*1 In all by employer. probability, vio- agreement public policy employer announced its intention with re- lates, legislation or court deci- by as shown spect to the dues check off at the time of sion; that refusal to enforce the likelihood bargaining negotiations, the last collective and the seriousness policy; will further that bargained the union would have for inclu- Opinion misconduct.” at 267. agree- in the written practice sion of the spe- that there is no majority argues The ment. enforcing agree- this public cific interest misconduct, As to the seriousness of the is actu- public’s ment and that interest majority admits that it was not serious With by non-enforcement. ally promoted but dismisses that conclusion with the re- The strongly disagree. this assessment I weight. mark that it is entitled to little 302 is to public policy by advanced section Opinion however, conclude, I 268. from extortion and to protect employers relatively minor misconduct such we protect overreaching by employees here should not be determinative in have agreement This employer. union and the strong public policies the face of off, has implemented, check as it has been have been outlined. the em- any injury never caused to either fact, as found employees. or the ployer I do not interest or public believe that the arbitrator, it has been of benefit to by the justice by the interests of are well-served method of employees, who relied on this majority decision in this case. Accord- dues. paying their union ingly, I would hold that the District Court refusing erred in to enforce the arbitrator’s specific public promoted interest would vote to Dis- award and reverse the is three- agreement enforcement of trict Court and to reinstate the arbitration (1) policy peaceful fold: favors the public award. disputes through arbitra- resolution of labor
tion, (2) trilogy, supra; public Steelworkers encourages practice proce-
policy bargaining,
dure of collective section Na- 151; Act,
tional Labor Relations 29 U.S.C. §
(3) public policy security, endorses union 8(a)(3), Labor Relations section National al., Ruth PANTER et Act, 158(a)(3). Here the arbi- 29 U.S.C. § Plaintiffs-Appellants, trator ordered the to resume employer v. are re- check off as written authorizations MARSHALL ceived; al., FIELD & CO. public policy by enforcing is served et Defendants-Appellees. parties the arbitrator’s award. The bar- al., Richard off, WEISS et gained ago for the dues check years Plaintiffs- Appellants, promotes their enforcing agreement A bargaining. of collective union practice CO., MARSHALL writ- FIELD
security part parties’ clause is & Defendants-Appellees. agreement; ten continuation of the check supplements complements off 80-1375, Nos. 80-1389. clause. United States Court of Appeals, majority declares that Local did Seventh Circuit. its justified expectation not have a Argued Sept. 1980. was law- agreement with Jackson Purchase Decided April ful, misled Jackson Purchase. nor was it however, Rehearing have a Rehearing the union did Arguably, En Banc many years’ 6,1981. expectаtion, July based Denied justified contin- employer would experience, way no We have practice. the check off
ue was misled the union knowing whether *6 the evi- similarly found jurisdiction,
dent state law claims. on the dence insufficient THE CASE I. STATEMENT OF summary accurate thorough A opinion presented facts However, pos- court. because the district determination of requires ture of case Unikel, Rosenberg, L. Savner & Alan Uni- plain- whether facts established kel, Jr., Chicago, (Harry Young, 111. A. basis for a provide sufficient tiffs Richman, Neisten, Bilandic, Hauslinger & verdict, in some here. we review them detail Young, Ltd., Prins, Susman, Arthur T. Parties. Ltd., The Susman, 111., & A. Flamm Donald Chicago, L. Kohn, Weinsberg, Savett, Graf, Marion & consoli in the cases plaintiffs named C., Pa., Atkins, Philadelphia, P. Robert S. trial nineteen shareholders for were dated Freeman, Coleman, Ltd., Atkins & 1978, Lawrence 30, plaintiffs On June of Field’s. Eiger, Much, Shelist, H. Freed, Denenberg, of all representatives class were certified as C., Eiger, 111., Ament & P. Chicago, on who common stock held Field’s persons Brief) plaintiffs-appellants 12, 1977, for in No. December between any time 80-1375; plaintiff class was 1978. The February Bernfield, Panter, I
Irwin Panter Nelson & into subclasses. Subclass subdivided four 111., held stock Chicago, plaintiffs-appellants persons for in No. all who Field’s included 12, 1977, dis but 80-1389”. on or before December Burnham, Sachnoff, Bryson P. February Lowell E. 1978. Sub of it before posed 111., Platt, acquired who Chicago, persons included all Brown & class II Mayer, 12, 1977, and December defendants-appellees. Field’s stock after 22, 1978. February of it before CUDAHY, disposed Before PELL and Circuit ac persons all who III included DUMBAULD, Judges, and Subclass District Senior after December Field’s stock Judge.* quired it Febru dispose did before not PELL, Circuit Judge. per IV included all 1978. Subclass ary The nineteen named in these stock or before who held Field’s sons appeal consolidated cases from a of it 12, 1977, dispose did December granted district court which the de February before fendants’ for a verdict at motion directed presentation close of plaintiffs’ corporation is a with its Delaware jury. Chicago, evidence Panter v. Marshall office principal Illinois. (N.D.Ill.1980). engaged operation Field & has been *7 plaintiffs, department shareholders of Marshall of retail stores and since (Field’s) sought prove eighth Field & on December it was the Company defendants, department and its chain largest store in the Unit- directors,- States, with wrongfully thirty-one ed stores. Fifteen deprived in opportunity dispose Chicago of an the stores were located premium their shares at a substantial over and area: included State Street successfully market when the in Chicago, defendants Water Tower Place Stores attempt by Chicago, fended off a takeover Carter Store in west suburban Oakbrook Hawley (CHH), a national chain. Hale retail the Old and Hawthorn Orchard Center The plaintiffs claimed relief under federal north Chicago. in suburban Other Stores securities law and state Nelson corporation divisions included the Frederick & in Washington; tort law. court the evi division the state of The district found go Company dence insufficient to the Division Halle Brothers Halle and, pen- federal law claims its exercising Pennsylvania; in Ohio and the Crescent * Dumbauld, nia, sitting designation. Judge the United Edward Senior Pennsylva- States District for Court Western stores, if acquisitions in such were in Spokane, with stores accord of Halle
Division with the sound business Washington. board, of Marshall Field & and in the directors best interest of the com-
The ten period December and its shareholders. He counseled during pany Company legal way were a acquisitions that such 22, 1978 are also February 1977 to unfriendly attempts. with takeover coping the di- Seven of named as defendants. with Field’s not affiliated during rectors were Flom’s advice was followed of- remaining three were series of tenta- management; period conjunction in a to Field’s or on behalf of approaches ficers Field’s. tive Thus, in a acquirors. when potential engaged corporation CHH is a California party acting third interested in as a “cata- spe operation department, of retail Dry a Goods lyst” for Field’s-Associated party It was not a cialty, and book stores. board, it considered merger approached the here, although acquire its efforts to Field’s rejected explora- further the matter and Neiman gave litigation. rise to this CHH’s While this offer was under considera- tion. in operates division retail stores Marcus Brothers, tion, re- acquired Field’s Halle a United States. Texas and the southeastern in which tailer with stores in communities 12, 1977, As of December it had one store already had stores. Associated Northbrook Court in north suburban Chica representing In investment bankers go. land on North acquired CHH also had Stores, Department Federated then the na- Michigan Avenue, one block south of Field’s chain, largest department ap- tion’s store Store, had ex Water Tower Place proached possible merger. Field’s about a its intent a Neiman-Marcus pressed put Again, the Field’s board considered the there, although plans those were in Store matter, but light advice of counsel during period. the relevant time abeyance problems it would raise antitrust for some attempting had also been CHH damage proposed the chances of a Field’s Shopping time to enter the Oakbrook Cen acquisition Company, of the Wanamaker Chicago ter in west suburban where Field’s pursue the board determined not had a divisions of already store. Other contact. department specialty CHH had stores Two approaches were initiated in 1976. the western United Its Walden States. August, large Dayton-Hudson, national Book division 433 book stores operated store, department expressed interest in a across the United States. In December possible merger. management Field’s drew largest 1977 Walden the third or fourth was up thorough options covering list of Chicago bookseller in the market. advantages and disadvantages of such a B. The Pre-1977 Events. statement, merger. reviewing After On several occasions in the late 1960’s Field’s board dеcided that in light of their mid-1970’s, and continuing to the plans development for future and financial management approached by would-be projections merger would merger or takeover suitors. In 1969 Field’s advisable. Flom, sought help H. Joseph an at- In September manage- of 1976 Field’s torney matters, with expertise in such ment received an from a third inquiry party determining how respond best asking whether Field’s was interested overtures of parties. interested Flom ad- having Gamble-Skogmo, another national *8 vised the board that the interest of the retailer, acquire twenty percent a block of concern, shareholders paramount was the “prevent Field’s stock to a takeover an- by and management should listen to such party.” Again proposal other the was eval- proposals, evaluate whether the proposal by uated Field’s directors and turned down. serious, was and whether the proposal Approach. C. The CHH raised questions antitrust violations. He the board decided to hire also Field’s manage- advised Field’s directors and Arena, Angelo ment then head of CHH’s Neiman- company’s to invest the reserves and division, employment Marcus to commence use borrowing power acquire its to other its opinion work with Walden division. Chaffetz’ was with the Burnham, two president, Joseph for current to directors. conveyed Field’s presi- years, or three and then assume the pres- Philip Hawley, December the On Burnham’s retirement. of Field’s on dency CHH, and chief executive officer ident However, died unexpected- when Burnham him unless Arena and told called 1977, the Field’s board in October of ly merger to agreed begin Field’s directors determined, held emergency meeting in an following Monday, De- negotiations the death, to elect days three after Burnham’s ex- public he would make a cember and presidency immediately to the Arena told Arena that CHH change proposal. He Chicago than ask him to come to earlier negotiations with propose beginning would inter- originally planned. day In the three share of Field’s com- an offer that for each made with in- val CHH informal contacts exchange would a number mon stock CHH an interest expressed termediaries and equivalent shares to roughly of its $36.00. in- merging with Field’s. The board was such negotiations. Arena refused to enter those at formed of contacts the October trading shares were on the market Field’s meeting and resolved at that time not to Friday share the per at around on $22.00 merger. consider the his Hawley before delivered ultimatum. press CHH continued to its attentions be- however, Hawley’s Arena construed call as the and on November Arena asked counsel, unfriendly attempt the law of an Chicago ginning Field’s antitrust takeover Ellis, Flom, to investigate firm of Kirkland & arranged He contacted and by CHH. aspects a merger. antitrust of such Field’s directors, counsel, meeting of key a Field’s met authorized day, board next and day. for next and investment bankers Rinder, аnd director George Arena another reported Kirk- meeting At the Arena executive, meet repre- and Field’s with opinion. agreed poll Ellis It was land & sentatives of That took meeting CHH. for to file the absent directors authorization place next day. The CHH team ex- seeking a resolution of the antitrust suit pressed their awhy merger reasons would The posed by merger proposal. issues for good companies, both and noted that also the New group determined inform foreign a firm likely was make a $60.00 Exchange, York call an emer- Stock for tender offer Field’s at Field’s time. meeting Field’s for De- gency of the board representatives conveyed posi- the board’s cember expansion tion internal would be best 12, 1977, Monday, the CHH On December Field’s, expressed concern about was Arena all letter received. contacted problems merger. antitrust of such CHH one telephone, Field’s directors but responded opined their counsel had filing authorized the the antitrust that there no antitrust deterrent suit. merger. representatives agreed Field’s report the discussions to the Field’s board. special meeting of took the board day the next all members place On December Hammond Chaffetz meeting Also were Field’s present. the Kirkland firm manage- advised Field’s attorneys and investment bankers. ment that of Kirkland Ellis opinion & Chaffetz, particularly opined lawyers, the proposed illegal combination would be lack of and the legality merger, light (a) under the antitrust laws investment bankers evaluated the financial existing competition between Field’s stores merger. management Field’s aspects store; and the Northbrook Neiman-Marcus projected report then made (b) potential competition between performance would be company’s future Chicago Chicago stores and the directors generally Many favorable. was planning stores Neiman-Marcus with the investment bankers that (c) existing agreed be- open; competition more (second bring tween Field’s sales in of common stock would stores book share Chicago) and com- operated by the stores CHH’s a sale of control of the than $36.00 *9 19,1978, January of the above fac- Field’s directors had After consideration On
pany. pro- re- unanimously regular meeting. expansion tors the directors voted to their Two in their one that the ject proposal posals agenda: the because were on the Galleria, a Hous- merger proposed “illegal, company expand the would be into the Bonwit shopping planned and not in the best interests of mall where a inadequate, ton materialize, Company, Field & its stockholders store had failed to creat- Marshall Teller it other that ing opening; and the serves.” an attractive the communities Liber- acquire group five issuance of The directors also authorized stores in the Pacific Northwest. ty House their decision. press conveying releasе contained a CHH Nei- already The Galleria the press On December Field’s issued man-Marcus store. The board resolved release, which indicated that Field’s di- programs. Field’s pursue expansion both had management and faith rectors long con- executives and directors momentum of and that “it company, areas, into these two expansion sidered would be in the best interests of our stock- expansion in such company’s interest holders, for us to employees customers and to investment analysts was well known take this momentum and con- advantage of field. department store implement growth plans tinue to our as an independent company.” shares its inten- February On CHH announced range traded in the market in a exchange tion to make an offer of $28.00 $42.00 day, approxi- and continued in of cash stock for $32.00 a combination and CHH range January until mately 1978. of Field’s stock tendered. The each share offer was conditioned on the fulfillment 20,1977, On December Arena addressed a twenty non-occurrence of some conditions. letter to Field’s stockholders in which he documents for announcement Appropriate spoke optimistically the future and re- filed with a tender offer were the SEC. past performance. viewed Field’s immediate price The market of Field’s stock rose to pointed He out that Field’s had disposed of share, per stayed $34.00 $30.00 ventures, unprofitable and that “for the range February until $34.00 nine months ended income October be- fore ventures and up taxes was 24.4% and special meeting A of the Field’s board up consolidated net income was He day 13%.” was convened the next to consider the negotia- referred to the CHH proposal legal implications new offer. The tion and to the advice of filing explained antitrust counsel were CHH board counsel, “that a CHH-Marshall Field & Company brought group up Chaffetz merger clearly would violate the United to date on the suit. There was no antitrust laws,” antitrust States concluded that adequacy discussion of the of the offer in “[yjour Board of Directors believes light of the board’s determination that maximum benefits for Marshall Field & proposed clearly combination would be ille- stockholders, Company and its employees, gal. go The board also determined to ahead customers and the communities it serves with plan, approved Galleria will continuing develop result from as an signing agreement of a letter of to enter independent, publicly-owned Company.” the mall. 5,1978, January
On Field’s issued another meeting After the Field’s issued another release, press announcing that it had press reaffirming opposition release its against amended its antitrust suit CHH to proposed merger. It with a concluded include allegations of federal securities law my statement Arena that “I assumed violations. The release reiterated Field’s position Company with Marshall Field & future, confidence its and stated “our understanding with the that I would devote management continuing implementa- making Compa- Marshall Field myself & tion longstanding programs of our truly organiza- to fur- national retail business ny develop ther build and the business of Mar- tion. We ... are determined not to be shall Field Company.” recently & deterred from this course. Our
281 to five our task to determine whether agreement acquire Liber- is announced [I]t to Tacoma, support there is substantial evidence Washington House ty Stores evi- Portland, [appellant’s] upon claim which Oregon step one in our was could have found in jury properly dence a program.” [appellant] favor of .... This standard 8, press On another Field’s re- February . view all of the requires .. Court to that had lease announced concluded light in the most favorable to evidence department negotiations for a store to be appellant]. [the 22, opened February in the Galleria. On omit (Emphasis Id. at 430 added. Citations withdrawing CHH announced that it was Sears, accord, ted.); Hannigan v. Roebuck it proposed its tender offer before became Co., 285, (7th Cir.), & 410 F.2d 288 cert. effective, expansion because “the program denied, 214, 902, 24 396 U.S. 90 S.Ct. Field since Marshall Febru- announced (1969). Both the Chillicothe L.Ed.2d 178 ary 1st created sufficient doubt has about Hannigan expressions of the rule re earning to potential Marshall Field’s make evidence, flect requirement offer longer no the best interests of whole, provide pro a sufficient taken as a Hawley Carter Hale’s shareholders.” None could upon bative basis which a reason CHH’s events conditioned verdict, “speculation ably reach a without since 1. February tender offer had occurred Brady over unfounded claims.” v. legally announcement, Following market 476, 480, Railway, Southern 320 U.S. 64 $19.00, price dropped of Field’s shares 234, 232, (1943). 88 S.Ct. L.Ed. 239 9, lower than it had been on December Thus, Hohmann Packard Instrument prior last first v. trading day pro- to CHH’s Co., (7th 1973), 815 471 F.2d Cir. this court posed offer.
upheld grant of a directed verdict in a 10b-5, suit under Rule 17 brought SEC REVIEW II. THE OF STANDARD (1980), finding C.F.R. 240.10b-5 § We note as a matter preliminary purpose failure to disclose its defendant’s if the it is well settled that result accounting product abandon the for two- affirmed, is below correct it must be al long- sales pursuant thirds of its though wrong the lower court relied on a changeover but undisclosed model planned ground gave wrong reason. SEC v. misleading, was and that 80, 88, 63 Chenery Corp., 318 U.S. S.Ct. provide a foundation of fact failed (1943); 87 v. Helvering L.Ed. 626 Gow proof. to sustain their burden of sufficient ran, 238, 245, 154, 157, 302 58 S.Ct. 82 U.S. opinion, Judge Hastings thoughtful In a (1937); Baylor, L.Ed. 224 v. 457 Barrett ruling on a mo- reviewed the standards (7th 1972). F.2d Cir. verdict, tion for directed and concluded that appellate court in the direct- role of All Be A. the Evidence Should Considered is “to evaluate the ed verdict determination
on a
Verdict.
Motion for Directed
it is
suffi-
evidence to determine whether
probative
cient
value
members of the
court’s
reviewing
grant
a district
fairly and
differ as
jury might
impartially
verdict,
aof motion for directed
the stan
reasonably
to the inferences
be
drawn
applied by
appeals
dard
bе
the court of
at
therefrom.”
Id.
applied by
the same as that
the trial court.
view,
¶
situa-
present
5A Moore’s Federal Practice
we
Although
50.07[2]
(2d
1977);
tion,
50-82 to
ed.
see
most favorable
-83
C-Suzanne
the evidence in the
Salon,
it is
Beauty
light
Ltd. v.
on the other hand
appellants,
General Insurance
only
(2d
1978).
Cir.
not the
in this circuit that
testimo-
F.2d
n.10
rule
standard,
may
That
been
on direct examination
long
ny
has
settled
elicited
circuit,
in this
most
in a motion for directed verdict.
recently
enunciated
considered
courts ac-
Hannigan
&
As the
and Chillicothe
Chillicothe Sand Gravel Co. Martin
consider,
(7th
1980):
ever
knowledged,
Marietta
L.Ed.2d
CHH,
of-
tender
lan-
their shares to
tender offer”
tender
“in connection
the at-
feror,
deceiving them as to
provision
Williams Act
guage
of their shares
present
disposing
special concerns
tractiveness
presents
10b-5,
rising
we address these
market.
under Rule
analysis
separately.1
claims
Opportunity.
Offer
The Lost Tender
The Williams Act Claims.
A.
denying
opportunity
By
*12
CHH,
plain-
their shares to
to tender
a
Act is
14(e) of the Williams
Section
deprived
them
tiffs claim
defendants
modeled after
provision
broad antifraud
$42.00, the amount
difference between
10b-5,
designed
Rule
is
to insure
SEC
$19.76,
offer,
the amount
the CHH
with a tender
confronted
that shareholders
traded in the market
which Field’s shares
at
have
informa-
adequate
offer
accurate
To-
proposal.
withdrawal of the CHH
after
on which
base the decision whether
tion
to
theory
this
would exceed
damages under
tal
Piper v.
or not
to tender their shares.2
$200,000,000.00.
35,
Industries, Inc.,
1,
430
Chris-Craft
U.S.
97 S.Ct.
49,
Ad.News
(1968), reprinted
S.Rep.No.550,
H.
192
Rondeau v. Mosinee
101 S.Ct.
R.Rep.No.1711,
58
(2d Cir.),
(1975);
926, 946,
2811,
354,
90th
cert.
Lewis
66
in
90th
L.Ed.2d 214
Cong.,
[1968]
defendants’
culminating
close,
vital element of a
on a line of cases
relying
fail to establish a
States,
v.
regards
the CHH
Ute Citizens United
14(e)
$42.00
claim
in Affiliated
§
1456, 1472,
128, 153-54,
offer.
S.Ct.
U.S.
pointed
(1972). As the court
L.Ed.2d 741
McGraw,
case of Lewis v.
In the recent
Lewis,
out, however,
neither Mills
denied,-U.S.
Cir.), cert.
(2d
F.2d 192
396 U.S.
Electric Auto-Lite
(1980),
-,
66 L.Ed.2d
101 S.Ct.
(1970), nor Affili
24 L.Ed.2d
S.Ct.
similarly held that when
Circuit
Second
require
the reliance
ated Ute abolished
offer
fails to become
proposed
tender
ment,
held that in cases
...
but “[r]ather
compa
effective,
target
shareholders of the
likely,
and even
possible,
reliance is
alleged
of action for
cannot state a cause
ny
prove,
unduly
but
burdensome
14(e) because of the
under §
misstatements
in favor
would be resolved
resulting doubt
crucial element of reliance.
absence of this
designed
class the statute
Id.
195-96.
at
195;
Group,
Titan
cf.
protect.” Lewis
imagine
It
indeed to
a case
is difficult
(2d
238-39
513 F.2d
Faggen,
Inc. v.
*13
point here than the
directly
more
840,
70,
denied,
Cir.),
423
96 S.Ct.
cert.
U.S.
In that case the American
Lewis decision.
(1975) (reliance element
in
59
46 L.Ed.2d
Express Company proposed
“friendly
Ute.)
by
10b-5 suit not eliminated
with
business combination”
McGraw-Hill.
essentially
is
presumption
The Mills-Ute
rejected the offer
McGraw-Hill’s directors
convenience,
judicial economy
rule
rеckless,
public
illegal,
in a
letter as
of re
impracticality
avoid the
designed to
Express then filed a
improper. American
plaintiff
each
shareholder tes
that
SEC,
quiring
offer with the
reveal-
proposed tender
concerning the reliance element. Auto-
tify
ing its intention to make a second offer for
622;
385,
see
Lite,
90
at
396 U.S.
S.Ct.
the McGraw-Hill stock. The offer would
Industries,
Piper
Air
Inc.
unless
Chris-Craft
not become effective
McGraw-Hill
341,
(2d Cir.),
375
cert.
Corp., 480 F.2d
to
it.
di-
craft
agreed
oppose
McGraw-Hill’s
231,
denied, 414
offer, however,
U.S.
S.Ct.
rejected
rectors
the second
(1973) (“These impracticalities
becoming
before
L.Ed.2d
expired
which therefore
establishing
presumption
by
are avoided
effective. McGraw-Hill shareholders sued
logical
presume
where it is
14(e)
of reliance
damages
for
under
of the Williams
§
existed....”);
in fact
that such reliance
affirming
Act.
In
the district court’s dis-
Climax, Inc., 458
action,
v. American Metal
for
state a
Kohn
missal
failure to
cause
denied,
255,290 (3d Cir.), cert.
409 U.S.
case, F.2d
noted that
the instant
the court
“[i]n
(1972)
The re- plaintiffs seek to establish that offeror Act, in a sions violative presumed materiality liance is otherwise Decision Not to Sell 2. The Plaintiffs’ period second, pre-effective unless the the Market. Act, statements violative by covered is and later af- impunity be made with
could defend- also contend that plaintiffs shareholders make future decision any fect of ma- or omissions misrepresentations ants’ offer becomes effective. after the not to dis- plaintiffs terial fact caused market, their shares pose of are the defendants The claim takeover news of CHH’s rising on the wrong their own is profit by allowed to damages that a Because we hold attempt. argument an irrelevant to this case. Such not to who determine remedy for investors of a causal link be require proof would when no tender of- marketplace sell in the wrongful acts or tween the defendants’ was not intended place fer ever takes of the tender the withdrawal statute, omissions and we are not 14(e) by covered § there is uncontroverted evi offer. Here argu- appeal surface by the swayed acquisitions it was Field’s recent dence that ment. caused the plans expansion teaches Supreme Court offer. The withdrawal of the CHH tender ascertaining Congressional starting point gov is one acquisitions
decision to make
the statute
language
always
intent is
fiduci
the state law of directors’
erned
Drug
Stamps v. Manor
Chip
Blue
itself.
duty.
Knight,
Altman v.
ary
Stores, 421
S.Ct.
U.S.
even if such
(S.D.N.Y.1977). Therefore
(Powell, J.) (con
1935, 44
(1975)
L.Ed.2d 539
of the defendant
conduct were a breach
14(e)
applicable
curring opinion). Section
duty,
fiduciary
directors’
connection with
to conduct “in
its terms
remedy
their
at state
relegated
would be
invitation for
request
or
tender offer
*14
10(b)
Rule 10b-5 tenders,
security
law.
of
hold
any
See Section
solicitation
or
therefore,
Claims,
such
argument,
infra. This
or in favor of
to
opposition
ers in
15
offer,
or invitation.”
U.S.C.
request
a federal securities law claim
cannot create
added). The lan
(1976) (emphasis
78n(e)
alleged “wrong” the defendant
when the
§
seem
unambiguous, but it does
is not
guage
scrutiny
barred from federal
committed is
effective
existence of an
contemplate the
Industries, 430
rule of
Fe
U.S.
by the
Santa
the share
acceptance by
capable
offer
1292,
(1977);
462,
ate
90th Kennecott Copper Corp.
Curtiss-Wright
v.
(statement
Cong.,
(1967)
1st
Sess.
(2d
1978)
F.2d
Corp., 584
Cir.
Cohen, Chairman, SEC) (“[T]he
Manuel F.
(solicitations
exchange
to sell on national
first,
designed
provide
bill is
those who
premi-
where shareholders were offered no
receive a tender offer with information ade
given
um over the market and
no deadline
quate to an informed decision whether or by which to make their decision created “no
”);
(bill’s
not to
id. at
accept....
pressure ... on sellers other than the nor-
purpose
public
is “to assure that
sharehold
pressure
marketplace,” although
mal
given
ers will be
information adequate for
sought
to obtain and exercise
purchaser
an informed decision when a tender offer is
company).
control of the
made for
company”;
the shares of their
disclosure needed so shareholder can “make
only
year
As we noted
last
intelligent
an
decision whether or not to
v.
O’Brien
Continental
Illinois National
shares”).
tender his
(7th
Bank & Trust
593 F.2d
62-63
1979), the Supreme
Court has continu
seeking
provisions
Courts
to construe the
ally
remedy
private
limited the federal
of Williams Act have also
noted that its
federal
actions.
It
securities
has continued
protections are required by
peculiar
na
opportunity
enlarge
to decline the
offer,
ture of a tender
which forces a share
jurisdiction,
recently by
most
cer
denying
holder to decide
dispose
whether to
of his
McGraw,
tiorari
in the cases of Lewis v.
market,
premium
shares at some
over the
supra,
Shumway,
retain them with
and Bucher v.
knowledge that the offer-
[1979-80
or may
(CCH)
alter the
Transfer
management
target
Fed.Sec.L.Rep.
Binder]
197, 142
(S.D.N.Y.1979), aff’d,
to its detriment.
Piper
See
The SEC also
directly
indirectly, by
any
or
the use of
persons could announce tender
remedy,
a
instrumentality
or
of interstate
offers,
intending
means
again without
to make
commerce,
any
or of the mails or of
facili-
them,
put pressure
management
exchange,
national securities
merger proposals. Although
ty
any
consider
such a situa-
present
present
case does not
device, scheme, or
(a)
employ any
To
tion,
preliminary injunctive
we believe that
defraud,
artifice to
for
appropriate remedy
relief would be
(b) make
untrue statement
a
any
To
Specialty
such conduct.
In Electronic
Co. v.
a materi-
fact or to omit
state
material
whether conduct meets the unfairly and in breach management acted deception, the Court announced in Fe duties, Santa fiduciary failed of its *17 Industries, is whether the conduct com to state a cause of action under the federal 96,635-36. plained misrep- of includes the omission or securities laws. Id. at 4. The Act, scope opinion within the of the district court has thor- tive conduct of any adopt reasoning oughly disposed de- we its to that extent. contention that engaged any manipula- fendants’ directors Benefit Life Insurance v. United Field’s di- Hundahl allegations plaintiffs’
The
(N.D.Tex.
1349, 1365-66
Co.,
F.Supp.
attempts
acquisition
all
rebuffed
rectors
Knight,
F.Supp.
1979);
to dis-
v.
merit and failed
Altman
regard to
without
made a
(claim that directors
policy
(S.D.N.Y.1977)
so to
alleged
of an
the existence
close
falsely
acquisition
to create a
act,
insufficient
wasteful defensive
similarly
are
purpose,
Like the claims
business
barred
legitimate
of action.
federal cause
stated
Industries,
for a
Inc.
above,
Fe).
Royal
state a claim
But cf.
simply
by Santa
Inc.,
Industries,
owe
duty directors
fiduciary
Monogram
breach
v.
[1976-77
(CCH)
law.
corporate
Fed.Sec.L.Rep.
state
under
shareholders
Transfer Binder]
(defensive acquisi
of claim
Su-
type
¶ 95, 863 (C.D.Cal.1976)
is
precisely
This
10b-5;
case).
from the fed-
to bar
Fe
pre-Santa
Court intended
preme
breached
tion
rule in
it announced
forum when
eral
Furthermore,
prevail,
order to
“en-
Fe Industries.
It
is therefore
Santa
or omission
misrepresentation
alleged
to rele-
in this instance
tirely appropriate
A material fact
of a material fact.
must be
is
remedy
to whatever
gate [plaintiffs] ...
“have assumed
substantially likely to
one
Fe,
law,”
at
430 U.S.
created
state
Santa
in the deliberations
significance
actual
478,
1303,
the extent
their
97 S.Ct.
Indus
shareholder.” TSC
the reasonable
of or
based on the existence
claims are
438,
Inc., 426 U.S.
tries,
Northway,
v.
Inc.
putative policy
failure to disclose
2132,
though 14, inad 1977, prоposal called the the $36.00 without reject proposal fendants did the analyzed the offer no one had ever equate, unques- the evidence consideration careful defendants and that the inadequate, did, this decision establishes tionably the attractiveness misrepresented therefore from federal securities would be insulated light In of the evidence of the offer. $36.00 Indus- the rule of Fe scrutiny by law Santa clearly bankers indi that Field’s investment tries. meeting their belief at the board cated by the of (subsequently vindicated $42.00 Antitrust (b) Filing of the Suit. Field’s obtained, fer) could be higher price that a that the de plaintiffs contend knowledge of Carter’s and the board’s omissions of material fendants made four might offer statement that a $60.00 about the anti public fact in statements at forthcoming foreign from a on December against suit it filed CHH trust time, for the board to find it was reasonable 12, First, cite three plaintiffs the inadequate. We price the $36.00 release of press Field’s omissions the juror hold no reasonable therefore 12, 1977, which announced December could find Field’s statements as to ade suit; failure to disclose that filing of the deceptive. offer quacy $36.00 present was not Field’s antitrust counsel Finally plaintiffs contend when defendants decided meeting 20,1977, release, press that in the December suit; failure to mention CHH’s to file the the nature of the misrepresented Field’s antitrust attempt perceived offer to to cure given propos consideration it had the CHH violations; Field’s and failure to mention when it stated that the al December suit, plain filing which the motive after rejected only board had the offer policy allege tiffs was to further the secret plaintiffs first “careful consideration.” The Second, independence. point to the board minutes October of Decem press contend that Field’s release 1977, which reflect the board’s decision that to disclose again ber omitted “should not be con any merger with CHH willingness any perceived cure CHH’s disingenuous plain It is sidered.” finding problems. light In of our antitrust statement, which re tiffs to to this point antitrust ac bring the decision to preliminary flects the board’s reaction to falls, scope within the of di again, tion (one contacts of which was made informal scrutiny acts insulated from our rectors’ father of one of ninety-three year old Fe Industries v. the doctrine Santa members) only days the board made after Green, materiality we over the supra, pass Burnham, death of unexpected omissions, ques which is called into of these Chairman and Chief Executive Officer. opinion experienced of Field’s tion the uncontroverted Particularly light of at counsel such curative antitrust 13, prior to the evidence that on December appellants futile. As con tempts would be release, the Field’s press issuance of this court, to this “the ‘anti cede their brief con solely board met for several hours plaintiffs’ case trust issue’ is relevant approach, sider the CHH and to reсeive the . .. the initia only ... to the extent counsel, manage analysis and advice of litigation an addi tion of antitrust ment, [was] to aid that and investment bankers circumstance from which defendants’ tional consideration, juror could no reasonable intent could be inferred.” As we improper find not suffi management that Field’s did alleged in the matter of discussed above Decem ciently carefully consider CHH to resist independence, the decision policy ber In proposal. Northwest See scope within the of directors’ dustries, a takeover is Inc. v. B. F. Goodrich duties, there is no fiduciary (N.D.Ill.1969) (board con state law to disclose one’s duty sideration of defensive federal securities law multimillion dollar resistance. undertaking such acquisition during first hour of luncheon motives
291 96,635-36; Mining, supra, re at release press announcing acquisition Sunshine Co., F.Supp. Liberty Berman v. Gerber Products House stores that the defend- 1318, 1323; ants considered two of the five Knight, Liberty at Altman v. “dogs.” House stores to be This claim is F.Supp. at 314. no Corp. See Chemetron attempt probe more than an ¶ 61, 717(N.D. the business Crane 1977-2 Trade Cas. directors, judgment of the and Ill.1977). cannot cre- Therefore even assuming the an Goldberger ate a federal claim. Cf. v. Bak- titrust suit was “impure” filed with the er, (S.D.N.Y.1977) preserve intent position directors’ (“Even under the most narrow reading of expense of the shareholders’ best inter Green, allegation deception an must al- ests, no federal securities claim can lie for lege more than a mere failure to disclose failure to disclose that intent. transaction.”).
the ‘unfairness’ of a (c) The “Defensive” Acquisitions. The also claim plaintiffs that press announcing defendants’ release plaintiffs allege
The also that enter in Hous plans Field’s the Galleria misrepresentative Field’s issued a series of ton, Texas, expand through and to misleading or in regard statements south, Dallas, starting in omitted material acquisitions Field’s undertook the months facts when it failed to disclose the presence following approach. course, the CHH Of Neiman-Marcus stores in the CHH Galle Fe, after acqui Santa the decision to make ria and in Dallas. Under the standard of is sitions shielded from federal scrutiny, as Industries, materiality set out in supra, TSC is inquiry into what motivated the acquisi interpreted and as in Berman and Gulf & tions. P., supra, Western v. A. & it is difficult to Specifically, plaintiffs claim how of this perceive the omission informa press releases of January tion, readily anyone which was available to 8,1978, February the defendants announced looking report, at CHH’s annual indeed the acquisitions taking place were depart at all familiar with the anyone “longstanding pro accordance with their business, deceptive. ment store could be grams” expansion plans. The plaintiffs addition, plaintiffs could never establish claim that the failure to disclose that such causation, requisite element of for it were plans historically only undertaken in was not the failure to disclose Neiman-Mar responsе perceived takeover threats presence cus’ which caused the withdrawal made Field’s announcements misleading. offer, Field’s entry of the but rather actual again, Once the plaintiffs have done no into the Galleria which caused the with more than attempt up to dress a claim for Knight, drawal of the offer. Altman v. breach fiduciary duty alleging fail F.Supp. at 314. ure to disclose a contrary motive to act Furthermore, shareholders’ interests. there (d) Misleading Projections. The is no evidence upon a reasonable also claim were de- plaintiffs finding
could base a misrepre Field’s “rosy” projections ceived for future sented acquisition plans. its There was sub growth expressed by management. evidence, stantial uncontroverted including Specifically they allege misrepresentations testimony plaintiff’s own expert wit press releases of December ness, prior that Field’s had intent to expand how about which recounted “confident areas, into the Pacific Northwest Texas management company” the future of the and that such expansion was “natural” and was, within compa- and that momentum “logical.” plaintiffs allege excellent. The ny was The plaintiffs complain also misrepresentations these culminated 20, 1978, January failure to disclose in the public letter dated December 1977.5 portions programs improve A 5. The relevant of that letter stated: number of our profitability expand profit our base were during the projections internal to disclose letter, which claim shares. for its own a tender offer in consoli- increase course percent cited a thirteen good general just tax- held ventures and The court before “[i]t net income dated *20 projections such to make practice in that it failed misleading business es, fatally is no There use. “five-year corporate the defendants’ for internal that to disclose were however, that the estimates generated evidence, document plan,” projective a certainty even at only, use showed reasonable with such management made internal public.” of seven decline be disclosed anticipated them to time an allow Products, Inc., for the Id.; net income v. Berman Gerber in consolidated see percent 1328; Virginia cf. First year. 454 1307, Benson, F.2d 1318 v. Bankshares is no there While it is true denied, 435 U.S. 1977), (5th cert. Cir. to dis or directors management duty upon (1979) (a 1580, L.Ed.2d 802 lender’s S.Ct. see, g., e. Free projections, close financial his irregularities known to disclose duty (7th Dedo, 199-200 584 F.2d man v. raw a recital of “resemble accounts debtor’s that once a axiomatic 1978), it is also Cir. prediction resemble they than fact more disclosure of partial undertakes prices”). stock of future to make duty there is a such information necessary facts of known the full disclosure plain earnings projections mislead statements making to avoid such disclosed were have been allege should tiffs Corp. v. Chemical Sun ing. Sundstrand which five-year plan in a contained denied, (7th Cir.), cert. F.2d 1033 Corp., 553 day of only very updated hastily been 224, 225, 54 L.Ed.2d 98 S.Ct. U.S. the CHH meeting to consider the board earnings nine months (1977) (release of series of one of a It was proposal. first share earnings per figures showing $1.16 up continually which were plans five-year failure to misleading by the were made Field’s man internally by and used dated which accounting reports existing release develop explore planning agement require year-end knew would defendants it contained projections ment. That per loss in a resulting $0.15 write-offs compelling seems tentative highly were share); Computer Marx v. Sciences see Field’s from the evidence inference (9th 1974). Cir. 507 F.2d 489-92 Corp., its own those of varied from projections bankers, mere estimates, were considered However, investment projections, of purpose,” present for the reasonably “valid to use ly must be and other information offer, and Hawley evaluating the Carter release management may certain before substantially varying up ended they the recent case Thus in public. them to the by revealed Inc., performance 628 F.2d from Vaughn Teledyne, finally came earnings which year-end 1980), Ninth Circuit re actual (9th from the percent down twenty-five full duty had a in a jected a claim that defendants here, the nine months ended October have —For I and others initiated before came been started since I arrived. up up taxes was ventures and These include: income before many expansion net income was and consolidated —Modernization and 24.4% our stores 13%. virtually 9.4%, gain all merchandising pro- —Sales showed —Revitalization of our years. open comparable both stores grams whether omission opportunities —Analysis in new We limit our discussion of further misleading projections made the letter store locations and new market areas juror could that no rational —Disposition unprofitable we find in real because find it immediately interests deceptive sentences on its face. The hotel ventures estate and plain- date, preceding those cited early programs are Even at this these absolutely earn- having positive example, clear that Field’s have it effect. For we tiffs make ings year by adversely in that fiscal affected disposed would be in The Ritz- of most of our interest unprofitable The thrust signifi- ventures. Carlton hotel. This has eliminated cant drain on our light end of that there is at the earnings. letter is The revitalized of the the banner tunnel, earnings will be a not that this merchandising programs generating are in- earnings. year for Field’s creased sales. plaintiffs’ with the defendants interfered that because We therefore find year. prior when that advantage economic plan prospective were five-year projections behavior caused CHH wrongful allegedly for the en prepared estimates tentative offer before it tender proposed its expec with no withdraw management lightenment was became effective. public, be made there they tation Indeed, light to reveal them. duty no Rule. Judgment Business A. The project failed to degree by earnings, re of the decline the extent Delaware cor applicable Under might estimate percent seven lease law, as those made claims such porate securities the defendants to subjected have the “busi under analyzed are v. Texas Gulf Sul law Cf. SEC liability. de rule. The trial court judgment” ness *21 77, (S.D.N.Y.1970), 83-84 312 phur, establishing that rule as scribed this 1301 446 F.2d part, part, aff’d in rev’d discharge their corporations of [directors 1005, denied, 92 Cir.), 404 U.S. (2d cert. they good faith fiduciary duties when (1971) (optimistic 558 30 L.Ed.2d 5.Ct. making de judgment in business exercise opti- not misleading release because press When corporation. the regarding cisions enough). mistic faith, they enjoy pre good act in they judgment, re business sumption of sound ruling of the affirm the We therefore directors, which courts as in them posed failed to plaintiffs that the district court rational business any if will not disturb support a rea- sufficient evidence present their deci attributed to can be purpose of de- finding of the element jury sonable faith, fraud, of bad In the absence sions. 10(b) and Rule by ception required Section discretion, or abuse of overreaching gross of Exchange Act 10b-5 of the Securities interfere with the exercise courts will not di by corporate judgment of business LAW CLAIMS IV. THE STATE rectors. omitted). We (citations F.Supp. at 1194 sought also to 486 here have plaintiffs
The summary appropriate of apt committed find this an establish that the defendants Lig- Corp. Sub v. First, law.6 See GM they law. Delaware two violations of state Inc., at 3 slip op. No. gett Group, contend, breached their fi- the defendants 25, 1980) district (citing the (Del.Ch. Apr. corporation as directors to the duciary duty recent In the opinion approval). with by adopting its secret court shareholders Trueblood, 629 F.2d case of Johnson v. acquisition regardless resist policy to 1980), Appeals Court corpora- (3d or the the U.S. benefit to the shareholders Cir. tion; analyze occasion the existence of the Third Circuit had failing to disclose by judg- business of the Delaware making acquisi- purpose defensive the policy; by such a of a takeover tions; in the context an antitrust suit ment rule by filing that an plaintiffs contended Second, argue attempt. that the against CHH. denied, (2d Cir.), plaintiffs’ cert. F.2d 509-10 also excluded the 6. The trial court ordinary (1977), testimony proffered expert L.Ed.2d 134 on the U.S. S.Ct. against danger against standards of which the actions of boards of let the the court cautioned ting experts usurp directors and investment bankers would func in a securities case evi- measured. The trial court ruled such judge, stating, is not for witness of the “It tion impinge function dence would on the applicable princi as to es to instruct court, furthermore, as invest- law, trial to the judge.” expert ples but would bankers, ment directors’ was irrelevant to the issue of the nothing able to add to the formula have been liability. proper evaluating standards for tion оf the considering by Field’s directors enunciated The standard of review conduct of expert testimony agree is whether the admission trial court clearly We also the trial court trial court. that judge’s exclusionary ruling testimony was the investment bankers on how Cooley, Karp responded proposal erroneous. 493 F.2d is should have CHH (5th 1974). Viewing case, the testimo- con to this in which it is the irrelevant ny light, district this we affirm the court’s duct the directors that is the issue. Club, Inc., ruling. In Marx v. Diners’ & Co. purpose, many at least in cases. As al- purpose retain control allegation of noted, the burden to incumbent enough ready always to shift control is arguably pur- the rational business directors to show action taken a di- any by “a” motive in reject- transaction. In pose disputed could always rector. Hence Seitz, Chief for- ing Judge contention showing thereby make this undercut Chancellor, t merly a Delaware stated purpose of the rule. judg- First, purpose business added). (emphasis Id. at 292-93 plaintiffs’ belies contention. ment rule supra, involved a share- Corp., GM Sub said that are It directors frequently is defendants, holder’s claim that the directors Although statement fiduciaries. target company, of a divested senses, it is also obvious true in some in an attempt asset important of its most stan- if were held the same directors an make it ardent but less attractive ordinary corpora- fiduciaries the dard analyzing this action unwelcome suitor. conduct For ex- tion not business. could business under the Delaware ordinary fiduciary may ample, an rule, following the court formulated conflict of interest in slightest have the motive improper necessary test of the behalf he undertakes on transaction good faith: presumption overcome the very Yet nature of the trust. taken a board of every action [N]ot director a certain life a has corporate *22 offer to thwart a tender is directors in everything self-interest he amount of test, stated, loosely is condemned. The very The fact that the director does. fairly and whether the board is reason- corporate profits enhance wants to judgment business ably exercising its part keep to his desire to attributable and its protect corporation the sharehold- so will they satisfied that shareholders to befall cor- against injury likely ers the not oust him. prove the tender offer poration should judgment The business rule seeks to successful. by validating cer- problem alleviate this Slip op. in- tain situations that otherwise would volve a conflict of interest for the ordi- majority note that a We also rule this The achieves nary fiduciary. “independent”: Field’s were directors of are purpose by postulating if actions from other derived no income they the taken for the benefit of arguably equiva fees and the than normal directors’ pre- then the directors are corporation, discount merchan employee lent of an exercising been their sumed to have good faith the presumption dise. The than re- judgment sound rather business is height rule affords judgment business personal motivations.
sponding any the con majority when the board ened presumption the raised Faced with See, directors. independent sists of outside rule, question is what sort of Calhoun, 221 g., e. v. A.2d Warshaw must make to sur- showing plaintiff Marriott, (Del.1966); Puma v. 283 A.2d 493 directed Be- vive a motion for verdict. (Del.Ch.1971). 695 presumes rule that business cause the exercised, suggest director plaintiff was plaintiffs The called ques a fact- Blair’s into showing independence must make a impermissible mo- his investment bank might finder infer that tion the fact that In making Field’s. Maldona predominated ing tives firm did work for (S.D.N.Y.1980), question. 274 Flynn, F.Supp. decision v. do implication as such an the court dismissed plaintiffs’ theory that “a” motive worthy com hardly sequitur “a non rule is is sufficient rebut the control agree. We Even less at 283. ment.” Id. Because purpose. inconsistent with attempt to show plaintiffs’ was the certain relevant designed rule is validate independence was interest, that director Smith’s despite conflicts of transactions owned substantial rule would that weakened because he negate plaintiffs’ share of a bank in deposited which Field’s Copperweld Corp. Imetal, v.
monies and had other accounts. That (W.D.Pa.1975), infer- also on by relied ence is so attenuated plaintiffs, the trial court is inapposite to this case. It in- properly excluded the evidence as no charge irrele- volved of a breach of fiduciary vant. duty, but was target company’s rather a injunction against
suit for a preliminary
acquisition of
by foreign
its shares
tender
However, rather
than proceeding
offeror. The court there referred to share-
rule,
under
the business judgment
holders
while
only
considering as a relevant
plaintiffs here seek to apply a different
test
factor to issuance of
injunction
pos-
context,
the takeover
propose
sibility of harm to
persons
interested
placed
burden be
upon the directors to
parties to the suit. The “absence of a. com-
establish the compelling
purpose
business
reason”
pelling
referred not to
business
any transaction which would have the ef
purpose, but rather
to the failure of the
fect of consolidating or retaining the di
plaintiffs
to demonstrate a likelihood of
light
rectors’ control.
of the overwhelm
success on the merits
danger
or the
of irrep-
ing weight of authority to the contrary, we
arable harm. The case provides
support
no
refuse to apply such a novel rule to this
plaintiffs’
for the
theory
novel
of directors’
case.
InterNorth,
Inc.,
v.Co.
Crouse-Hinds
liability. Analyzing
plaintiffs’
evidence
(2d
1980);
F.2d
701-03
Cir.
Tread-
test,
under the well-established
we find the
way
357, 381
Cos. v. Care Corp.,
(2d
638 F.2d
thorough and fair-minded evaluation of the
1980);
Trueblood,
Johnson v.
supra;
amply
district court
disposes of the issues.7
Signal Cos.,
Gimbel v.
601, 609
316 A.2d
(Del.1974);
Corp. Levien,
Sinclair Oil
v.
Fiduciary
B. The Breach of
Duty.
(Del.1971);
A.2d
Warshaw v.
1. The
Policy
Independence.
Calhoun,
(Del.1966);
7. We are not
the dissent’s
Monogram
at-
Cir.
v.
Inc.
tempts
distinguish
Indus.,
the line of cases culminat-
Inc.
Transfer
Fed.Sec.
[1976-77
Binder]
ing in Crouse-Hinds. We believe
(CCH)
the Crouse-
L.Rep.
(C.D.Cal.1976),
¶ 95,863
both of
court,
reversing
interpretation
Hinds
an
of
apply
corporate
California
law. We
Treadway
espoused by
similar to that
the dis-
general
note as a
matter that California law
sent, foreclosed that construction of the busi-
impose
higher
fiduciary
seems to
standard of
judgment
allegations
ness
rule.
It found that
Delaware,
of
care than does
law
which is
of intent to retain control were insufficient as a
applicable
Compare, e.g.,
here.
Sinclair Oil
sufficiently
matter of law even to raise a
seri-
Levien,
(Del.1971) (absent
Corp. v.
297
Industries,
an
v.
to file
antitrust suit when
Inc.
Chemetron
directors
National
367,
(D.Del.1969).
371
F.Supp.
judgment
proposed
299
combi
Corp.,
their business
Thus,
fiduciary duty
there was no
of
illegal
breach
or otherwise detri
nation would
at-
prior
failure to disclose
takeover
corporation,
see
Chemetron
mental
for a
liability
Co.,
Neither can there be
tempts.
1977-2 Trade Cas.
Corp. v. Crane
of resistance.
policy
to disclose
failure
72,933 (N.D.Ill.1977);
161, 717
Gulf &
we have
it is not rea-
Because
found
Industries,
A&P Tea
Inc. v. Great
Western
existed,
a policy
to infer
such
sonable
687,
1973),
Co.,
(2d
698
their
476 F.2d
Cir.
dis-
be no
for failure to
liability
there can
is also
file an antitrust
suit
decision to
v.
628 F.2d
Vaughn
Teledyne,
close it.
judgment
business
scope
within
(9th
1980).
Cir.
1221
be
was substantial evidence
There
rule.
were
the defendants
fore the court
Acquisitions.
2. The Defensive
reasonably exercising their busi
fairly
that the
plaintiffs
also contend
protect
corporation
judgment
ness
acquisitions
Liberty
of the five
“defensive”
illegal
damage an
perceived
against
impru
and the
were
House stores
Galleria
cause,
Corp.
Copperweld
see
merger could
less at
dent,
designed to make Field’s
(W.D.Pa.
Imetal,
F.Supp.
607
v.
well as to
acquisition,
as an
tractive
1975) (“no
would
doubt
[divestiture]
created
any
problems
exacerbate
antitrust
acquired
debilitating
effect on the
have
this
merger.
is precisely
the CHH
It
”).
company....
Monday-morning-quarterbacking
sort
acting
were
only
Not
the directors
intend
judgment rule waS
that the business
expe
reliance
faith
on the advice
good
have
Again,
plaintiffs
prevent.
ed to
knowledgeable antitrust coun
rienced and
faith,
forth no
of bad
brought
evidence
sel,
require
which in itself satisfies
other
overreaching,
self-dealing
or
rule,
judgment
Spirt
business
ments of the
justi
necessary to shift the burden
fraud
1956);
Bechtel,
(2d
F.2d
v.
defendants.
the transactions to the
fying
Magnavox
F.Supp.
Voege v.
contrary,
there was uncontroverted
On
but
(D.Del.1977),
one member
was reasona
expansion
evidence that such
lawyer
experienced
an
antitrust
even if the desire
board was
ble and natural. Thus
background
to evalu
among
experience
was
the motives
with a
fend off CHH
transactions,
legal
be
claims. See
entering
ate the soundness
the board
Inc.,
establish
plaintiffs
Nytronics,
causе the
have failed to
Abramson
(S.D.N.Y.1970) (“Boards
motive
or
of di
primary
that such a
was the sole
531-32
Delaware
required by
as has been
from the
purpose,
deliberately
are
chosen
rectors
leading
businessmen, bankers,
v. Math
lawyers
law since
case of Cheff
ranks
es,
(1964),
through
said,
the law draws a line
in some other
is that
method or
it is
other
than some
the commu-
of the
which no member of
beyond
for the discretion
is a matter
forum
intermed-
intentionally
within the
may go
it is exercised
nity
when
directors
others;
affairs of
rule.
with the business
scope
dling
is made do
complaint
if acts of
evidence
we find insufficient
Because
interest, or if
legitimate
rest on some
not
a rational verdict
could base
jury
which a
overreaching
or
dealing
sharp
there is
any fiduciary
the defendants breached
of fair
the behavior
below
other conduct
concealment
any
can
claim of
neither
duty,
situated,
ensuing loss
similarly
men
rise to a
activity give
faith
of bad
redressed;
line
should be
district
affirm the
We therefore
question.
behav-
permissible
between
demarcation
claims of
the state law
ruling on
court’s
ethical
reflects the
and interference
ior
fiduciary duty.
breach
community.
standards
Advan-
Prospective
with
Interference
C.
the trial
held that
we have
Id. Because
tage.
did
plaintiffs
found that the
correctly
court
such im-
evidence of
present
the ac
sufficient
is hornbook law that
It
part of the defend-
intention
on the
proper
of in a claim for
behavior
complained
tions
ground as
advantage
ants,
affirm as to this
prospective
with
we must
al interference
Prosser, Torts,
130
W.
wrongful.
must be
well.
§
In
(4th
1971).
ed.
Chris-Craft
at 951
See
Furthermore,
consist
Illinois courts have
dustries,
Corp.,
Aircraft
480
Piper
Inc. v.
allege
must
plaintiff
that the
ently held
denied,
341, 360
Cir.),
414
(2d
cert.
U.S.
F.2d
de
that the
facts which demonstrate
prove
910,
231,
(1973);
148
94
38 L.Ed.2d
S.Ct.
purpose
injuring
acted with
fendants
Materials,
Bay
Inc. v.
Railroad
Green
A&K
Herman v.
expectancies.
plaintiff’s
Railroad,
636,
645-
Western
&
437
468,
Co.,
Casualty
41 Ill.2d
Mutual
Prudence
(E.D.Wis.1977);
Tom
Excit
46
see
Olesker’s
473,
809,
(1969); Crinkley v.
244 N.E.2d
812
Fashion,
Brad
ing World of
Inc. v. Dun &
869, 880, 24
Co.,
Ill.App.3d
67
Dow Jones &
714,
709,
street,
Inc.,
306
Ill.App.3d
16
714,
(1978);
573, 584,
722
385 N.E.2d
Ill.Dec.
549,
(1973), rev’d on other
N.E.2d
553
of Dar
City
Trust Co. v.
Parkway Bank &
129,
(1975)
61 Ill.2d
grounds, 403-04, ien, 2 Ill.Dec. Ill.App.3d malicious falsehoods (plaintiff claimed that 237-38, (1976). As is N.E.2d entering it from report prevented in credit above, have plaintiffs demonstrated creditors; dealings potential with further evidence that sufficient provide failed to may in them “[d]efamatory statements of other than acting were out the directors to a cause action for libel give selves rise well-being motives with good-faith time, and, become or slander at the same in their minds. corporation foremost of interfer the means which the [tort] failed to estab have thus also plaintiffs advan prospective ence ... economic in improper element of requisite lish this committed.”).10 tage [is] tent. Chicago of Rock Falls v. City 359, 362-63, rule the Co., adopt Ill.App.3d Trust To Title & substantially ob (1973), here would Appellate impose N.E.2d seek to reasonableness of considera the ra aptly of Illinois summarized tenebrate Court offer, of a tender of directors tion boards requirement: tionale for this the substantive law action. We note the law of 10. Delaware courts hold same place governs Illinois are at rate the Delaware and in actions for interfer- of the tort prospective advantage. prospective interference with in actions for ence with a economic advantage. Corp., DeBonaventura v. See Bowl-Mor 297 A.2d economic Co. Brunswick (Del.Ch.1972). Mutual Ins. 419 A.2d Nationwide 64 n.2 We therefore look to *26 plain- (Del.Ch.1980); Brunswick determining Bowl-Mor Co. v. law in Illinois whether the supra. Corp., tiffs a cause of have fulfilled the elements of vailing everything over but the elusive hob- duty with the of direct conflict and is in fraud, of dis- bad faith or abuse goblins com proposed business to evaluate directors disagree majority’s I also with the those cretion. oppose their merits and binations on repre- misleading deceptive view well-being corpo to the of the detrimental proposal are about an offeror’s of the sentations expense if that is at the ration even proscriptions from the Sec- individual sharehold immunized term interests of short is withdrawn before Industries, 14(e) if the offer 476 tion ers. Gulf & Western See Inc., opportunity have an 698; Microdot, 360 the shareholders Elco v. F.2d at (D.Del.1973) (if an ac tender. 754-55 laws, violate the antitrust quisition would hand, with the ma- agree the other I On tendering in the interests of shareholders Act mis- jority many Securities although “bar yield,” shares “must their imper- represent claims here representation will ring consummation of this tender offer claims for missible transmutations premi of their deprive these stockholders fiduciary duty into federal securi- breach of um,” premium since “this is a to which frequently This result violations. ties claim”); Carey, cf. Kors v. justly lay cannot the fail- through allegations that оbtained 136, 140 (1960) (con 39 Del.Ch. 158 A.2d culpability to disclose the ure of directors di cern with violations evidences antitrust improper or their motives their activities proper discharge fiduciary duty). rectors’ is, There misrepresentations. are unlawful evidence that In the absence sufficient however, exception. least one clear acted to overcome improperly the directors have been allowed to consider jury should judgment of the business presumption public letter of De- company president’s rule, proceed jury a case cannot to the 20, 1977, claiming a 13% increase cember economic prospective an interference for the nine months net income consolidated theory. opportunity management when ex- ended October the full earnings pected a decline V. CONCLUSION year. conclude, as did the district We therefore
court, failed to pro- that the have I. basis on which evidentiary vide a sufficient state law claims of Addressing first the find violations of jurors reasonable could Board, by the fiduciary duty breach of laws, federal securities or state either the which approach an adopted has majority district court is judgment law. The target compa- virtually immunize would affirmed. against liability ny’s board of directors shareholders, sufficiently presti- provided CUDAHY, Judge, concurring in Circuit (and array legal gious expensive) part dissenting part: to furnish talent were retained financial and immutable rationales for fixed post hoc here has Unfortunately, majority Relying of resistance to takeover. policies shredding giant step moved one closer to interpreting the recent decisions on several upon still remain whatever constraints rule, the ma- judgment business Delaware self- corporate place directors ability important distinc- jority fails to make interest in re- interest before shareholder tion for control of sisting a hostile tender offer of a activity corporation evi- corporation. There is abundant between enterprise and its managing on the a business go
dence in this case to
collecting
vehicle for
fiduciary duty.
for breach of
I
function
state claims
distributing profits and
using capital
the business
emphatically disagree
directors,
corporate
bat-
The former
involves
rule should clothe
losses.
business af-
functioning
competitive
their
tling blindly to fend off a threat
may
control,
judicial
interference
pre-
irrebuttable
fairs in
with an almost
only
involves
judgment, pre-
undesirable.
latter
sumption of sound business
*27
decision-making
corporate
the
of
relationship,
exercise
corporation-shareholder
the
to
justifiably
special significance
the
more
attaches
may
power
in which
courts
Maj.
equitable
to insist on
behavior.
of Field’s Board.
“independence”
intervene
the
op. ante at 294.2 The fact that Field’s
Note,
Interests
Protection for Shareholder
non-manage-
a
may
majority
have had
of
Publicly
Reсapitalizations
in
of
Held Com-
hardly dis-
is
(independent)
ment
directors
(1958)
58 Colum.L.Rev.
panies,
manage-
The interaction between
positive.
supplied).
(emphasis
strong
be
even
may
very
ment and board
for
the
justification
The theoretical
where,
here,
symbiosis
relationship
a
of
judg-
the business
precept
off”
of
“hands
over
condition
prevail
seems
the normal
to
is
should be
ment rule
that courts
reluctant
3 Whether
“management
of
domination.”
the acts of directors
situations
to review
manage-
relationship
symbiotic
is
or
the
likely
the directors is
expertise
the
of
where
“dominates,” I do
think it neces-
ment
not
But,
greater
be
that of the courts.
to
than
directly pecu-
on
sary
primarily
to
such
rely
with a
where the directors are afflicted
relationships as
director’s senior
niary
one
interest,
expertise
relative
is no
conflict of
banking
in Field’s investment
partnership
Instead,
great danger
the
longer crucial.
admittedly
quite
this was
a
(although
firm
the
channeling
the
of
directors’
becomes
arrangement)
di-
or another
profitable
along
lines of their
expertise
personal
the
in Field’s de-
ownership of stock
a
rector’s
at
the
of
advantage
expense
—sometimes
(obviously
attenuated
bank
a more
pository
Here
corporation
and its stockholders.1
of
interest) to establish
conflict
interest
subject
no
choice but
courts have
rational
at-
appropriate
here. These factors deserve
challenged
ques-
conduct of directors and
that, we can-
very
if
tention. But
idea
corporate
tioned
transactions
their own
precision mighty flow of
not trace with
course,
disinterested
the self-
scrutiny. Of
of the out-
pockets
dollars into the
of each
protective
may
bias of interested directors
directors, these
are necessari-
side
directors
motivation,
entirely
corrupt
devoid of
arbiters of the stockholders’
ly disinterested
constitute
may
but it
nonetheless
a serious
destiny,
appallingly
naive.
welfare.
threat
stockholder
See Gelfond
(footnotes
435-37
Sebastian at
omit-
Ex-
of a New York Stock
Directors
ted).
are,
very
change-listed company
least,
Despite
potential
abuse,
positions
this
ma-
“interested”
their own
(and
prominence
jority
heavily
judg- power, prestige
relies
business
good
inconsequential perquisites).4
rule’s
in their
presumption
ment
faith
not
Dixon,
Corp.
(7th
unavoidably
3. In
tender
create a
Mite
implicated.
however,
rigorous
rule
jury
application
in the context of how a
proved
target compa
the evidence
of a
charged,
required
to be
whether
directors
fiduciaries,
go
all. The Trueblood
a “com
should
to a
demonstrate
ny, as
here
(and
majority
court concluded
for their actions.
purpose”
business
pelling
a di-
a motion for
agrees) that
to survive
is en
The Klaus standard
Id. at 233-34.
make a
verdict,
must
“plaintiff
rected
standard which
with the
consistent
tirely
in-
might
factfinder
showing
which a
spelled out
clearly
Circuit
Second
predominat-
motives
impermissible
fer
left intact
Crouse-Hinds.
Treadway and
ques-
making of the decision in
ed in the
also Podesta
supra. See
note
See
Regardless whether
292-93.
tion.” Id. at
Inc.,
Transfer
Indus.
Binder]
Calumet
[1978
is
motive
sufficient
“a” self-interested
96,433 (N.D.Ill.
(CCH)
Fed.Sec.L.Rep.
¶
motive
self-interested
“primary”
whether a
Indus.,
In
1978);
Monogram
Inc. v.
Royal
is
evidence
requisite,
there
sufficient
is
dus.,
Fed.Sec.L.
Transfer Binder]
[1976-77
either standard.
satisfy
case
the instant
¶ 95,863
(CCH)
(C.D.Cal.1976).
Rep.
304-310,
pp.
See
infra. Nothing in True-
no
Thus,
majority here has
basis
supports
blood
the view that
the dis-
cases an inter-
asserting
“control”
jury consid-
foreclosed
properly
trict court
rule
of the business
pretation
claims
Field’s shareholders.
eration of the
proof
burden of
to interest-
which shifts the
this, however,
I
believe
Beyond
requires them to establish
directors and
ed
states
Judge Rosenn’s dissent in Trueblood
for their actions
purpose
valid business
interpretation
the business
proper
*31
the “overwhelm-
contrary
“novel” rule
to
a
a
“Once
rule
control cases:
In
weight
authority.”10
none
ing
the desire to retain
plaintiff has shown that
fact-
majority
was the
by
cases cited
particular busi-
control
‘a’ motive in the
(whether
jury) precluded
or
judge
finder
is
challenge, the burden
ness decision under
fiduciary
evaluating the merits
to move forward
then on the defendant
case,
In the instant
on the
duty claims.
justifying
with the
transaction
evidence
hand,
are buffered
similar claims
other
inter-
corporation’s
in the
best
primarily
san-
by
examination
the cordon
against jury
Trueblood,
F.2d at 301. This
est.”
629
judgment rule.
itaire of distorted business
a
compatible
the rule is
statement of
the reali-
both the Delaware case law9 and
II.
no
governance,
by
ties of
and is
corporate
majority
in the
v.
The basic error
In Klaus
minority position.
means a
law
1975),
holding as a matter of
(9th
225
instant case is in
Corp., 528 F.2d
Cir.
Hi-Shear
go
logic
ignore
which
there was insufficient evidence
the defendants
claims of
reject,
on the state
breach
majority
jury
and the
chooses
Propp,
justify
Nothing
control-related transactions.
9.
in Bennett
41 Del.Ch.
ment to
[v.
Mathes,
(Del.
(1962)]
Magnavox,
Singer
405
or
quire overlapping extensive presented also The Tacoma, Washington Liberty gon and their claims that to substantiate evidence Board vocifer- Although House.13 Field’s merger propos- the CHH gave Field’s Board fascination with the contends that its ously and instead fide consideration al no bona long-range of a part Northwest Pacific maneuvers. in classic anti-takeover engaged profitability, plan growth to sustain season, the busy Christmas Throughout stores Liberty House Board’s interest im- apparently hastily solicited Board Dayton-Hudson’s subsided as coincidentally defensive several prudently consummated Panter, waned. interest in Field’s See company’s reduce the attrac- acquisitions to surprise it should F.Supp. Finally, at 1177. candidate, create ad- a takeover tiveness as response no one that Field’s initial ultimately problems ditional antitrust ques- was to raise antitrust proposal CHH of the CHH offer. withdrawal force the acquire oper- retail hastily tions and seek evidence and testimonial documentary The adjacent opera- which were CHH ations a sufficient basis provided at trial presented tions. pp. See 306-312 infra. could conclude that jury from which a respect breached its Board in this Field’s defendants’ accepts. majority fiduciary duty. tai- responses the Board’s were claim that lored to “desire to build value within the in first learned of CHH Board that such value and the belief following the death of meeting at a terest might given be diminished offer.” executive, Joseph then chief Burn Field’s Maj. op. Panter, ham, ante at 296.14 But one man’s in October value” may desire to “build be another meet passed A resolution at that at. 1178. costs,” “keep control at all man’s desire Board’s swift and un ing announced the must which characteriza- proposed decide “The response: compromising facts. A tion is most consistent should not be con business combination could con- properly charged jury fairly have interests of the sidered because the best carefully weighed each would be served cluded that shareholders company’s entity.” determine merger continuing independent or takeover offer as an ... interest, added). present When stockholder but could have CHH (emphasis Id. the Board merger proposal to just fairly concluded that Field’s careful- ed a formal 22nd, February itself has that Marshall Field 1977 to ... when the ... it could be which, consummated, withdrawn, acquisition thoughts if offer is to look at [CHH] [was] 3/27/79, overlap happened Hearing conflict could result in direct what before.” *33 added). conceivably (emphasis for could be the basis anti-com- Record at 10-11 Far from material, suggest petitive being considerations. We irrelevant “collateral” much of your management give to careful review the excluded evidence discloses facts which resulting entry acquisition thoughts policy into tend to make of inde- the existence of a by pendence probable To the new markets Field’s. extent “more ... than it would be evidence,” expansion possibility, such is a real it could without and therefore was [that] point bearing improperly some have a on a consolida- Even in of withheld. the absence however, evidence, company Dayton-Hudson. tion a such as this I think the with evidence, piece This of established a sufficient factual basis for a Plaintiffs’ Exhibit 61. however, improperly determination excluded at trial. of the state claims. was 12, supra. See note the antitrust as- 13. When asked to examine striking paucity to be a of evi- 14. There seems pects Dayton-Hudson/Marshall of a Field’s might “dimin- dence on how value have been combination, Co., in- William Blair & Field’s part, given by most offer.” For the ished a banker, competitive vestment could find no managed squelch these offers before Field’s However, overlap between the two retailers. fully appreciated impact on value could be their 5, 1976, repre- August in a letter a Blair dated by its stockholders. sentative commented: 12, 1977, Correspon- be struck.17 Record at 555-57. on December the directors received aspects a limited review financial dence from of Field’s investment bank- one conflicting reports heard merger,15 sought ers established the Board a earnings,16 and Marshall Field’s future re speedy require transaction which would not “illegal, inade jected proposal CHH shareholder there was approval.18 Because quate in the best interest of Mar and not analysis, time scale no for a full financial shall its stockholders and the Field & judg- the banker on “the intuitive relied Id. at 1181. which it serves.” community ment a Field’s as to the business officer] [of (and only Less than two weeks later four acquisition. Plaintiffs’ potential” Christmas), days before a committee of ultimately The Exhibit 137. deal fell Field’s bankers officers investment re- however, pur- when was through, Dillard’s viewed a list candidates available for chased interests. Record at 578- by Dutch acquisition by immediate Field’s. Record at 79. meeting, 553. com- days Within ten Dillard’s Shortly after demise of the principal mittee members met with deal, proposal Field’s Board considered a Dillard's, stockholders of a southwestern re- acquire Liberty five House in the stores competition tailer in CHH’s Nei- direct division, a deal of any man-Marcus to see if could Pacific Northwest.19 the absence 18. 17. The investment bankers’ “best 16. tive Vice-President stated: ative of lard’s was operation. Plaintiffs’ Exhibit 130. Field’s Report 2314-17. the year fact share tiffs’ but 20% would judgment” increase of Arena, plan” showed 193% 2309-10. months, presented was thereafter. Plaintiffs’ Exhibit than that an tiffs’ would rise asked to evaluate the record er now, Marshall Field Board Field’s “it acceptable bankers’ estimates in favor of Arena’s five- anticipated yes; plan. Plaintiffs’ Exhibit Exhibits Exhibit 122. for each earnings it could earnings CHH in Field’s be down some January [was] officers indicates that less than two weeks only who had been on the December meeting William [but] However, proposed by a investment proposal was that Field’s future shows that Mr. Flom asked wheth- 23% 15% Field’s reasonable to assume that projected standard offer. did not expect (year year 4, 1978, no a per Blair with Dillard’s prior for 1978 and five price 413E. share thereafter. The management expected hastily prepared declined 1978 and ending chose to sell Field’s President Record at 7% adequacy to attain a & Co. to Field’s Execu- even know whether Dil- year letter from determine five retailer an bankers CHH? earnings despite from the The Board earnings per Acquisition years, January increase of specified.” job 122; 122; 12% or a or the fairness approximately 2275-76. The shareholders, less than two 20%. were higher price professional prior year, represent- Record at Record as each “five-year plan range discount response earnings rejected Angelo Status Plain- up Plain- if the never share 1978) prior year also The per 19. Defendants claim that quisition tition ignore Field’s was Federated and Kirkland & Ellis Nannes of of their long-standing these Frederick and Nelson division. Plaintiffs’ Exhibit 1975 and 1975 and 1976 visits to these locations as bolster our Amfac, Inc. number of in vember Carter department *34 Dear Joe: proach tration statement as follows: free holders Field & Co. from all cash transaction are laws nor would there be a nеed for a stock- blocks to the transaction.... stockholders friendly ment, tain Field’s stockholders effect the total transaction The Wall Street Journal The The the Pacific 2) . .. theory: Liberty transaction] two a December sk it would not run afoul of anti-takeover Hawley would bolster Field’s speed most good will not meeting Skadden, offer endorsed fighting important Liberty principal disadvantages potential competition store desire to House stores sk important intentions. I understand that meetings) when these Northwest, Dayton-Hudson, Hale suggests Liberty House consummation, require in (page Arps an are the and, sk off takeover 1, 1977, House San acquired either (emphasis supplied). expand facts, Jose, benefits Marshall since it and the risk of cer- by n/i They and this Joseph department throwing up was the fruit of company. visits time letter potential (registration reported in No- however: filing of a column Dillard its Seattle-based a California acquisition Liberty They point [*] since conveniently respectively; attempts by there are a were would theory. required DeCoeur from John may manage- 6), compe- sk House stores [a made, proof regis- 1) road- from be a well tax- ac- ap- course, (and, data,20 despite re- the location another and operating
historical Corpo- Field’s Vice-President of ports store). In less than a Neiman-Marcus that the earn- Development estimated rate month, pre- received initial Field’s Board an ings margin- these stores was potential of Galleria,24 nego- authorized sentation on the al,21 unanimously the Board approved $24 approved tiations a $17 for a lease25 opera- purchase these agreement million million dollar commitment establish 603. The was acquisition Record at tions. store outside the Chi- first Marshall Field’s following day. publicly announced agreement be- cago area.26 The letter Exhibit 154. Plaintiffs’ management tween and the Galleria Field’s in- its sudden supplemented Field’s Board signed after CHH made a day was one operating retail stores acquiring terest in purchase formal Field’s tender offer investigation opportunities hasty with a agreement was per stock at share. $42 major cen- shopping for in two expansion 8,1978, shortly February announced on acquisition members of the ters. While thereafter, its offer CHH withdrew because Dillard’s, concentrating were team program27 “created expansion Field’s in real es- charge Field’s Vice-President about Marshall Field’s sufficient doubt negotiate with Homart assigned tate was long- earning potential the offer no to make Corporation, managers of Development in the of CHH sharehold- er best interest Chicago’s in northern Northbrook Court ers.” Exhibit 345. Plaintiffs’ Although rejected the Board had suburbs. sequence of The majority reviewed this develop an a Field’s in plan earlier store that there was “un- events and concluded their renewed inter- shopping center22 expansion that such controverted evidence Nie- est be credited to fact that could ante Maj. op. natural.” was reasonable and operation had a successful man-Marcus at 297. There was The center was de- than sufficient same location.23 more stores, however, signed here, four for a to con- to contain anchor evidence major four Homart had commitments from clude that not “reasonable and natu- it was representative The Field’s pressed tenants. major of a retailer to ral” for the directors anchor, a fifth the creation of but totalling make commitments expansion ultimately fell Record negotiations apart. during and more than million dollars $40 at 391-92. season shortly busy Christmas after help was to a new “top priority” which their more in its The Board was successful Galleria, chief executive officer become familiar space in the an acquire efforts to Houston, Particularly Tex- when con- shopping operation.28, exclusive center Field’s Northbrook Exhibit 109. This was written Neiman-Marcus Court store Plaintiffs’ letter merger pro- Chicago before ever made a formal Plaintiffs’ Exhibit CHH stores. Field’s posal could which Field’s Board consider. 195B. 20. at 668-69. See Record 24. Record at 1937. figures prepared 21. The Field’s Vice-Presi- Corporate Development rejected dent of by were 25. Exhibit 285. Plaintiffs’ replaced management and with more Field’s 19, 1978, optimistic January estimates dated 26. 290. Plaintiffs’ Exhibit day meeting which the of the Board at Liberty acquisition approved. was House Cf. February Field’s 27. also announced (figures Exhibit 148 of Vice-President Plaintiffs’ of negotiations for it a store had commenced Development) Corporate with Plaintiffs’ Ex- Dallas, Texas. Park Mall in Plain- North replacement report). (figures hibit 151 used headquarters is the tiffs’ Exhibit 169. Dallas division, CHH’s North Neiman-Marcus management 22. decided not to Field’s Park site of a Nieman-Marcus store. Mall is the Field’s move into Northbrook Court because already nearby had stores the Old Orchard trial, during point At one Director Wil- shopping and Hawthorn centers. Record at “top priori- liam Blair ty” that the Board’s testified 3200-01. help period Arena in the transition following complaint death without re- “because 23. The antitrust filed Burnham’s top capable management heavily competitive overlap between at the on the lied *35 long-standing attorney of a firmation from a Kirkland sidered with the evidence Panter, uncompromising policy independ- proposed merger illegal. the was and ence, prominent I am astonished that the business Two law F.Supp. at 1181. any guise keep rule under could judgment representing firms CHH also reviewed jury. case from the an adequate agree- this matter believed the and any out be worked to avoid ment could plaintiffs presented sufficient Finally, the Id. at How- problems.29 antitrust 1180. verdict evidence to survive a directed on the ever, legal analysis without written claim that Field’s directors breached their discussion, emergency without further the by fiduciary duty filing to the shareholders agreed anti-takeover cabal that Field’s major against a antitrust suit CHH within against file suit would an antitrust CHH merger hours of the of CHH’s first receipt investigatory action the solicit here has majority concluded proposal. FTC,30 the and the SEC Illinois Securities “fairly the defendants were and rea- merger. block help the Commission31 their business sonably exercising each present Arena then called director not the protect corporation against per- the briefly the anti- meeting, at the outlined merger damage illegal ceived an could problem obtained authorization trust Maj. op. ante cause.” at 297. Once Id. at 1181. The following file suit. however, again, presented facts at trial press an- the Board issued release day, support easily quite could different con- nouncing merger proposal stating clusion. filed. Ex- that a suit had been Plaintiffs’ Philip Hawley CHH President informed 113. hibit President, Arena, on Angelo Field’s Decem- jury considering A could evidence ber 10th that CHH intended to make a Board have found that Field’s failed to ade- merger within proposal days formal two legal aspects pro- quately review the agreed Field’s serious nego- unless to enter posed merger with CHH. In addition tiations with CHH representatives. Record approving a lawsuit based hastily arguably 1341. Arena hastily at then assembled one (involving on insubstantial antitrust claims director, one officer and several Field’s quite problems), remediable the Board lawyers investment bankers and in New acquisitions made defensive which bolstered 11th Sunday, York on December at an claims, drained Field’s Panter, those of cash emergency meeting. 1180; ultimately 457-59, led withdrawal
at
Record
Al-
2861-62. .
could
concluded
CHH offer.
have
though Arena had
an
privately solicited
in a sense
Field’s
directors
used
opinion
implications
on
antitrust
of a
Ellis,
&
merger
against
with CHH from Kirkland
own assets
the shareholders to de-
high
no Kirkland
representative
proposal
quality
& Ellis
attended
feat
takeover
meeting.
Arena report-
essentially
Record at 459.
retailer which
the mar-
doubled
ed, however, that he had received oral con-
Field’s stock.32
price
ket
With these
starting,
as our
Christmas
season was
we
CHH
violations of the state securities laws.
attorneys prepared
Although
would have been
and the
in trouble
stockhold-
Kirkland
a draft
ISC,
complaint
ers would have
Record at
suffered.”
3021.
it to
and submitted
Commission refused to take
action. Plain-
proposal
29. The CHH
the Board on
received
tiffs’ Exhibits
stated,
December
“Our counsel have
aspect
considered the antitrust
of the combina-
32. The fair market value of
Field &
Marshall
They
proposed
tion.
believe
transac-
period
Co. stock in the
December 1977—Febru
tion would be
and we will act
lawful
on the
ary
per
$18-20
1978 was
share. The actual
basis of that advice.” Plaintiffs’ Exhibit 111.
price of
stock on the
Stock
New York
Exchange
per
$19-20
increased
about
investiga-
30. Kirkland &
initiated the FTC
Ellis
just
September
$23
share
1977 to
under
tion,
complaint
but no
formal action
14, 1977,
December
1977. On December
against
ever filed
Plaintiffs’
CHH.
Exhibit 441.
trading
suspended
being
when
resumed after
announcement,
light
merger
$36
31. Kirkland &
Ellis also asked
Illinois Secu-
the CHH
(“ISC”)
jumped
against
price
$32.
rities
to file suit
Commission
of Field’s stock
to about
*36
of
which the
advo-
type
majority
the The
rule
charged
a
even under
findings,
simply
is
an invitation to incumbent
judg-
cates
defendants’ version
business
claims and
for
to make whatever
management
have decided the case
ment rule could
may
expedient to force with-
assertions
plaintiffs.
Management
an
could
drawal of
offer.
course, argue
what the
may, of
that
One
knowing that once
without restraint
speak
the
merely
to make
directors
here
did
is
is
there
no
withdrawal
forced
Securities
response
incumbent
normal
reflexive
of
liability
deception practiced before
Act
for
take
by outsiders to
management
to efforts
pro-
place.
took
Such a rule
withdrawal
fact, ap-
corporation.
over
a
In
control of
major
escaping
for
the
loophole
a
vides
legisla-
state
plicable federal and
takeover
14(e)
obviously
of
and
provisions
Section
manage-
suggests
tion
incumbent
Act.
purpose
the
frustrates
remedial
and
powers
of its own
protective
ment —
well
made
“It is
settled
[statements
automatically at-
perquisites may almost
—
target company
the
or the
by either
offeror
offers,
tempt to
what-
defeat hostile tender
effective
of a
to the actual
date
prior
may
assumptions
their
These
ever
merits.33
of
after the announcement
tender offer but
corpo-
reflect a
of
and
realistic view human
filings
and
fall within
preliminary
the offer
nature,
rate
the law should
perhaps
and
14(e).
...
purview
the
of §
During
this
simply
thinking
directors
for
excuse
behind
period
policies
interim
the
Section
themselves first and stockholders second
14(e)
much force as
do
apply with as
the event
In that
of a threatened takeover.
following the effective date of the offer.”
regard
perceive
I
the actions of
do not
Products
Berman Gerber
necessarily
Field’s
here as
more
directors
(footnotes
(W.D.Mich.1978)
omit-
like circum-
egregious
many
than
others in
added).
emphasis
manage-
ted and
stances.
the
norms which
legal
But under
subject
a
to a tender
ment of
(and no
has
now must
us
matter who
guide
proposal
unique position
in a
to take
offer
good
the
there
rea-
proof),
burden of
is no
may
steps
representations
and make
typical,
son to
too
unfortunately
take this
likelihood
significant
impact
have a
substantial,
important
but nonetheless
will be
For
proposal
frustrated.
jury.
case from the
case,
instant
Field’s under-
example,
hasty
which
acquisition program
took a
III.
less
may
significantly
have made Field’s
addition, disagree
majority’s
In
I
with the
attractive
contributed
the withdraw-
that,
tender
conclusion
because the CHH
Admittedly,
was a
proposal.
al of the
this
offer was withdrawn
had
before
primarily
of action rather
than
course
to decide
or not to
opportunity
whether
representation
course of
the effect
—but
shares, any
tender
deception
their
the same.
the latter could be
Field’s
have
cannot
might
practiced
Board
14(e)
be a violation of
of the Wil-
its
Compelled
logic
position
Section
Maj. op. ante at 283-285.
liams Act.
14(e)
protection
no
provides
Section
price
legisla-
ranged
from the
I have
care
the next six weeks
taken extreme
with this
February
high
equally
protect
$20’s
$30’s.
the low
tion to balance the scales
After
1, 1978,
announcement,
legitimate
corporation,
$42
tender offer
interests
management,
price
high
without un-
stock
shareholders
increased to
duly impeding
Every
stayed
high
$35
cash takeover bids.
ef-
$20’s
over
and low
tipping
February
price
fort has been made to avoid
the bal-
$30’s until
1978 when the
regulatory
ance of
man-
plunged
burden
favor of
$197/swith
announcement of
agement
pur-
or in favor of the offeror. The
offer.
Exhibit
withdrawal of CHH’s
Plaintiffs’
pose
require
bill is to
full and fair
510.
disclosure
the benefit
stockholders
providing
while at the same time
the offeror
leading
In the
debate on
Senate floor
fairly
management equal opportunity
enactment of the federal
takeover disclosure
present
their case.
statute,
author)
(its
Harrison Williams
Senator
Mite,
Cong.Rec.
(1967), quoted in
854-55
said:
[tender offer]
[the
If,
induced to
(S.D.N.Y.1977).34
were
retain their
F.Supp.
there
holders]
upon
in reliance
the integrity
shares
fore,
majori
Lewis is
be construed as the
good
directors,
judgment of the board
here,
quite
would
it
I am
ty
unper
have
but
they
known the truth
would
they
to be
suaded
what would seem
the
market,
have
in the rising
sold their stock
unexplained
summary
Circuit’s
Second
a direct causative link exists between [the departure from a well-established line of
board of
acts and
share-
[the
directors’]
analysis.
decision.
investment
holders’]
But,
Exchange
as the
Securities
Berman,
at 1325.
F.Supp.
curiae brief in
Commission in its amicus
places heavy reliance on
majority
points
case
instant
out:
McGraw,
Lewis
(2d Cir.)
immediate Benson, See Bankshares v. Virginia First Cudahy, J., dissenting. cert. (5th 1977), F.2d denied, 435 U.S. S.Ct. (1979). The majority
L.Ed.2d 802 finds
very questionable communication to be so
far deceptive misleading as not to
require its submission to the jury.