United States v. Sears, Roebuck & Co.

• Decision Date: 29 July 1958
• Citation: 165 F. Supp. 356
• Parties: UNITED STATES of America, Plaintiff, v. SEARS, ROEBUCK & COMPANY, The B. F. Goodrich Company and Sidney J. Weinberg, Defendants.
• Court: U.S. District Court — Southern District of New York

165 F. Supp. 356

UNITED STATES of America, Plaintiff, v. SEARS, ROEBUCK & COMPANY, The B. F. Goodrich Company and Sidney J. Weinberg, Defendants.

United States District Court S. D. New York.

July 29, 1958.

Harry N. Burgess, Department of Justice, Washington, D. C., for plaintiff.

Sullivan & Cromwell, New York City, Howard T. Milman, New York City, of counsel, for defendant.

WEINFELD, District Judge.

This is a motion for construction of the decree of this Court rendered five years ago in United States v. Sears, Roebuck & Co., D.C.S.D.N.Y., 111 F.Supp. 614. In that action the Government sought to compel the defendant Weinberg to resign as a director of either or both of the corporate defendants, Sears, Roebuck & Co. and the B. F. Goodrich Co., on the ground that his dual directorship violated Section 8 of the Clayton Act.¹ The Court granted the Government's motion for summary judgment and after considering the various proposals and counter-proposals submitted by the parties, signed a decree the pertinent parts of which follow:

III.

The defendant Sidney J. Weinberg is ordered and directed to resign his directorship in the defendant Sears or the defendant Goodrich no later than September 30th 1953 and to withdraw from participation in the direction, control, or conduct of the business of the corporate defendant from which he resigns. * * *

V.

The defendant corporation from which the defendant Sidney J. Weinberg resigns as a director in accordance with the provisions of Paragraph III of this judgment is directed to accept the resignation of the defendant Sidney J. Weinberg and is hereby perpetually enjoined from permitting him to be elected as a director, allowing him to serve as a director, or permitting him to participate in the direction, control or conduct of the business of said defendant.

On September 21, 1953, Weinberg resigned his directorship in Sears. He remained a director of Goodrich. He and Sears now ask the Court to construe its decree to enable the present Board of Directors of Sears to appoint Weinberg as a trustee of its Savings and Profit Sharing Pension Fund while he continues to serve as a director of B. F. Goodrich Company.

The Fund in question was established in 1916. All Sears' employees with one year of seniority are eligible to join. As members of the Fund they contribute five per cent of their salaries up to an annual maximum of $500. Sears contributes an additional amount each year measured by a percentage of its net income in accordance with a prescribed formula.

The Rules and Regulations which govern the administration and investment of the Fund provide that it shall be under the management of not less than five nor more than seven trustees appointed for three year terms by the Board of Directors of Sears. They further provide that "so far as practicable and advisable" the Fund shall be invested in Sears stock. The trustees, however, are given discretion to make other investments with "as wide latitude * * * as if they, as individuals, were the absolute owners thereof". A recent amendment provides that all the trustees except two shall be officers, directors or employees. Thus in the discretion of the Board of Directors there may, but need not be two so-called outside trustees. The directors intend to appoint Weinberg as one of these.

The Fund, which in addition to contributions includes profits and income from investments, has grown tremendously since 1916. As of December 31, 1957, its assets were $704,000,000 and the income for that year was $96,000,000. It is anticipated that the annual income will continue at the same rate. The bulk of the assets consisted of almost 19,500,000 shares of Sears common stock representing twenty-six percent of the total shares outstanding and having a market value at the end of 1957 of almost $500,000,000. The balance of the Fund's other assets consisted in the main of commercial paper, debentures and preferred and common stock of other companies.

The Sears common stock owned by the Fund is entitled to full voting rights on all issues submitted by Sears' management to stockholder vote, including election of directors of the company. Until recently this stock was voted by all the trustees of the Fund. In May 1958 an amendment was enacted which provided that the Sears stock is to be voted by a majority of the committee of the three trustees who are not officers or directors of Sears (hereafter called the voting committee) subject to voting instructions by participants in the Fund. Thus, if Weinberg were appointed a trustee of the Fund, the voting committee would consist of him, the second outside trustee and the employee trustee. It is desirable to analyze what this voting power means.

The shares of Sears stock in the Fund are allocated among participating members who, after the expiration of five years, acquire vested rights in the Fund. Under the recently adopted amendment each member of the Fund having such a vested interest in the stock owned by the Fund has the right to "instruct" the voting committee with respect to the voting of such shares. These "instructions" are in the form of proxies. At present ninety-five per cent of the Sears stock in the Fund (approximately 18,525,000 shares) is subject to such instruction. The remaining five per cent (975,000 shares) is not. Past experience demonstrates that one-third of the Sears shares, other than those held by the Fund, are not voted. Based on this experience it is fair to anticipate that the same proportion of the shares held by the Fund will not be instructed. These uninstructed shares amounting to over...