Court Opinion

ID: 8943967
Source: CourtListenerOpinion
Date Created: 2022-11-27 08:11:04.357092+00
Date Added: 2024-06-11T17:09:48.030212
License: Public Domain

RALPH B. GUY, Jr., Circuit Judge,
dissenting.
I dissent because I do not believe the modified temporary injunction entered in this case is consistent with the reasoning of the majority opinion, nor can I accept the *888methodology used in arriving at the conclusion of either the trial court or this court on appeal.
We are presented here with a relatively typical takeover case. Fruehauf, upon becoming aware that a takeover attempt was underway, decided to resist. It is not really clear from the record whether the resistance was for the purpose of forcing a higher tender offer, keeping control of the company, or some combination of both. In any event, Fruehauf went to the now relatively common arsenal of defenses and came forward with the usual assortment of lockups, poison pills, and other devices designed to make things more difficult for the raider and easier to find a white knight. The trial court enjoined all of the defensive actions taken by Fruehauf and ordered them rescinded. It also ordered that to the degree corporate funds were going to be used, they must be available to all on an equal basis. On appeal, the majority extends the “available to all” principle even further. For example, unlike the trial court, they have allowed the poison pills to remain so long as everyone has to swallow them.
Philosophically, there is a wide divergence of opinion as to the proper role of management in the face of a legitimate takeover attempt. Some urge almost complete passivity on the part of management, while others would allow active resistance and consideration of not only stockholder interests, but such things as employee interests as well.1 Although the varying philosophies make an interesting backdrop for the decision of this case, we are not free to roam the landscape in the same manner as the commentators. Essentially, courts must look to applicable state and federal statutes, the business judgment rule, and the judicial decisions which offer at least some guidance in this area.
It is my feeling that undue weight in the decision making process has been given to the fact that members of Fruehauf management will be part of the white knight group. Although such action may well require close scrutiny, it is certainly not per se illegal or improper. Regardless of how one would characterize management actions here, the fact remains that the net result of that action was to increase the firm offer to shareholders from $44.00 a share to $48.50 a share. I would also note that to the degree shareholders have become a party to this litigation, they have supported, not attacked, what management has done. Unless you adopt the view, which no court has yet done, that management must be totally passive in the face of a takeover, I cannot see where the shareholders have been harmed to date by the action taken by the defendants. My view is not changed on this issue by the fact that plaintiff has offered to “negotiate” a higher offer. However, I am not prepared to hold that management’s “cold shoulder” to the offer to negotiate was appropriate either. I just don’t think there is a record here on which that decision can be made. It involves an evaluation of the upside benefit of getting perhaps a dollar more per share versus the downside benefit of possibly losing the white knight in the process. The business judgment rule does not require a decision by a court that the actions taken were correct in some, absolute or hindsight sense, but only that they be reasonable at the time. At least part of the rationale of the business judgment rule is that managers know more about running their businesses than courts do.
Admittedly, these are difficult cases; the surroundings are unfamiliar, the argot is strange, the financial transactions are complex, and the time limit for decision making is extremely short. Nonetheless, in this case we are presented with a clear record as to exactly what steps management took to resist the takeover and find a white knight. The district court reviewed these actions and found them improper, but no reasons are given as to why they are im*889proper or what judicial precedent is being specifically violated. Although all of the actions taken may be pigeonholed by category, e.g., lock up, no-shop provision, the mere affixing of the label does not resolve the question of the propriety or impropriety of the action taken. Revlon, Inc. v. MacAndrews & Forbes Holdings, 506 A.2d 178, 176 (Del.1986). Nothing could illustrate this point better than the majority’s allowance of that which the district court ordered rescinded, conditioned only upon an even handedness of application. I cannot subscribe to this reasoning. If what management did was illegal, as the majority opinion concludes, it should be enjoined. If it wasn’t illegal, it should be allowed even if philosophically unpalatable and, if a court cannot tell, it seems to me that this is what the business judgment rule is all about and the nod should be given to those who are vested with the business decision making responsibility.
I think that what is required here is a careful analysis of each of the alleged wrongful actions taken and a decision as to whether the defendants violated their responsibilities as to each such action. We have spent too much time looking at the chaff and ignored the seed. The plaintiffs have skillfully merchandized such things as the fact that the outside directors did not engage personally in any negotiations with Merrill Lynch or any other party. We are given no authority for the proposition that they must. I do not understand that to be the role of outside directors in a takeover situation. Rather, they are to exercise independent judgment as to the general fairness and reasonableness of the actions contemplated. Here, they knew that the $48.50 offer was $4.50 higher than the existing tender offer; that it was in excess of $20.00 higher than what the stock was trading for prior to the takeover attempt; and that it was in the ballpark as far as being a fair price for shareholders was concerned. The constraints of time alone, coupled with the lack of familiarity of the outside directors with the day-to-day operations of Fruehauf, place practical limits on their function and responsibility.
Notwithstanding that time is of the essence, I would remand to the district court for an evidentiary hearing on the actual effect, if any, of the alleged wrongful actions taken by the defendants, and whether such actions violate their duty to the shareholders. I would note in this regard that in the face of all the defensive actions taken by the defendants, the plaintiffs have- still aggressively pursued this acquisition. The question has never been answered or even addressed as to whether measures short of those taken by Fruehauf would have resulted in anyone stepping forward to top the original tender offer of $44.00. This is not to suggest that the ends justify the means, however, as the court’s responsibility is to call a halt when that line has been crossed that separates improper self dealing from advancing the interest of the shareholders. The majority may be correct in ruling that that line has been crossed here, however, on the state of the record before me, I cannot comfortably join in that conclusion.
INJUNCTIVE ORDER
Plaintiffs in the above-entitled action having filed a motion for preliminary injunction and a memorandum of law in support thereof; and defendants having filed a reply memorandum of law in opposition thereto; and the District Court having conducted, on July 24, 1986, a consolidated hearing on the aforesaid motion and the motion for preliminary injunction filed by the plaintiffs in Civil Action No. 86 CV 72915 DT; and argument having been given on said motions on behalf of all parties to both said actions, including Merrill Lynch & Co., a defendant in Civil Action No. 86 CV 72915 DT; and, due to the urgency imposed by the imminent consummation of the transaction proposed by defendants, the District Court having delivered its opinion, recited its findings of fact and conclusions of law and issued a preliminary injunctive order on the record, in open court, and with counsel for all parties in attendance; and the District Court having concluded that plaintiffs have met all of the *890criteria entitling them to preliminary injunctive relief; and that the District Court has set forth its preliminary injunctive order in a separate written order, dated July 29,1986; and the defendants having filed a notice of appeal from the District Court order to this Court of Appeals; and the defendants and plaintiffs having filed memoranda of law and appendices on an expedited basis; and Merrill Lynch & Co. having been granted permission to participate in the appeal as amicus curiae, and the Court of Appeals having heard, on August 5, 1986, oral argument on the appeal by all parties and by Merrill Lynch & Co.; and the Court of Appeals having determined that the order of the District Court should be affirmed, except as expressly modified herein.
IT IS HEREBY ORDERED AS FOLLOWS:
I. The Fruehauf defendants (the “defendants”) and those acting in concert with them are enjoined from conducting, furthering, pursuing or concluding the LMC tender offer of June 27, 1986 (the “offer”), except as herein ordered by this Court. This injunction precludes specifically, but without limitation, accepting for payment or rendering payment for any shares tendered in connection with that offer except as ordered.
II. In the event that defendants elect to pursue the LMC offer, defendants are ordered to keep withdrawal rights open during the pendency of any offer for Fruehauf.
III. In the event that defendants elect to pursue the LMC offer, defendants are ordered to distribute to Fruehauf shareholders, within two business days of the approval thereof by the Court, a supplement of their Offer to Purchase dated June 26, 1986, which includes the following further disclosures:
A. A copy of this Court’s opinion and this Order, and
B. Five year projections of the financial performance of Fruehauf without accounting for the LMC transaction.
IV. Defendants and all those in concert with them are enjoined from using, devoting or committing to use any assets of Fruehauf in support of the offer and merger agreement, including specifically but without limitation, the payment or commitment to pay fees of any type or the use of corporate funds or assets to pay for shares acquired or to be acquired by them in connection therewith, or for payment of legal and investment advisors for the Fruehauf defendants, and those acting on concert with them, in connection with any transactions between defendants and those acting in concert with them and the corporation or its shareholders unless the same accommodation is made to all other bidders, as determined by the Board of Directors acting in accordance with their fiduciary obligations.
V. Defendants may take action regarding Fruehauf’s stock option plans, incentive compensation plans, and retirement plans, in accord with defendants’ fiduciary duty, so long as the impact of such actions is equal on all bidders. In assessing the equality of impact on bidders, the defendants need not consider the possibility that members of management may receive benefits from the plans to which they are otherwise entitled.
VI. Defendants are further enjoined to rescind their exemption, dated June 24, 1984, of the offer and merger agreement from the provisions of Chapter 7A of the Michigan Business Corporation Act, unless such exemption of the provisions of Chapter 7A is granted to any other bidder offering the highest value to Fruehauf shareholders, as determined by the Board of Directors acting in accordance with their fiduciary obligations.
VII. To ensure an open bidding process for Fruehauf, defendants are ordered to refrain from taking any corporate actions which are intended to or have the effect of favoring or advantaging any particular bidder over any other bidder. Defendants are further ordered to make available upon reasonable notice to any potential bidder for Fruehauf all information concerning Frue*891hauf s business and properties (subject to such bidder agreeing to reasonable provisions to keep such information confidential) and to meet on mutually agreeable and reasonable terms with any potential bidder in good faith. Defendants are enjoined from any further breaches of their fiduciary duties to Fruehauf’s shareholders in connection with the contest for control.
VIII. It is further ordered that no bond is necessary or appropriate.
IX. This order constitutes a modification of the injunctive order issued by the District Court on July 29, 1986. Requests if any for further modification of this order must be initially presented to the District Court.
Accordingly, it is so ORDERED.

. See, e.g., Esterbrook & Fischel, The Proper Role of a Target Management in Responding to a Tender Offer. 94 Harv.L.Rev. 1161 (1981).