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December 21, 1979

HARRY LEWIS, Plaintiff,

The opinion of the court was delivered by: POLLACK

Defendants move to dismiss this complaint pursuant to Fed.R.Civ.P. 12(b)(1), 12(b)(6), and 9(b) for lack of subject matter jurisdiction, failure to state a claim upon which relief can be granted, and failure to plead fraud with the requisite particularity.


 At the August 16, 1976 annual meeting of stockholders of Big Bear Stores Company (Old Big Bear), listed on the American Exchange, approximately 95% Of the company's more than 5,000 stockholders voted the sale of substantially all of the company's assets for cash, subject to substantially all of its liabilities pursuant to a plan set out in a proxy statement dated July 24, 1976. The sale was made on August 30, 1976, and the assets were transferred to a newly organized company (New Big Bear) which is owned by Big Bear Holding Company, which in turn is owned by Oppenheimer & Co. (Oppenheimer) and its associates. The stockholders of Old Big Bear were given three options under the plan: (1) to remain shareholders in Old Big Bear which was converted into an investment company holding tax free securities and renamed Scioto Investment Company; or (2) to tender their shares at $ 33 per share to Old Big Bear; or (3) to exercise their rights to an appraisal under the laws of Ohio and obtain the appraised value for their stockholdings.

 The plaintiff, owner of an unstated minor number of common shares, tendered his shares pursuant to the plan of sale and received $ 33 per share therefor on or about September 24, 1976. Almost three years later he instituted this suit on his own behalf and on behalf of others similarly situated whose stock was also tendered and redeemed in 1976 at $ 33 per share, claiming that this was a grossly unfair and inadequate price and that the conduct of defendants in arranging such a tender and redemption violated Rules 14a-9 and 10b-5 promulgated under the Securities Exchange Act of 1934, as amended. No class designation has been presented or authorized as yet.

 The defendants are New Big Bear, a Delaware corporation, which purchased the assets of Old Big Bear; the Big Big Holding Company, which owns the stock of New Big Bear; Oppenheimer, which owns 70% of the stock of the Holding Company; and three individuals, Michael J. Knilans, Stephen Kellough, and David W. Godfrey, who were former officers and directors of Old Big Bear.

 The claim essentially turns on the alleged deceptive inadequacies and misrepresentations in the proxy statement for the 1976 annual meeting, and on alleged delay in disclosure of favorable operating results for fiscal 1976. The plaintiff asserts that the disclosure was delayed in order to hold down the market price of the stock until after the announcement of the $ 33 offer to stockholders as part of the plan of the company to sell its assets and go private. *fn1"

 The defendants contend that the proxy statement was proper in all respects and that there were no improper omissions or deception in the disclosures.

 The motions may be considered under Fed.R.Civ.P. 56 in the light of the proofs that have been submitted. For the reasons shown hereafter, defendants are entitled to summary judgment dismissing the complaint.

 1. The company involved

 Old Big Bear operated 54 supermarkets in Ohio and West Virginia. Through subsidiaries it also operated a chain of 12 discount department stores and two drug stores in Ohio, West Virginia, and Kentucky; a central bakery and a trading stamp distributor to supply its supermarkets; and 16 redemption centers where the trading stamps are redeemed for premiums. The company also owned its own fleet of trucks to deliver merchandise to its stores.

 Old Big Bear's net sales for fiscal 1976 (ending on February 28, 1976) were approximately $ 319,000,000, up from approximately $ 288,000,000 the year before. Its common dividend, based on earnings of $ 5.63 per share, was $ 1.21 per share in 1976, up from $ 1.12 for the preceding year. In both years there were 1,070,768 class A common shares outstanding, held in 1976 by more than 5,000 public shareholders. These shares traded on the American Stock Exchange at prices ranging between $ 12.00 and $ 24.75 per share in 1974; between $ 12.12 and $ 25.25 in 1975; and between $ 22.00 and $ 32.00 in 1976 up to July 20, the last date for which information was included in the July 24, 1976 proxy statement.

 2. Chronology of the transaction

 Chronologically, the questioned transaction developed as follows:

October 1975 An offer was made to purchase the assets of Old Big Bear at the equivalent of $ 28 a share. During the quarter ending November 29, 1975, the stock traded at between $ 18.00 and $ 25.25.
January 5, 1976 Old Big Bear announced its earnings of $ 1.66 per share for the third quarter of fiscal 1976.
January 8, 1976 Old Big Bear publicly announced discussions about the possible sale of its assets at the equivalent of $ 31.00 per share.
March 2, 1976 Old Big Bear released estimated sales for the quarter and the year ending February 28, 1976, showing estimated sales for the quarter up 15.7% to $ 87.5 million, and for the year up 10.8% to $ 322.9 million.
April 19, 1976 Tentative agreement was reached for the sale of assets at the equivalent of $ 33.00 per share.
April 22, 1976 Old Big Bear issued its certified financial statements for fiscal 1976, showing actual sales of $ 319,004,860, some three million dollars below the March 2 estimate.
April 24, 1976 Old Big Bear published its Annual Report to Shareholders showing among other things earnings of $ 5.63 per share.
June 30, 1976 The sale agreement was signed, subject to shareholder approval.
July 6, 1976 Old Big Bear announced its sales and earnings results for the quarter ending May 29, 1976 showing earnings of $ 1.46 per share for the quarter.
July 12, 1976 Record date for the 1976 annual meeting.
July 24, 1976 The proxy statement was issued, containing as exhibits: a copy of the Agreement of sale dated June 30, 1976 (exhibit 1); an opinion letter from the Ohio Company as to the financial fairness of the proposed sale (exhibit 2); a copy of the Partnership and Management Agreement (exhibit 3). The proxy materials also included a copy of the annual report and the proxy statement incorporated by reference the financial statements contained in the annual report.
August 11, 1976 Wayne E. Brown, the company's principal stockholder, died.
August 16, 1976 The annual meeting was held in Columbus, Ohio. 95% of the shares were voted to approve the sale of assets. Plaintiff Lewis did not vote against the sale or the ...

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