Richland v. Crandall

• Decision Date: 13 January 1967
• Docket Number: No. 65 Civ. 1625,65 Civ. 1678,65 Civ. 2020.,65 Civ. 1658,65 Civ. 1625
• Citation: 262 F. Supp. 538
• Parties: Sylvia RICHLAND, M. Klastorin, Morris Millimet and Anne Fagen, Plaintiffs, v. Lou R. CRANDALL et al., Defendants.
• Court: U.S. District Court — Southern District of New York

262 F. Supp. 538

Sylvia RICHLAND, M. Klastorin, Morris Millimet and Anne Fagen, Plaintiffs, v. Lou R. CRANDALL et al., Defendants.

Nos. 65 Civ. 1625, 65 Civ. 1658, 65 Civ. 1678, 65 Civ. 2020.

United States District Court S. D. New York.

January 13, 1967.

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Wolf, Popper, Ross, Wolf & Jones, New York City, for plaintiff Sylvia Richland, Paul L. Ross, and Lois Regent Sivin, New York City, of counsel.

Kaufman, Taylor, Kimmel & Miller, New York City, for plaintiff M. Klastorin, Stanley L. Kaufman, New York City, of counsel.

Kramer, Bandler & Labaton, New York City, for plaintiff Morris Millimet, Edward Labaton, and Sidney Kramer, New York City, of counsel.

Milberg & Levy, New York City, for plaintiff Ann Fagen, Irving Steinman, New York City, of counsel.

Kramer, Marx, Greenlee & Backus, New York City, for defendant George A. Fuller Co., John J. Hayes, and Norwood P. Beveridge, Jr., New York City, of counsel.

Sullivan & Cromwell, New York City, for defendants BCLM, Inc., Cloyce K. Box and William V. Lawson, John F. Arning, and Cornelius B. Prior, Jr., New York City, of counsel.

Casey, Lane & Mittendorf, New York City, for defendants Edwin J. Beinecke and others, Samuel M. Lane, and John Holbrook, New York City, of counsel.

White & Case, New York City, for defendants Lou R. Crandall and others, Paul Bschorr, and John M. Johnston, New York City, of counsel.

OPINION

MANSFIELD, District Judge.

This lawsuit arises out of dissatisfaction on the part of four (out of more than 1,300) stockholders of the George A. Fuller Company of New Jersey ("Fuller" herein), who own approximately 1/10th of 1% of its issued stock, with the decision of fellow-stockholders, who own 70.6%, to sell its business as a going concern and liquidate the corporation in accordance with the law of its state of incorporation (New Jersey) which permits such sale and liquidation upon approval by 66 2/3 % of the issued shares. N.J. Stat.Ann. 14:3-5 (1939). On June 30, 1965 its business was sold to BCLM, Inc., a Maryland corporation, for $15,917,370 (or $37 per share) plus certain possible tax adjustments, pursuant to approval by Fuller's Board on April 6, 1965 and more than two-thirds of its stockholders on June 7, 1965.¹

In May and June 1965, before the sale, the four dissatisfied plaintiffs launched their attacks in separate suits against Fuller's directors, principal officers, and BCLM, Inc., claiming violations of the Securities Exchange Act. After denial of preliminary injunctive relief on June 4, 1965 (see Richland v. Crandall, 353 F. 2d 183 (2d Cir. 1965); Klastorin v. Roth, 353 F.2d 182 (2d Cir. 1965)), plaintiffs on November 15, 1965 filed a consolidated complaint asserting that they sued derivatively, individually, and on behalf of all Fuller stockholders as a class, for rescission of the sale and for damages. The gravamen of the lengthy and prolix complaint is the claim that the officers and directors obtained stockholder approval through false proxy material in violation of § 10(b) (15 U.S.C. § 78j(b) (1964)) and § 14(a) (15 U.S.C. § 78n(a) (1964)) of the Securities Exchange Act.² Jurisdiction was asserted under § 27 of the Securities Exchange Act (15 U.S.C. § 78aa (1964)). In addition, "on the doctrine of pendent jurisdiction", plaintiffs alleged that Fuller's directors and officers had been guilty of breach of fiduciary duty to the corporation and its stockholders.³

After extensive pretrial depositions, most of them before Judge Henry N. Graven, then sitting by designation, plaintiffs' demand for a jury trial was sustained with respect to their individual and class action claims for damages under the Securities Exchange Act as "Suits at common law" within the meaning of the Seventh Amendment (see Dairy Queen, Inc. v. Wood, 369 U.S. 469, 82 S.Ct. 894, 8 L.Ed.2d 44 (1962)), even though joined with equitable claims. See J. I. Case Co. v. Borak, 377 U.S. 426, 84 S.Ct. 1555, 12 L.Ed.2d 423 (1964). A jury trial was denied as to the balance of the claims for the reason that being equitable they did not qualify as "Suits at common law".⁴ (See 259 F.Supp. 274.) The case was then tried to a jury pursuant to a stipulation that the record would constitute the record of the nonjury trial for purposes of resolving the latter claims, together with certain additional evidence received by the Court pertaining solely to the equitable claims. It is these latter claims that are the subject of this opinion, which will serve both as findings of fact and conclusions of law under Rule 52(a), F.R.Civ.P.

After a series of pretrial hearings directed principally to simplification of the issues, stipulations of fact, housekeeping matters (including premarking of hundreds of exhibits) and evidentiary rulings, the individual and class action issues were tried to a jury from November 17, 1966, to December 9, 1966.⁵ In answer to interrogatories, the jury found that the price paid for the Fuller assets and business was not grossly inadequate (as claimed by plaintiffs) and that there was no material misstatement of fact, or omission of a material fact, in the proxy statement used to solicit stockholder approval. Thereupon the jury rendered a verdict for the defendants.

There remain for consideration the pendent jurisdiction and derivative claims tried to the Court. After reviewing the evidence, the Court accepts and adopts the jury's answers to interrogatories and finds for the defendants.

A preliminary review of some background facts is essential. For many years prior to the events in question, Fuller was one of the country's leading construction companies. It had built many outstanding structures (monuments, office buildings, banks, plants, hospitals and the like, including Lincoln Memorial, United Nations building, and the new Metropolitan Opera House in New York City). Its principal business had been such construction, which was essentially a service type of operation involving employment of large numbers of people in connection with obtaining and carrying out construction jobs. In addition to its construction business, it had in recent years also invested in some other assets related to construction. It owned a substantial stock interest in the Oklahoma Cement Company, for which it had completed a cement plant in 1962. Oklahoma Cement made and sold cement and related supplies, its business depending in part on orders received from Fuller and its subcontractors for cement used on their many construction jobs. Fuller also owned partial equity interests in several real estate ventures, including some buildings under construction by it (330 Madison Avenue, New York City; the Brunswick Building, Chicago; the Wilson Park Apartments, Santa Monica; 550 Broad Street, Newark (the construction of which had just begun in the spring of 1965)), and stock in a land development project called Mission Viejo, Orange County, California.

Fuller was managed by its Chairman of the Board, Lou R. Crandall, who was also its Chief Executive Officer; a 16-man Board of Directors, of which 8 were outside directors and 8 were officers of Fuller; and its President, William V. Lawson, and various vice presidents, under whom were its large staff of personnel in lower echelons. The company faced the problem that officers responsible for almost all of its profits were either on the verge of or past retirement age. Crandall was in his 70's. A key vice president in charge of the Chicago office had died suddenly, leaving no replacement. Four other vice presidents were near or past 65. Since Fuller was essentially a personal service type of enterprise, like a law firm or advertising agency, it depended on the ability of its officers to obtain construction business. In recent years its profits had declined. Although there were younger officers in the company, including William V. Lawson, Crandall's son-in-law, who had been elected president in 1964, they had not proven their ability to maintain the company's business.

In 1964 the defendant Cloyce K. Box, a Vice President and Director who had been responsible for the Oklahoma Cement project, attempted unsuccessfully to interest Winthrop Rockefeller and a wealthy Texas friend of the Rockefellers, Trammel Crow, in purchasing the company. Thereafter Box formed a group consisting of himself, Crow, Lawson and a company called Western Sales, Ltd., of which one Maurice Moore was the chief executive officer, for the purpose of attempting to purchase the company's business. They formed BCLM, Inc., and in January 1965 initiated negotiations with Crandall, who refused to talk price or take further steps (other than to insist upon continuation of Fuller's pension plan and retention of all employees as a unit as preliminary conditions) until the group could demonstrate that they had the cash and financing needed to consummate such a purchase, especially since news of any proposed sale could damage Fuller and its employees' morale if news leaked out and it proved abortive.

The purchasing group then sought and obtained a commitment from The Chase Manhattan Bank to loan $12,500,000 provided it had certain personal guarantees by Messrs. Box and Crow, a wealthy man; a commitment from the New York Life Insurance Company for $3,500,000 of subordinated debt on various conditions, including a partial guarantee by the Marquette Cement Manufacturing Corp. The group also made plans for the capitalization of BCLM through sale of $3,000,000 of preferred stock and $1,000,000 of common stock, the latter to be raised by sale of a 25% interest to each of the four members of the purchasing group for $250,000 apiece. Box, acting for the purchasing group, obtained from the First Boston Corporation a written opinion, based on its study of the Fuller company, that a fair and reasonable price for Fuller's net assets and business would be $37 per share.

On March 12, 1965 the purchasing group advised Crandall that they...