The opinion of the court was delivered by: CANNELLA
Plaintiff's motion for a preliminary injunction is denied. Fed. R. Civ. P. 65(a).
Defendant Stuart Perlman's motions for summary judgment and sanctions are denied. Fed. R. Civ. P. 56(b); 11.
Plaintiff Pantry Pride, Inc. ["Pantry Pride"] and defendants are engaged in a heated and well-publicized proxy contest for control of Pantry Pride. Plaintiff seeks to enjoin certification of the results of Pantry Pride's December 6th Annual Meeting of Shareholders if defendants' slate of nominees are elected to the board of directors.
Pantry Pride, a Delaware corporation with executive offices in Florida, is the successor to Food Fair, Inc., which emerged from bankruptcy on July 6, 1981. Pantry Pride operates food supermarkets and since May 25, 1984 when it acquired Devon Stores, Inc. ["Devon Stores"], it has also managed a national "hard goods" retail chain. On November 1, 1984, Pantry Pride purchased a controlling interest in Adams Drug Stores, Inc., a New England drug and health store chain. There are currently 37,781.761 outstanding shares of Pantry Pride common stock registered on the New York and Pacific Stock Exchanges.
The individual defendants are Pantry Pride shareholders, who organized the Pantry Pride Stockholders Committee ["Committee"] to conduct this proxy contest. Patrick J. Rooney, a New York resident, is Chairman of defendant Rooney, Pace Group Inc. ["RPG"]. RPG is a Delaware corporation with executive offices in New York. It is engaged in securities brokerage and other financial activities primarily through its principal subsidiary, defendant Rooney, Pace Inc. ["Rooney Pace"]. Stuart Perlman is a private investor residing in Florida. Dwight Devon is a New York employee of Devon Stores, Philip Devon's son and a coexecutor of defendant Estate of Philip Devon. Dana Devon, a New York attorney, is coexecutor of her father's estate. Alvin Brensilver is a former Devon Store officer residing in New York. Howard Gittis, the Committee Chairman, is an attorney residing in Pennsylvania. Counterclaim defendant Grant C. Gentry is Pantry Pride's Chief Executive Officer and resides in Illinois. Counterclaim defendant Roger L. Galassini is Pantry Pride's Chief Operating Officer and resides in Florida.
The amended complaint alleges that defendants violated section 13(d),
of the Securities Exchange Act of 1934 ["the Act"], 15 U.S.C. §§ 78m(d), 78n(a), 78p(b). The complaint also charges breaches of fiduciary duties
against Philip Devon, Dwight Devon and the Devon Group and an assertion of fraud against the Devon Group.
On December 3, 1984, the Court conducted an evidentiary hearing on plaintiff's motion pursuant to Fed. R. Civ. P. 65.
The following are the Court's findings of fact and conclusions of law: On July 7, 1981, Pantry Pride emerged from bankruptcy with a valuable $350,000,000 net operating loss [NOL] carryforward and high hopes for future diversification and acquisition.
In 1983 and early 1984, Rooney and other financial analysts were impressed by Pantry Pride's market potential, based in large part on the NOL carryforward.
Pantry Pride delivers bargains on the supermarket shelves, and Rooney, deciding that its stock represented an even better value, recommended it to his clients.
Rooney's optimism was short-lived.
On May 25, 1984 Pantry Pride acquired Devon Stores, a company traded on Nasdaq and principally owned by Philip Devon,
despite the opposition of many shareholders including Rooney.
Philip Devon, his family and Brensilver ["Devon Group"] became Pantry Pride's largest group of stockholders with 3,932,831 shares [10.4%] of common stock.
A voting trust agreement gave Philip Devon the power to vote all these shares until the earlier of April 5, 1993 or his death. n.13 [Footnote omitted] Philip Devon became a director of Pantry Pride after acquisition. n.14 [Footnote omitted] He died on November 5, 1984, hours after publicly announcing his decision to challenge the incumbent board of directors.
In August or September 1984, Rooney contacted Philip Devon in an effort to broker some of Devon's stock.
After a September meeting in Devon's New York apartment,
Rooney made efforts to find a potential buyer for Devon's stock.
It was during this meeting and subsequent conversations that Rooney discovered that Devon, like Rooney, was unhappy with Pantry Pride's recent operations.
Rooney contacted several prospective buyers to buy Devon's stock, including many wellknown "corporate raiders" such a Sir James Goldsmith, Charles Hurwitz, Irwin Jacobs and David Murdock.
In his role as stockbroker, Rooney also spoke with representatives from many of Pantry Pride's largest institutional shareholders during September and October.
Some of these conversations in October concerned the poor performances of Pantry Pride management and the possibilities of a proxy fight.
On October 5, 1984, Arthur Goldberg, a New Jersey investor, purchased through Rooney one million shares of Pantry Pride common stock.
Six hundred and sixty thousand of these shares were transferred from Manufacturers Life Insurance Company of Canada, a long-standing Rooney client.
Goldberg had dealt previously with Pantry Pride management and now made an unsuccessful overture for a seat on the board of directors.
Mid-October meetings between Goldberg, Rooney, Devon and Edward Landau, Devon's attorney, did not result in either a proposed Devon-Goldberg stock sale or the formation of a proxy group,
and on October 18, 1984, Goldberg sold his million shares with proxy to MacAndrews & Forbes Group Inc. ["MacAndrews"], a New York manufacturing and holding concern.
Bruce Slovin, MacAndrew's president, also met several times with Landau in an unsuccessful attempt to strike a deal for Devon's stock.
Slovin then met with Gentry and Galassini on October 23, and requested two seats on the twelve member Pantry Pride board of directors.
When this request was rejected, Slovin decided not to participate in an unfriendly takeover and, without notifying Devon or Rooney, he requested Drexel Burnham Lambert, Inc. ["Drexel"] to sell MacAndrew's million shares.
Drexel was able to sell only 50,000 shares.
On October 29, 1984, Rooney, Devon, Landau, and Slovin met with Lou Nicastro, the Chairman of Williams Electronics, Inc. ["Williams"], a public company manufacturing electronic games.
Among other matters discussed were the possibility of Williams's purchase of stock from Devon and MacAndrews and the possibility of a proxy contest.
Before any decision was made by the group, however, Stuart and Clifford Perlman entered the scene and the proxy fight was officially underway.
On October 31, 1984, the Perlmans purchased 1,668,200 shares [4.4%] in Pantry Pride, including MacAndrews's remaining 950,000 shares.
The additional 718,200 shares were purchased in trades arranged by Rooney. They included a 230,000 block originally purchased on October 19, 1984 by Strong-Corneliuson Capital Management, another Rooney client.
Although Devon may have considered the possibility of a proxy fight previously, it was not until the Perlmans emerged that he came to a final decision.
On October 31, 1984 Devon entered into an agreement with the Perlmans giving them a proxy for all his shares and promising to pay all expenses in connection with the proxy contest.
The next day, Stuart Perlman and Rooney met with Pantry Pride management, but the Perlmans were unable to gain board participation.
That afternoon, Devon resigned from the Pantry Pride board.
The Perlmans also entered into a consulting agreement with Rooney Pace on November 1. The agreement provided that Rooney Pace would receive a one million dollar fee if the Perlmans were successful in electing a dissident slate and commissions from any sale of the Perlmans' stock before May 1985.
Sometime between November 2 and November 5, 1984, Devon decided that the Perlmans were not the best prospects to lead a proxy contest because of their unsavory business reputations, and terminated his official arrangement with them.
On November 5, 1984, Gittis replaced the Perlmans as the proxy leader and agreed with Devon to purchase 100,000 shares of stock as well as options for other shares.
That evening, Philip Devon died. Before the next day passed, the Devon Group agreed to throw its now considerable support squarely behind the dissidents.
Pantry Pride's November 5 proxy statement giving notice of the December 6 meeting
was amended on November 6 to note Devon's death and the Devon Group's filings.
The Devon Group's Schedule 13D Amendment filed November 5, states that the Perlmans "reserve the right" to vote for either slate of nominees and Rooney Pace intends to "recommend" to its clients that they vote for the dissidents.
A second amendment filed by the Devon Group on November 7, notes that Dana Devon and Alvin Brensilver "currently intend to vote their shares in favor of the [Committee] slate."
The Devon Group's Schedule 13D was amended again on November 15,
and November 27.
The Perlmans filed a Schedule 13D on November 7,
that was amended twice.
The Committee sent a letter to all shareholders on November 14 informing them of the proxy battle and the need for "major changes".
Pantry Pride responded with a letter to shareholders dated November 16 concerning the "sudden attempt to take over your company" by a "Canadian citizen [Rooney]" and a "Philadelphia lawyere [Gittis]."
Pantry Pride circulated an additional advertisement and letter on November 19.
On November 20, the Committee submitted it proxy statement pursuant to section 14(a) of the Act, 15 U.S.C. § 78n(a)
and another letter to the shareholders criticizing Pantry Pride's operating results and compensation plan.
Pantry Pride submitted another letter on November 21 criticizing the slate's nominees and supporting its fiscal record.
The Committee circulated a letter and supplemental proxy information on November 28 which gave "a closer look" at the fiscal record.
Pantry Pride also supplemented its Proxy Statement with letters to shareholders on November 16
and November 21.
The Court notes that most of these letters ended up as full-page advertisements appearing daily in the New York ...