The opinion of the court was delivered by: MISHLER
Memorandum of Decision and Order
Plaintiffs seek a preliminary injunction enjoining defendants from purchasing any common stock or convertible securities of the Grumman Corporation ("Grumman") based on claims of violations of Sections 13(d), 13(e), 14(d) and 14(e) of the Securities Exchange Act of 1934 ("the 1934 Act"), 15 U.S.C. §§ 78m(d), (e) and 78n(d), (e) and the regulations promulgated thereunder by the Securities and Exchange Commission ("S.E.C.").
CKH Corporation, an indirect wholly-owned subsidiary of The LTV Corporation ("LTV"), brings this action as the tender offeror of shares of Grumman stock in accordance with a Schedule 14D-1 statement filed with the S.E.C. on September 24, 1981.
John C. Bierwirth is Chairman of the Board of Directors of Grumman, Robert O. Freese is a Senior Vice President and a Director of Grumman, and Carl A. Paladino is a Senior Vice President of Grumman Aerospace Corporation (a wholly-owned subsidiary of Grumman). Bierwirth, Freese and Paladino constitute all of the trustees of the Grumman Corporation Pension Plan ("the Pension Plan"). Robert W. Bradshaw is Secretary of Grumman; Howard J. Dunn is a Vice President of Grumman Aerospace Corporation; and John O'Brien is an Executive Vice President of Grumman Aerospace. Bradshaw, Dunn and O'Brien are trustees of the Grumman Employee Investment Plan ("the Investment Plan"). The other individual defendants are directors of Grumman.
The complaint alleges a scheme and conspiracy by defendants to frustrate LTV's efforts to acquire more than 50% of the Grumman stock. By (1) purchasing large blocks of stock (more than 1,000,000 shares on October 12, 1981, including 400,000 shares in a single transaction), (2) announcing that neither Grumman nor the Pension Plan, nor the Investment Plan would tender their shares to LTV, and (3) stating that they controlled sufficient shares of stock to block LTV's proposed takeover, Grumman and the Pension Plan put their conspiracy into operation. In Count I, plaintiffs claim that the massive buying program constituted a tender offer subjecting defendants to the filing requirements and the purchasing limitations imposed under Sections 14(d) and 14(e) of the 1934 Act.
In Count II, plaintiffs allege a violation of Section 13(e)(1) of the 1934 Act
in that neither Grumman nor the Pension Plan filed the statement required under Rule 13e-1. In Count III plaintiffs allege a violation of the Employee Retirement Income Security Act of 1974 ("ERISA") in that the trustees of the Pension Plan, who also act as officers and directors of Grumman, violated their fiduciary obligation to the beneficiaries of the Pension Plan in purchasing Grumman stock at an inflated market price.
The court having conducted an evidentiary hearing finds as follows:
On October 9, 1981, Grumman and the Pension Plan were granted an exemption from Rule 10b-6 (Prohibition Against Trading by Persons Interested in a Distribution) which thereby permitted Grumman and the Pension Plan to purchase both Grumman common stock and Grumman securities convertible into common stock.
On October 12, 1981, prior to the opening of trading in Grumman stock on the New York Stock Exchange, the trustees of the Pension Plan issued a release announcing that the Pension Plan was authorized to purchase about 1,275,000 shares and may increase its investment in Grumman stock and that the information concerning its program was being mailed to Grumman shareholders that day. That same day (Columbus Day), a Rule 13e-1 Transaction Statement was mailed to all shareholders. S.E.C. offices were closed on October 12, 1981; however, the Rule 13e-1 statement was filed in the Washington, D.C. office of the S.E.C. at 8:50 a.m. on October 13, 1981 and, at 2:30 p.m. on October 13, 1981, in the New York S.E.C. office.
The opening of trading in Grumman stock was delayed on Monday, October 12, 1981. Dillon, Read & Company was authorized to purchase 1,275,000 shares on that day for the Pension Fund. The Pension Fund purchased 958,000 shares through Dillon, Read from arbitrageurs, institutions and other investors. All transactions were made on the New York Stock Exchange prior to 3:30 p.m. Some purchases consisted of large blocks-a block of 100,000 and a block of 142,000 shares. The price ranged from a low of $ 36 to a high of $ 39 5/8 at an average price of about $ 38.
On Tuesday morning the Wall Street Journal featured an article under the headline:
"Grumman Pension Plan Buys More Stock in Effort to Block LTV, Which Plans Suit"
It quoted Bierwirth as saying, "It looks as if a majority (of Grumman stock) won't be tendered to LTV." The article further revealed that the Investment Plan held 3.2 million shares (23%) and the total held by the Pension Plan and Investment Plan was 35%.
Dillon, Read purchased 200,000 additional shares of stock for Grumman on Tuesday, October 13, 1981. The purchases were made at the market ...