Moore Corp. Ltd. v. Wallace Computer Services, Inc., Civ. A. No. 95-472 MMS.

• Decision Date: 04 December 1995
• Docket Number: Civ. A. No. 95-472 MMS.
• Citation: 907 F. Supp. 1545
• Court: U.S. District Court — District of Delaware
• Parties: MOORE CORPORATION LIMITED and FRDK, Inc., Plaintiffs, v. WALLACE COMPUTER SERVICES, INC., Robert J. Cronin, Theodore Dimitriou, Fred F. Canning, William N. Lane, III, Neele E. Stearns, Jr., R. Darrell Ewers, Richard F. Doyle and William E. Olsen, Defendants.

907 F. Supp. 1545

MOORE CORPORATION LIMITED and FRDK, Inc., Plaintiffs, v. WALLACE COMPUTER SERVICES, INC., Robert J. Cronin, Theodore Dimitriou, Fred F. Canning, William N. Lane, III, Neele E. Stearns, Jr., R. Darrell Ewers, Richard F. Doyle and William E. Olsen, Defendants.

Civ. A. No. 95-472 MMS.

United States District Court, D. Delaware.

December 4, 1995.

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Jesse A. Finkelstein, and Daniel A. Driesbach, of Richards, Layton & Finger, Wilmington, Delaware; Of Counsel: Donald I. Strauber, Thomas J. McCormack, William S. D'Amico, Robert A. Schwinger, and Eric Welsh, of Chadbourne & Parke L.L.P., New York City; for plaintiffs.

Michael D. Goldman, Peter J. Walsh, Jr., Stephen C. Norman, and Michael A. Pittenger, of Potter Anderson & Corroon, Wilmington, Delaware; Of Counsel: Walter C. Carlson, William H. Baumgartner, Jr., Richard B. Kapnick, and Brandon D. Lawniczak, of Sidley & Austin, Chicago, Illinois; for defendants.

OPINION

MURRAY M. SCHWARTZ, Senior District Judge.

I. INTRODUCTION

Before the Court in this securities and antitrust matter are the parties' cross motions for preliminary injunctive relief and plaintiffs' motion to dismiss defendant's counterclaim. In their motion for a preliminary injunction, plaintiffs Moore Corporation Limited and its wholly-owned subsidiary FRDK, Inc. (collectively, "Moore") seek to enjoin defendants Wallace Computer Services, Inc. and its Board of Directors (collectively, "Wallace," "Board," or "Wallace Board") from implementing Wallace's antitakeover devices or taking any other actions to impede Moore's tender offer. Moore contends that such antitakeover maneuvers constitute a breach of fiduciary duty to the Wallace shareholders. As principal relief, Moore seeks to compel Wallace to redeem its "poison pill," which according to Moore presents the most serious obstacle to the consummation of the tender offer.

Wallace has counterclaimed that Moore's tender offer, if consummated, would violate Section 7 of the Clayton Act, 15 U.S.C. § 18. In response, Moore has moved for dismissal of the counterclaim pursuant to Fed.R.Civ.P. 12(b)(6), arguing that Wallace has not alleged sufficient antitrust injury and therefore lacks standing to bring this claim. Wallace has also moved for a preliminary injunction as to this antitrust counterclaim.¹

Consonant with the high stakes in this case, the parties have erected a voluminous record for the Court's consideration. Prior to, contemporaneous with, and following a preliminary injunction hearing, the Court has been "carpet bombed"² with a rash of legal memoranda, over two hundred exhibits, myriad depositions, with separately filed excerpts and highlights from those same depositions, and a salmagundi of other documents. In addition to considering all of the above, the Court also will refer to testimony elicited at a three day preliminary injunction hearing held November 7-9, 1995.

Jurisdiction is based on diversity of citizenship, 28 U.S.C. § 1332, and federal question jurisdiction, 28 U.S.C. §§ 1331, 1337(a), 15 U.S.C. § 26. Venue is proper under 28 U.S.C. § 1391(c) and 15 U.S.C. § 22. This opinion contains this Court's findings of fact and conclusions of law, pursuant to Fed. R.Civ.P. 52(a); to the extent that findings of fact are placed among conclusions of law, they should be deemed findings of fact.

For the reasons set forth below, the Court will deny Moore's motion for preliminary injunction with respect to the breach of fiduciary duty claim and grant Moore's motion to dismiss Wallace's Clayton Act counterclaim. Wallace's motion for preliminary injunction with respect to the antitrust claims will therefore become moot.

II. THE PARTIES

Plaintiff Moore Corporation Limited is an Ontario, Canada corporation engaged in the business of delivering information handling products ("business forms" or "forms") and services, with its principal place of business in Toronto, Ontario. Docket Item ("D.I.") 1, ¶ 7. Plaintiff FRDK, Inc. is a New York corporation with its principal place of business in Toronto, Ontario. Id. ¶ 8. As a wholly-owned subsidiary of Moore Corporation Limited, FRDK, Inc. was incorporated for the purpose of making a tender offer for all outstanding Wallace stock in connection with a proxy solicitation and merger. Id. ¶ 8. Counterclaim defendant Braun is the Chairman and Chief Executive Officer of Moore Corporation, Limited.

Defendant Wallace is a Delaware corporation engaged predominantly in the computer services and supply industry, with its principal place of business in Hillside, Illinois. Id. ¶ 9. Defendants Robert J. Cronin ("Cronin"), Theodore Dimitriou ("Dimitriou"), Fred F. Canning ("Canning"), William N. Lane, III ("Lane"), Neele E. Stearns, Jr. ("Stearns"), R. Darrell Ewers ("Ewers"), Richard F. Doyle ("Doyle"), and William E. Olsen ("Olsen") are members of the eight-member Wallace Board of Directors. Of these eight directors, all but Cronin and Dimitriou are independent directors. Cronin presently serves as President and Chief Executive Officer of Wallace. Dimitriou formerly served as Chief Executive Officer, and now serves as Chairman of the Wallace Board.

III. MOORE'S FIDUCIARY DUTY CLAIM

A. Facts

As with all actions alleging breach of fiduciary duty by a target corporation's Board of Directors, a detailed examination of the actions of the Wallace Board is required to provide context to the claim. In February, 1995, Moore's Chief Executive Officer Braun approached Wallace management proposing a possible business combination between Moore and Wallace. D.I. 176 at 2-3. On March 8, 1995, the Wallace Board instructed its Chief Executive Officer Cronin to advise Braun that Wallace had no interest in a business combination with Moore. Between February and June, 1995, attempts were made by Braun to meet with Cronin over lunch to discuss the matter, but the lunch meeting never occurred. On June 14, 1995, the Wallace Board approved an employment agreement for Cronin that provided Cronin, among other items, a severance package in the amount of $8 million in the event of a change in his job duties. D.I. 107, Deposition of Doyle ("Doyle Depo."), at 52. The substance of this agreement, in all pertinent respects, was identical to a prior agreement between Wallace and Dimitriou, Cronin's predecessor as Chief Executive Officer. Additionally, the Wallace Board adopted a by-law amendment creating a 60-day notice requirement applicable to shareholders desiring to bring business for consideration at Wallace's annual meeting. Id. at 56.

On July 30, 1995, a Sunday, Moore announced its intention to commence a tender offer for all outstanding shares of Wallace common stock (together with the associated preferred stock purchase rights that were issued in connection with Wallace's poison pill) at a price of $56 per share, a number which was determined with the advice of Moore's financial consultant Lazard Freres. The value of the proposed transaction was approximately $1.3 billion. D.I. 1, ¶ 20. Moore intends, as soon as practicable after the consummation of the tender offer, to cause Wallace to merge with FRDK, and purchase all shares not tendered. Concurrently with the tender offer, Moore has delivered proxy solicitation materials to the Wallace shareholders in order to nominate three individuals to serve as and replace the entire membership of the Wallace Board. Id. ¶¶ 21, 22.³

The $56 tender offer was an all-cash offer for all shares that would provide Wallace shareholders a premium of 27% over the market price of Wallace stock value as of the date of the announcement of the offer. Id. ¶¶ 24, 25. The offer was conditioned upon, inter alia, (a) the valid tender of a majority of all outstanding shares of Wallace's common stock on a fully-diluted basis on the date of purchase; (b) the redemption, invalidation or inapplicability of the rights allowed under the Preferred Stockholder Rights Plan (the poison pill);⁴ (c) Wallace Board approval of the acquisition of shares pursuant to the offer and proposed merger under Section 203 of the Delaware Business Combination Statute ("Section 203");⁵ (d) the proposed merger having been approved pursuant to Article Ninth of Wallace's Restated Certificate of Incorporation ("Article Ninth"), or the inapplicability of such article to the offer and proposed merger;⁶ and (e) the availability of sufficient financing to consummate the offer and proposed merger.⁷ Id. ¶ 20.

Moore communicated its intent to launch the tender offer to Wallace by leaving a telephone message that Sunday evening at Cronin's home. Upon receiving the information, Cronin contacted the Wallace Board and officers, and a group of advisors met them at their corporate headquarters. On Monday, July 31, Wallace, based on the recommendation of Dimitriou, retained Goldman Sachs ("Goldman") as its financial advisor to review the adequacy of the Moore tender offer. Dimitriou recommended Goldman based on the fact that Goldman had previously done work for Wallace, and that Goldman enjoyed the reputation as being a leading investment firm.

That same day, at 8:30 a.m., Moore filed the complaint in this action seeking the Court to compel the removal of the antitakeover devices and to declare that the proposed merger complied with all applicable laws. See Moore Corp. v. Wallace Computer Servs., 898 F.Supp. 1089 (D.Del. Sept. 19, 1995). Wallace moved to dismiss the complaint on the dual grounds that the action was not yet ripe, and that plaintiffs engaged in impermissible forum shopping. The motion was denied. See id. On August 1, 1995, the Wallace Board met for the first time to consider the offer and to ratify the retention of Goldman as the company's financial advisor. Doyle Depo. at 107.⁸

Cody Smith ("Smith"), a Goldman partner, headed his firm's evaluation of the proposed tender offer. In accordance with requests from Goldman, Wallace management...