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Lowenschuss v. Kane

decided: May 27, 1975.

FRED LOWENSCHUSS, TRUSTEE FOR FRED LOWENSCHUSS ASSOCIATES PENSION PLAN, INDIVIDUALLY AND ON BEHALF OF ALL OTHER PERSONS AND SHAREHOLDERS OF GREAT ATLANTIC & PACIFIC TEA CO., INC. WHO ARE SIMILARLY SITUATED, PLAINTIFF-APPELLANT,
v.
W. J. KANE, H. J. BERRY, R. M. BROWN, JR., W. CORBUS, D. K. DAVID, H. C. GILLESPIE, J. S. KROH, E. A. LE PAGE, R. F. LONGACRE, M. D. POTTS, J. M. SCHIFF, P. A. SMITH, H. TAYLOR, JR., E. J. TONER, W. I. WALSH, N. F. WHITTAKER, J. A. ZEIGLER (ALL OF WHOM ARE OFFICERS AND DIRECTORS OF GREAT ATLANTIC & PACIFIC TEA CO., INC.), AND GREAT ATLANTIC & PACIFIC TEA CO., INC. AND C. G. BLUHDORN AND GULF & WESTERN INDUSTRIES, INC., AND KIDDER PEABODY & CO., DEFENDANTS-APPELLEES, RACHEL C. CARPENTER, APPELLANT



Appeal by plaintiff class of shareholders of Great Atlantic & Pacific Tea Co., Inc. ("A & P") who tendered A & P shares to Gulf & Western Industries, Inc. ("G & W") in response to G & W's tender offer, and by an intervening member of the class, from an order of the United States District Court for the Southern District of New York, Kevin T. Duffy, Judge, granting summary judgment dismissing their complaint seeking damages from defendants C. G. Bluhdorn, G & W and Kidder, Peabody & Co., Inc. for breach of a tender offer contract and violations of the antifraud provisions of the Williams Act, 15 U.S.C. § 78n(e), and denying the motion of plaintiff class for summary judgment. Reversed and remanded.

Mansfield, Oakes and Timbers, Circuit Judges.

Author: Mansfield

MANSFIELD, Circuit Judge:

The central issue on this appeal is whether a stockholder who has tendered his shares in response to a tender offer may recover damages from the offeror for failure to consummate the transaction where the failure is attributable to the intervening issuance by the court of a preliminary injunction barring the proposed acquisition. We must also decide whether genuine issues of material fact were presented which precluded summary judgment dismissing the shareholders' complaint.

Plaintiff Fred Lowenschuss is a shareholder of Great Atlantic & Pacific Tea Co., Inc. ("A & P") who tendered A & P shares to Gulf & Western Industries, Inc. ("G & W") in response to G & W's tender offer for A & P shares, announced on February 2, 1973. On February 15, 1973, after the issuance of a preliminary injunction barring consummation of the tender offer, he brought a class suit on behalf of himself and all similarly situated A & P shareholders against A & P and certain of its officers and directors, G & W and its chief operating officer, C. G. Bluhdorn, and the dealer-manager of the tender offer, Kidder, Peabody & Co., Inc., alleging breach by G & W of the tender offer contract allegedly resulting from his tender and violation of the antifraud provision of the Williams Act, § 14(e), 15 U.S.C. § 78n(e),*fn1 by all defendants. The A & P defendants were dismissed from the action without prejudice by stipulation entered July 16, 1973.

The instant proceeding is an appeal by Lowenschuss and by another tendering shareholder, Rachel C. Carpenter, who intervened in the proceedings, from an order of the United States District Court for the Southern District of New York, Kevin T. Duffy, Judge, entered on May 10, 1974, and supported by an opinion dated July 25, 1973, 367 F. Supp. 911 (S.D.N.Y. 1973). Judge Duffy permitted Lowenschuss to maintain the action as a class suit pursuant to Rule 23, F.R.Civ.P., granted summary judgment dismissing the complaint as to all remaining defendants and denied plaintiff's motion for summary judgment. Only the latter two actions of Judge Duffy are challenged on this appeal, with both plaintiff and the intervenor arguing that summary judgment for defendants was inappropriate at this stage of the proceedings because of the existence of genuine questions of material fact, that the complaint properly stated two causes of action and that the motion of plaintiff class for summary judgment was improperly denied. We agree with appellants' first two contentions and hold, for the reasons set forth below, that the complaint does state a cause of action against G & W in contract and against all defendants under the Williams Act, and that summary judgment was improperly granted because of the existence of questions of material fact concerning both causes of action.

This is the second time that litigation arising from G & W's tender offer of February 2, 1973, has been before this Court. In a previous opinion, Gulf & Western Industries, Inc. v. Great A. & P. Tea Co., Inc., 476 F.2d 687 (2d Cir. 1973), this court (per Timbers, C.J.) affirmed Judge Duffy's decision of February 13, 1973, reported at 356 F. Supp. 1066 (S.D.N.Y. 1973), granting a preliminary injunction against the consummation of the tender offer after concluding that A & P had demonstrated a probability of success in proving Williams Act and antitrust violations. Since the facts surrounding the tender offer and the issuance of the preliminary injunction are set out fully in that previous opinion, they will only be briefly summarized here.

The tender offer was announced by G & W on February 1, 1973, and communicated to the public on the following morning. G & W offered to purchase up to 3,750,000 shares of A & P common stock (15% of A & P's outstanding shares) at $20 per share net. Upon learning of the offer Lowenschuss decided to purchase 2,000 shares of A & P stock at 18 5/8 on behalf of a pension plan for which he is trustee.*fn2 His acknowledged intention was to purchase the A & P shares and tender them to G & W.

On that same morning, February 2, 1973, A & P's management decided to oppose the G & W tender offer. It issued a press release stating its intentions and giving reasons, which was carried over the stock exchange ticker tape. Lowenschuss learned of this action shortly thereafter and attempted to cancel his purchase order. He soon rescinded this cancellation, however, when he had satisfied himself that the litigation could not constitute grounds for refusal of his tender or for rescission of the offer, since the tender offer terms did not include a "litigation-out" clause.*fn3 He eventually tendered his 2,000 shares to G & W on February 13, 1973, the last day upon which tender was permissible under G & W's offer.

In the meantime litigation was instituted on February 5, 1973, by G & W against A & P alleging that A & P had made false and misleading statements in the course of its opposition to the tender offer, in violation of §§ 10(b), 14(d) and 14(e) of the Securities Exchange Act of 1934, as amended, 15 U.S.C. §§ 78j(b), 78n(d) and 78n(e). A & P counterclaimed, seeking preliminary injunctive relief and alleging that G & W's proposed acquisition of A & P stock would violate § 1 of the Sherman Act, 15 U.S.C. § 1, and § 7 of the Clayton Act, 15 U.S.C. § 18, and that G & W's tender offer was in violation of §§ 14(d) and 14(e) of the 1934 Act, as amended. Following an expedited hearing upon the application for injunctive relief, Judge Duffy preliminarily enjoined the consummation of the tender offer on February 13, 1973, for substantially the reasons set out in A & P's counterclaim.

Upon an expedited appeal to this court we, on March 12, 1973, affirmed the grant of preliminary injunctive relief, holding that A & P had demonstrated probability of success in proving (1) that G & W's acquisition of A & P stock would result in a substantial decrease in competition in violation of § 7 of the Clayton Act because of market foreclosure,*fn4 and (2) that G & W had violated § 14(e) of the 1934 Act, as amended, by failing to disclose (a) G & W's intention to acquire a controlling position in A & P or at least to exercise influence over A & P's management and policies and (b) G & W's conglomerate holdings in food processors and distributors which indicated that its acquisition of A & P stock would probably result in violation of the antitrust laws by both companies. See 476 F.2d at 693-97. Mr. Lowenschuss filed an amicus curiae brief on that appeal on behalf of the tendering shareholders, arguing that completion of the transaction should be allowed.

On March 16, 1973, immediately after our decision affirming the issuance of the preliminary injunction, G & W announced that the offer would be extended to June 16, 1973, pending the progress of the litigation and that no new shares would be accepted. It reiterated that all tendered shares could be withdrawn on or after March 14, 1973. While we had indicated in our opinion that trial of the case should proceed at an accelerated pace, the parties evidently determined that trial preparation and trial would be too burdensome. On May 29 they agreed to stay discovery, with district court approval, for a period of 45 days. That period was subsequently extended on July 19. The tender offer, after being extended into the summer, was finally withdrawn on July 25, 1973, the date on which the district court issued its opinion granting summary judgment herein.

The instant litigation was commenced in the Eastern District of Pennsylvania on February 15, 1973, two days after Judge Duffy preliminarily enjoined the tender offer. It was ordered transferred to the Southern District on defendants' motions on April 2, 1973. None of the present defendants answered the complaint before or after transfer, choosing instead to move in June, 1973, for dismissal on the ground that no cause of action had been stated. Plaintiff Lowenschuss subsequently cross-moved for summary judgment. Judge Duffy disposed of the motions in his opinion of July 25, 1973, granting a pending motion for class determination, but dismissing the complaint on the merits. For reasons which do not concern us here a final order granting judgment on the basis of the July 25 opinion was not entered until May 10, 1974.

Diverse reasons were given by the district court for dismissal of the action. First, the complaint was interpreted to state only a claim for breach of contract. Since Williams Act claims were presented in another class action brought by Lowenschuss against the same defendants, Judge Duffy held that they were not encompassed within the complaint in this suit. With the action thus limited to contract claims, the district court found that, assuming a binding contract between G & W and the tenderor as a result of a tender pursuant to the terms of the offer, G & W was excused from performance because the preliminary injunction issued thereafter made it both impossible and illegal to consummate the transaction. Moreover, the court found that the plaintiff class had suffered no damages cognizable at law. The ...


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