Priddy v. Edelman

• Decision Date: 28 July 1989
• Docket Number: Nos. 88-1299,88-1867,s. 88-1299
• Citation: 883 F.2d 438
• Parties: Raymond Alton PRIDDY, Plaintiff-Appellant, (88-1299), v. Asher B. EDELMAN, et al., Defendants-Appellees. Martin WARSHOFSKY, et al., Plaintiffs-Appellees, v. FRUEHAUF CORPORATION, et al., Defendants-Appellees, Raymond Alton Priddy, Objector-Appellant, (88-1867).
• Court: U.S. Court of Appeals — Sixth Circuit

Page 438

883 F.2d 438

Raymond Alton PRIDDY, Plaintiff-Appellant, (88-1299), v. Asher B. EDELMAN, et al., Defendants-Appellees.

Martin WARSHOFSKY, et al., Plaintiffs-Appellees, v. FRUEHAUF CORPORATION, et al., Defendants-Appellees, Raymond Alton Priddy, Objector-Appellant, (88-1867).

Nos. 88-1299, 88-1867.

United States Court of Appeals Sixth Circuit.

Argued May 16, 1989.

Decided July 28, 1989.

Sidney B. Silverman (argued), Harold B. Obstfeld, Silverman & Harnes, New York City, Richard E. Shaw, Richard G. Parchoc, Lopatin, Miller, Freedman, Bluestone, Erlich & Rosen, Detroit, Mich., for appellant.

Richard D. Greenfield, Haverford, Pa., Gene A. Farber, Craig, Farber, Downs & Dise, P.C., Detroit, Mich., Stuart D. Wechsler (argued), Goodkind, Wechsler & Labator, New York City, Robert M. Kornreich (argued), Wolf, Popper, Ross, Wolk & Jones, New York City, for plaintiffs-appellees.

Kenneth M. Kramer (argued), Shearman & Sterling, Barbara J. Gould, New York City, Justin G. Klimko, William M. Saxton, Butzel, Long, Gust, Klein & Van Zile, Detroit, Mich., W. Merritt Jones, Jr., Hill, Lewis, Adams, Goodrich & Tait, James K. Robinson, Ronald Longhofer, Honigman, Miller, Schwartz & Cohn, Detroit, Mich., William R. Norfolk (argued), William L. Farris, Sullivan & Cromwell, New York City, Gregory Curtner, Miller, Canfield, Paddock & Stone, Detroit, Mich., Martin Flumenbaum (argued), Jeh Johnson, Paul, Weiss, Rifkind, Wharton & Garrison, New York City, Andrew M. Zack, Barris, Scott, Denn & Driker, Detroit, Mich., Dennis Glazer, Davis, Polk & Wardell, New York City, for defendants-appellees.

Before MILBURN and NELSON, Circuit Judges, and PECK, Senior Circuit Judge.

DAVID A. NELSON, Circuit Judge.

These cases arise out of a contest for control of Fruehauf Corporation, a major producer of truck trailers and cargo containers. Both actions originated as shareholder suits challenging the corporation's acquisition by a group of inside and outside investors.

Case No. 88-1299 comes before us on appeal from a district court order entering summary judgment against the plaintiff on all of the claims in the original complaint and denying leave to file an amended complaint. We conclude that summary judgment was proper on the common law claims set forth in the original complaint and that the district court did not abuse its discretion when it denied leave to file an amended complaint. The federal securities law claim pleaded in the original complaint has, we believe, been abandoned.

Case No. 88-1867 has been settled, but an objecting shareholder has appealed from the district court's order approving the settlement. (The plaintiff in No. 88-1299 is the objector in No. 88-1867.) The parties agree that there is no basis for disturbing the district court's approval of the settlement in No. 88-1867 as fair and equitable unless this court reverses the judgment of the district court in No. 88-1299. Having concluded that the judgment in the latter case must be affirmed, we shall affirm the settlement order in the companion case.

I

In February and March of 1986 an investor group led by Asher Edelman bought a large block of shares in Fruehauf Corporation, a Michigan corporation, with the stated intention of attempting a friendly takeover of the corporation. The holdings of the Edelman group approached 10 percent of Fruehauf's outstanding common stock, which consisted of over 21 million shares. The stock traded in the mid-$20 range. On June 11, 1986, after efforts to negotiate a friendly takeover had failed to bear fruit, the Edelman group made a tender offer for all Fruehauf shares at $44 per share.

Shortly thereafter a group composed of existing Fruehauf management, Merrill Lynch Capital Markets, LMC Holdings, Inc., and others (a group to which we shall refer collectively as "the Merrill group") announced a tender offer of its own. The Merrill group offered $48.50 per share for about 77 percent of the outstanding shares of the corporation. The tender offer formally commenced on June 27, 1986, after approval by Fruehauf's board of directors. The directors agreed to commit $100 million in corporate funds toward financing the deal and agreed to a "no shop" clause restricting negotiations with other possible bidders.

The Edelman group immediately sought a federal court injunction against the Merrill group's tender offer. On July 24, 1986, the district court enjoined implementation of any aspect of the plan "except as ... ordered by this Court," and ordered a bidding contest for control of Fruehauf. Plaza Securities Co. v. Fruehauf Corp., 643 F.Supp. 1535 (E.D.Mich.1986). We affirmed the district court's injunction, with certain modifications not relevant here. Edelman v. Fruehauf Corp., 798 F.2d 882 (6th Cir.1986).

A shareholder action had been filed on June 27, 1986, by one Martin Warshofsky on behalf of a putative class of Fruehauf shareholders. The goal of this lawsuit was to force an auction for control of the corporation. A similar class action was filed on July 7, 1986, by shareholder William Steiner and others.

A special committee of Fruehauf's outside directors was formed to oversee the court-ordered bidding contest. The committee imposed a deadline of August 18, 1986. On that date the Edelman group proposed a cash tender offer of $49.50 per share for about 10,900,000 shares, to be followed by a merger in which holders of the remaining shares would receive $51 in cash or preferred stock in a new corporation. The Merrill group adhered to its earlier proposal of $48.50 per share for 17,500,000 shares and $48.50 in cash or a package of securities for the remaining shares. The special committee's outside financial advisors, Kidder Peabody and Salomon Brothers, were unable to recommend one plan over the other; further negotiations were therefore conducted.

In the course of these discussions it became apparent that the Edelman group was not prepared to increase its offer, while the Merrill group was willing to consider increasing its offer if a settlement could be worked out with the Edelman group. A proposal emerged under which the Edelman group would release any claim it might have against the Merrill group and the Merrill group would buy all of the Edelman group's roughly two million shares at $49 per share and would pay "expenses" of about $21 million said to have been incurred by the Edelman group in connection with the takeover contest. The Merrill group would then commence a cash tender offer for 14,575,000 shares at $49.50 per share, with the remaining shares to be exchanged in the second step of the transaction for $49.50 in cash or a package of securities.

The special committee's financial advisors valued the August 18 Edelman group offer at between $45 and $48.50 per share overall, the August 18 Merrill group offer at between $46.25 and $48.25 per share overall, and the revised Merrill group offer at between $47.50 and $49.25 per share overall. They recommended that the special committee approve the latest offer of the Merrill group. On the morning of August 22, after unanimous endorsement of the new plan by Fruehauf's special committee and the company's full board of directors, the Edelman and Merrill groups executed a purchase agreement under which the Edelman group's shares were sold on the agreed terms. A settlement agreement under which the Edelman group released its claims against Fruehauf and the Merrill group was also executed.

The details of the new tender offer were publicly announced that same day. Following consultations with the plaintiffs in the Warshofsky and Steiner actions, it was agreed that the plaintiffs in those cases would be permitted to continue discovery with a view toward settlement if the discovery showed that the Merrill group offer was fair to the common shareholders. The tender offer was formally commenced on August 28.

On September 17, 1986, another shareholder, Raymond Priddy, filed a complaint asserting various claims similar to those advanced in the Warshofsky and Steiner actions. Mr. Priddy did not seek an injunction against completion of the takeover, and the second step of the merger was completed on December 28, 1986.

While discovery was proceeding in the Warshofsky and Steiner actions, the defendants moved for summary judgment in the Priddy action. On December 7, 1987, without responding to the summary judgment motion, Priddy filed a cross-motion for summary judgment and moved for leave to serve an amended complaint.

The district court granted the defendants' motions for summary judgment, denied the plaintiff's cross-motion, and denied the motion for leave to serve an amended complaint. Priddy v. Edelman, 679 F.Supp. 1425 (E.D.Mich.1988). The district court noted that Mr. Priddy's motion for leave to amend was untimely under the terms of a pretrial order that had been entered some time before, and the court based its ruling on that ground. 679 F.Supp. at 1430. The court then went on to examine the various new theories that the plaintiff proposed to introduce into the case and found that the proposed amendment would be futile in any event.

The Warshofsky and Steiner plaintiffs were satisfied, after discovery, that the terms of the takeover were fair to the common shareholders. On March 28, 1988, the parties in those cases asked the district court to certify the following plaintiff class for purposes of settlement:

"all persons and entities, other than defendants in the [Warshofsky and Steiner actions] and Asher B. Edelman and persons who acted in concert with him in his efforts to acquire control of Fruehauf Corporation ..., who owned Fruehauf Corporation common stock of record or beneficially at any time from March 10, 1986 to December 23, 1986 (the 'Settlement Class Period') and their successors in interest, immediate and remote, direct and indirect."

Under the terms of the settlement, (1) the Warshofsky and Steiner actions would be dismissed with prejudice, (2) the...