The opinion of the court was delivered by: STANLEY SPORKIN
I. The Standard for Summary Judgment.
Summary judgment may be granted to the moving party if:
"the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to summary judgment as a matter of law."
Fed. R. Civ. P. 56 (c). Under Celotex Corporation v. Garret, 477 U.S. 317, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986), summary judgment is appropriate "after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish an element essential to that party's case and on which that party will bear the burden of proof at trial." Both sides have-filed extensive memoranda, affidavits, and discovery materials regarding the complex transactions surrounding this case. While the parties do not agree on every issue, "there is no issue for trial unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. If the evidence is merely colorable or it is not significantly probative, summary judgment may be granted." Anderson v. Liberty Lobby, Inc., 477 U.S. 242 at 249-250, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). Therefore, for the purposes of this motion, the Court accepts the following facts as not in genuine dispute.
This case arises out of a dispute concerning the terms of the 1986 merger of John Blair & Company ("Blair") and a subsidiary of Reliance Capital Group, L.P. ("Reliance"). Plaintiff, Alvin Gandal, brings this suit in his capacity as a former owner of certain stock warrants
in John Blair and Company ("Warrants"). Defendants are Reliance, Telemundo Group, the successor corporation to Blair, and Jack Fritz and Hugh Beath, former Blair officers.
On September 15, 1984 John Blair issued common stock purchase warrants. Each warrant had a five year life, expiring on September 15, 1989, and entitled its holder to receive one share of John Blair common stock for an exercise price of $ 36.75. The terms of the contract defining rights and conditions associated with the Warrants ("Warrant Agreement") are crucial to this case.
Plaintiff's contract claim rests on Section 10.5 of the Warrant Agreement. That section preserves the rights of warrantholders in the event that Blair chooses to merge with another company. Section 10.5 provides in relevant part:
"10.5 Preservation of Purchase Rights Upon Merger, Consolidation, etc. In case of any consolidation of the Company with or merger of the Company into another corporation . . . each Holder shall have the right thereafter upon payment of the Warrant Price in effect immediately prior to such action to purchase upon exercise of each Warrant the kind and amount of shares and other securities and property (including cash) which he would have owned or have been entitled to receive after the happening of such consolidation, merger, sale, transfer or lease had such warrant been exercised immediately prior to such action; provided however, that no adjustment in respect of dividends, interest or other income on or from such shares or other securities and property shall be made during the term of a Warrant or upon the exercise of a Warrant."
Plaintiff's Exhibit 2 at § 10.5. The intention of this provision is evident from the face of the contract. After a merger, warrantholders who chose to exercise were to be entitled to the same consideration as they would have received had they exercised immediately before the merger and therefore been common shareholders at the time of the merger. As warrantholders, they were not entitled to any of the rights or income due security holders until after they exercised, but the Warrant Agreement clearly entitled them to be treated equally to shareholders in every other respect.
Section 12 of the Warrant Agreement expressly excluded them from having the rights of shareholders prior to the exercise of their conversion rights. That section provided in relevant part:
"Section 12. No Rights as Stockholders:. . . Nothing contained in this Agreement or in any of the Warrants shall be construed as conferring upon the Holders or their transferees the right to vote or to receive dividends or to consent or to receive notice as stockholders in respect of any meeting of stockholders for the election of directors of the Company or any other matter, or any rights whatsoever as stockholder of the Company."
Defendants' Exhibit D at § 12 (emphasis added). Pursuant to this contractual term the warrantholders were not entitled to any of the same basic rights normally associated with stock ownership. Prior to the merger, Plaintiff Gandal purchased 3,000 warrants at $ 2.25 per warrant on December 3, 1984 and 10,000 additional warrants, some at $ 3.00 and some at $ 2.875, on October 24, 1985. Therefore, before the events surrounding the merger, plaintiff had bought 13,000 warrants for $ 36,625. After the terms of the merger were fixed, Plaintiff decided to speculate on the Warrants and bought an additional 142,000 Warrants for $ 78,118.75. All tolled, then, plaintiff purchased 155,000 Warrants for $ 114,743.75.
On April 22, 1986 Macfadden Acquisition Corp. ("Macfadden") made an unsolicited tender offer for all of the outstanding shares of Blair common stock. The Blair board of directors, including defendants Jack Fritz, who was the President and Chief Executive Officer, and Hugh Beath, who was an Executive Vice President, resolved that the best interests of Blair stockholders would be served by resisting Macfadden's hostile takeover attempt. They began seeking a "white knight" who would make an offer that was superior to ...