Wellman v. Dickinson

• Citation: 475 F. Supp. 783
• Decision Date: 09 July 1979
• Docket Number: 78 Civ. 291,78 Civ. 1025,78 Civ. 345,78 Civ. 539,78 Civ. 1055 and 78 Civ. 1156 (RLC).,No. 78 Civ. 284,78 Civ. 284
• Parties: Arnold S. WELLMAN, Plaintiff, v. Fairleigh S. DICKINSON, et al., Defendants. Mordecai ROSENFELD, Plaintiff, v. SUN COMPANY, INC., et al., Defendants. JAY-GRO FABRICS, INC. PENSION TRUST, Plaintiff, v. SUN COMPANY, INC., et al., Defendants. BECTON, DICKINSON AND COMPANY, et al., Plaintiffs, v. SUN COMPANY, INC., et al., Defendants. Morton PUPKO, Plaintiff, v. Fairleigh S. DICKINSON, Jr., et al., Defendants. SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. SUN COMPANY, INC., et al., Defendants. Rubin POLNE, Plaintiff, v. SUN COMPANY, INC., et al., Defendants.
• Court: U.S. District Court — Southern District of New York

475 F. Supp. 783

Arnold S. WELLMAN, Plaintiff, v. Fairleigh S. DICKINSON, et al., Defendants.

Mordecai ROSENFELD, Plaintiff, v. SUN COMPANY, INC., et al., Defendants.

JAY-GRO FABRICS, INC. PENSION TRUST, Plaintiff, v. SUN COMPANY, INC., et al., Defendants.

BECTON, DICKINSON AND COMPANY, et al., Plaintiffs, v. SUN COMPANY, INC., et al., Defendants.

Morton PUPKO, Plaintiff, v. Fairleigh S. DICKINSON, Jr., et al., Defendants.

SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. SUN COMPANY, INC., et al., Defendants.

Rubin POLNE, Plaintiff, v. SUN COMPANY, INC., et al., Defendants.

Nos. 78 Civ. 284, 78 Civ. 291, 78 Civ. 345, 78 Civ. 539, 78 Civ. 1025, 78 Civ. 1055 and 78 Civ. 1156 (RLC).

United States District Court, S. D. New York.

July 9, 1979.

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Securities and Exchange Commission, Washington, D.C. (Theodore Sonde, Charles L. Lerner, Robert B. Blackburn, Robert M. Romano, Washington, D.C., of counsel), for the Securities and Exchange Commission.

Paul, Weiss, Rifkind, Wharton & Garrison, New York City (Arthur Liman, Robert S. Smith, Jack Hassid, Susan P. Carr, Colleen McMahon, Paul B. Kertman, New York City, of counsel), for Becton, Dickinson & Co.

Parker, Auspitz, Neesemann & Delehanty, New York City (Jack C. Auspitz, Barrington

D. Parker, Jr., New York City, of counsel), for other plaintiffs.

Kreindler & Kreindler, New York City (Paul Bernstein, Edward A. Grossmann, New York City, of counsel), for Jay-Gro Fabrics, Inc. Pension Trust and Lead Counsel for class plaintiffs.

Kaye, Scholer, Fierman, Hays & Handler, New York City, Wachtell, Lipton, Rosen & Katz, New York City (Peter M. Fishbein, Jay G. Strum, Vincent J. Syracuse, Harvey Belkin, Barry Willner, Jay Wishingrad, Douglas S. Liebhafsky, Peter C. Hein, New York City, of counsel), for Sun Co., Inc.

Orans, Elsen, Polstein & Naftalis, New York City (Sheldon H. Elsen, Leslie A. Lupert, Robert Polstein, Paul Summit, New York City, of counsel), for Fairleigh S. Dickinson and Ann Turner Dickinson.

Cleary, Gottlieb, Steen & Hamilton, New York City (Edmund H. Kerr, Judith Ripps, Steven E. M. Hartz, New York City, of counsel), for Salomon Bros., F. Eberstadt & Co.

Sullivan & Cromwell, New York City (Marvin Schwartz, Michael Barron, New York City, of counsel), for Chemical Fund, Inc., Surveyor Fund Inc.

OPINION

ROBERT L. CARTER, District Judge.

I Status of the Proceedings

This litigation stems from the acquisition by Sun Company, Inc. ("Sun"), a Pennsylvania corporation whose principal business is oil and gas, of roughly 34% of the stock of Becton, Dickinson & Company ("BD"), a New Jersey corporation which manufactures health care products and medical testing and research equipment. Sun's brilliantly designed, lightning strike took place in January, 1978, and gave rise to seven separate actions which were consolidated for trial. In 78 Civ. 1055, the Securities and Exchange Commission ("Commission") brings an enforcement action against Sun, L.H.I.W., Inc. (an acronym for Lets Hope It Works), the corporation Sun formed to receive the BD shares; Salomon Brothers ("Salomon"), a New York limited partnership engaged in the investment banking and brokerage business; F. Eberstadt & Co., Inc., ("Eberstadt"), a Delaware corporation engaged in investment banking, institutional stock brokerage and the management of pension funds and advisory accounts and which, along with Salomon, handled the Sun acquisition; F. Eberstadt & Co. Managers & Distributors, Inc. ("M & D"), a Delaware company 75% owned by Eberstadt and 25% owned by the estate of Ferdinand Eberstadt,¹ which manages the two Eberstadt mutual funds involved in this proceeding; Robert Zeller, chief executive officer of Eberstadt and vice chairman of M & D; Fairleigh S. Dickinson, Jr., former chairman of BD and one of its principal stockholders; J.H. Fitzgerald Dunning, a former director and large stockholder in BD; and Kenneth Lipper, a partner in Salomon. The Commission charges the defendants with violating or aiding and abetting the violation of Sections 10(b), 13(d), 14(d) and 14(e) of the Securities Exchange Act of 1934, as amended (15 U.S.C. §§ 78j(b),² 78m(d),³ 78n(d)⁴ and 78n(e)⁵); Rules 10b-5

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(17 C.F.R. § 240.10b-5)⁶ and 10b-13 (17 C.F.R. §§ 240.13d-1 and 13d-2),⁷ and Regulation 14D (17 C.F.R. § 240.14d-1⁸ and § 240.14d-101⁹), promulgated thereunder;

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Sections 17(d) and 17(e) of the Investment Company Act of 1940, as amended (15 U.S.C. §§ 80a-17(d),¹⁰ 80a-17(e)¹¹); and Rule 17d-1 (17 C.F.R. § 270.17d-1),¹² promulgated thereunder.

In 78 Civ. 539, BD, its officers and several of its shareholders individually and derivatively sue Sun, L.H.I.W., Dickinson, Dunning, Salomon, Eberstadt, Chemical Fund, Inc., and Surveyor Fund, Inc., alleging violations of the Exchange Act similar to those charged in the Commission's case, and in addition, charging Dickinson and Dunning with violations of their fiduciary obligation to BD and its shareholders. The Chemical and Surveyor Funds are open end investment companies managed by M & D and registered with the Commission under the Investment Company Act of 1940.

78 Civ. 284, 78 Civ. 291, 78 Civ. 345, 78 Civ. 1025 and 78 Civ. 1156 are class actions against various combinations of the defendants in the Commission's and BD cases and Ann Dickinson Turner, a daughter of Dickinson and a substantial shareholder of BD stock. The class actions allege violations of Sections 10(b), 13(d), 14(d) and 14(e) of the Exchange Act, Sections 2(l)(1) and 9(b) of the New Jersey Corporation Takeover Bid Disclosure Law, New Jersey Laws of 1977, Chapter 76,¹³ and Rule 390¹⁴ of the New York Stock Exchange ("NYSE"). The class

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plaintiffs are all the persons who, as of the close of business January 16, 1978, owned either BD stock or BD 4 1/8 % convertible debentures due in 1988 (except, of course, defendants and those who sold BD stock to Sun).

All defendants have answered by denying the basic allegations of wrongdoing. All defendants argue that no cause of action has been stated against them, that all plaintiffs except the Commission lack standing and that none of the plaintiffs have been injured. In addition, Sun, Dickinson, Salomon, Eberstadt, M & D, Lipper and Zeller allege that BD and the individual plaintiffs in 78 Civ. 539 come into court with unclean hands because they embarked on a course of untoward conduct designed to bring political and public pressure and disfavor on defendants. In the enforcement proceedings, Salomon, Eberstadt, M & D, Lipper and Zeller charge that the Commission denied defendants procedural due process in flagrant violation of its own rules of procedure and that it brought this enforcement proceeding in response to political pressure generated by BD. Accordingly, all defendants urge dismissal of the complaints.

The defendants opposed class action certification, but their contentions were held to be meritless. Class certification was granted and defined as stated above. See Wellman v. Dickinson, 79 F.R.D. 341 (S.D.N.Y. 1978) (Carter, J.). The class plaintiffs waived their jury trial demands and the Commission agreed to have its case consolidated for trial with those of the private parties. A bifurcated trial dealing only with the issues of liability began on November 13, 1978 and ended on December 8. During the trial Dunning reached a settlement with the class plaintiffs. The parties have made an abundance of pre-trial, trial and post-trial submissions with the latter continuing as late as July 1, 1979. Counsel have been scrupulously diligent in bringing to the court's attention any newly decided relevant cases not cited nor discussed in their pre-trial, trial and post-trial briefs and memoranda. Although all but inundated by the deluge of exhibits and filings in these proceedings, the court is appreciative of the parties' diligence in bringing to the court's attention every conceivable document that might possibly be relevant to the decision.

II Findings of Fact

The background and governing facts¹⁵ in this complex drama embrace personality conflicts, animosity, distrust, and corporate politics, as well as a display of ingenuity and sophistication by brokers, investment bankers and corporate counsel.

Fairleigh S. Dickinson, Jr. was the son of one of the founders of BD. He held the reins of the company from 1948 until 1973. When he became BD chief in 1948, BD was a private family enterprise with gross sales of 10 million dollars annually. When he released the reins of the company in 1973, it was a public company with gross sales of $300 million annually. Dickinson loosened his hold on the helm but did not entirely let go. In 1974, he stepped upstairs to become Chairman of the Board, while Wesley Howe became Chief Executive and Marvin Asnes became Chief Operating Officer. Differences between the management team and the chairman became evident in late 1976 when Dickinson threatened to fire Asnes.

Sometime prior to January, 1977, Howe became interested in the acquisition by BD of National Medical Care Corp. Negotiations went well, and BD announced a proposed merger with the company in January, 1977. Without advising the board or management, Dickinson engaged the services of Salomon and Eberstadt to look into the proposal and advise him about it. Dickinson was a personal friend of William Salomon, a senior partner of Salomon, and Eberstadt had been BD's investment banker. Robert Zeller, Eberstadt's chief executive, had arranged the first underwriting in 1962 when BD became a public company, and until 1975 had performed the same function when BD made additional public offerings. In addition, Zeller had advised Dickinson on the handling of some of his personal affairs. Both Salomon and Eberstadt filed negative reports on the National Medical Care...