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November 12, 1992

WILLIAM B. PRYOR, et al., Plaintiffs,
USX CORPORATION, et al. Defendants.

The opinion of the court was delivered by: KIMBA M. WOOD


 Defendant USX Corporation ("USX") moves for summary judgment, and plaintiffs cross-move for partial summary judgment. I referred both motions to Magistrate Judge Leonard Bernikow who, in a Report and Recommendation ("Report"), recommended denying defendant USX Corp.'s motion for summary judgment and granting plaintiffs' motion for partial summary judgment. Also before the court is defendant's motion to bifurcate the issue of damages and liability. For the reasons stated below, I deny both parties' motions for summary judgment and grant the motion for bifurcation.


 The facts of this case are set forth in Pryor v. USX Corp., 794 F.2d 52 (2d Cir. 1986). This is a shareholder class action involving a November 1981 tender offer by United States Steel Corporation ("US Steel"), defendant's predecessor corporation, for shares of Marathon Oil Company. The tender offer stated that if the offer was oversubscribed as of the "proration date," December 4, 1981, then shares would be purchased pro rata from those who tendered on or before the proration date. Shareholders who were permitted to sell at the tender offer price were to earn a significant premium on their shares. The offering was oversubscribed, triggering the pro rata plan. Thus, as the number of extra tenderers increased, the shares that any other tenderer was permitted to sell at a premium decreased. For this reason, if US Steel overcounted its qualified tenderers, then the properly counted tenderers lost some of the premiums they would otherwise have earned. The plaintiffs in this case allege that that is exactly what happened and that this overcounting of qualified tenderers constituted both a breach of contract and a violation of Securities and Exchange Act of 1934, 15 U.S.C. § 78n(d)(6) ("14(d)(6)").

 In Pryor I, the Second Circuit Court of Appeals held that the complaint stated a cause of action under 14(d)(6). More particularly, it held that insofar as the complaint alleged that defendant had stretched the deadline for qualification and permitted late tenderers to share in its pro rata buy, the complaint stated a private cause action under 14(d)(6).

 Plaintiffs allege that certain groups of shares were wrongly permitted to qualify for the tender offer. These motions concern two such groups: "DTC Shares" and "late Execution Shares" Whether the DTC shares were qualified depends on whether the tender offer required physical delivery of the shares by the stated deadlines, as plaintiffs maintain, or whether it permitted timely delivery under the book-entry method used by the Depository Trust Company, as defendant maintains. Whether the late Execution Shares were qualified depends on whether Method 3 of the tender offer requires delivery of certificates and a letter of transmittal to an eligible bank by the proration date, as plaintiffs maintain, or whether it requires only that an eligible bank transmit a guarantee communication to Bankers Trust on the tenderer's behalf by the proration date, as defendant maintains. Magistrate Judge Bernikow decided that plaintiffs were correct with respect to both sets of shares. USX objected. For the reasons stated below, this court denies both parties' motions for summary judgment with respect to both sets of shares.


 This dispute centers on the interpretation of the tender offer. Each party argues that, without reference to extrinsic evidence, its interpretation should prevail. Each party also alternatively argues that if extrinsic evidence is considered, that evidence weighs indisputably in favor of its interpretation, and that, therefore, summary judgment is appropriate. After reviewing the appropriate standards governing summary judgment motions in this context, I will address each of these arguments with respect to both sets of shares.

 I. Summary Judgment Standards in Contract Actions

 I begin by noting the standards for summary judgment where the disputed issue is the meaning of a contract. The Second Circuit recently set forth these standards in Seiden Associates, Inc. v. ANC Holdings, Inc., 959 F.2d 425 (2d Cir. 1992). The court first explained that where there is ambiguity or where two different interpretations of a contract are equally reasonable, then the contract's meaning is an issue of fact of the sort that generally renders summary judgment inappropriate:

 When the question is a contract's proper construction, summary judgment may be granted when its words convey a definite and precise meaning absent any ambiguity. See Heyman v. Commerce and Industry Co., 524 F.2d 1317, 1320 (2d Cir. 1975); Painton v. Company & Bourns, Inc., 442 F.2d 216, 233 (2d Cir. 1971). Where the language used is susceptible to differing interpretations, each of which may be said to be as reasonable as another, and where there is relevant extrinsic evidence of the parties' actual intent, the meaning of the words becomes an issue of fact and summary judgment is inappropriate, see Heyman, 524 F.2d at 1320; Painton, 442 F.2d at 233 . . ., since it is only when there is no genuine issue of material fact that the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c); Anderson v. Liberty Lobby, Inc. 477 U.S. 242, 250, 106 S. Ct. 2505, 2511, 91 L. Ed. 2d 202 (1986).

 Seiden, 959 F.2d at 428. Of course, it is consistent with this view to recognize that summary judgment may be granted if, once all the facts alleged to be material to the meaning of the contract have been presented to the court, a rational fact-finder could only find for the movant.

 The Second Circuit next defined the sort of ambiguity that would trigger the need for extrinsic evidence.

 In the past, we have defined ambiguous language as that which is "capable of more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business.'" Walk-In Medical Centers, Inc. v. Breuer Capital Corp., 818 F.2d 260, 263 (2d Cir. 1987) (quoting Eskimo Pie Corp. v. Whitelawn Dairies, Inc., 284 F. Supp. 987, 994 (S.D.N.Y. 1968) (Mansfield, J.)). Conversely, language is not ambiguous when it has "'a definite and precise meaning, unattended by danger of misconception in the purport of the [contract] itself, and concerning which there is no reasonable basis for a difference in opinion.'" Hunt Ltd. v. Lifschultz Fast Freight Inc., 889 F.2d 1274, 1277 (2d Cir. 1989) (quoting Breed v. Insurance Co. of North America, 46 N.Y.2d 351, 355, 413 N.Y.S.2d 352, 385 N.E.2d 1280 (1978).

 Seiden, 959 F.2d at 428.

 Finally, the second Circuit stated that courts must resolve ambiguities against the party moving for summary judgment. Where both parties are moving for summary judgment, the court must resolve the ambiguity against each in deciding its motion. As mentioned above, if either party were able to present undisputed extrinsic evidence that confirmed its interpretation to such a degree that no reasonable fact-finder could resolve the ambiguity against it, that would constitute grounds for summary judgment. If, however, it would not be irrational, given the extrinsic evidence presented by both parties, to find for either party, then summary judgment should be denied to both parties.

 II. The Late Execution Shares

 Certain Marathon shareholders responded to the tender offer as follows. They contacted an eligible institution, and asked that institution to forward a guarantee letter to Bankers Trust by the proration date. Subsequent to the proration date, but prior to the expiration date, January 6, 1982, they deposited their shares and a letter of transmittal with the eligible institution. Within eight days of the sending their letter of guarantee to Bankers Trust, their shares and letters of transmittal were submitted to Bankers Trust. Although the question-begging nature of plaintiffs' name for these shares -- "late execution shares" -- is not lost on this court, this phrase was used in the Report and is used for convenience here.

 US Steel treated the late execution shares as qualifying for pro rata treatment, and USX argues that these shares did, in fact, qualify for pro rata treatment under the terms of the offer. Conversely, plaintiffs maintain that these shares did not qualify for pro rata treatment. Magistrate Judge Bernikow rejected USX's position and accepted plaintiffs'.

 A. The Literal Interpretation

 Section 1 of the Tender Offer tersely states the conditions for pro rata treatment:

 The manner in which the Purchaser will purchase validly tendered Shares, upon the terms and subject to the conditions of the Offer, will depend upon whether the Offer is over-subscribed by Shares validly tendered at or prior to 12:00 Midnight, New York City time, on Saturday November 28, 1981 (the "Proration Date"), [as extended to December 4, 1981 by the first Supplement, PX16] and not withdrawn. Upon the terms and subject to the conditions of the Offer, if more than 30,000,000 Shares (or any greater number of Shares to be purchased pursuant to the Offer) shall be validly tendered on the Proration Date and not withdrawn, then Shares so tendered shall be purchased, as provided in Section 2, on a pro rata basis (adjusted to the purchase of fractional Shares) according to the number of Shares tendered on the Proration Date by each shareholder, and Shares tendered after the Proration Date will not be purchased.

 Under the precise terms of this clause, the only shares that "shall be purchased" are the shares that are "so tendered." The phrase "so tendered" refers, given the syntax of the sentence, to shares "validly tendered on the proration date and not withdrawn."

 Plaintiffs purport to ask this court to apply the unambiguous terms of this section, but it is doubtful that that is their true wish. A truly literal approach would force me to conclude that the only shares eligible for pro rata purchase at a premium were, as the clause says, shares validly tendered on the Proration date, and not withdrawn. I would therefore not consider shares tendered prior to the proration date as eligible for pro rata treatment. This would be absurd, of course, because of the law, because of the practice in the industry, and because of the context of the entire section. There is every reason to believe that it was simply a case of misdrafting, and that the offeror did not intend to exclude those who had validly tendered before the proration date. None of the parties -- and certainly not the plaintiffs, many of whom presumably did validly tender before the proration date -- would question the necessity of this minor deviation from absolute literalism.

 A more difficult problem separates the defendant and the plaintiffs. In determining whether the late execution shares qualify, it appears that one must determine whether the late execution shares were validly tendered on or before the proration date. The parties agree that Section 5 of the Offer of Purchase sets forth three methods of tendering, and that if only the first two methods set forth in Section 5 existed, then the shares would not qualify. However, defendant points to Paragraph 3 of Section 5, which sets forth a third method [hereinafter "Method 3"], and states ...

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