Ronson Corporation v. Liquifin Aktiengesellschaft

• Decision Date: 06 February 1974
• Docket Number: Civ. A. No. 785-73.
• Citation: 370 F. Supp. 597
• Parties: RONSON CORPORATION, Plaintiff, v. LIQUIFIN AKTIENGESELLSCHAFT et al., Defendants.
• Court: U.S. District Court — District of New Jersey

370 F. Supp. 597

RONSON CORPORATION, Plaintiff, v. LIQUIFIN AKTIENGESELLSCHAFT et al., Defendants.

Civ. A. No. 785-73.

United States District Court, D. New Jersey.

January 11, 1974.

Order February 6, 1974.

COPYRIGHT MATERIAL OMITTED

McCarter & English by Julius B. Poppinga, Newark, N. J., and Cahill, Gordon & Reindel by Raymond L. Falls, Jr., David R. Hyde, Roger S. Fine, George Wailand, New York City, for plaintiff.

Carpenter, Bennett & Morrissey by John E. Keale, Newark, N. J., and Mudge, Rose, Guthrie & Alexander by Donald J. Zoeller, John J. Witmeyer, III, John B. Sherman, New York City, for defendants Liquifin, Liquidgas, D. F. King & Co., Servizio Italia, Marfuggi, Ursini and Sindona.

Stryker, Tams & Dill, Newark N. J., and Cravath, Swaine & Moore by Robert S. Rifkind, Paul C. Saunders, New York City, for defendant Kuhn, Loeb and Co.

Hannock, Weisman, Stern & Besser, Newark, N. J., and Kaye, Scholer, Fierman, Hays & Handler by Milton Kunen, Mark Zauderer, New York City, for defendants Franklin National Bank and Franklin New York Corp.

OPINION

CLARKSON S. FISHER, District Judge.

In this lengthy and complex litigation plaintiff now seeks a permanent injunction under Section 14(e) of the Securities Exchange Act of 1934,¹ against the defendants who are attempting to acquire control of the plaintiff, Ronson Corporation, by means of a cash tender offer. The defendants seek to remove the preliminary injunction against them entered by this Court on July 5, 1973 so that their tender offer may proceed.

In view of the status of this case, where now the parties are before the Court on a final hearing for permanent injunctive relief, a brief review of the procedural history is necessary. The complaint was filed as the result of a tender offer by defendant Liquifin Aktiengesellschaft ("Liquifin"), a Liechtenstein company and a wholly-owned subsidiary of a large Italian industrial company, defendant Liquigas S.p.A., ("Liquigas") to buy Ronson common stock at $8.50 per share.² This tender offer was publicly announced in newspapers and financial publications and filed with the Securities and Exchange Commission ("SEC") on May 31, 1973. On June 5, 1973 this Court entered a temporary restraining order and directed expedited discovery.

After a hearing, a preliminary injunction was entered on July 5, 1973 which was subsequently affirmed by the Court of Appeals for this Circuit. Ronson Corporation v. Liquifin Aktiengesellschaft, 483 F.2d 846 (3d Cir. 1973) and Ronson Corporation v. Liquifin Aktiengesellschaft, 483 F.2d 852 (3d Cir. 1973).

Upon the return of the case to this forum, the defendants moved to modify or vacate the preliminary injunction on the basis of amendments to the tender offer. Their motion, based upon the amendments of July 13 and the unpublished amendments of August 1, was denied on August 15, 1973. On September 26, 1973 this Court denied a similar motion of defendants based upon a restated tender offer dated September 11, 1973 (hereinafter referred to as the "Restatement"). However, this denial was without prejudice to renew at the final hearing for permanent injunctive relief. Defendants' renewal of this motion is now before the Court.

I

In an effort to resolve promptly and fairly only the claims for injunctive relief, this Court reviewed plaintiff's requests for discovery, and by orders of September 26, 1973, October 12, 1973, October 25, 1973 and December 5, 1973, directed the course of discovery. As stated previously, these orders were entered pursuant to F.R.Civ.P. 26 which provides a remedy to protect any party from financial embarrassment, undue burden, or expense. Both parties during this litigation have submitted confidential commercial information to the Court in camera.³

Plaintiff contends that the unavailability of these documents has adversely affected its discovery rights. These arguments are without merit. It cannot be questioned that Rule 26 provides the authority to enter such orders. Under the Williams Act, the Court becomes the trier of fact to determine whether injunctive relief should be entered. If the information provided in camera fails to resolve adequately the important factual disputes, the party offering these documents runs the risk of having that issue of fact determined in favor of the opposing party or perhaps a ruling that it has failed to sustain a burden of proof placed upon it by the law. Also, if the Court determines that this information does not fall within any legally recognized privilege, or would not financially embarrass a party but, instead, would aid a party in conducting discovery, the Court could make that information available.⁴

Throughout these proceedings it has been obvious that the foreign defendants are subject to this nation's securities laws. If they chose not to furnish certain information, they could be faced with a choice between revealing such information or having the lawful restraints of this Court continued against them.⁵ Finally, after thorough review of all the in camera materials, I am satisfied that sufficient need has been demonstrated by the parties to keep these documents under seal and that none of the parties have been prejudiced by the orders of the Court.⁶

One other matter deserves brief comment at this point. Defendants have complained that the plaintiff target company has utilized this litigation to preserve the corporate life of its incumbent management, and has, with this purpose in mind, taken every opportunity to further delay these proceedings. See, e. g., Transcript of Motion of November 21, 1973 at 11, 13-14, 18.

These arguments have not aided the Court to resolve the complex issues presented here. It is clear that Ronson, as the target corporation, has standing to sue the defendants for injunctive relief. Gulf & Western Indus., Inc. v. Great A. & P. Tea Co., Inc., 476 F.2d 687, 696 n. 14 (2d Cir. 1973). However, the legislative history of Section 14(e) reveals that Congress was hardly motivated by concern for incumbent management of the target company or intended the use of the statute to frustrate tender offers. The overriding purpose of this Section is the protection of the investing stockholders of the public so that they may have the benefit of full and fair disclosure of all material facts to make an informed investment decision. While counsel have zealously engaged in protecting their clients' rights in this high stakes struggle for corporate control of Ronson, this Court has not forgotten that Section 14(e) may not be diverted from its important purpose of protecting the public investor to be utilized solely for the benefit of incumbent management or control groups "jockeying" for corporate power. Nicholson File Company v. H. K. Porter Co., 341 F.Supp. 508, 520 (D.R.I.1972), aff'd, 482 F.2d 421, 423-425 (1st Cir. 1973); see also Butler Aviation Int'l, Inc. v. Comprehensive Designers, Inc., 425 F.2d 842, 844-845 (2d Cir. 1970).

To determine if permanent injunctive relief should be granted or if the preliminary injunction should be vacated,⁷ the issue is whether the defendants, in the Restatement of the tender offer, have failed to disclose adequately or materially misrepresented the persons behind and the methods used to fund the offer, the effect of foreign laws on the offer, and the administrative obstacles under federal law to the offer.⁸

Under Section 14(e) as in any civil suit, the burden falls upon the plaintiff to demonstrate by a preponderance of the evidence that it is entitled to permanent injunctive relief.⁹ Neither the offeror nor the target company may omit or misrepresent a material fact to the stockholders of the target company.¹⁰ The obligation for full and accurate disclosure of all material facts in the offer is "placed squarely" on the offeror and may not be shifted "to the shoulders of others"; otherwise the purposes of the Williams Act might be avoided by permitting the offeror to look to the target corporation to correct the deficiencies in the offer. Sonesta International Hotels Corp. v. Wellington Associates, 483 F.2d 247, 255 (2d Cir. 1973). Sonesta, however, does not shift any burden of proof in this litigation to the defendants. There the Court of Appeals merely indicated that the target company need not, in its communications to its stockholders, point out specific faults in the disclosures of the offeror. Sonesta, supra at 254-255. Under Section 14(e) the plaintiff target company, Ronson, has the burden at trial of establishing that any alleged omissions or misrepresentations in the offer are material and that any of the tendering stockholders would probably not have tendered their shares if the alleged violations had not occurred. Gulf & Western, supra 476 F.2d at 696.

On the other hand, the offeror clearly has the right to amend its offer to cure any defects,¹¹ and then rely upon those amendments to satsify the requirements of Section 14(e). Ronson, supra, 483 F.2d at 850, 852; Nicholson File Company, supra, 341 F.Supp. at 521. In this action defendants have amended their offer on several occasions. They now assert that the previous deficiencies in the offer have been corrected by the Restatement so that the injunction against them may be removed.

II

The most important of plaintiff's allegations is that the defendants have failed to disclose adequately or materially misrepresented the methods used to fund and the persons behind the tender offer.

The Restatement describes how the twenty million dollars for the purchase of Ronson common stock was advanced to the account of the offeror, Liquifin. Restatement, paragraph 7(d) at 14-16. Briefly, at the direction of Liquigas, Liquimportex Aktiengesellschaft ("Liquimportex") another wholly-owned subsidiary of Liquigas, sold a forty-nine percent interest in Liquipar S.A. ("Liquipar"), a subsidiary holding company for the Brazilian operations of Liquigas.¹² This minority interest in Liquipar was sold for cash to ...