159 A.D.2d 291 | N.Y. App. Div. | 1990
Order, Supreme Court, New York County (Francis N. Pécora, J.), entered August 25, 1989, which denied defendants’ motion to dismiss the complaint pursuant to CPLR 3211 (a) (7) or, in the alternative, to either dismiss the complaint pursuant to CPLR 3211 (a) (4) or stay the action pursuant to CPLR 2201, unanimously modified, on the law, the facts and in the exercise of discretion, to stay the action pursuant to CPLR 2201 pending final determination of the action pending in the Court of Chancery, State of Delaware, New Castle County, entitled In re RJR Nabisco, Inc. Shareholders Litig., and is otherwise affirmed, without costs.
Plaintiffs, a group of shareholders in RJR Nabisco, Inc., a Delaware corporation, claim that an unfairly conducted auction of RJR stock resulted in the acceptance of a bid by the RJR board of directors more than $1 billion less than what could have been obtained by a fair auction. They sued the RJR board, and the successful bidder, Kohlberg, Kravis, Roberts & Co., in the Delaware Court of Chancery for an injunction against consummation of the tender offer Kohlberg won the right to make as high bidder; in the alternative, the shareholders requested damages in the event an injunction against the tender offer was no longer feasible at the time of trial. The gist of the Delaware action is that the auction, which was run by a special committee of disinterested RJR directors, was prematurely terminated at a point when a management-led group of bidders should have been expected to respond to the Kohlberg bid declared as the winner. As the shareholders explain, the practical effect of the relief sought
The bankers moved before IAS for an order dismissing the complaint for failure to state a cause of action, their main argument being that their advice was addressed to the special committee, not the shareholders, and that they therefore owed no duty to the shareholders to render nonnegligent advice; in addition, the bankers argued that if they did owe a duty of care to the shareholders, the complaint does not allege how it was breached. In the alternative, the bankers asked IAS to either dismiss the action upon condition that they intervene in the earlier-commenced Delaware action, or stay the New York action to abide the outcome of the Delaware action. IAS denied the motion in all respects and the bankers took the instant appeal. Shortly thereafter, before the appeal was argued, the bankers made a motion in the Delaware action to intervene therein, claiming a right to do so in that their interests were not being adequately represented by the RJR directors named as defendants. The shareholders’ response was to make a motion in this court "for an injunction pendente lite enjoining and restraining appellants from proceeding with their motion to intervene in a Delaware Chancery Court proceeding”, which motion was submitted on the same
Addressing ourselves first to the matter put to us by the Delaware court, we think the dispute between the shareholders and the bankers should be decided in New York. The shareholders believe they stand a better chance of success in New York than Delaware, and therefore prefer New York over Delaware as a forum notwithstanding the pendency in Delaware of an earlier-commenced, fairly well-advanced, highly related action that they themselves instituted. Some of their reasons for preferring New York appear to be valid considerations in selecting a forum, such as, they say, the right to a jury trial in New York but not Delaware, and the potential for class action certification in New York but not Delaware, but we do not think it appropriate to question the shareholders too closely on their reasons for rejecting the bankers’ offer to submit the dispute to the Delaware court. If it is forum shopping that the shareholders are engaged in, the forum they selected happens to be the one whose substantive law concededly governs the dispute no matter where it is to be decided; New York also happens to be the bankers’ residence and the place where the allegedly negligent advice was given. Because of these significant contacts, we think the shareholders’ preference for New York should be respected, although our decision to entertain the action and not, in effect, consolidate it with the Delaware action is made easier knowing that the potential loss of the procedural economies normally to be gained whenever two related actions are consolidated can be hedged with a stay. And, if the Delaware action should turn out not to have a significant preclusive effect on the shareholders in this action, the procedural economies lost by not having the two actions decided together in a single forum are simply to be understood as the price extracted by a Federal system when more than one jurisdiction has significant contacts with a single transaction.
We stay the New York action because the Delaware action raises numerous possibilities for the application of collateral
Whether a finding of plausibility in the Delaware action will estop the shareholders from asserting these financial facts in this action for the purpose of showing that the bankers’ representation of substantial equivalence was negligent is a question we do not address at this point; we think it more pertinent to realize that decision making does not always lend itself to neat compartmentalization, and that the Delaware court’s inquiry into plausibility could well end up with a finding, deliberately and advisedly made, with a full appreciation of its potential preclusive effect on the shareholders in this action, that it was not only plausible for the bankers to say that the final bids were substantially equivalent, but that the proposition was a decidedly correct one. Such a finding would perforce preclude the shareholders from asserting that the bankers’ valuation was negligent. To be sure, a proposition can be plausible yet incorrect, but that does not mean that if
Similarly, with respect to whether the special committee’s decision not to invite tie-breaking bids affords a basis for holding the directors liable, the Delaware court, while stating that it would be necessary for it to decide only whether such a decision was consistent with a good-faith motive to obtain the highest possible price, also indicated that developing case law in Delaware might constrain it to decide instead whether the auction was effective in obtaining the highest possible price, that is, whether the failure to invite tie-breaking bids rendered the auction per se unfair, and thus a legal nullity, notwithstanding that the special committee thought it was doing all it could to obtain the highest possible price. Indeed, even if the Delaware court should not be so constrained, who can say that it will not put the question of good faith aside, preferring instead to decide the dispute on the basis that the highest possible price was in any event obtained? A decision that the auction was effective in obtaining the highest possible price would undermine the shareholders’ argument that tie-breaking bids should have been invited as completely as a finding that the bids were substantially equivalent would undermine their argument that the bankers’ valuation was negligent.
Indeed, it might even happen that the shareholders will prevail in Delaware and obtain the injunctive relief they seek there, in which event the money relief they seek here would become superfluous. It makes little sense to go full steam ahead with an action when the plaintiff stands to be made whole in another action, and this is so even when the other action is against a different defendant. If it is the shareholders’ argument that this action should go forward because they stand little chance of success in the Delaware action they themselves instituted, that would be an argument most difficult to accept.
Turning to whether the bankers owed the shareholders a duty of care, the argument on this question is somewhat distractingly presented mainly in terms of whether the relationship between the shareholders and the bankers was or was not one "approaching privity” within the meaning of Credit Alliance Corp. v Andersen & Co. (65 NY2d 536). No claim is
In determining whether the bankers owed the shareholders a duty of care, we think the question is not whether the relationship between them was one approaching privity, but whether the relationship between the shareholders and the special committee was one governed by the law of agency or the law of corporations. The bankers argue that well-settled principles of corporate law make corporate management the responsibility and prerogative of the board, not the sharehold
We agree with the shareholders that the complaint gives adequate notice of how the bankers were negligent. With respect to the valuation of the bids, the financial facts allegedly disregarded by the bankers are set forth with particularity, and it will be the shareholders’ burden to show that a failure to consider these facts was a failure to exercise that degree of care that a reasonably prudent investment banker would have exercised under the same circumstances. With respect to the conduct of the auction, it will be necessary for the shareholders to show that a reasonably prudent person, intent on obtaining the highest possible price for the shareholders’ stock, would not have conducted the auction in the manner advised by the bankers.
The shareholders’ motion for an injunction against defen