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ARNETT v. GERBER SCI.

June 30, 1983

LAWRENCE C. ARNETT and DONALD E. THAYER, Plaintiffs,
v.
GERBER SCIENTIFIC, INC., GERBER GARMENT TECHNOLOGY, INC., SULZER BROTHERS LIMITED, CAMSCO, INC., BRUNO ALLMENDINGER, WALTER L. SCHNEIDER, ANDRE BUCHEL and PHILIP T. HAUSER, Defendants



The opinion of the court was delivered by: MACMAHON

MacMAHON, District Judge.

 Defendants Gerber Scientific, Inc. ("GSI"), Gerber Garment Technology, Inc. ("GGT") and Camsco, Inc. ("Camsco") move to dismiss the complaint against them and to drop them as parties. Plaintiffs allege claims under Section 2 of the Sherman Act, 15 U.S.C. § 2 ("Sherman 2"); Section 7 of the Clayton Act, 15 U.S.C. § 18 ("Clayton 7"); Section 10(b) of the Securities Exchange Act, 15 U.S.C. § 78j(b); and Rule 10b-5, 17 C.F.R. § 240.10b-5; and the common law. Plaintiffs' claims arise from the merger of Camsco with "Newco," a wholly-owned subsidiary of GGT formed for the merger, on January 3, 1983, and the events leading up to the merger.

 A brief statement of the allegations of the complaint, which we accept as true, together with such reasonable inferences as may be drawn therefrom, Murray v. City of Milford, 380 F.2d 468, 470 (2d Cir. 1967), follows.

 Plaintiffs were minority shareholders in Camsco, and defendant Sulzer Brothers Ltd. ("Sulzer") was the majority shareholder. Defendants Schneider, Buchel and Hauser are employees of Sulzer who were members of the board of directors of Camsco. Defendant Allmendinger is an employee of Camsco who was "on loan" from Sulzer and who was a member of the board of Camsco. Defendant GSI is a publicly-owned holding company, and defendant GGT is a wholly-owned subsidiary of GSI.

 Camsco and GGT were competitors for several years before the merger. During 1981 and 1982, GSI and GGT attempted to drive Camsco out of business, and thereby monopolize the market, through predatory pricing, product disparagement and false and misleading advertising. This pattern of conduct culminated in GGT's purchase of Sulzer's interest in Camsco and the merger of Camsco with Newco.

 Sulzer had decided in 1982 to sell its share of Camsco. Despite repeated assurances, made by Sulzer through its agents to the board of directors of Camsco, that Sulzer would not sell its share of Camsco to GGT and that no serious offers had been made to purchase its share of Camsco, the sale was consummated around December 1, 1982. Members of the board of directors of Camsco, who were not employees of Sulzer, did not learn of the consummated sale and merger agreement until the board meeting on January 3, 1983 at which the merger was approved.

 Pursuant to the plan of merger, plaintiffs and the other minority shareholders are to receive cash upon the surrender of their stock certificates. Plaintiffs have not yet surrendered their certificates.

 Plaintiffs make five claims in five counts. Counts I and II charge that GSI and GGT violated Sherman 1 and Clayton 7, respectively. Plaintiffs sue derivatively on behalf of Camsco on these counts and seek divestiture of Camsco by GGT and money damages. Alternatively, they seek rescission.

 Count III asserts that defendants Sulzer and Schneider violated Rule 10b-5. Plaintiffs sue individually on Count III and seek rescission of the merger. In the alternative, plaintiffs seek damages from Sulzer and Schneider for the difference between the amount plaintiffs are entitled to receive for their shares under the plan of merger and the amount they would have received had Sulzer waited and accepted the most favorable offer for Camsco.

 Count IV charges that the merger violated the common law. Plaintiffs sue individually on this count and seek rescission.

 Count V alleges that majority shareholder Sulzer breached its fiduciary duty toward minority shareholder-plaintiffs in the sale of Camsco and that board members Allmendinger, Schneider, Buchel and Hauser violated their fiduciary duties toward the company in the operation and sale of the company. As a remedy, plaintiffs seek, in the event that the merger is rescinded, recovery of damages in their derivative capacity against Allmendinger, Schneider, Buchel, Hauser and Sulzer. If the merger is not rescinded, plaintiffs, in their individual capacities, seek money damages against these defendants.

 I. Plaintiffs' Capacity to Sue Derivatively

 Defendants first challenge plaintiffs' capacity to sue derivatively on the ground that after the merger they are no longer shareholders in Camsco. *fn1" Defendants argue that Rule 23.1, Fed.R.Civ.P., contains an implied requirement that the plaintiff in a derivative action be a shareholder during the litigation, as well as at the time of the conduct complained of, citing de Haas v. Empire Petroleum Co., 435 F.2d 1223 (10th Cir. 1970), and Werfel v. Kramarsky, 61 F.R.D. 674 (S.D.N.Y. 1974), and that this requirement is applied to bar standing when the plaintiff is no longer a shareholder regardless of the reason for the plaintiff's disposition of the stock.

 Plaintiffs argue that they have standing under federal law, citing Ramsburg v. American Investment Co. of Illinois, 231 F.2d 333 (7th Cir. 1956), and Miller v. Steinbach, 268 F. Supp. 255 (S.D.N.Y. 1967), and, apparently in the alternative, that they should be granted standing because they seek rescission of the merger, citing cases decided under state law. Defendants respond that there is no exception under Rule 23.1 such as is claimed by plaintiffs. Defendants distinguish Miller on the ground that it antedates the effective date of Rule 23.1. Defendants, however, do not explain why the analysis in Miller is inapplicable to cases under Rule 23.1, and Ramsburg is not ...


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