The opinion of the court was delivered by: LASKER
On June 6, 1967, Conde Nast Publications, Inc. (CN) was merged, subject to the provisions of § 904 of the New York Business Corporation Law, McKinney's Consol. Laws, c. 4, with Patriot Nast Publishing Co., Inc. (Patriot). CN was the surviving corporation and continues in business.
Prior to the merger Patriot was the owner of 87% of the issued and outstanding voting stock of CN. The stock of Patriot, in turn, was at the time of the merger owned 94% by defendant Samuel I. Newhouse (Newhouse) and his family. Alleging that, through Patriot, Newhouse controlled and dominated CN's board of directors, plaintiff has brought this derivative and class suit against the Newhouses, CN's board of directors, Goldman Sachs & Co., CN's financial advisor, and a partner of that firm.
The burden of the amended complaint is that prior to April 1967 the defendants other than Goldman Sachs "conceived the plan of utilizing and acquiring the assets of Conde Nast to further the interests of the Newhouse Newspaper Group [owned or controlled by Newhouse], and to purchase the stock, assets, business and goodwill of Conde Nast at a value far below the true, fair and reasonable value thereof, and to deprive the public shareholders of Conde Nast of the continued opportunity to participate in the ownership of Conde Nast's business and in the opportunity to share in the profits and assets, disclosed and undisclosed."
Plaintiff alleges a bifurcated scheme: First, to cause CN to purchase a 50% interest in Mobile News, Inc., with the purpose of depleting CN's assets so that its special and regular dividends would be passed, thereby assertedly depressing the market price of CN's stock; second, by means of a merger between CN and Patriot, attended by a proxy statement which contained material misrepresentations and omitted necessary material facts, to secure the stock of CN's minority and public shareholders, whether by purchase or appraisal, at a price less than its value.
It is claimed that the scheme (including the issuance of the proxy statement) constituted a violation of § 10(b) of the Securities Exchange Act of 1934 (the Act), § 14 of the Act, the Rules relating to each, and common law fiduciary obligations.
The relief sought is: that the merger be declared void; that the defendants (other than Goldman Sachs
) be directed to reconstitute CN as it was prior to the merger; that the defendants other than CN be required to account to CN for their profits and the damages sustained by CN as a result of defendants' acts; and that the defendants pay the public shareholders of CN damages which reflect the true value of the assets allegedly wrongfully acquired by defendants through the merger.
Pretrial discovery has been completed.
Defendants move in the alternative, pursuant to Rules 12(b)(6), 12(c) and 56, Fed. R. Civ. P., for judgment dismissing the amended complaint for failure to state a claim, or judgment on the pleadings, or summary judgment. Plaintiff moves for summary judgment as to all issues except damage and for a declaration that the case is properly brought as a class action.
We find that on the material facts as to which there is no genuine issue the plaintiff has failed to establish damage to the corporation, to herself, or the class of minority stockholders as a result of the alleged misrepresentations in and omissions from the proxy statement. Accordingly, defendants' motion for summary judgment is granted as to those allegations. The motion for summary judgment of both parties as to the claims relating to the Mobile News purchase is denied, since genuine issues of fact remain as to the material question whether that transaction was improperly and fraudulently motivated. The plaintiff's motion for determination as a class action is granted as to the surviving claims.
Plaintiff asserts that the proxy statement issued as a prerequisite to the vote on the merger violated § 10(b) and § 14(a) of the Act in the following respects:
1) Failing to state that the magazine titles Vogue, Charm, Glamour and Bride's Magazine, owned by CN, were valuable property rights
in the promotion of which substantial sums had been invested;
2) Failing to state the number of shares which CN owned in Butterick Co., Inc. (Butterick), so that the shareholders could verify the market value of the stock, and failing to advise the stockholders of favorable information about the earnings of Butterick which the president of CN had secured in his capacity as a director of Butterick and which he had revealed to the defendants.
In the original complaint plaintiff alleged that defendants failed to disclose information in the proxy statement about an American Can Company proposal to acquire the Butterick stock owned by CN at a price greatly in excess of the value at which the stock was valued in the proxy statement. That claim is significantly omitted from the amended complaint -- presumably on the basis of depositions of the defendants which demonstrated that the proposal was not made until after the merger vote and that the defendants had no knowledge of it before that date.
In order to understand the issues presented, the review of plaintiff's claims must be supplemented by a statement of certain undisputed salient facts.
The plan of merger was presented to the stockholders on June 6, 1967, and less than 1% of the outstanding shares voted against it. Plaintiff voted neither for nor against, nor did she file a dissent to the plan under New York law.
Shortly after the merger was consummated, and two months before the filing of this suit, CN commenced an action in the New York State Supreme Court pursuant to § 623 of the Business Corporation Law to determine the "fair value" as of June 5, 1967 (the day before the merger) of the shares of its stock then owned by its dissenting public stockholders (the "Respondents" in that action). An appraiser was appointed to hear the matter and report to the Court. The hearings consumed 34 days. Three expert witnesses as to stock valuation testified for CN and eleven for the Respondents. The transcript of the hearings ran to 4594 pages, supplemented by 703 pages of depositions. On November 24, 1969, the appraiser submitted a 63 page report which found the value of CN stock to be $18.50 per share as of June 5, 1967 -- the precise amount which the plan of merger provided for payment to CN's public stockholders. The appraiser's report was confirmed by judgment of the New York Supreme Court on February 26, 1970.
The entire transcript of the hearings and the depositions of a number of the defendants (e.g., Samuel Newhouse, Patcevitch, Whitehead), as well as the appraiser's report and the judgment of the State Court have been submitted to this court and incorporated by reference in the affidavit of C. Coudert Nast in support of defendants' motions here. We have reviewed all of the material to which references have been made either by the defendants or the plaintiff, and our factual findings are based upon that detailed examination.
During the course of the hearings the appraiser was informed of all the material which plaintiff claims was improperly omitted from the proxy statement. For example, it is plaintiff's position in this action that the proxy statement should have given effect to the value of the intangible assets of CN (such as the trade names "Vogue," "Glamour," and "Bride's Magazine") which were carried on the company's books at $1. The Respondents in the appraisal took the same position.
The issue was fully aired and explored at the appraisal hearing. Witnesses testified before the appraiser on the following matters:
1) That CN accounted for its intangible assets in conformity with generally accepted accounting principles consistent with those followed in the industry (T 649-650, 652).