Moore Corp. Ltd. v. Wallace Computer Services, Inc.

• Decision Date: 19 September 1995
• Docket Number: Civ. A. No. 95-472 MMS.
• Citation: 898 F. Supp. 1089
• 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.
• Court: U.S. District Court — District of Delaware

898 F. Supp. 1089

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.

September 19, 1995.

COPYRIGHT MATERIAL OMITTED

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

Michael D. Goldman, Stephen C. Norman, and Michael A. Pittenger, of Potter Anderson & Corroon, Wilmington, Delaware (Walter C. Carlson, Richard B. Kapnick, Brandon D. Lawniczak, and Linda T. Ieleja, of Sidley & Austin, of counsel), Chicago, Illinois, for defendants.

MURRAY M. SCHWARTZ, Senior District Judge.

I. Introduction

Since the mid-1980's, announcements of tender offers were invariably followed by either the suitor or target quickly resorting to litigation. The issues in those cases involved, inter alia, the constitutionality of various state anti-takeover statutes. See, e.g., Nomad Acquisition Corp. v. Damon Corp., 701 F.Supp 10 (D.Mass.1988) (Massachusetts anti-takeover statute); Grand Metro. PLC v. Pillsbury Co., 704 F.Supp. 538 (D.Del.1988) (Florida, Louisiana and Tennessee anti-takeover statutes); BNS Inc. v. Koppers Co., 683 F.Supp. 458 (D.Del.1988) (Delaware anti-takeover statute). Justifiability issues usually raised under the "ripeness" rubric were easily resolved because the suitor suffered an easily identifiable harm if an unconstitutional state statute were to frustrate its conquest. If the statute protected the target unless the target opted-out, the matter was ripe because the harm was immediate and there was no need to develop an extensive factual record. See, e.g., Black & Decker Corp. v. American Standard Inc., 679 F.Supp. 1183 (D.Del.1988) (challenge to Delaware's opt-out statute ripe); see also BNS, 683 F.Supp. 458 (same). If, on the other hand, the target company had to opt-in to the protection of the alleged unconstitutional statute, and had not done so at the time of the tender offer, the matter was not ripe because there was no harm. See, e.g., Nomad Acquisition, 701 F.Supp. 10 (declaration that Massachusetts control shares provision is unconstitutional not ripe since target had not yet opted-in); Grand Metro., 704 F.Supp. 538 (declaration that Florida, Louisiana and Tennessee anti-takeover statutes are unconstitutional not ripe since target had not yet opted-in).

The mid-1990's have brought a subtle change to the legal landscape. With the constitutionality of the Delaware anti-takeover statute being resolved, the focus is now upon whether the target board of directors has breached its fiduciary duties by retaining the protection of the statute. This shift from strictly legal constitutional challenges to a state anti-takeover statute to fiduciary duty challenges relating to stripping the target of statutory protection has complicated the ripeness inquiry. For the most part, a strictly legal constitutional challenge did not require the development of an extensive factual record; conversely, a breach of fiduciary duty challenge requires that a record be made and possibly an evidentiary hearing held. Further, the potential for an advisory opinion on the fact-specific inquiry of breach of fiduciary duty is immense. Finally, while not part of the ripeness inquiry, there looms the issue of whether a court should ever issue a mandatory injunction to a target board with respect to anti-takeover statutes and anti-takeover devices at a time when there is no reasonable assurance the tender offer will succeed. That question requires the development of a record as to whether the existence of anti-takeover protections and defenses inhibit the tender of shares, as distinguished from inhibiting the suitor. Accordingly, that question is reserved for another day. Attention is now turned to the specifics of this tender offer.

Plaintiffs Moore Corporation Limited ("Moore") and its wholly-owned subsidiary FRDK, Inc. ("FRDK") filed a complaint against defendant Wallace Computer Services, Inc. and its directors (collectively, "Wallace" or "Wallace Board"), for injunctive and declaratory relief. Moore seeks to prevent the application of Wallace's anti-takeover devices and other defensive measures designed to impede FRDK's hostile tender offer and declaratory relief that the proposed transaction complies with all applicable laws, including securities and antitrust laws. Moore and FRDK, both Wallace shareholders, allege Wallace has used defensive and evasive measures to block the offer, thereby violating the Wallace Board's fiduciary duties owed to its shareholders. Wallace moved to dismiss the action on the grounds that (1) the action is not ripe; and (2) plaintiffs have brought the action in bad faith in an effort to forum shop. Jurisdiction is based on diversity of citizenship, 28 U.S.C. § 1332. For the reasons set forth below, defendants' motion to dismiss will be denied.

II. Facts

Plaintiff Moore is an Ontario corporation engaged in the business of delivering information handling products and services, with its principal place of business in Toronto, Ontario. Docket Item ("D.I.") 1, ¶ 7. Plaintiff FRDK is a New York corporation with its principal place of business in Toronto, Ontario. Id. ¶ 8. It is a wholly-owned subsidiary of Moore and 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. Defendant Wallace is a Delaware corporation engaged predominantly in the computer services and supply industry, with its principal place of business in Illinois. Id. ¶ 9.

On July 30, 1995, FRDK 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, making the value of the proposed transaction approximately $1.3 billion. Id. ¶ 20. Moore intended, as soon as practicable after the consummation of the tender offer, to cause Wallace to merge with FRDK, and then to deliver proxy solicitation materials to the Wallace shareholders in order to nominate three individuals to serve as and replace the members of the Wallace Board. Id. ¶¶ 21, 22.

FRDK's offer is an all-cash offer, which FRDK describes as non-coercive in nature, that would provide Wallace shareholders a premium of 27% over market price of Wallace stock value as of the date of the announcement of the offer, and would not pose any threat to the interests of Wallace's shareholders or to Wallace's corporate policy. 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");

(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");

(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; and

(e) the availability of sufficient financing to consummate the offer and proposed merger.¹Id. ¶ 20.

Moore alleges that the offer, proposed merger, and proxy solicitation cannot be completed unless Wallace agrees to remove or make inapplicable its anti-takeover devices. Id. ¶ 27. The removal of such devices, including the poison pill,² Article Ninth,³ and the protection of Section 203,⁴ forms the gravamen of Moore's prayer for injunctive relief. The Wallace Board is entitled under its poison pill to redeem the rights or make the poison pill inapplicable to the offer and proposed merger by an amendment to the rights agreement. Id. ¶ 30. The Board is also empowered under Article Ninth to avoid the shareholder vote requirement by approving the transaction by a majority vote of the Board. Id. ¶ 36. Finally, the Board has the right to opt out of Section 203's protection under Delaware law. Id. ¶ 31. The Wallace Board has taken no steps to remove the anti-takeover devices. D.I. 28, p. 10.

In February, 1995, Moore attempted to initiate discussions with Wallace regarding a possible business combination, but Wallace informed Moore that it was not interested. D.I. 1, ¶ 38. All efforts to discuss the matter with Wallace after that point were unsuccessful, although in July, 1995, the Presidents of Moore and Wallace agreed to schedule a lunch meeting for August 8, 1995. Id. ¶ 38; D.I. 31, Exh. F at § 2. Moore alleges Wallace took specific steps to create additional obstacles to a merger. D.I. 1, ¶ 39. First, Wallace adopted a by-law amendment in June, 1995, providing that any business to be raised by a stockholder at an annual meeting must be presented sixty days before the meeting. Id. Additionally, Wallace approved a "golden parachute" employment contract with defendant Robert J. Cronin, Wallace's President and Chief Executive Officer, providing Cronin a multi-million dollar severance package in the event of a change in his job duties. Id.

Moore announced its intention to commence the tender offer in a press release on Sunday, July 30, 1995.⁵Id. ¶ 20. This complaint was filed the following day, Monday, July 31, 1995, at 8:30 a.m. On August 2, 1995, FRDK filed a Schedule 14D-1 with the Securities and Exchange Commission ("SEC"), detailing the provisions of the tender offer. D.I. 28, p....