Scott v. Multi-Amp Corporation

• Decision Date: 26 November 1974
• Docket Number: Civ. No. 74-1382.
• Parties: William M. SCOTT, III, and Charles W. Puttkammer, Plaintiffs, v. MULTI-AMP CORPORATION, et al., Defendants.
• Court: U.S. District Court — District of New Jersey

386 F. Supp. 44

William M. SCOTT, III, and Charles W. Puttkammer, Plaintiffs, v. MULTI-AMP CORPORATION, et al., Defendants.

Civ. No. 74-1382.

United States District Court, D. New Jersey.

November 13, 1974.

As Amended November 20, 1974.

Supplemental Opinion November 22, 1974.

As Amended November 26, 1974.

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Riker, Danzig, Scherer & Brown by Alvin Weiss, Dennis J. O'Grady, Newark, N. J., for plaintiffs.

Clapp & Eisenberg by Jerome C. Eisenberg, Newark, N. J., Edward Ross Aranow, New York City, Armond D. Arnson, Cleveland, Ohio, for defendants.

OPINION

LACEY, District Judge:

INTRODUCTORY STATEMENT

This matter is before the court on the parties' cross motions for interim injunctive and other relief, as hereinafter detailed. Implicated by the pleadings and the motions are certain provisions of the Securities Exchange Act of 1934 (Exchange Act), 15 U.S.C. § 78a et seq., as amended by the Williams Act of 1968.¹ Plaintiffs' complaint charges defendants with violating §§ 13(d) and 14(a) of the Exchange Act, 15 U.S.C. § 78m(d), 15 U.S.C. § 78n(a), and relevant rules and regulations of the Securities and Exchange Commission (Commission) promulgated thereunder, including Rule 13d-1, 17 C.F.R. § 240.13d-1 (1974), and Rule 14a-9, 17 C.F.R. § 240.14a-9 (1974); and the statutes and common law of the State of New Jersey. Defendants' answer not only denies these charges but counterclaims with charges of §§ 13(d) and 14(a) violations by plaintiffs.² Jurisdiction and

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venue are in this court under § 27 of the Exchange Act, 15 U.S.C. § 78aa, as to the Exchange Act claims, and under pendent jurisdiction principles on plaintiffs' state-created claim.³

RELIEF SOUGHT

In their complaint, plaintiffs, who sue in their own right and derivatively, Fed.R.Civ.P. 23.1; N.J.S.A. 14A:3-6, in the right of Multi-Amp Corporation (M-A), defendant herein, seek preliminary and permanent injunctive relief which would enjoin the defendants Lerner, Saltzman, Redlhammer and Esquivel from utilizing as soliciting material management's Proxy Statement dated August 16, 1974, from soliciting proxies from M-A shareholders, from voting or otherwise exercising any rights in connection with proxies heretofore solicited or obtained, from committing any violations of the Exchange Act, from voting at the annual meeting, now set for October 30, 1974, any shares of M-A stock owned by them or by L & S Investment Company (L & S), and from implementing or consummating the proposed sale of assets, by M-A to the defendant MUL Company (MUL), which is at the core of this proceeding. While challenging the named plaintiffs' capacity to sue derivatively, defendants do not challenge their standing to sue individually, as stockholders, for §§ 13(d) and 14(a) violations. Cf. GAF Corporation v. Milstein, 453 F.2d 709, 719 n. 21 (2d Cir. 1971), cert. denied, 406 U.S. 910, 92 S.Ct. 1610, 31 L.Ed.2d 821 (1972); Committee for New Man. of Butler Aviation v. Widmark, 335 F.Supp. 146, 154 n. 9 (E.D.N.Y.1971); but see Washburn v. Madison Square Garden Corp., 340 F.Supp. 504 (S.D.N.Y.1972). In this regard, it is noted that given the liberal application of the standing doctrine in the area of securities law by this Circuit, Landy v. Federal Deposit Ins. Corp., 486 F.2d 139 (3d Cir. 1973), this court expressly finds that plaintiffs do have standing to sue to vindicate §§ 13(d) and 14(a) violations.

The defendants have counterclaimed for preliminary and permanent injunctive relief to bar plaintiffs from utilizing their proxy material, and to enjoin them from voting their own shares, and the shares of others, at the annual meeting.

THESE PROCEEDINGS

This court signed an Order to Show Cause with temporary restraints on September 6, 1974, later modified by its order of September 13, 1974.

On the applications for interim relief, the parties put before the court the pleadings, various affidavits, the several depositions taken to date, and lengthy briefs. Following these submissions, oral argument was heard on October 9, 1974. The parties have agreed to waive an evidentiary hearing on plaintiffs' claims.

Defendants, on the other hand, request an evidentiary hearing on their § 13(d)-based counterclaim, which as been held.

Before addressing the principal issues involved, it is to be noted that plaintiffs, having been given the list of stockholders of M-A after commencing suit, moved thereafter for the disclosure of (a) the names of all persons whose M-A stock is held in street-name, and (b) the names of those persons whose stock is with Cede & Co., a certain stock depository. At oral argument on October 9, 1970, I denied application (a) but granted (b), staying the latter ruling, however, to allow defendants to make a written submission in opposition thereto. That submission having been made, and found unpersuasive, the stay is now lifted, and an appropriate order is to be submitted forthwith. The court's determination is founded upon what it stated at oral argument on October 9, 1970, and the reasons immediately hereinafter expressed.

The New Jersey Business Corporation Act, N.J.S.A. 14A:5-28(1), provides in relevant part:

The corporation shall make available for inspection . . . a record or records containing the names and addresses of all shareholders, the number, class and series of shares held by each and the dates when they respectively became the owners of record thereof . . . .

Defendants would argue that this statute, literally applied, would require only that a list of all shareholders of record on the corporate books be made available for inspection. As previously stated, M-A has already furnished a list of shareholders of record to plaintiffs.

Since management now receives from Cede & Co. a monthly list of "participants", see letter of defendants' counsel dated October 11, 1974, fairness compels that management should make available to plaintiffs the same information so that this proxy solicitation campaign can be waged on equal terms by both sides.

Regarding shareholders who have shares in street-name, the court is not inclined to give the restrictive construction to N.J.S.A. 14A:5-28 defendants urge. Cf. Rule 14a-7, 17 C.F.R. § 240.14a-7 (1974); and see § 14(c) of the Exchange Act, 15 U.S.C. § 78n(c), which was added in 1964 and pursuant to which the Commission, by Rule 14c-7, 17 C.F.R. § 240.14c-7 (1974) requires issuers subject to the proxy rules to canvass the registered owners of the securities known to be held in street-name. Instead, its refusal to require that the names of shareholders holding shares in street-name be determined and divulged is based not only upon policy considerations, namely, that such owners should have their desire for privacy protected, but also because management, unlike the Cede situation, is also without the information plaintiffs seek. See Cary, Corporations 311-12 (4th ed. 1969). Although not relevant to the issue raised, it should be noted that the court recognizes that derivative suits can be brought by shareholders who are equitable holders, and not of record. N.J.S.A. 14A:3-6 (Commissioners' Comments); Drachman v. Harvey, 453 F.2d 722 (2d Cir. 1972) (en banc).

THE PARTIES

Plaintiffs

Plaintiffs Scott and Puttkammer are stockholders of defendant M-A, a New Jersey corporation, with its principal place of business in Texas, which, with its subsidiaries, is engaged in various aspects of the electrical testing industry.

Defendants

MUL is a recently organized Delaware corporation, the stock of which is entirely owned by defendants Lerner, Saltzman, Redlhammer and Esquivel, formed by them to acquire M-A's assets. Lerner (M-A's Board Chairman and Chief Executive Officer) and Saltzman each own beneficially 81,798 shares (8.99%) of M-A's common stock (totalling in excess of 900,000 shares), acquired on April 15, 1970, and registered in the name of L & S, a partnership owned fifty-percent by Lerner, with the other fifty-percent owned by Saltzman and a corporation (Lodar, Inc.) he controls. Redlhammer (M-A's President) and Esquivel (M-A's Vice President for Finance) own respectively 28,471 (3.13%) and 196 (.02%) shares of M-A common stock, and are, with Lerner and Saltzman, directors of M-A, as is Baker (who was elected on July 10, 1974). Berick is also an M-A director and a partner in the Cleveland, Ohio law firm of Burke, Hahn & Berick, which has served as M-A's general counsel; he owns 500 shares (.05%) of M-A's common stock. Other M-A directors were, until recently, Glenn Golenberg, whose place was taken by Baker, and James Hellmuth, an outside director whose principal occupation is as a vice president of Bankers Trust Company. Their resignations were filed and accepted on July 10 and August 1, 1974, respectively.

DISCUSSION

Generally, plaintiffs charge that at a time prior to July 26, 1974, defendants Lerner, Saltzman, Redlhammer and Esquivel, in addition to violating certain securities laws, conspired to acquire M-A's assets "at a grossly inadequate price $5,494,965 or $6.04 per share of M-A stock and to liquidate . . . M-A, to the detriment of the stockholders . . . and, pursuant to said conspiracy, formed defendant MUL for the purpose of acquiring the assets of Multi-Amp." Complaint, para. 11. More specifically, plaintiffs charge defendants have acted illegally in the particulars hereinafter set forth.

Plaintiffs' § 13(d) Claims

Plaintiffs contend, first, that L & S, Lerner and Saltzman, having acquired on April 15, 1970 18% of M-A's stock registered pursuant to § 12 of the Exchange Act, 15 U.S.C. § 78l from the Gross family, then M-A's principal shareholders, were by April 25, 1970 required to, but did not, comply with the filing requirements of § 13(d).⁴ Plaintiffs further assert that the § 13(d) filing requirement was triggered again when, on or about July 10, 1974, Lerner and Saltzman, then in control of M-A,...