Opinion ID: 2289995
Heading Depth: 1
Heading Rank: 2

Heading: the acquisition of richfield

Text: The second of the series of acts arises out of the purchase of the Richfield Dairy Corporation and Simpson Brothers, Inc., trading as Wakefield Model Farms Dairy (Richfield). The findings of fact adopted by the chancellor, with minor editing, follow. The Association had for a considerable period of time been supplying fluid milk to Richfield. The Association considered these customers to be of great value to the Association since they were purchasing approximately 12,000 gallons a day of its Class I milk. The Association had, however, experienced difficulty in collecting its milk bills since Richfield had been experiencing difficulty meeting its overall financial commitments. As a result the board of directors watched very closely the financial operations of Richfield insofar as they affected its ability to pay the Association, and considered the purchase of Richfield. Because of the concern over the financial condition of Richfield and the necessity for maintaining the continuing market for Class I milk the board of directors asked the then general counsel, Hughes, and special antitrust counsel, Messrs. Bergson and Borkland to consider the legality of the acquisition by the Association of Richfield. On June 13, 1957, Bergson and Borkland submitted their written opinion to the board of directors that the acquisition of Richfield would be unobjectionable from an antitrust standpoint. Counsel commented that [t]he act of the Association in taking over Richfield is not part of a program of development or expansion; it is primarily a salvage operation designed to prevent a very substantial loss. The fact that the acquisition will furnish additional volume to Embassy in no way detracts from this basic consideration. In considering the possible purchase of Richfield the board was advised that it had been recently approached by a number of nationally operated dairies such as Foremost, Beatrice Creamery, National Dairies and also local concerns such as Thompsons, Alexandria Dairy Products, Giant Food Stores who had expressed an interest in possibly purchasing Richfield. Because of the worsening financial condition of Richfield, the increase in the amount of money owed by it to the Association, the Association's desire to protect this debt, and the Association's desire to protect the 12,000-gallon-a-day Class I sales to Richfield, the board of directors on June 14, 1957, after a full discussion of the legal, financial and other aspects of the problem, resolved to purchase the capital stock of Richfield. At the time of the proposed acquisition of Richfield the Association was already in civil litigation with the Department of Justice over the Embassy acquisition. The board of directors, at all times pertinent to discussion of Richfield, sought to obtain from the Department clearance of the Richfield acquisition. Edgar A. Wren, Esq., the attorney for Richfield, had previously secured a clearance for the sale of Richfield. He requested the Department to revitalize this clearance on behalf of the Association. Mr. Joseph Saunders of the Department had, however, advised Wren that because of the pending Association litigation the request had not been considered. Mr. Saunders advised Wren, who in turn advised the Association, that the parties were free to take whatever action they wish. On December 6, 1957, the Association purchased the entire capital stock of Richfield for $375,000. At the time of the purchase Richfield was indebted to the Association in the amount of $556,681.93. It was recited in the contract that Richfield was unable to meet any payments on this indebtedness and that the only way the debt could ever possibly be paid would be through the integration of the Richfield operations into the existing Embassy operation of the Association. In the Annual Report for the year 1957, the membership of the Association was advised as follows: On December 6, 1957,    Richfield    [was] acquired and incorporated into the Embassy operations.    [It was] acquired by the Association in order to protect its own financial interest    and will be disposed of as real estate. Subsequent to the acquisition of Richfield its operations were merged into the existing Embassy operation. Approximately $750,000 in fixed assets were acquired in the purchase. The Association sold outright certain land which Richfield had owned for slightly over $50,000 and also sold Richfield's stock in the Washington Bottle Exchange at a gain of $52,000. Prior to its acquisition Richfield purchased approximately 80 percent of its milk from the Association. When purchased, its volume was 12,000 gallons per day, which represented sales of $379,000 per month and $5,000,000 per year. To develop a similar capacity at a similar plant in Newport News, Virginia (Marva Maid), the Association expended $2,500,000. The cost to the Association of the capital stock of Richfield was $375,000. It was always the intention of the board to write-off the stock of Richfield once the assets of those dairies were transferred to the books of Embassy. When the assets were transferred, the stock became valueless, but the assets which were then on the books of the Association maintained their value thereafter and were reflected in Embassy statements. The annual financial report of the Fluid Milk Division (Embassy) for the year ended December 31, 1958, shows a book value of $4,090,447.51. In arriving at this book value, the accountants reflected the charge-off of accounts and notes receivable of and investment in Richfield $803,544.66. This figure was deducted before the accountants arrived at the book value for 1958. The $803,544.66 charge-off was, therefore, reflected in the subsequent computation of the net gain on the sale of Embassy since that computation was based on the December 31, 1960 current book value of the Division. The charge-off would not be again deducted in 1960 since it took place in 1958 and was, therefore, already reflected in the 1960 figure. The 1958 charge-off was reported in the financial reports which were published in the Annual Report for 1958 and distributed to the membership. On January 9, 1959, the board approved a Finance Committee resolution to reduce the cost of the Richfield stock from $375,000 to zero, which reflected the transfer of the assets to the books of the Fluid Milk Division. We do not see, in the chancellor's opinion, anything inconsistent with the adopted findings of fact in respect of Richfield. The chancellor observed that it (the Richfield purchase) has been assailed by the    [appellants] as being sheer and gross negligence because at that time antitrust proceedings were already pending. He went on to say: We recall, however, an unequivocal communication from Mr. Bergson in the record in this case that in his judgment this acquisition was protected by the Capper-Volstead law. It was on the basis, so far as the legalities are concerned, of his opinion that it went forward, and Judge Holtzoff's decision sustained the purchase. As to the business aspects of it, as to the business judgments exercised by the defendant directors, it appears to the court that at the time they made this acquisition, while we may now debate its wisdom, on the basis of the facts as they appeared to them, this cannot be said to be a grossly and culpably negligent decision for them to have made. They made it at a price which was not an unreasonable price. They made it at a time when the customers of that particular dairy represented a substantial segment of the market. To them undoubtedly it seemed that this was, especially in the light of the fact that the company was in debt substantially to the Association, that this was conceivably a way of protecting themselves in acquiring not only a dairy and its customers but also its physical properties. This was not an indiscreet or unwise decision. We may quarrel with it now many years after the fact, but the court cannot say as a matter of fact or certainly as a matter of law that the acquisition of Richfield-Wakefield was a mistake of negligent or grossly negligent proportions.