Opinion ID: 2289995
Heading Depth: 1
Heading Rank: 3

Heading: the embassy sale

Text: Next in the series of acts complained of is the sale of Embassy. The findings of fact adopted by the chancellor are set forth below, virtually without editing. On November 21, 1956, the United States Department of Justice filed a civil suit against the Association alleging that the acquisition of Embassy violated §§ 2 and 3 of the Sherman Act and § 7 of the Clayton Act. 15 U.S.C. §§ 2, 3, 18. Judge Alexander Holtzoff of the United States District Court for the District of Columbia dismissed the § 2 Sherman Act charge but after a trial held that the acquisition violated § 3 of the Sherman Act and § 7 of the Clayton Act. 167 F. Supp. 45 (1958); 167 F. Supp. 799 (1958); 168 F. Supp. 880 (1959). The United States filed an appeal in the form of a Jurisdictional Statement in the Supreme Court of the United States, from the District Court's refusal to grant certain requested relief and the dismissal of the § 2 Sherman Act charge. The Association filed a cross-appeal, and the Supreme Court noted probable jurisdiction on both appeals and consolidated the cases for argument and consideration. 360 U.S. 927 (1959). On May 2, 1960, the Supreme Court upheld Judge Holtzoff's findings of antitrust violations and also vacated the judgment on the § 2 Sherman Act question and remanded the case to the District Court for a new trial on that issue. From the time of the filing of the complaint in the District Court, through the pretrial proceedings, the full trial on the merits, the response to the Government's appeal in the Supreme Court, the filing of a cross-appeal in the Supreme Court, the preparation of briefs, the presentation of oral argument, the subsequent compliance with the Court's order and the continuous conferences with the Department of Justice, the Association paid Messrs. Bergson & Borkland, special antitrust counsel, $128,224.40 for legal fees, printing of briefs and disbursements for the six-year period covering 1957 to 1962. On May 3, 1960 the Association immediately wrote to all members informing them of the Supreme Court's decision. Secretary-Treasurer and General Manager Hooper informed the members that we respectfully differ with the Court but as good citizens we will obey, with good grace, its decision and sell Embassy as the court had ordered. At the May 5, 1960 board of directors meeting Messrs. Hughes, Bergson and Borkland explained the Supreme Court's decision to the board. The board considered the different possibilities of disposing of the Embassy Dairy property and the board authorized management to secure an appraisal of Embassy Dairy for guidance in its future disposition. On July 8, 1960, the Plant Committee passed a resolution in the form of a policy directive which instructed management, in disposing of the Embassy operation, to steer away from assurances that the Association would stay out of the retail milk business and not to effect a sale of Embassy which would limit the Association's right to sell its members' milk in any way not prohibited by the orders of the United States District Court. On July 15, 1960, Messrs. Hughes, Bergson and Borkland discussed with the board the policy to be followed in disposing of the assets of the dairy and the board approved the Plant Committee's resolution of July 8 with respect to the policy directive that management should follow in conducting negotiations. On August 9 Hooper sent a memorandum to counsel setting forth certain questions he wanted answered so as to guide [him] in the necessary actions in connection with the Embassy Dairy decree. On August 24, 1960 Messrs. Hughes and Borkland answered this memorandum, stating in relevant part that in disposing of the dairy the Association could: (1) refuse to give a non-compete agreement; (2) could give a partial non-compete agreement; (3) that the Association was required to sell Embassy as a going concern so as to restore competition as it existed prior to their purchase of Embassy; and (4) that the Association could, if it wished, acquire land and build its own dairy in the metropolitan area. On October 10, Marshall and Stevens, Incorporated, independent appraisal engineers, hired by Hooper at the board's direction, submitted to the Association a preliminary report on the fair market value of the fixed assets of Embassy. They advised the Association that the fixed assets carried a value of approximately $3,216,000. This included the Richfield assets which had been put on Embassy's books, but not those the Association had sold and also did not include accounts receivable. On October 24, Marshall and Stevens submitted their final report, and it showed an appraised value of $3,261,000 for fixed assets. On July 13 J. Ridgely Parks, the manager of Embassy, on behalf of himself and other management employees had written to Mr. Hooper expressing an interest in purchasing the dairy for $2,500,000. This offer was below the price the board and management expected to be able to secure for the assets of the dairy and no other proposal was ever received from this group. Commencing in the early summer of 1960, numerous businessmen, attorneys, accountants and other interested parties, many apparently brokers, contacted Hooper and expressed interest in the dairy property. Hooper responded to all inquiries and conducted correspondence and conversations with the interested parties with a view toward further stimulating their interest in the dairy. With the exception of Mr. Park's offer and two other offers, one made in late October and one in early November, none of the other parties who had expressed an interest in the dairy made any offers to purchase it. In early October of 1960 Hooper became aware of the interest of Irving D. Berger in purchasing Embassy. Berger was personally known to Hooper as a man of very substantial means in his own right and also was the son-in-law of one Garfield Kass, also a very well-to-do and reputable businessman. On October 24, 1960 Berger and his attorney, Mr. Oliver McGuire, met with Hooper. Berger advised Hooper that they wished to make an offer to purchase the dairy and conveyed to Hooper an offer which Hooper in turn conveyed to the Plant Committee. On October 28, 1960 the Plant Committee passed a resolution stating that the offer of Berger should be rejected. At the October 28 board meeting, however, after a full discussion of Berger's offer and his interest in the dairy, it was resolved by the board that Mr. Berger's offer to purchase Embassy Dairy should be accepted in principle with the proviso that the president appoint a committee including Mr. Hooper and Mr. Remsberg as members to negotiate further as to more favorable price and terms if possible and that the committee be empowered to close the deal. Under the orders of the United States District Court the Association was required to dispose of the dairy by June 20, 1961. Hooper, because of the profits being made from operation of the dairy, wanted to hold on to it as long as possible. Berger, however, had indicated that he considered his offer to be bona fide and in light of the District Court's orders was disposed to report to Judge Holtzoff that the Association was not complying with the Court's orders. Accordingly, negotiations for the sale continued. Once it became obvious that Berger had a bona fide interest in purchasing the dairy, the Association management and board members undertook independent efforts to evaluate his financial condition and standing. Their investigation showed a very substantial net worth and excellent financial rating. On October 24 Hooper noted in a memorandum that after his conference with Berger he checked with the Riggs National Bank and was advised that Berger had assets of over $20,000,000 and was half-owner of the Seven Corners Shopping Center in Virginia. On October 27, 1960, Mr. Giles Miller, President of the Culpeper National Bank and a member of the board and Plant Committee, received a reply from Mr. James F. Bridges, a vice president of the Riggs National Bank of Washington, to his inquiry on Berger's financial standing, Miller was informed that Berger was a gentleman of high character and integrity, and he is possessed of considerable means. We regard him as being entirely responsible for his business commitments.    Because of the size of his net worth, his endorsement on a note would add considerable strength. [W]e are pleased to recommend Mr. Berger to you. Berger was also requested to submit a financial statement, and he did so. On November 2, Berger appeared with his attorney Mr. McGuire before a Special Committee of the board of directors wherein his original offer and an Association counterproposal were discussed. The Special Committee proposed the submission of a new offer to Berger, and on November 3 Berger responded with a counterproposal which accepted the terms as proposed by the Special Committee on November 2, except for the fact that Berger refused to have his wife, because of her own independent wealth, also endorse any notes given by his corporation in the transaction. He also assigned different values to different items, but agreed to pay $3,250,000, plus accounts receivable. The terms of sale as accepted by Berger were $2,355,000 for the physical assets, cash of the business, $150,000 for good will, $745,000 for a five-year non-compete agreement, plus accounts and notes receivable would be paid to the Association. On November 3 a meeting of the Special Committee of the board charged with responsibility for the sale was held via a telephone conference call to consider Berger's amended proposal. During the course of the negotiations Berger had offered as security to the Association either a lien on the assets of the dairy or his personal endorsement on all notes given in the transaction. The Special Committee determined that, in view of Berger's financial statement and reputation, the assurance which had been given by the Riggs National Bank, and the undesirable location of some Embassy property, the transaction could be best secured through Berger's personal endorsement and guarantee of all notes. The Committee discussed Berger's refusal to have his wife endorse the notes and finally determined to accept Berger's offer, with his endorsement as security, provided that Hooper once again received adequate assurances from Berger's bank references. Acting on these instructions, Hooper contacted Mr. Roland Carr, the senior vice president of Riggs National Bank; Mr. Bridges, the vice president of Riggs National Bank; and Mr. Russell Bolton, treasurer of the National Savings and Trust Company, and in each instance he received adequate assurances as to Berger's ability to pay. Accordingly, Hooper set up procedures for the execution of an agreement. On November 4, 1960, an agreement between Metropolitan Food Corporation, Inc. (Metropolitan) and the Association was signed wherein, subject to the approval of Judge Holtzoff, the dairy was purchased for a price of (once accounts receivable were valued) $4,261,870.70. This price was in excess of the appraised value of the dairy. The sale to Metropolitan, a corporation headed by Berger, was made on the following terms: (1) at the time of settlement a cash payment to the Association in an amount equal to the cash in banks and on hand of the dairy; (2) a single $250,000 non-interest bearing note due six months from date of settlement; (3) a single non-interest bearing note in an amount equal to the notes and accounts receivable to the dairy due twelve months from the date of settlement (determined to be $773,455.53); and (4) a single note for $3,000,000 bearing interest at the rate of 5 percent per annum due fifteen years from the date of settlement; interest to be paid semi-annually, principal to be paid semi-annually in twenty-five successive installments of $100,000 each and a final balloon payment of $500,000; the first installment was to become due two years after the date of settlement. All notes were to be unconditionally endorsed by Irving D. Berger, and the effective date of settlement was to be January 1, 1961. On October 27 Hooper had received a letter from Mr. Bruce Philipson wherein he expressed interest, on behalf of an unnamed client, in the acquisition of Embassy. On November 2, 1960, Philipson tendered an offer on behalf of his unnamed client in the amount of $4,000,000. It is not known on what date this offer was received by Hooper. At no time during Hooper's contacts with Philipson did Philipson indicate who his client was. Hooper and the entire board considered this a very critical part of the negotiations since the Association was most concerned with insuring that once it sold Embassy it would continue to be able to sell its producers' milk to the purchaser of the dairy. Not knowing who Philipson represented Hooper was not in a position to determine if he could insure that Embassy would continue to purchase its milk from the Association. In reporting to Judge Holtzoff on its efforts at sale the Association had stated that it refused to negotiate with any broker or agent    unless such broker or agent would reveal the identity of his principal   . Berger, on the other hand, had given assurances that if he bought Embassy he would continue to buy from the Association. These assurances were in fact honored and to this day the Association continues to retain this customer. The agreement between Metropolitan and the Association for the sale of Embassy was approved by Judge Holtzoff. The parties thereafter proceeded to final settlement with an official settlement date of January 1, 1961. In the January edition of the Maryland and Virginia Milk Producers News, a monthly house organ sent to every member of the Association, a report on the Sale of Embassy Dairy was made to each member. The first sentence of said report reads as follows: The sale of Embassy Dairy to the Metropolitan Food Corporation, headed by Mr. Irving D. Berger, a substantial and influential Washington businessman   . The article continued, [i]n summary, however, the sale figure for Embassy Dairy would be $3,250,000 plus the exact net amount of accounts receivable, and cash in banks   . In the 41st annual report of the Association for the year ended December 31, 1960, the secretary-manager reported to the membership that [a]s you have read in previous issues of The NEWS Embassy was sold to a local business man on January 1, 1961 for the sum of $3,250,000 plus the amount of cash on hand and the value of accounts receivable. This resulted in again of approximately $450,000 which becomes a part of the Members' Revolving Reserve Fund. He also reported in a separate section dealing with the Antitrust Case that [i]n compliance with the court's order, Embassy Dairy was sold effective January 1, 1961, to Mr. Irving D. Berger, a Washington businessman. Further information on the sale of Embassy has been included in other parts of your Annual Report. During the period of Association ownership of Embassy $5,173,892.12 in profits was realized from the Embassy operation. As a result of the sale to Berger $465,794.41 in net gains was also realized by the Association. The chancellor's opinion contains nothing inconsistent with the findings of fact set forth above. The following excerpts from his opinion indicate that he made additional findings: Parenthetically, we do not agree that this was a fruitless appeal. Monies had to be expended, of course, in counsel fees, but these eminent counsel recommended to the Association's directors that this Association had more than a 50-50 chance. As a matter of fact, we recall in the communications of the manager that they had a better than 90 percent chance of reversing Judge Holtzoff. This is not a situation where inexperienced counsel are making irresponsible recommendations to a client, but eminent counsel are making it on the basis of the record then made. It seems to the court that the appeal was properly pursued.    When we read the bill of complaint and the Court of Appeals opinion in this case, [we] had no idea who Mr. Berger was. In the trial in this action we have heard and have had him identified as a man of very substantial means living and doing business in the District of Columbia, receiving the highest recommendation of the Riggs National Bank of Washington, D.C., one of the most responsible financial institutions in the area, if not the country, a recommendation made to Mr. Hooper, made to Mr. Miller, who himself was a banker and who is a correspondent of the Riggs National Bank. We have information here with respect to this man's assets aggregating $20 million, and we know from the testimony in this case that he is related to a family of wealth, the son-in-law of Mr. Garfield Kass, and together with Mr. Kass having developed the Seven Corners Shopping Center, a very substantial commercial enterprise in nearby Virginia. So it must be said that, with respect to this man, his signature was indeed better than a lien on the property, and we so find in this case. It may well have been that the directors should have obtained not only his signature as an endorser, but, also, a lien on the property. That was not the option available by the purchaser. It wasn't made available to the directors. They had their option and they chose to get his signature and, as the record shows, they protected themselves with respect to a waiver of the wife's dower interest. [4]