Pargas, Inc. v. Empire Gas Corp.

• Decision Date: 09 June 1976
• Docket Number: Civ. No. K-76-676.
• Citation: 423 F. Supp. 199
• Parties: PARGAS, INC., a Maryland Corporation v. EMPIRE GAS CORP., a Missouri Corporation, et al.
• Court: U.S. District Court — District of Maryland

423 F. Supp. 199

PARGAS, INC., a Maryland Corporation v. EMPIRE GAS CORP., a Missouri Corporation, et al.

Civ. No. K-76-676.

United States District Court, D. Maryland.

June 9, 1976.

COPYRIGHT MATERIAL OMITTED

Calvin H. Cobb, Jr. and Steptoe & Johnson, Washington, D. C., and Jos. H. H. Kaplan and Venable, Baetjer and Howard, Baltimore, Md., for plaintiff.

Robert S. Pirie and Skadden, Arps, Slate, Meagher & Flom, New York City, and George Beall and Miles & Stockbridge, Baltimore, Md., for defendants.

FRANK A. KAUFMAN, District Judge.

Pargas, Inc. (Pargas) instituted this suit on May 7, 1976 seeking to restrain defendant Empire Gas Corporation (Empire) and other defendants alleged to be "controlling persons" of Empire¹ from consummating a tender offer made by Empire on May 7, 1976 for a minimum of 850,000 shares and a maximum of 2,000,000 shares of Pargas' common stock, i. e., for a minimum of 25.5% and a maximum of 60% of Pargas' said stock. The stock of both Pargas and Empire is traded on the New York Stock Exchange. Pargas alleges that Empire's tender offer violates disclosure requirements of sections 14(d) and 14(e) of the Securities Exchange Act of 1934, 15 U.S.C. ? 78n(d), (e); that Empire obtained its financing for said tender offer in violation of Regulations T and/or X of the Federal Reserve Board, 12 C.F.R. ?? 220, 224 (1976) and of section 7(c) of the Securities Exchange Act of 1934, 15 U.S.C. ? 78g (the Regulations issues); and that successful consummation of the tender offer by Empire would result in violations of section 2 of the Sherman Act, 15 U.S.C. ? 2, and of section 7 of the Clayton Act, 15 U.S.C. ? 18. Jurisdiction in this proceeding in which Pargas asks for damages as well as injunctive relief exists pursuant to 15 U.S.C. ?? 15, 26 as well as under 15 U.S.C. ? 78aa.

In the course of these proceedings, counsel for defendants brought to this Court's attention the fact that plaintiff's complaint in this case, plaintiff's brief in support of its motion for preliminary relief herein, and possibly one or more other materials had been distributed by or on behalf of plaintiff (see Tr. of 5/12/76 at 170-83) in alleged violation of section 14(d)(4) of the Securities Act of 1934 and of one or more of the rules of the Securities and Exchange Commission, and moved for injunctive relief in connection with that claim. However, after the affidavits and representations of certain of counsel for plaintiffs indicated that neither plaintiff nor its counsel had acted in bad faith in disseminating the above-referenced materials, and after plaintiff and its counsel undertook to cease any further such disseminations and to recall, to the fullest extent possible, any materials which had to date been disseminated, counsel for defendants indicated that defendants would not press any quest for immediate relief in connection with that alleged violation. However, defendants did reserve the issue for further consideration at trial, and also asked that it be considered as a factor in the balancing of equities in the context of plaintiff's quest for preliminary relief. (Tr. of 5/17/76 at 480-82). This Court, in so doing herein, concludes that that factor should be and accordingly herein is afforded little weight.

On May 7, 1976, Empire's tender offer was publicly announced. On that date, also, plaintiff instituted the within proceeding, and moved for immediate relief. Further, on that same date, counsel on both sides conferred with the Court and agreed to an expedited schedule for discovery, briefing, and oral argument. That schedule culminated in lengthy hearings on May 12, 1976 and May 13, 1976. Because Empire's tender offer was scheduled to expire at 10:00 A.M., Chicago time, on May 18, 1976, this Court, as requested by counsel, rendered on May 17, 1976 an oral opinion in which, for reasons then stated at length, this Court determined that Pargas had established a sufficient probability of violations of the federal securities and antitrust laws, and had also demonstrated that the balancing of the equities entitled plaintiff to some form of preliminary relief. At that time this Court reserved for subsequent determination the question of whether Pargas is also entitled to preliminary relief in connection with the Regulations issues.

Subsequently, during the afternoon and early evening of May 17, 1976, this Court and counsel explored the possibility of devising an appropriate intermediate order which would not have the practical effect of depriving Empire, if it ultimately succeeded in its defense of the within suit, of its opportunity to attempt successfully to consummate its tender offer, but which would insure to Pargas and Empire that the "status quo" would be maintained as fully as possible during the pendency of this litigation. Defendant's counsel took the position that while it disagreed with the Court's conclusion that any preliminary injunctive relief should be granted, it did not desire to appeal from that determination as such. However, defendant's counsel stressed that any preliminary decree which halted Empire's pursuit of its tender offer and which would in Empire's opinion cause it to lose the opportunity to succeed in its tender offer venture, whether or not Empire prevailed in this litigation, would be a decree in connection with which Empire would seek the fastest possible appellate review. Plaintiff's counsel at first contended that nothing short of an absolute immediate halt of all Empire activities in pursuance of the tender offer was acceptable to Pargas, regardless of whether that would result, in practical effect, in killing the tender offer even if Empire ultimately won a victory in this case. However, after this Court instructed counsel on both sides to try to find a meeting point and to attempt to establish middle ground, counsel jointly agreed upon and presented to this Court in the evening of May 17, 1976 the preliminary decree which this Court signed and which bears that date. Thereafter, on May 26, 1976, that May 17, 1976 Order was extended by a further Order dated May 26, 1976.²

Between May 17, 1976 and June 1, 1976, counsel conferred among themselves, filed further memoranda with this Court, and conferred further with this Court. All conferences with this Court were on the record, except for certain telephone conferences instituted by one or more of counsel but involving always counsel on both sides. After the lengthy public proceedings on May 12, May 13 and May 17, 1976, culminating with this Court's delivery of its lengthy oral opinion on that latter date, and to and including June 7, 1976, all proceedings on the record in this case have been held in chambers. That procedure was followed with the agreement of all counsel because, inter alia, of the possible effect of argument and even tentative expression of views by counsel and Court upon the market behaviors of the stock of Pargas and Empire during such proceedings.

Between May 17, 1976 and June 1, 1976, this Court continued to urge counsel to consider all factors including the percentage of stock which Empire might be permitted to acquire pursuant to its tender offer during the pendency of this suit, the conditions to govern the freezing and the non-voting of any such stock by Empire or anyone other than a neutral person appointed by the Court during such pendency; preservation of the right of any stockholder who tendered and/or sold his stock during that pendency to withdraw his tender and, if he had sold his stock, to reacquire it at the tender price in the event Pargas ultimately prevailed herein and Empire's tender offer should be fully and finally proscribed; conditions to govern the ultimate disposal, in that latter event, on a controlled basis of any Pargas stock not so withdrawn and/or not so reacquired by Pargas' stockholders so as to cause a minimum of damage to the financial and operating positions of Pargas and the market price of its stock; and arrangements for accelerated discovery and trial of all issues herein.³ During that period, counsel for defendants expressed optimism that an appropriate and equitable middle ground could be found. On the other hand, counsel for plaintiff expressed great pessimism within 72 hours after this Court's May 17, 1976 Order was entered during the evening hours of that date. At that time and thereafter, Pargas stated its fears of the possibility that if Pargas won this suit, there would exist a large bloc of its stock which would require disposal and that such disposal, even if it took place on a carefully controlled basis as to both times and amounts, would seriously impede Pargas' operations and growth both during the course of these proceedings and thereafter, even if Pargas ultimately prevailed herein, until all or most of such stock was disposed of. Pargas stated additionally its further fears that such uncertainty would put pressure upon Pargas' current stockholders to accept Empire's tender offer. Pargas and its financial advisors, in affidavit and deposition testimony, have stressed that if any such large bloc of stock existed, there would be uncertainty until its ultimate disposal as to who would buy it, whether it would be acquired by one purchaser, and whether such acquisition would result in such purchaser gaining control of Pargas and thereafter causing a change in Pargas' management personnel. Pargas also noted the probable adverse effect of such uncertainty upon the market price of Pargas' stock. Pargas thus pointed out that such uncertainty would leave Pargas' current management, employees, customers and existing and potential financial sources in a state of confusion and lack of confidence, impede Pargas operations and financing, and seriously and adversely affect its non-tendering stockholders, up to and including not only the date of a final judgment Order in this case but also after that judgment were entered, even if it were in favor of Pargas, until...