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Lonergan v. Crucible Steel Co. of America

JULY 22, 1966.




Appeal from the Circuit Court of Cook County, County Department, Chancery Division; the Hon. CORNELIUS J. HARRINGTON, Judge, presiding. Order reversed.

MR. PRESIDING JUSTICE BRYANT DELIVERED THE OPINION OF THE COURT. This interlocutory appeal comes from an order entered in the Circuit Court of Cook County April 26, 1966, granting a temporary injunction directing the defendants to adjourn the annual stockholders meeting scheduled for the following day until August 29, 1966. The order states that this adjournment "will permit sufficient time to correct the allegedly misleading solicitation material transmitted by management and the correction of other charged violations . . ."

The complaint alleged that each of the four plaintiffs, all Illinois residents, are shareholders in the Crucible Steel Company of America, hereinafter called Crucible, and that they have been shareholders at the times of all the transactions complained of. When this suit was filed, these four plaintiffs owned a total of 104,400 shares of Crucible common stock out of approximately 3,879,180 shares outstanding. The plaintiffs allege that they bring this action, "on behalf of themselves and representatively and derivatively be on behalf of themselves and all of the stockholders of Crucible similarly situated."

The complaint names as defendants, Crucible, Wheeling Steel Corporation, hereinafter known as Wheeling, Hunt Foods and Industries, Inc., hereinafter known as Hunt, and 46 individuals, officers or directors of the above-mentioned corporations or past directors of Crucible. Of the defendants only the three corporations and R.A. Aishton are before the court.

The complaint alleges the existence of a conspiracy to turn over the control of Crucible from the elected directors to a group of so-called outsiders for the purpose of "perpetuating themselves in office as directors and officers of Crucible for their own personal gain and profit and at the expense of Crucible and its other stockholders." It is further alleged that, "[d]efendants Hunt and Wheeling and their officers and directors, and in particular, defendant Simon, were extremely desirous of accomplishing their selfish objective of causing a merger between defendant Wheeling and defendant Crucible whereby Wheeling would obtain control of Crucible. Defendants Hunt and Wheeling, as well as their officers and directors, and in particular, defendant Simon, realized that Wheeling was in serious business difficulties and had been operating at a substantial economic loss and that defendant Crucible with its tremendous assets and business capacity would be a very desirable company for defendant Wheeling to merge with to the detriment of Crucible." Excessive compensation to various individual defendants is also alleged in the complaint. The defendants who appeared, answered and the plaintiffs replied.

It seems to be uncontested that trading in the shares of Crucible on the New York Stock Exchange became unusually active early in January 1966. On January 4, it led all stocks traded with 247,700 shares being purchased and sold; trading was stopped by the middle of the afternoon. Joel Hunter, president of Crucible, became worried about this sudden activity in the stock of his corporation and feared an attempt was being made to take over Crucible. What in fact was the cause of this unusual spurt in trading and who actually were the purchasers has never been determined. In any event, by the end of that week, over 900,000 shares had been traded, which was more than half the total number of shares traded the previous year. Hunter contacted certain members of the board of Crucible to determine what would be the best course of action, and then contacted a Mr. Stinson, head of another steel company, to determine whether a merger between their two companies would be possible. Mr. Stinson chose not to consider the matter.

The evidence presented at the hearing below reveals that James H. Higgins, a member of the Crucible board, suggested that an attempt to contact Norton Simon might prove useful. Mr. Simon is a director of Hunt, and apparently has a reputation in financial circles as a gentleman of great business acumen. Hunt is a large operating company with investments in such diversified areas as the food, paint, glass, can and cottonseed crushing businesses as well as the steel, railroad, printing, publishing and dental supply fields. Simon suggested that Hunter discuss the matter with Robert Morris, president of Wheeling Steel, a company in which Hunt had a large investment.

Hunter accordingly went to Wheeling, West Virginia, where he discussed Crucible's situation with Morris. A merger between the two companies was mentioned, but as far as the evidence shows, it never got past the most elementary discussion stages. Mr. Simon kept abreast of the Hunter-Morris conversations by telephone and it was eventually decided that Hunter and Morris should meet with Simon and members of Hunt's finance committee the following day.

In short, an agreement was finally reached whereby Hunt agreed to take a position in Crucible shares and in fact did invest a very large amount in these securities.

It apparently is not disputed that Simon suggested the formation of a finance committee for Crucible and also suggested that he be chairman of the committee. It is also undisputed that Simon and three of his associates were elected to the board of Crucible to fill vacancies which occurred when elected board members resigned to make way for them. These arrangements between the Hunt board and the Crucible board are claimed to be improper by the plaintiffs.

The plaintiffs also question whether adequate disclosure of these affairs was made to the shareholders of Crucible. The claim is made that the proxy solicitation material was not complete. Both the management proxy statement and the Rubin group proxy statement were filed with the Securities and Exchange Commission. No evidence was introduced to show that the Securities and Exchange Commission found anything misleading about any of the material.

The plaintiffs also allege, apparently to show a motive for the actions by the Crucible board, the fact that the corporation had been badly mismanaged for several years. As was made apparent by their briefs and their oral arguments before this court, one of the major points of contention concerns the conduct of Crucible's operations abroad. Apparently the question concerns the wisdom of beginning the operation in the first place, and also the manner in which the books were kept. We do not know where these books are, but we assume they are not in Illinois.

As we stated at the outset, a temporary injunction was granted by the Circuit Court directing that the shareholders meeting be postponed from April 27, 1966, to August 29, 1966, so that allegedly misleading solicitation material transmitted by management might be corrected, "and to permit solicitation by the plaintiffs of proxies already obtained by management and others held in so called street name."

The complaint also asks in addition to other relief that the defendants be forever barred from voting their shares in the election of directors, that the defendants be forever barred from acquiring, either directly or indirectly, Crucible shares, that the defendants be prohibited from voting any proxies they have or may hereafter acquire, and that the defendants Simon, Clumek, Morris and Rich be enjoined from acting either directly or indirectly as members of the board of directors of Crucible or any committee of directors of Crucible.

The complaint finally asks that Crucible recover from all the defendants the amount of 100 million dollars compensatory damages and ...

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