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

• Decision Date: 29 March 1990
• Citation: 553 N.Y.S.2d 864,159 A.D.2d 902
• Parties: NBT BANCORP, INC., et al., Appellants, v. FLEET/NORSTAR FINANCIAL GROUP, INC., Formerly Known as Norstar Bancorp, Inc., et al., Respondents.
• Court: New York Supreme Court — Appellate Division

Page 864

553 N.Y.S.2d 864

159 A.D.2d 902

NBT BANCORP, INC., et al., Appellants, v. FLEET/NORSTAR FINANCIAL GROUP, INC., Formerly Known as Norstar Bancorp, Inc., et al., Respondents.

Supreme Court, Appellate Division,

Third Department.

March 29, 1990.

Metzger, Gordon & Scully (Eugene J. Metzger, of counsel), Washington, D.C., and Lee, Lee & Emerson (Thomas C. Emerson, of counsel), Norwich, for appellants.

Hinman, Howard & Kattell (James L. Chivers, of counsel), Binghamton, and Cleary, Gottlieb, Steen & Hamilton (Richard Ziegler, of counsel), New York City, for respondents.

Before KANE, J.P., and CASEY, MIKOLL, YESAWICH and LEVINE, JJ.

MIKOLL, Justice.

Appeal from an order and judgment of the Supreme Court (Coutant, J.), entered July 21, 1989 in Chenango County, which, inter alia, granted defendants' motion to dismiss the complaint for failure to state a cause of action.

Plaintiffs sued defendants claiming (1) interference with contractual relations, (2) tortious inducement of breach of contract, and (3) tortious interference with prospective business relations. These causes of action have as their genesis a proposed merger between plaintiff National Bank and Trust Company of Norwich, a wholly owned subsidiary of plaintiff NBT Bancorp, Inc. (hereinafter NBT), and Central National Bank (hereinafter Central). Defendants' motion to dismiss the complaint for failure to state a cause of action pursuant to CPLR 3211 was granted by Supreme Court and this appeal by plaintiffs ensued.

The complaint alleged that plaintiffs and Central executed a merger agreement which required approval by the owners of two thirds of the shares of common stock of Central and the Comptroller of the Currency, a division of the United States Treasury Department, before it would take effect. The agreement, inter alia, provided that Central's directors would use their best efforts to secure stockholder approval and refrain from soliciting other merger proposals or disseminating nonpublic information.

Plaintiffs alleged that defendants intentionally interfered with the performance of the merger agreement and their relationship with Central. The complaint alleged the following acts in support of plaintiffs' claims: (1) despite knowledge of the merger agreement, defendants intentionally interfered with its performance in that they conspired with Herbert Kling, a dissident director of Central, to oppose the merger by counseling him on how to oppose it, (2) defendants met with Kling and received nonpublic information from him, (3) defendants secretly accumulated 5% of the outstanding stock of NBT which they dumped on the securities market at below-market prices to create the illusion that the value of NBT's stock was less than that ascribed to it by NBT, so as to discredit the merger, (4) defendants sent a letter to Central's Board of Directors (hereinafter the Board) misrepresenting the value of NBT stock based on the below-market sale defendants engineered and accusing Central's individual directors of placing personal interest ahead of that of the stockholders and of acting improperly in reaching the merger agreement, (5) Kling disseminated the letter to local newspapers which carried stories about the merger, including the allegations contained in the letter, (6) economic pressure was used to foment confusion including separate litigation brought by Kling against NBT in Federal court accusing Central's Board of breach of fiduciary duty, (7) within 24 hours of NBT raising its offer, defendants presented an offer on better terms; this was done to persuade Central not to perform its contract with plaintiffs and, as a result, Central adjourned the scheduled shareholders meeting to approve the merger and terminated the agreement, (8) all the acts were done by defendants to secure an economic advantage at plaintiffs' expense, in which efforts defendants were abetted by Kling who violated his duty of loyalty as a director of Central in seeking to abort the merger, (9) as a result, plaintiffs were deprived of the banking business of Central and the profits for the merger, and (10) plaintiffs agreed to accept $150,000 for permitting Central to terminate the merger agreement.

Addressing the dismissal of the complaint, we conclude that the cause of action for inducement of breach of contract was appropriately dismissed. To succeed on this action a plaintiff must prove, inter alia, that a defendant intentionally induced the breach of contract (see, Israel v. Wood Dolson Co., 1 N.Y.2d 116, 118, 151 N.Y.S.2d 1, 134 N.E.2d 97). Assuming for the purposes of this motion, as we must, that plaintiffs' allegations are true (see, John R. Loftus, Inc. v. White, 150 A.D.2d 857, 859, 540 N.Y.S.2d 610), the facts alleged are insufficient to find that defendants induced Central to breach the merger agreement. The complaint alleges that Central's directors, including Kling, breached provisions requiring them to use their best efforts to secure shareholder approval and refrain from soliciting new offers or disclosing nonpublic information. It is not alleged, however, that the Board initiated contact with any person or entity in an attempt to secure an acquisition proposal. The only allegation apropos of other offers is that Central entertained defendants' offer which defendants initiated. Regarding the agreement not to disseminate nonpublic information, the complaint did not state that the Board did so or authorized any director, officer, employee or other party to initiate contact for the purpose of obtaining competing proposals.

Allegations that Central breached the merger agreement by adjourning the special shareholders' meeting to consider defendants' offer are totally inadequate to support the cause of action for tortious inducement of breach of contract. It would have been a breach of the Board's fiduciary duty to hold the scheduled meeting without allowing time for notice and evaluation of defendants' offer (see, Business Corporation Law § 717; Alpert v. 28 Williams St. Corp., 63 N.Y.2d 557, 568, 483 N.Y.S.2d 667, 473 N.E.2d 19; see also, TSC Indus. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 2132, 48 L.Ed.2d 757). As a matter of law, such action did not contravene Central's agreement to use its best efforts to secure shareholder approval.

The allegation that Central breached the merger agreement through the acts of Kling is also not supported by the complaint. The provision requiring "best efforts" specifically applied to the individual directors, not Central. The provision cannot be interpreted to interfere with a director's fiduciary duties to his company. Kling never supported the merger agreement and he acted independently of the Board in his opposition. There is no allegation in the complaint that his acts were authorized by Central. Thus, the cause of action for intentionally inducing the breach of contract was properly dismissed because the complaint failed to allege that the acts breached the terms thereof. As a final observation on the issue, we have here interference with a prospective contractual relationship which depended on the approval of stockholders. As the Court of Appeals noted in Guard-Life Corp. v. Parker Hardware Mfg. Corp., 50 N.Y.2d 183, 191, 428 N.Y.S.2d 628, 406 N.E.2d 445, "greater protection is accorded an interest in an existing contract (as to which respect for individual contract rights outweighs the public benefit to be derived from unfettered competition) than to the less substantive, more speculative interest in a prospective relationship (as to which liability will be imposed only on proof of more culpable conduct on the part of the interferer)".

Plaintiffs' cause of action alleging tortious interference with their prospective business relations was, however, improperly dismissed by Supreme Court. Plaintiffs pleaded facts from which it could be concluded that defendants used unlawful means to injure plaintiffs (see, Guard-Life Corp. v. Parker Hardware Mfg. Corp., 50 N.Y.2d 183, 428 N.Y.S.2d 628, 406 N.E.2d 445, supra; Terry v. Dairymen's League Co-op Assn., 2 A.D.2d 494, 500, 157 N.Y.S.2d 71). Plaintiffs asserted that defendants misrepresented the value of their stock to Central and "dumped" the stock at a price below market although they were informed by their broker that they could obtain a higher price. This accusation, accepted for purposes of the motion as true, supports the conclusion that defendants engaged in unlawful manipulation of stock prices in violation of section 17(a) of the Securities Act of 1933 and section 10(b) of the Securities Exchange Act of 1934 (see, 15 U.S.C. § 77q[a]; 15 U.S.C. § 78j; see also, Basic, Inc. v. Levinson, 485 U.S. 224, 108 S.Ct. 978, 99 L.Ed.2d 194).

The complaint also alleged that the disputed stock sale occurred on the day before the merger document was to be signed. The price at which defendants sold the stock was the price which they represented to Central was its true fair market value. These actions indicate that there was a plan to influence Central to terminate the merger agreement. Further, the complaint also alleged that plaintiffs sustained special damages as a result of these actions. It is important to note that we do not have before us a motion for summary judgment but for dismissal for failure to allege a cause of action. This court should not, therefore, decide what inferences would be drawn from the facts pleaded but leave that for the trier of facts to resolve after the presentation of the evidence. Thus, plaintiffs' pleadings set forth a cause of action for tortious interference with prospective business relations.

Next, we affirm Supreme Court's dismissal of plaintiffs' cause of action for tortious interference with contractual relations. To plead a cause of action for intentional interference with contractual relations and/or for intentional and improper interference with the performance of a contract under New York law, the pleader is...