in the State of New York which allegedly took part in the transactions complained of (Complt. ¶ 11). Wertheim plays a substantially similar role to that of Goldman, Sachs (Complt. ¶ 12). All other defendants, with the exception of T. M. Evans,2 were directors of BLH. The relationship of Evans to the transactions will also be examined infra.

Plaintiff alleges that on or about February 1, 1965, the defendants Prince, Rentschler, Steinbach, Perry A. White and Armour entered into negotiations looking toward the eventual merger of BLH into Armour (Complt. ¶ 16).3 Wertheim took part in these negotiations and acted as financial adviser to both parties.4 The merger plan envisioned a conversion of BLH common stock into a fractional share of Armour common stock and a fractional share of a preferred stock with a par value of $100. This preferred stock was to be traded for the first time on the New York Stock Exchange immediately after the consummation of the merger.

On April 1, 1965, a merger was approved in principle by the board of directors of BLH. Under this agreement, each share of BLH would be converted into one-sixth (1/6) share of Armour common stock then selling at $47.00 and 13/100 share of Armour $4.75 preferred.5 Prior to this date, the defendant Goldman, Sachs was consulted by both corporations for the purpose of rendering an opinion as to the fairness of the merger. An oral opinion was obtained wherein Goldman, Sachs stated that if the dividend rate were fixed at $4.75—rather than the $4.65 dividend originally proposed —the exchange would be fair and the preferred stock would sell at par.6 Said opinion was reduced to writing in a letter of April 14, 1965, wherein Goldman, Sachs stated "we are of the opinion that the proposed terms of conversion are fair and equitable to the stockholders of both Armour and Company and Baldwin-Lima-Hamilton Corporation." (Exhibit L to White affidavit of April 25, 1966). No statement was therein made about the future market price of the preferred stock.7 On April 20, 1965, the boards of directors of both Armour and BLH formally approved the merger. Pursuant to this action of the boards, a detailed proxy statement was prepared and filed purportedly in accordance with the rules of the Securities and Exchange Commission (White affidavit of April 25, 1966 at ¶ 11). The statement was mailed to the shareholders of BLH accompanied by a letter from Perry A. White, BLH president, in which he described the merger, urged a careful reading of the proxy statement and characterized Armour's record as "impressive" over the last five to six years.8 The proxy statement noted that a special meeting of shareholders would be held on June 10, 1965 to vote on the proposed merger.

The Evans Action

On May 13, 1965, defendant T. M. Evans, a shareholder of BLH with holdings of approximately 89,000 shares,9 commenced a shareholder's derivative action in the United States District Court for the Eastern District of Pennsylvania. All the defendants named herein were similarly named as defendants in the Evans action except for Goldman, Sachs,10 Wertheim and, of course, Evans. The action was brought on behalf and for the benefit of BLH and its shareholders and sought compensatory damages of not less than $25 million and punitive damages in a like amount because of the proposed merger. The gravamen of Evans' complaint was that the defendants had conspired to defraud the BLH shareholders and had violated and breached their fiduciary duties to the shareholders for their own personal interests. In addition, Evans alleged that the proxy statement contained false and misleading statements in violation of the Federal Securities Laws. Depositions of fifteen of the defendants were taken in Philadelphia during the week of May 24, 1965 (White affidavit of April 25, 1966 at ¶ 13).

On May 19, 1965, Evans attended a special BLH board of directors' meeting in Philadelphia wherein he was permitted to present his objections to the proposed merger. The BLH board, after considering Evans' position, ratified and reaffirmed the previous approval of the proposed merger. Id. at ¶ 15. On May 21, 1965, following filing of a proposed letter with the Securities and Exchange Commission, Perry A. White wrote to the BLH shareholders informing them inter alia of the institution of the Evans action and advising them of the reaffirmance of the merger agreement hereinbefore discussed.11 Id. at ¶ 16.

On May 25, 1965, Evans sought a temporary injunction enjoining the meeting of BLH shareholders scheduled for June 10, 1965. The motion was set down for a hearing to commence on June 1, 1965 after plaintiff had completed his discovery. The hearing began on that date and was concluded on June 4, 1965 with Chief Judge Clary of the United States District Court for the Eastern District of Pennsylvania reserving decision.12 On June 8, 1965, Evans' motion for a preliminary injunction was denied, the Court stating that "plaintiff herein has not established fraud, violation of the Securities and Exchange Commission regulations, breach of fiduciary duty, or conflict in interest, which would warrant this Court in entering a preliminary injunction." Evans v. Armour & Co., 241 F.Supp. 705, 715 (E.D.Pa.1965). Following Chief Judge Clary's determination and on that same day, Evans filed written objection to the plan of merger asserting his right as a dissenting shareholder pursuant to the Pennsylvania Business Corporation Law §§ 908, 515, 15 Purd.Stat. §§ 2852-908, 2852-515 (Supp.1966).

On June 10, 1965, the BLH shareholders approved the proposed merger and...

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