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TASNER v. BILLERA

July 5, 1974

FRED P. TASNER AND HARRY FOX, ON BEHALF OF THEMSELVES INDIVIDUALLY AND AS MEMBERS OF THE USI STOCKHOLDERS' COMMITTEE AND REPRESENTATIVELY AND DERIVATIVELY ON BEHALF OF THEMSELVES AND ALL OF THE STOCKHOLDERS OF U.S. INDUSTRIES, INC. SIMILARLY SITUATED, PLAINTIFFS,
v.
I. JOHN BILLERA AND U.S. INDUSTRIES, INC., DEFENDANTS.



The opinion of the court was delivered by: Bauer, District Judge.

MEMORANDUM OPINION AND ORDER

This cause comes on the plaintiff Fred P. Tasner's motion for leave to file an amended and supplemental complaint.

This diversity action seeking injunctive relief and damages was instituted on January 23, 1974 in the Circuit Court of Cook County, Illinois. It was thereafter removed to this Court pursuant to 28 U.S.C. § 1441(a) within the time prescribed by law. This Court allegedly has jurisdiction over this diversity action pursuant to 28 U.S.C. § 1332. The matter in controversy allegedly exceeds the sum of $10,000 exclusive of interest and costs.

The plaintiffs, Fred P. Tasner and Harry Fox, are citizens of the State of Illinois. The defendant, I. John Billera is a citizen of the State of Connecticut. The defendant U.S. Industries, Inc. ("USI") is a corporation incorporated under the laws of the State of Delaware, with its principal place of business in the State of New York.

The named plaintiffs in their original complaint allege two causes of action. The first cause of action is on behalf of the plaintiffs individually and the other is a derivative and representative claim on behalf of all USI stockholders "similarly situated".

In substance, the plaintiffs in the original complaint alleged that they are substantial USI stockholders and were executive employees of USI. After the named plaintiffs and others formed the "USI Stockholders Committee" in October 1973 in an effort to change the composition of the USI Board of Directors and provide for a new president, the defendant Billera terminated plaintiffs' employment pursuant to a scheme by him to perpetuate his control of USI and thus interfere with the plaintiffs' exercise of their rights as stockholders and to deter others from doing likewise. Plaintiffs seek reinstatement, compensatory damages, punitive damages of $1,000,000 against Mr. Billera, another $1,000,000 punitive damages from Mr. Billera in favor of USI, injunctive relief against any similarly motivated terminations or threats of termination in the future.

The defendants have filed a verified answer denying the fundamental allegations of the complaint, and a counterclaim alleging that plaintiffs committed manifold violations of Section 14(a) of the Securities Exchange Act of 1934 and of the proxy solicitation rules.

The plaintiff Tasner in his amended and supplemental complaint alleges, inter alia, the following facts:

Count I

1. In October, 1973, at a meeting held in Chicago, Illinois, plaintiff agreed with other persons to become members of the USI Stockholders' Committee (the "Committee"). Tasner has at all times been and now is the Chairman of the Committee. The Committee's members are stockholder-managers of USI, i.e., present or former USI business or division managers who have substantial stock investments in USI. Members of the Committee were and are gravely concerned with the recent declines in USI's earnings and market prices for USI's Common Stock.

2. On or about January 3, 1974, members of the Committee met with defendant Billera and other directors of USI in order to consider a possible joint program for the selection of a new Chief Executive Officer of USI. No agreement was reached for such a program. Billera was aware, at the time of and prior to said meeting, that in the absence of such an agreement, the Committee contemplated a proxy solicitation among the stockholder-managers of USI and substantial USI stockholders who own at least 15,000 shares of USI Common Stock or an equivalent amount of USI Preferred Stock, and that a more widespread solicitation of proxies was not excluded.

3. On January 18, 1974, at a meeting held in Chicago, Illinois, Gordon Walker, Vice President of USI, advised Tasner that, although Tasner's operation of his USI Division had been excellent, it was the decision of defendant Billera that, because of Tasner's participation in the Committee, Tasner's services as an employee of USI were terminated, effective immediately, and that Tasner should not enter any of the premises of USI. Following said meeting, Tasner learned that guards had been placed in his office.

4. Billera also caused to be fired on that date Harry Fox ("Fox"), another leader of the Committee, who was the President of the Seaway Importing Division of USI and the owner of 59,850 shares of Common Stock of USI, solely by reason of his participation on and leadership of the Committee.

5. Billera's terminations of Tasner's and Fox's employment as aforesaid were wrongful and illegal. Tasner has a written employment contract with USI for a term of five years from July 15, 1969. Tasner has duly performed all of the terms and conditions of said employment agreement on his part to be performed.

6. Commencing at some time on or prior to January 18, 1974, and continuing to date, Billera has engaged, and he is now engaged, in a conspiracy with other officers and directors of USI to violate his fiduciary duties and to interfere with and infringe upon the aforesaid stockholder rights and interests of the plaintiff, the other members of the Committee and all stockholders of USI. The acts implementing such conspiracy include the wrongful and illegal terminations of employment. Such terminations were wholly without cause, were not in the corporate interest of USI, but were solely in the personal and individual interest of Billera in retaining his position of dominance at USI and in concealing his participation in a misappropriation of USI's corporate and business opportunities. By such high-handed tactics and strong-arm methods, Billera sought and now seeks to deter other Committee members who are in the employ of USI from remaining active in the Committee lest they, too, be wrongfully ousted from their positions and guards placed in their offices. In the same way, Billera sought and now seeks through such wrongful and illegal conspiracy and terminations of employment to deter substantial stockholders of USI who have not yet joined the Committee from so joining or from giving the Committee their proxies.

7. The conspiracy, wrongful and illegal terminations of employment and violations of fiduciary duties alleged in the complaint have been engaged in by Billera intentionally, without legal cause or justification, with full knowledge of the contractual and stockholder rights and fiduciary duties being violated by Billera and with full knowledge of the rights of Tasner and the obligations of USI under the written employment contracts, the wrongful breaches of which were caused by Billera. Such conduct by Billera has been and is willful and malicious.

8. The conspiracy, wrongful and illegal terminations of employment and violations of fiduciary duties have been engaged in by Billera willfully and maliciously with the purpose and intent to interfere with, infringe upon and deter the exercise of the stockholder rights, including the voting rights and the rights to solicit proxies, of the plaintiff, the other members of the Committee and all stockholders of USI. This conduct by Billera has had such intended effects and will continue to have such effects unless and until restrained and enjoined by this Court first by preliminary injunction and then by permanent injunction. Such conduct by Billera has substantially and adversely affected the value and worth of the voting securities of USI held by plaintiff, by other members of the Committee and by all stockholders of USI and will continue, until preliminary and permanent injunctive relief is granted herein, so to affect such securities. The continuing injuries are alleged to be causing, and, unless restrained and enjoined by this Court, will continue to cause grave, immediate and irreparable damage to the rights of plaintiff, other members of the Committee and all stockholders of USI and to the value and worth of their voting securities of USI, the full nature and extent of which damages are and will be incapable of complete ascertainment or of full compensation in money damages.

9. Plaintiff has no adequate remedy at law.

Count II

1. This Count, as are Counts III through VII, is brought as a derivative and class action on behalf of plaintiff and all of the stockholders of USI similarly situated to enforce the rights of USI and all of its stockholders, USI having failed to enforce such rights. Plaintiff has not requested the directors or stockholders of USI to take action to enforce such rights because such requests would be futile. Defendant Billera, whose wrongdoings are central to this action, controls and dominates the Board of Directors, management, business and affairs of USI. In addition, a majority of the directors of USI may be subject to liability to USI and USI's stockholders for permitting or participating in the wrongful conduct by defendant Billera and others, and the concealments thereof. Any request by plaintiff as to the directors would be useless, futile and unavailing and would be refused or, if granted, the litigation would necessarily be under the control of defendant Billera who is and would be opposed to its success. Any appeal to stockholders would be equally vain so long as Billera engages in the conduct complained of, which conduct wrongfully and illegally interferes with, infringes upon and deters the ability of USI stockholders to exercise their rights free from the distortions caused by Biller's conduct. Only by the granting of relief requested in this action can the voting and proxy solicitation processes of USI be enabled to proceed on a fair and proper basis.

2. Plaintiff is a substantial stockholder of USI and was a stockholder at the time of the wrongful and illegal conduct alleged. Plaintiff fairly and adequately represents the interests of all of the stockholders of USI similarly situated in enforcing the rights of USI. This action is not a collusive one to confer jurisdiction on any court which it would not otherwise have.

Count III

1. At some time prior to April 11, 1956, defendant Billera and other officers and directors of USI, or attorneys for USI, learned by reason of their positions with USI, of the availability for purchase of a tract of real estate located in the municipality of Rio Grande (near the City of San Juan), in the Commonwealth of Puerto Rico (the "tract of Puerto Rico Land"). Said tract contains an area approximately 769.9 acres and includes a large beach frontage which greatly enhances its value. At all times relevant herein, the tract of Puerto Rico Land has been suitable either for immediate development or for retention for subsequent development.

2. At all times relevant herein, the acquisition, retention and sale and/or development of said tract of Puerto Rico Land were activities which defendant USI was financially able to undertake; were activities which, considering the nature of the business opportunity presented by the availability of said tract of Puerto Rico Land and the nature and character of the business and plans of defendant USI, would have been of practical and financial advantage to defendant USI; and were activities which presented a business opportunity in which defendant USI had a reasonable expectancy.

3. Notwithstanding that they had obtained knowledge of the availability of said tract of Puerto Rico Land by reason of and in the course of their relationship to and employment by defendant USI, defendant Billera and said others wrongfully, illegally and in violation of their fiduciary duties as officers and directors of and attorneys for defendant USI, conspired with one another to appropriate, and did appropriate to themselves in the manner hereinafter alleged, the business opportunities with respect to said tract of Puerto Rico Land, which were and still are lawfully the property of USI.

4. Pursuant to the aforesaid conspiracy, and as one of the transactions appropriating to themselves business opportunities connected with said tract of Puerto Rico Land, defendant Billera and said others caused to be incorporated under the laws of the State of Delaware, on April 9, 1956, one Eastern Islands Trading Corporation ("Eastern Islands"), of which they and others acting in concert with them owned all of the equity and debt securities, and wrongfully, illegally, improperly and secretly caused Eastern Islands to acquire, for their use and benefit, said tract of Puerto Rico Land, for a purchase price of $135,000. Defendant Billera and said other officers and directors of USI thereby violated their fiduciary duty owed by them as officers and directors of USI to permit USI to purchase said tract of Puerto Rico Land, and therefore held their interests in said tract of Puerto Rico Land as trustees for USI.

5. Upon information and belief, in the incorporation of Eastern Islands and the purchase of said tract of Puerto Rico Land, defendant Billera and said others utilized, without intended or actual reimbursement of USI therefor, office and other facilities and resources of USI and/or services of attorneys and others compensated in whole or in part therefor by USI.

6. Following the incorporation of Eastern Islands and acquisition of said tract of Puerto Rico Land by Eastern Islands, defendant Billera caused USI to make available office facilities and other resources for the conduct of the business and corporate affairs of Eastern Islands, upon information and belief, without ...


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