NBT Bancorp Inc. v. Fleet/Norstar Financial Group, Inc.

• Court: New York Court of Appeals
• Writing for the Court: KAYE; LEVINE
• Citation: 87 N.Y.2d 614,664 N.E.2d 492,641 N.Y.S.2d 581
• Decision Date: 26 March 1996
• Parties: , 664 N.E.2d 492 NBT BANCORP INC. et al., Appellants, v. FLEET/NORSTAR FINANCIAL GROUP, INC., Formerly Known as Norstar Bancorp, Inc., et al., Respondents.

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641 N.Y.S.2d 581 87 N.Y.2d 614, 664 N.E.2d 492 NBT BANCORP INC. et al., Appellants,
v.
FLEET/NORSTAR FINANCIAL GROUP, INC., Formerly Known as
Norstar Bancorp, Inc., et al., Respondents. Court of Appeals of New York. March 26, 1996.

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[87 N.Y.2d 616] [664 N.E.2d 493] Metzger, Hollis, Gordon & Mortimer, Washington, DC (Stephen L. Teichler, Eugene J. Metzger, Douglas E. Ginsburg and Claudia G. Regen, of the District of Columbia Bar, admitted pro hac vice, of counsel) and Lee, Emerson & Dean, Norwich (Thomas C. Emerson and Aaron A. Dean, of counsel), for appellants.

[87 N.Y.2d 617] Cleary, Gottlieb, Steen & Hamilton, New York City (Richard F. Ziegler, Peter L. Critchell, Alex E. Miller and William M. Hohengarten, of counsel), and Hinman, Howard & Kattell, Binghamton (James L. Chivers, of counsel), for respondents.

OPINION OF THE COURT

KAYE, Chief Judge.

This action by a disappointed suitor against its competitor centers on a contest between two financial institutions to acquire the same target bank. Plaintiffs (collectively NBT) and defendants (collectively Norstar) each sought a merger with Central National Bank. NBT ultimately entered into a merger agreement with Central, subject to approval of two thirds of the holders of Central's common stock. When the agreement failed to garner shareholder approval, NBT filed suit against Norstar, alleging several varieties of tortious interference and seeking lost profits from the failed merger. At issue on this appeal is whether NBT's claim for tortious interference with contractual relations was properly dismissed on the pleadings (CPLR 3211) and whether its claim for tortious interference with prospective contractual relations was properly dismissed on summary judgment (CPLR 3212). Concluding that the Appellate Division correctly rejected both claims, we now affirm.

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[87 N.Y.2d 618] [664 N.E.2d 494] Facts

According to NBT's complaint, on November 4, 1986 Central's Board of Directors met with representatives of Norstar, NBT and a third financial institution--KeyCorp of Albany--to hear their separate merger proposals. At that meeting, NBT offered $54 a share for Central, and Key and Norstar each made offers worth $60 a share. Each of the proposals was based on an exchange of Central's stock for the bidder's stock. (NBT's shares were unlisted; Norstar and Key traded on the New York Stock Exchange.) No action was taken by Central's Board at that meeting. Three days later, the Board voted--six to five--to accept a revised merger proposal from NBT.

NBT contends that prior to November 7, 1986, Norstar sold its own NBT holdings, representing a little over 4% of NBT's outstanding shares, "dumping" them on the open market at a below-market price in an effort to discredit NBT's merger proposal by creating the appearance that NBT's shares were worth less than represented. Notwithstanding the alleged dumping, NBT and Central entered into a formal Merger Agreement on November 8, 1986, signed by Central's president and the five directors who had voted for the merger. The merger was conditioned on approval both by the owners of two thirds of the common stock of Central and by the Comptroller of the Currency. The agreement further provided that Central's officers and directors would use their best efforts to secure shareholder approval and that Central would not disseminate nonpublic information. Additionally the agreement contained a "fiduciary-out" provision, contemplating that Central might receive competing bids but that it would not initiate contact with anyone else in an effort to solicit another acquisition proposal and would notify NBT if it received any other offer.

Thereafter, according to NBT's complaint, Norstar covertly met with one of Central's dissenting directors, Herbert Kling, and counseled him on how to oppose the merger by forming a stockholders' committee. On December 1, 1986, Norstar's president wrote to Central's Board complaining about improprieties in the bidding process--specifically that the Board granted only NBT an opportunity to submit a revised offer and improperly overstated the value of NBT's shares by 10%.

Central's management scheduled a stockholders' meeting for June 10, 1987 to vote on the merger, filed its proxy statements with the SEC, and solicited proxies for the merger. A proxy contest ensued between management and the merger opponents,[87 N.Y.2d 619] in which Kling submitted copies of Norstar's December 1, 1986 letter to local newspapers. This provoked a suit by NBT against Kling and his supporters for violation of Federal securities laws (see, NBT Bancorp v. Kling, U.S.Dist.Ct. N.D.N.Y.1987, 87-CV-493). Kling and his group countered by suing Central, its directors who had approved the merger and NBT, alleging breach of fiduciary duty and misrepresentations in the proxy materials (see, Kling v. NBT Bancorp, U.S.Dist.Ct. N.D.N.Y.1987, 87-CV-525).

Two weeks before the June 10 meeting, NBT raised its offer to $66 per share. At a meeting on May 29, 1987 to consider the new offer, Central's Board received a letter from Norstar making a competing offer in excess of $66 per share. The Board then adjourned the June 10 meeting and withdrew its support for the Merger Agreement. Central and NBT agreed to terminate negotiations in exchange for a $150,000 payment to NBT, representing roughly half its expenses. To this day, Central remains independent.

Close to a year later, NBT commenced this action asserting three causes of action and seeking tens of millions of dollars on each: that Norstar tortiously interfered with NBT's contractual relations with Central, tortiously induced a breach of the Merger Agreement and tortiously interfered with NBT's prospective business relations. Norstar's dismissal motion pursuant to CPLR 3211 was granted in its entirety by Supreme Court. The Appellate Division affirmed dismissal of the first two causes of action on the ground that there was no breach of contract, an essential element of both causes of action. The court found that the Central Board did not solicit any competing offer or authorize any agent of Central to disseminate nonpublic information; that adjournment of the

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[664 N.E.2d 495] June 10 stockholders' meeting did not constitute a breach, because failure to adjourn the meeting in the circumstances would have been inconsistent with the Board's fiduciary duty to its stockholders; and that the actions of Kling did not constitute a breach, since the Merger Agreement could not bind dissenting directors acting independently (159 A.D.2d 902, 903-905, 553 N.Y.S.2d 864). The court, however, reinstated the third cause of action (interference with prospective business relations).

Dissenting in part, then-Justice Levine (joined by Justice Kane), would have dismissed the third cause of action as well, concluding that every wrongful means alleged in the complaint was either entirely proper and lawful or not a substantial factor in bringing about termination of...