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CALEB & CO. v. E.I. DUPONT DE NEMOURS & CO.

November 1, 1985

CALEB & CO. and UNIT & CO., partnerships, on behalf of themselves and all others similarly situated, Plaintiffs, against E.I. DuPONT DE NEMOURS & COMPANY, FIRST JERSEY NATIONAL BANK, and CONOCO, INC., Defendants


The opinion of the court was delivered by: SWEET

SWEET, D.J.

Plaintiffs Caleb & Company and Unit & Co. ("Caleb") have brought a motion for an order pursuant to Rule 3(j) of the Civil Rules for the Southern District of New York granting reargument of that portion of the court's July 26, 1985 opinion which dismissed Caleb's second cause of action "to the extent that it is premised on an obligation to pay promptly prior to August 17."

 The standard for granting a motion for reargument is strict in order to dissuade repetitive arguments on issues that have already been considered fully by the court. Such motions, therefore, may be granted only where the court has overlooked matters or controlling decisions which might have materially influenced the earlier decision. New York Guardian Mortgagee Corp. v. Cleveland, 473 F. Supp. 409, 420 (S.D.N.Y. 1979). In its memorandum in support of the motion for reargument, Caleb cites no controlling authority which would controvert the court's earlier opinion but instead asserts that the court may have overlooked the terms of the prospectus on which Count Two of the complaint was premised.

 In view of Caleb's motion for reargument, the relevant paragraph of the prospectus has been reexamined to determine whether any relevant matters had been overlooked in rendering the July 26 opinion. Since the July 26 opinion does not, either explicitly or implicitly, address the significance of the different language used in the summary of the prospectus, the body thereof, and the press releases, the motion for reargument is granted.

 All of the evidence on the record including each of the memoranda submitted in support of the original motion have been reconsidered and upon such reconsideration the conclusion in the July 26 opinion which dismissed a portion of Count Two of Caleb's complaint is withdrawn and the motion to dismiss denied. It is assumed that all authorities and argument have been presented, and thus no reargument as such is required. However, should DuPont wish to be heard further, such reargument can be heard upon notice on November 8 or such other date as is agreeable to counsel and upon such notice this decision will be stayed until reargument.

 The DuPont prospectus included an obligation to pay promptly in accordance with the following terms:

 Upon the terms and subject to the conditions of the Offer, the exchange of DuPont Shares or cash for Conoco shares validly tendered and not withdrawn will be made as promptly as practicable after the latest of (i) the tender of such Conoco Shares, (ii) 12:00 Midnight, New York time, on August 4, 1981, (iii) approval of the DuPont stockholders of the proposal to amend the certificate of Incorporation of DuPont to increase the authorized number of DuPont Shares and to approve the issuance of DuPont Shares in connection with the acquisition of Conoco, at a meeting called for August 17, 1981, (iv) the expiration of the waiting period applicable to the Offer under the HSR Act in connection with the Purchaser's acquisition of the Conoco Shares or (v) with respect to any Conoco Shares not theretofore accepted for exchange, the expiration of any withdrawal period resulting from the commencement of a tender offer for Conoco Shares by another bidder. Notwithstanding clause (iii) above, the Purchaser reserves the right (but shall not be obligated) to accept Conoco Shares in exchange for cash prior to DuPont stockholder approval.

 Prospectus at 17-18 (emphasis added). The July 26 opinion analyzed each of these two sentences and found what appeared to be an unambiguous obligation followed by an additional reserved right. Thus, the opinion concluded that an obligation to pay cash promptly did not arise until all five events had occurred. The second sentence, as explained in the July 26 opinion, did not create an additional obligation to pay cash in exchange for Conoco shares before the shareholder meeting, since the phrase "in exchange for cash" modifies the shares which may be accepted rather than the timing of the payment of cash exchanged for those shares.

 While each of these sentences appear clear, an examination of the relationship between the two sentences reveals significant ambiguity regarding DuPont's contractual obligation to pay promptly. By linking the two sentences with the phrase "[n]otwithstanding clause (iii) above," the prospectus is open to the interpretation that DuPont's exercise of its right to accept stock prior to the stockholders' meeting irrelevant for purposes of triggering its prompt payment obligation.

 Two supportable interpretations may be drawn from the "notwithstanding" phrase. While the phrase may be interpreted to refer only to the statement within clause (iii) regarding the requirement of stockholder approval for the proposed merger, the "notwithstanding" phrase may also refer to the function of clause (iii) regarding the requirement of stockholder approval as a prerequisite to DuPont's prompt payment obligation. Of course, there are better ways to express each of the above interpretations than through the cryptic use of the work "notwithstanding." The prospectus could have stated that even if DuPont exercised its right to accept shares in exchange for cash prior to the August 17 meeting that clause (iii) was still valid with regard to its prompt payment obligation. On the other hand, the prospectus could have stated that clause (iii) should be disregarded for prompt payment purposes if DuPont exercised its right to accept shares in exchange for cash. Each interpretation may fairly be drawn from this section as it was written in the body of the prospectus.

 Having concluded that the body of the prospectus does not unambiguously set forth the contractual obligations of DuPont, it becomes necessary to examine any possible evidence that would clarify the prompt payment requirement. Some additional evidence may be gathered from the fact that a different version of the "notwithstanding" clause appears in the summary of the prospectus. *fn1" As stated in the summary, DuPont reserved the right "to accept and pay for Conoco shares tendered for cash prior to DuPont stockholder approval" (emphasis added). Caleb urges that the additional words underlined above establish DuPont's absolute duty to pay prior to the stockholder meeting for any Conoco shares accepted in exchange for cash. This interpretation fails for two reasons. First, such an interpretation would mean that this brief phrase establishes a more stringent duty to pay than is set forth at length in the immediately preceding sentence which states DuPont's prompt payment obligation. More importantly, the absolute payment deadline urged by Caleb does not clarify the ambiguity found in the body of the prospectus but instead represents an independent obligation not supported by the body of the prospectus.

 Nevertheless, the language in the summary tends to support Caleb's position. The words "and pay for" suggest that the "notwithstanding" clause and sentence which it introduces refer to and modify the prompt payment obligation in the immediately preceding sentence. Therefore, while the words do not create an absolute payment deadline, they do support the argument that the "notwithstanding" clause should be interpreted to make the stockholders' meeting on August 17 irrelevant for the purpose of triggering DuPont's prompt payment obligation.

 The most significant evidence for interpreting DuPont's prompt payment obligation as requested by Caleb may be found in the press releases issued by DuPont on August 5, 1981. Since the prospectus itself does not clearly determine the obligations of DuPont, "[t]he practical interpretation of the contract by [the] party, evidenced by his words or acts, can be used against him on behalf of the other party . . .." 3 Corbin on Contracts ยง 558, at 256 (1960). See also Ocean Transport Line, Inc. v. American Philippine Fiber Industries, Inc., 7 ...


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