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WEINTRAUB v. TEXASGULF INC.

June 6, 1983;

MONROE J. WEINTRAUB, Plaintiff,
v.
TEXASGULF INC., et al., Defendants.



The opinion of the court was delivered by: SPRIZZO

OPINION & ORDER

Plaintiff, Monroe Weintraub, a holder of Texasgulf, Inc. ("Texasgulf") shares and options, commenced this action pursuant to section 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j(b) ("Section 10(b)"), and Rule 10b-5, 17 C.F.R. § 240.10b-5 ("Rule 10b-5"), *fn1" against Texasgulf; Richard D. Mollison, its president and chairman of the board ("Mollison"); Canada Development Corporation ("CDC"), formerly the controlling shareholder of Texasgulf; *fn2" H. Anthony Hampson, CDC's president, chief executive officer and a director of both CDC and Texasgulf ("Hampson"); and Richard Thomson ("Thomson"), a director of Texasgulf and chairman of the board and chief executive officer of the Toronto Dominion Bank (the "Bank"), CDC's banker, alleging that the defendants' material misrepresentations and omissions caused him to dispose of certain of his interests in Texasgulf prior to the announcement of a tender offer on July 26, 1981, at a price substantially lower than what he would have received had he disposed of them pursuant to the tender offer.

 In February of 1981, representatives of CDC met with representatives of Societe Nationale Elf Aguitaine ("SNEA"). While plaintiff contends that, at this meeting, CDC and SNEA negotiated for the takeover of Texasgulf by means of a tender offer to be made by a subsidiary of SNEA to be organized for that purpose, Plaintiff's Second Amended Complaint at paras. 19. 22, defendants assert that these discussions concerned only the possibility of CDC's acquiring SNEA's equity interest in Aquitaine Company of Canada Ltd. In any event, it is undisputed that negotiations between CDC and SNEA continued and that, by April, 1981, the discussions focused on the possibility of a transaction involving CDC's holdings in Texasgulf stock. *fn3" Memorandum of Defendants CDC, Hampson and Cote in Support of Summary Judgment at 7.

 Mollison, Texasgulf's president testified that he was concerned about the possibility of a takeover, and believed that any takeover attempt would necessarily involve some contact with CDC, Texasgulf's controlling shareholder, he approached Hampson, CDC's president, in April of 1981 and inquired whether Hampson knew "anything about any activity on anybody's part that would lead to some action concerning Texasgulf." (Deposition of Richard D. Mollison at 7, Exhibit 1 to Plaintiff's Memorandum in Opposition to the Motion for Partial Summary Judgment made on behalf of Defendants CDC, Hampson and Cote.) Hampson, according to Mollison, responded in the negative and assured him that he would bring anything of substance to the Texasgulf board's attention. Id.

 Sometime between April 28 and May 4 of 1981, the Bank purchased 90,000 shares of Texasgulf stock.Shortly thereafter, on May 7, 1981, CDC converted 1,225,200 shares of Texasgulf preferred shares into 1,952,509 shares of Texasgulf common. While plaintiff suggests that the timing of this conversion is suspect, and may be evidence of insider trading, Hampson testified that the conversion was effectuated in order to take advantage of a dividend increase announced by Texasgulf on April 22, 1981. (Affidavit of H. Anthony Hampson at 1-2 appended to Reply Memorandum of Defendants CDC, Hampson and Cote in Support of Summary Judgment.) Hampson further testified that the conversion had nothing to do with any discussions between CDC and SNEA regarding the possibility of an agreement concerning Texasgulf. Id. at 2.

 During the month of May, activity in Texasgulf stock began to increase and rumors of the possibility of a takeover began to circulate.Deposition of Stuart Crane at 36-39. As a consequence, on may 19, 1981, Mollison again met with Hampson and inquired whether there were any on-going negotiations regarding a takeover of Texasgulf. According to Mollison, Hampson responded in the negative and failed to disclose whether any negotiations were taking place. (Deposition of Richard Mollison at 10, Exhibit 1 to Plaintiff's Memorandum in Opposition to the Motion for Partial Summary Judgment made on behalf of Defendants CDC, Hampson and Cote.) Hampson testified that he is virtually certain that he and Mollison had no such discussion at that time. (Deposition of H. Anthony Hampson at 52-53, Exhibit 2 to Plaintiff's Memorandum in Opposition to the Motion for Partial Summary Judgment made on behalf of Defendants CDC, Hampson and Cote.)

 On May 21, 1981, at a CDC board of directors' meeting, the CDC board was informed of the possibility of a transaction whereby SNEA would acquire the non-Canadian assets of Texasgulf through a tender offer for Texasgulf shares and a subsequent acquisition of CDC's controlling interest pursuant to an exchange whereby CDC would receive certain of Texasgulf's Canadian assets in return. The board agreed that negotiations should continue. (Minutes of a Meeting of the Board of Directors of CDC held on May 21, 1981 at 3-4, Exhibit G to Affidavit of David Weisberg submitted in support of Defendants CDC, Hampson and Cote's Motion for Partial Summary Judgment and in Opposition to Plaintiff's Motion for Class Certification.) Hampson was among those present at the May 21 meeting. Id. at 2.

 On June 1, 1981, Hampson approached Robin Korthals, president of the Bank, to inquire whethr the Bank was interested in financing the proposed transaction. *fn4" Korthals informed Thomson of hte substance of the meeting with Hampson on June 8, 1981. Deposition of Richard M. Thomson at 19-20.

 The unusually high volume of trading in Texasgulf shares continued into early June. On June 2, 1981, at a meeting at Texasgulf headquarters in Connecticut, Mollison asked Hampson for a third time whether there was any possibility of a transaction relating to Texasgulf. Hampson testified that he responded to Mollison's inquiry by indicating that inquiries had been made concerning CDC's Texasgulf holdings and that, if a "concrete offer" were made, upon the CDC board's consideration of that offer, he would "obviously be letting the Texasgulf board know." (Deposition of H. Anthony Hampson at 55, Exhibit 2 to Plaintiff's Memorandum in Opposition to the Motion for Partial Summary Judgment made on behalf of Defendants CDC, Hampson and Cote.)

 By early June the unusually heavy trading in Texasgulf stock attracted the attention of the New York Stock Exchange ("NYSE") which, on June 5, 1981, inquired of Texasgulf whether it knew of the reasons for the unusual trading activity. In response, Texasgulf stated that it knew of no reason. Subsequently, on June 18, 1981, at a meeting of the New York Society of Security Analysts, which meeting was attended by plaintiff's broker, Stuart Crane, a registered securities analyst, Mollison stated that he knew of no reason for the unusually high volume of trading in Texasgulf stock. On June 19, 1981, the NYSE again inquired of Texasgulf whether there was any possible explanation for the heavy trading in its stock.Again Texasgulf responded that it knew of no reason. A third inquiry was made on June 23, 1981, but Texasgulf's response remained the same. The same day, in response to a telephone inquiry from Dow Jones' Toronto Office, a CDC employee indicated that CDC had no intention of selling its Texasgulf shares. Dow Jones then issued a statement to that effect over the Broad tape.

 On the same day, June 23, 1981, allegedly in reliance on Mollison's statements at the security analysts' meeting and the CDC release, plaintiff sold 1,000 shares of Texasgulf common at $35 per share, substantially less than he would have received had he disposed of the shares pursuant to the tender offer. Two days later, however, he purchased 1,000 shares of Texasgulf common. In an effort to explain the purchase, plaintiff's borker testified that he thought that CDC's statements were invalid and that the market was right for purchasing the stock. Deposition of Stuart Crane at 84-85.

 On June 25, 1981, the board of directors of CDC met to consider the agreement between CDC and SNEA regarding Texasgulf and approved it in principle. According to CDC, the agreement was not finalized until minutes before 10:00 A.M. on June 26, 1981, when the tender offer was made public.

 Texasgulf, Mollison and Thomson have moved for summary judgment as to all claims against them. CDC and Hampson have moved for partial summary judgment with respect to all claims arising prior to June 23, 1981. Plaintiff has moved for ...


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