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Osborne v. Corning Natural Gas Corp.

August 4, 2009

RICHARD M. OSBORNE, PLAINTIFF,
v.
CORNING NATURAL GAS CORPORATION, AND REGISTRAR AND TRANSFER COMPANY, DEFENDANTS.



The opinion of the court was delivered by: Michael A. Telesca United States District Judge

ORDER

INTRODUCTION

Plaintiff Richard M. Osborne ("Osborne") formerly the Chairman of the Board of Directors of defendant Corning Natural Gas Corporation, ("Corning") and an owner of Corning common stock, brings this diversity action against the defendants claiming that Corning breached a contract in which it agreed to sell by the issuance of warrants fractional shares of Corning common stock for $19.00 by offering those shares, for a limited period of time, for $15.00 per fractional share. Specifically, plaintiff claims that in 2007, Corning sold (as part of an investment unit which included shares of common stock) warrants allowing purchasers to buy at anytime within four years fractional shares of Corning common stock for $19.00. In July 2009, however, Corning amended the contract in which it agreed to sell the fractional shares, and, for the limited period of one month, lowered the price of the fractional shares from $19.00 to $15.00 per share. Plaintiff claims that Corning lacks the authority to lower the price of the fractional shares, and that by doing so, Corning has breached the contract pursuant to which the shares were sold.

Along with the Complaint, which was filed after 12:00 p.m. on August 3, 2009, plaintiff filed a request for a Temporary Restraining Order, seeking an Order from the Court enjoining the defendants from selling fractional shares pursuant to the warrants at a reduced price, or from issuing stock sold at the reduced price. On August 4, 2009, I held a conference in chambers with representatives of Osborne and Corning to determine whether or not the parties could negotiate a resolution of the matter. The parties advised the court that no such resolution could be reached. Accordingly, based on the plaintiff's Complaint and papers supporting his motion for injunctive relief, and defendant Corning's response thereto, I hereby deny plaintiff's application for a Temporary Restraining Order.

BACKGROUND

On July 17, 2007, Corning offered for sale 506,918 "Investment Units" to its then-current shareholders. Shareholders were given the right to purchase an investment unit for $16.00. Each investment unit included one share of common stock, and one option to buy .7 shares of common stock at $19.00. The option-to-buy (referred to as a warrant) could be exercised at any time by the holder of the warrant over the course of four years. Plaintiff Richard Osborne purchased 20,000 investment units.

To effectuate the issuance of the warrants, on July 13, 2007, Corning entered into a Warrant Agreement ("the Agreement") with defendant Registrar and Transfer Company. The Agreement, in general, set forth the terms and conditions of the sale and redemption of the warrants. Section 20 of Warrant Agreement provides in part that:

The Corporation [Corning] and the Warrant Agent [Registrar and Transfer Company] may from time to time supplement or amend this Agreement without the approval of any holders of Warrant Certificates in order to cure any ambiguity or to correct or supplement any provision contained herein which may be defective or inconsistent with any other provision herein, or to make any other provisions in regard to matters or questions arising hereunder which the Corporation and the Warrant Agent may deem necessary or desirable and which shall not in any way adversely affect the interests of the holders of Warrant Certificates.

Warrant Agreement (Attached as Exhibit A to Plaintiff's Complaint) at Section 20.

On June 30, 2009 the Corning Board of Directors authorized an amendment to the Warrant Agreement. The amendment allowed warrant holders--for a limited period of time--to purchase fractional shares of stock for $15.00 rather than the initial price of $19.00.*fn1

According to a July 2, 2009 Press Release from Corning announcing the amendment, the purpose of the amendment was to facilitate raising capital immediately by encouraging warrant holders to exercise their right to purchase shares at a reduced price. The limited period for exercising warrant rights at the discounted price was from July 6, 2009 to August 5, 2009.

On August 3, 2009, two days before the limited period for discounted stock purchases was to expire, plaintiff brought the instant action seeking a declaration that Corning lacks the authority to change the warrant price, and therefore the amendment to lower the price breaches the Warrant Agreement. As stated above, plaintiff also seeks a Temporary Restraining Order enjoining the defendants from selling or issuing stock at the reduced price.

DISCUSSION

For a party to be entitled to a preliminary injunction, the party must demonstrate: (1) that it is subject to irreparable harm; and (2) that it will either likely succeed on the merits of the case, or that there are sufficiently serious questions going to the merits of the case to make them a fair ground for litigation, and that a balancing of the hardships between the parties weighs decidedly in favor of the party requesting the relief. Jackson Dairy, Inc. v. H.P. Hood & Sons, Inc., 596 F.2d 70, 72 (2nd Cir. 1979); Faiveley Transport Malmo AB v. Wabtec Corp., 559 F.3d 110, 116 (2nd Circ., 2009). To establish irreparable harm, the party seeking relief must allege an injury "that [requires] a ...


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