Opinion ID: 1799426
Heading Depth: 1
Heading Rank: 4

Heading: position of the parties.

Text: On this de novo review, the position of plaintiff Fenestra is not easy of summary because it contains a veritable diary of events presented in its complaint covering 77 printed pages; in support of its judgment obtained below, it has also filed 3 briefs totaling 310 pages replete with 198 footnotes. Hopefully, our categorizations and summaries will sacrifice none of plaintiff's flavor. Plaintiff's position is that each and every defendant is engaged in a gigantic conspiracy, using unlawful means and pursuing unlawful ends, and that such conspiracy was pursued to the point where irreparable damage to the corporation was imminent and actual damage had already occurred. Plaintiff's position will not suffer from the emphasis of repeating, in part at least, from its complaint: The defendants, and each of them, participated in and had or are chargeable with knowledge and consented to the plan and conspiracy, and acted in furtherance thereof, hereinafter alleged.    The above acts of defendants and purpose of their plan and conspiracy are unlawful, as are the means by which such plan is to be carried out, which, if achieved and further carried out as above set forth, would perpetrate a fraud upon plaintiff and its minority stockholders and would be contrary to the law and public policy of the State of Michigan.    Unless the unlawful conspiracy of the defendants and the unlawful means by which said defendants seek to accomplish the purposes and ends of said unlawful conspiracy are enjoined and restrained forthwith, during pendency of this action, and permanently by this court of equity, plaintiff and its minority stockholders will suffer immediate great irreparable harm and damage. Fenestra says that as to the Gulf group the propriety of their actions must be tested by standards applicable to self dealing by a fiduciary. Fenestra says the action by Gulf ( i.e., G.A.L.C. Co.), as a controlling stockholder in Fenestra, in seeking to restrain the proposed Freeman acquisition was in violation of its fiduciary duty. As to the Pritzker group, plaintiff Fenestra says that they brought the deal to Gulf and that Jay Pritzker was the architect of the conspiracy. Fenestra says Pritzker devised the arrangement whereby Gulf would use Fenestra's assets to pay for its [Gulf's] purchase of the stock and to pay other indebtedness. Fenestra adds that Pritzker was thus aiding and abetting Gulf in a breach of fiduciary duty. Fiduciary standards are also applicable to the Brainin group, says Fenestra. But, says Fenestra, their application is not essential because they [Brainin] not only had adequate warning of Gulf's purposes and intentions to require them to investigate (before selling control), but that they had actual knowledge sufficient enough to make the sale wrongful even under `common honesty' standards.
Gulf says that perhaps the single most important fact about the entire lawsuit is the fact that although its subsidiary G.A.L.C. Company acquired 46% of Fenestra's outstanding stock, it has never acquired control of Fenestra (it will be remembered that the events leading up to this lawsuit happened well in advance of the next scheduled annual meeting of stockholders). Gulf says, this being a civil conspiracy suit, that plaintiff Fenestra must satisfy the court that two or more of the defendants combined either to accomplish a lawful purpose through unlawful means or to accomplish an unlawful purpose, citing Veriden v. McLeod, 180 Mich 182, and Peoples Savings Bank v. Stoddard, 359 Mich 297 (83 ALR2d 344). Gulf says, first of all, that there was nothing unlawful in the means by which it obtained Fenestra's shares. Gulf concedes the obvious, that is, that it paid a price per share greater than the market value of Fenestra but says that there is no law which prevents a purchaser from paying a premium in connection with the purchase of shares. In addition, Gulf, in answering Fenestra's charge, says that the fact that it borrowed all of the money necessary to purchase the Fenestra shares is of no consequence because, in the first place, there is nothing wrong with borrowing money and, in the second place, that it put up substantial collateral, both personal and corporate, to assure repayment of the loans and other financing of the transaction. Anyway, Gulf says, when money is borrowed it becomes the borrower's money and the fact that it is borrowed money does not, in and of itself, taint the transaction in which it may be used. As to whether or not its purpose was unlawful in purchasing the Fenestra shares, Gulf says that the purchase of shares for control of a corporation is a normal everyday occurrence and has solid support in the law. Gulf says that the finding that it intended to misuse its control of Fenestra (assuming that it would have gained control at the next annual meeting of shareholders), is totally lacking in support from the evidence. Gulf readily concedes that prior to its purchase the possibility of a merger of Fenestra and Gulf was discussed and also the possibility that Fenestra might be asked to lend money to Gulf was discussed but never concluded. Gulf also readily concedes that it considered the possibility of changing the corporate direction of Fenestra because all parties, including Fenestra management, were in agreement that something ought to be done about the building products divisions which were steadily losing money for all Fenestra stockholders. Gulf argues that neither the possibility of merger, loans, or change in corporate direction is unlawful per se, but admits that they could be made unlawful, however depending upon the manner in which either might be accomplished. This, Gulf says, could only be determined when and if a specific proposal were made. It should be pointed out that neither side contends that any specific proposal has yet been made. Gulf points out that the trial court laid heavy stress upon the conclusion that Gulf intended to pay for its purchase of Fenestra shares out of Fenestra's own assets. Gulf says that the record will clearly show that both the down payment note made to the Atkinson Corporation of the Pritzker group is well secured by Gulf stock and that the balance due to the Brainin group is also secured by over $7,000,000 worth of Fenestra and Gulf stock. Gulf says that the only way Fenestra money could be used to discharge these obligations would be either by theft (which not even Fenestra claims is intended) or by borrowing from Fenestra or merger with Fenestra. In either a loan or a merger, Gulf asserts that the other shareholders of Fenestra would necessarily be protected as a matter of fact and of law. Gulf also strenuously objects to the judgment of divestiture which, it claims, is an extraordinarily harsh remedy, used almost exclusively in antitrust and antimonopoly cases where no other remedy will suffice. Without conceding that any of its actions was unlawful, Gulf suggested to the trial court before judgment that if the court deemed it necessary to protect Fenestra or its minority shareholders that it, Gulf, was agreeable to a judgment of injunction restraining it from acquiring any of the capital assets of Fenestra by merger, loan or otherwise, as well as other forms of relief.
It is the position of the Brainin group that its sale of controlling stock interest to Gulf was made in good faith and that it was a straight stock sale unaccompanied by any commitments or agreements for the transfer of either office or control. At no time, they say, did the Brainin group take any action which plaintiff even claims to be detrimental, other than the exercise of their [Brainin's] lawful right to sell the stock which they owned. They take sharp issue with the trial court which found that The Brainins furnished the material whereby control was to be delivered and that the Brainin group [as well as the Pritzker group] benefited financially. Brainin says the only material which they furnished was the sale of 46% of Fenestra stock to Gulf which they contend they had a perfectly good legal right to do. Further, Brainin says that the financial benefit which the trial court alludes to is their sale of the stock above current market quotations, which, they contend, is entirely legal. Brainin rejects the suggestion that as controlling stockholders they were fiduciaries for other stockholders, contending that this relationship arises only when stockholders actually assume control of the corporation. Brainin points out that at no time did they have control of the management of the corporation, which must be conceded. Brainin also contends that the proofs are totally lacking, both as to testimony and documents alike, that there was any understanding or agreement with any of the defendants constituting a conspiracy, reiterating that it was a straight stock sale without any other commitments or private agreements. They argue that an action for civil conspiracy is essentially an action for damages inflicted by tort pursuant to a preconceived plan for an unlawful purpose or by unlawful means. They say that not only has there been no damage but neither has there been any conduct constituting conspiracy. Assuming, they say, that even if Gulf's intentions had been unlawful there was no tortious damage, hence the suit was prematurely brought, to say the least. The Brainin group argues further that Here, no merger, loan, or intercorporate transaction has even been formulated, much less actually submitted or proposed. Yet the judgment below against the selling defendants of necessity rests upon a judicial and conclusive assumption that the purchaser will at some future date propose something so improper and illegal as to require the present drastic and sweeping judgment divesting even the lien rights of the sellers. In effect, they say, defendants have been convicted of rape without even the semblance of an indecent proposal. The Brainin group also objects to what is termed the harshness of the remedy of divestiture (of retained lien rights, in their case) and because the divestiture affects not merely the named defendants of the Brainin group, that is, Brainin, Taub, Projansky, Kaiserman, and the Argus Capital Corporation, but also nearly 80 others who were in the joint venture with Brainin but who were not defendants in this lawsuit. The group also objected to the jurisdiction of the court because they are nonresidents who were served outside the jurisdiction and who claim that their contacts within the State were insufficient to give the court jurisdiction over them.
The main argument of the Pritzker group is that the court did not acquire jurisdiction over any of its members because service of process was made in Illinois where the parties are resident, except for the Atkinson Corporation (the Pritzker control finance company), which is a Wisconsin corporation. The arguments as to the jurisdictional issue are not detailed here because the case is disposed of on other grounds, as will be seen below. However, Pritzker does make a statement preliminary to its jurisdictional argument in which it also takes a position with reference to the alleged conspiratorial conduct. The Pritzkers, who bought 20,000 shares of Fenestra at a cost of approximately $500,000 before either Brainin or Gulf came into the picture, did not sell their shares to Gulf and, of course, still own them. It will be remembered also that the Pritzkers were the arrangers of the deal and financiers of part of it: they loaned the down payment which Gulf made to the Brainin group. They, too, were not satisfied with Fenestra management and had suggested that management dispose of the losing divisions. It was the Pritzker group, they say, who suggested to management that the Prudential Life Insurance loan be paid because the loan bore an interest rate in excess of the interest yield on the securities in which the proceeds of the loan were temporarily invested. The difference is alleged to be over $100,000 a year. In other words, the Pritzkers say management was losing this much each year by the way in which it handled this portion of its liquid assets. This, they insist, exhibits, on their part, an obvious interest in the welfare of Fenestra which is totally inconsistent with any assertion that they conspired with the other defendants to cripple Fenestra. Chief target of the Pritzker group is the suggestion of conspiratorial culpability on their part by reason of the fact that in the loan agreement with Gulf they (Pritzkers) included a provision which would require Gulf to apply any funds that might be derived from Fenestra through merger or a liquidating dividend or other to be applied first to the Pritzker group loan to Gulf. They insist that this is common business prudence and point out that in the loan made by Prudential to Fenestra similar provisions are included.