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March 3, 1980


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


This is a consolidated jury trial of four out of nine related class suits in which the complaints allege violations of Sections 10b, 14d, and 14e of the 1934 Securities and Exchange Act. Twenty-one plaintiffs, on their behalf and representing four subclasses of 16,662 shareholders who own 9,054,065 shares of common stock of Marshall Field & Company, a Chicago based department store, sue for preliminary and permanent injunction, damages, and other relief. The suits are brought under federal securities laws and rules and regulations of the Securities and Exchange Commission. Plaintiffs invoke the jurisdiction of this court pursuant to 15 U.S.C. § 78aa; and they allege pendent claims based on doctrines of the common law.

In the earliest suit filed in this court, 78 C 537, plaintiffs and class representatives are Alice D. Sinsheimer,*fn1 Sam Brown, Arnold Kamerling, Julius Green, George A. Levitt, Jack Stacey, Jr., Estelle A. Stacey, Anita H. Johnson, Donald E. Tracy, Barber J. Tracy, Irving J. Hillman and Stanley Bernstein; in the next, 78 C 620, Richard Weiss; in the next, 78 C 1141, Paul Kriendler of New Jersey;*fn2 in the next, 79 C 1179, Allen J. Markovitz of Pennsylvania; in the next, 78 C 1700, David H. Greenstein; in the next, 78 C 2067, William Saltiel and Clarice Saltiel; in the next, 78 C 2373, Michael DeBartolo of New York; in the next 78 C 2480, Joseph Berke; and in the last filed of these cases, 78 C 2556, Ronald Egnor of New York. Plaintiffs, in varying amounts, are owners of the common stock of Marshall Field & Company, a Delaware corporation with its principal offices in Chicago, Illinois.

The defendants are Marshall Field & Company,*fn3 Angelo R. Arena, George C. Rinder, and Arthur E. Osborne, president and chief executive officer, executive vice president, and senior vice president, respectively, of Marshall Field; Jean Allard, Edward McCormick Blair, John M. Budd, Albert B. Dick, III, Howard M. Packard, John M. Simpson and Harold Byron Smith, Jr., directors of the company.*fn4 Each defendant, also in varying amounts, is a Marshall Field shareholder.

In each of these consolidated class suits, after the jurisdictional, venue, and general class allegations, plaintiffs complain*fn5 that in early October, 1977, a California corporation named Carter Hawley Hale, through certain members of its board of directors, approached Marshall Field & Company and expressed an interest in the two companies beginning to negotiate a merger; that this interest continued from that time through and including February 21, 1978; that on December 12, 1977, Carter Hawley Hale delivered a letter to Field proposing that it consider a transaction whereby Carter Hawley Hale would exchange a quantity of its common stock for outstanding stock of Field; that included in the proposal was the understanding that Field shareholders would have the option of receiving cash up to 49% of the total transaction; that on the same day, Carter Hawley Hale issued a press release announcing this communication that was transmitted by it to Field; that from time to time prior to that date, substantial, listed companies, other than Carter Hawley Hale, also approached Field proposing a merger or other form of permanent relationship between Field and those companies; that in February, 1978, Carter Hawley Hale announced that a specific tender offer would be made for Field's common stock under the terms of which Carter Hawley Hale would acquire outstanding common stock of Field for cash and stock amounting to approximately $42.00 per share; that Section 14(e) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78n(e), provides in its pertinent part that:

  It shall be unlawful for any person to make any
  untrue statement of a material fact or omit to state
  any material fact necessary in order to make the
  statements made, in the light of the circumstances
  under which they are made, not misleading, or to
  engage in any fraudulent, deceptive, or manipulative
  acts or practices, in connection with any tender
  offer or request or invitation for tenders, or any
  solicitation of security holders in opposition to or
  in favor of any such offer, request, or invitation.

It is further alleged that, in spite of the prohibitions contained in Section 14(e), defendants, the directors of Marshall Field, conspired to and did embark on a course of conduct designed to deceive plaintiff[s] and other class members in order to induce plaintiff[s] and other class members to oppose the tender offer. It is also alleged that defendants conspired and embarked upon a course of manipulative acts and practices designed substantially to inhibit plaintiff[s] and other class members from accepting the tender offer. Plaintiffs allege a course of conduct, followed by defendants, aimed at defeating the tender offer of Carter Hawley Hale, and misleading and deceiving Field's shareholders and the public with regard to the company's plans for corporate expansion. In other counts of the complaints, it is alleged that the same course of conduct unlawfully violates Section 10(b) of the Securities and Exchange Act of 1934, and Rule 10(b)-5 promulgated thereunder by the Securities and Exchange Commission; and further, that the acts of the defendants about which plaintiffs complain, and which they allege are unlawful, were breaches of fiduciary obligations which defendants, as Marshall Field directors, owed to the stockholders of the company, including plaintiffs and other members of the class. Plaintiffs pray for injunctive relief, damages which one plaintiff claims exceed $200 million, the award of attorneys' fees and costs, and such other relief as the court may deem just and proper.

Defendants have answered each complaint, and they deny all allegations which charge that they, in any way, have violated any of the provisions of the Securities and Exchange Act of 1934, Section 10b or 14(e), or any fiduciary duty owed to the stockholders of Marshall Field & Company. They admit, however, that on or about December 12, 1977, Carter Hawley Hale delivered a letter to Field, but state that the letter speaks for itself; that in connection with the letter, defendants caused to be published a communication in the Chicago Tribune that incorporated a letter to Field employees; that they mailed a letter to Field's shareholders; that they filed a lawsuit in the United States District Court for the Northern District of Illinois against Carter Hawley Hale; that thereafter they agreed to acquire five former Liberty House Stores in Washington and Oregon, and announced plans to open and operate a store in Houston, Texas; and that Field is considering the establishment of other stores in other areas of the country including Northbrook, Illinois, and the southwest United States. They further admit that Field has discussed with others the possible acquisition of other stores.

In addition, defendants have pled affirmative defenses, including their allegation that plaintiffs' complaints fail to state a claim on which relief can be granted by this court; that the complaints fail to satisfy the requirements of Rule 23, Federal Rules of Civil Procedure, precluding plaintiffs from proceeding in these class suits; that the complaints fail to satisfy the requirements of Rule 23.1 of the Federal Rules of Civil Procedure, and thus plaintiffs cannot proceed with a derivative suit; and that the complaints are barred in whole or in part by the applicable statutes of limitations. Defendants request the court to dismiss plaintiffs' complaints, award them costs and fees, and grant them such other and further relief as may be appropriate.

After four weeks in which the jury has heard evidence consisting of testimony of thirteen witnesses, excerpts from four depositions, a vast number of exhibits, and several stipulations, plaintiffs have rested their case in chief; defendants now move for dismissal pursuant to Rule 41(b), or in the alternative, for directed verdicts pursuant to Rule 50(a), Federal Rules of Civil Procedure. These motions require the court to view the evidence in the light most favorable to the plaintiffs;*fn6 and all reasonable inferences which can be drawn from the evidence must be in their favor.*fn7 Accordingly, the court determines that the following are the facts most favorable to the plaintiff which the jury in this case could find from the testimony, the deposition excerpts, the stipulations, and the exhibits in the record.


Marshall Field & Company*fn8 is a full line, high quality department store which has sold general merchandise, apparel, and furniture in Chicago and other large cities of the country. It was founded in 1852 by the Chicago merchant, Marshall Field, and the company expanded gradually over the next century. By the end of 1976, it was the eighth largest department store chain in the United States, with 31 stores, 15 of them in the Chicago area and others in Cleveland, Ohio, and in Seattle and Spokane, Washington. The company is today a publicly owned corporation, with more than 16,000 shareholders having purchased in excess of 9,000,000 shares of its common stock sold on the New York and Midwest Stock Exchanges. Its board of directors at the end of 1976 consisted of twelve persons with extensive industrial, financial, business and professional backgrounds; five of them were executives of the company. It had five corporate and subsidiary divisions and employed thousands of persons in various capacities, but no member of the Field family either occupied a management position or was a director of the company. For the year 1976, Marshall Field reported to its shareholders that it had made sales totaling $609.9 million.

Despite this growth, Field's expansion did not match that of other department store chains. It was an attractive combination of stores and was highly regarded for the quality of its name, one which industry leaders thought could be taken anywhere in the country. But because of its accumulated worth, the strength of its balance sheet, its large cash reserves, and its borrowing potential, leaders of the department store business considered Field vulnerable to a takeover by another company. In fact, investing shareholders studied Field's earning reports, researched its performance "and determined that [Field in mid-1976] was a good company for a takeover."*fn9 This evaluation had become known to Field, its management and directors as early as the late 1960s.

In 1967, one of the companies that expressed an interest in a merger with Field was Carter Hawley Hale,*fn10 a nationwide, multi-division chain of department stores with corporate offices in Los Angeles, California. Nothing came of this expression because the directors of Field decided that the company's future lay in remaining an independent corporation. Carter's interest, however, was significant. It had operated traditional department stores since 1946. It was a large company with locations in several cities and operations covering northern California and the southwestern United States. Carter constantly analyzed potential markets throughout this country and Canada; it acquired several stores each year from the origin of its business. By 1977 it had increased its operations to 71 traditional stores, 30 specialty stores, and 433 book stores. It continued to expand by acquisitions throughout the time the controversy in these suits arose.

Being an attractive company, one vulnerable to a takeover, presents many problems to the management, the directors, and the shareholders of a publicly owned American corporation. A takeover can be either friendly or unfriendly. It is friendly when solicited or welcomed by the target company. It is unfriendly when the target company is the object of acquisition by a raider who, complying with state and federal securities laws, makes the required disclosures and proposes an exchange or tender offer for the number of outstanding common shares of the company that will result in control of the target. A takeover, when unfriendly, has a disruptive effect on the management of a target company and its board of directors. It may be welcomed by some, but not all of the target company's shareholders. A takeover can be expensive; it often raises questions of possible violations of the antitrust laws; and it presents problems under the securities statutes and the rules and regulations adopted thereunder. Consequently, a company vulnerable to a takeover must have guidance from lawyers, investment bankers, accountants, and business consultants.

For a long period of time prior to December 10, 1977, Marshall Field was such a company. In each instance when approaches were made to its directors by anyone interested in acquiring it, or by another corporation that desired a merger, the directors considered the matter but concluded in each case that they did not want the company's uniqueness among its customers diluted by affiliation or merger with another retailer. Pressed, however, by the problem of the company's continued vulnerability to a takeover, Field's directors sought the advice of legal counsel. They consulted the New York law firm of Skadden, Arps, Slate, Meagher & Flom. On December 9, 1969, they employed the services of Joseph H. Flom of that firm, a lawyer whose expertise was in proxy contests, mergers and acquisitions, tender offers and going-private transactions. Flom, after becoming acquainted with Field's position in the department store industry, including its financial standing and potential, gave the directors his advice on what they should do when the company was confronted with any inquiry or expression of interest in being acquired or being the subject of a merger. He also advised the company's executives on how to react to the prospect of a takeover.

He told the directors, and through them the executives, that in each instance when an acquirer expressed interest or the proposer of a merger made an approach to Field, representatives of management should listen, bearing in mind that the interests of the company's shareholders were paramount. They were to respond by indicating that Field was not on the block, and if the particular executive believed the suggestion of acquisition or the proposal of merger was being made seriously, he should express the views of the directors that, in their business judgment, the interests of Field shareholders would be best served by the company remaining independent. Flom advised that directors and those who manage a company should always keep in mind that the timing of the sale of a business, if a sale is to take place, is very important; that if a company, through its management executives, saw and believed that its future was bright, or that the general economic conditions would be more propitious in the future, the directors had the right to decide when the business would be sold, as well as whether this should be done. He told the directors that just because someone approaches a company, no one in that company had any obligation to say automatically that the company was on the block. He further advised the directors that management should always endeavor to determine whether a person proposing an acquisition of the company, or a merger with it, had thought through the proposal being made; whether they were serious; and also whether they had considered the antitrust implications of an acquisition or merger. Flom was retained and, after December 1969, either he or a member of his firm attended each meeting of Field's board of directors.

Later, when his advice was sought by Field's executives concerning how they should deal with an inquiring potential acquirer, or one who was suggesting a merger, Flom, or one of his partners, repeated in general the advice he had given the directors when he was retained in 1969. On one occasion, he advised Field's chief executive officer that whenever a discussion was had with anyone seriously discussing acquisition of Field, potential merger, or the possibility of making a tender offer, at least two persons should attend such a meeting. Details of such transactions should be discussed informally and, preferably, an investment banker or financial officer should not be present. He advised that management personnel representing Field should always listen to what the visitor had to say. If a proposal was outlined, the executive was not to turn if down or argue about it, was never to say that it sounded good; but was simply to say that it was interesting. The executive was advised to say to the proposer that his proposal would be considered and that management would get back to him. Flom urged Field's chief executive officer that he should always find out who the visitor represented and whether he had authority to make a proposal. If he is speaking for someone else, the Field representative should learn all that he can, factual and financial, about the interested party. Field's representative should always inquire about the existence of antitrust issues and whether these had been considered. Flom admonished that anyone speaking for Field should remember at all times that his job was to do the best that could be done for the company's shareholders.

In the ten-year period between the time CHH first expressed an interest in Field and 1977, at least three other department store companies, in one way or another, did the same. For example, in 1970, Associated Dry Goods Company expressed a desire to merge with Field. This expression of interest, and the contacts of Field executives with representatives of Associated, were described in memoranda and made part of the company's files. At meetings of the board, the subject was discussed; and after considering the matter, the directors voted, reaffirming their earlier decision that Marshall Field should remain independent. At about the same time that the approach by Associated was considered, Field acquired Halle Brothers, a retailer with stores in Cleveland and other Ohio communities, and in Erie and West Erie, Pennsylvania. Associated had stores in the same cities.

In 1975, Federated Department Stores made acquisition overtures to Field. Again, all of the contacts with representatives of this potential acquirer were made the subject of memoranda that became part of the company's business records. The subject was submitted, with recommendations and views of management, to Field's board of directors. After consideration, the board concluded that remaining independent provided Field with a future that had greater possibilities than being acquired by another company. The board notified Federated that it did not wish to explore the matter further.

In August of the following year, Dayton-Hudson Corporation of Ohio inquired of Field's management about a possible acquisition of the company. Again, Field's executives met with spokesmen for Dayton-Hudson, recorded in memoranda what they said, and reported the inquiry to the board. The directors, after considering the contact, decided that it was in the best interest of the shareholders and the company that Field remain an independent department store. At the same time the Dayton contact was being considered, Field's management, executing policy decisions of the board, sought to show to the public that the company had the ability to grow. Accordingly, management personnel embarked on a program to acquire certain Liberty House Stores in Portland, Oregon and Tacoma, Washington, a market area where there was an overlap between Dayton-Hudson stores and those operated by Liberty House. When Dayton-Hudson later withdrew its acquisition overtures in May, 1977, Field's interest in the Liberty House stores subsided. Subsequently, all inquiries made of Field by companies wanting to acquire it or negotiate a merger were met by the directors with the same conclusion: it was best for the company that it remain independent. This conclusion was expressed so many times that at least two directors who are defendants in these cases recall it being stated as a policy. The occasions when the directors reflected this policy were all recorded either in memoranda which became part of the company's records, or in minutes of board meetings. Prior to December 14, 1977, however, no communication of the board to Field's shareholders, no press release, nor any report Field made to any state or federal regulatory agency contained any statement or description of this policy.

In 1977, the president and chief executive officer of Field was Joseph A. Burnham, an executive who nationally enjoyed a good reputation among leaders of the department store industry. The company's directors, however, thought that Field needed someone to "turn the company around"; they came to believe Burnham needed help at the highest level of management. Therefore, it was decided that Field should seek an experienced department store executive who could work with Burnham and be groomed to succeed to the office of president and chief executive of the company. After a search that took Field's executives throughout the country, with Burnham principally responsible for the search, the man who was selected and offered the position was Angelo R. Arena who, at the time, was chairman of Nieman-Marcus, the $500 million a year division of Carter Hawley Hale based in Dallas, Texas. The agreement with Arena that he join Field later in 1977 was finalized in August of that year. It was expressly understood by Arena, Field's management, members of the board executive committee and Burnham in particular, that he was to join the company, work with Burnham and, if everything went well, in two or three years he was to succeed Burnham as president and chief executive officer of Field.

Having reached this understanding with Field's people, Arena then had a conversation in Los Angeles, California with Edward W. Carter and Philip M. Hawley who were, respectively, board chairman, president and chief executive officer of CHH. He told them that the opportunity he was being offered at Field was too attractive for him to refuse, and that even being chairman of an important CHH division did not have the career prospects equal to that being offered him by Field. Carter and Hawley told Arena that they did not believe Field was going to remain independent; that he, Arena, was chancing it in taking a job in the face of the possibility there will be a takeover of the company. Arena told his colleagues he had a conversation with Burnham in which he was assured that Field was going to remain an independent department store chain and, therefore, he thought that his decision to accept the position being offered him was one that he should make. Carter and Hawley agreed. Arena proceeded with plans to join Field late in 1977.

However, on October 10, 1977, while he was returning from a vacation, Burnham suffered a fatal heart attack. His death caused the executive committee of Field's board of directors to hold an emergency meeting on October 11, and the result was a recommendation that Arena be asked to come to Chicago immediately and replace Burnham as a Field director, its president and chief executive officer. A special meeting of the board was called for October 13. Edward McCormick Blair, a Field director, attended the executive committee meeting. However, sometime during the day, while Blair was occupied with the emergency caused by Burnham's death, Edward W. Carter called Blair's 93 year old father and, after expressing condolences concerning Burnham's unexpected passing, told the elder Blair that in his view a merger between Field and CHH was an ideal business arrangement. Carter knew enough about the relationship between Blair, the Field director, and his father to know that his mention of the advantages of a Field-CHH merger would be discussed by them; it was. In addition, during the evening of October 12, the younger Blair received a telephone call from Gaylord Freeman, a banker long connected with Field's largest shareholder, the First National Bank of Chicago, who said he was calling for his friend Ed Carter to urge that the subject of a Field-CHH merger be discussed at the next meeting of Field's directors.

The next day, at the special meeting of the directors, after Arena had been elected and appointed to Burnham's old job, George C. Rinder, Executive Vice President of the company, reported on the contacts by Carter. A summary of the board minutes shows the entry that "[p]resumably the inquiry was prompted by the untimely death of Mr. Burnham. The consensus of the Board was that the Company's future plans are such that the proposed business combination should not be considered because the best interests of the Company's stockholders would be served by this Company's continuing as an independent entity in view of the many opportunities to increase earnings and return to the stockholders [sic]." Arena arrived in Chicago on Monday, October 17, and took over as head of the company's management.

On the next day, from Philadelphia, Carter called Blair and asked him to consider his "ten fundamental reasons" why he thought a Field-CHH merger made sense. Blair listened, made notes and thanked Carter for his expression of interest. He assured Carter that Field thought highly of CHH; and that if Field should consider a merger with any company, CHH would get the first chance. Carter in turn told Blair that in the event of a merger, Blair would be an important director on the new combined board. Hawley, in the meantime, called Arena and insisted on a meeting of Field's representatives with those of CHH to discuss a merger; and that the meeting take place before the end of the Christmas shopping season.

Arena was disturbed by this insistence on the part of Hawley. The subject of mergers, acquisitions, and takeovers of another company were not strange to him. He knew the economic and business consequences of a takeover for, after all, he had just left Carter Hawley Hale, a department store chain which had grown through the acquisition of other companies. He had, in his short time with the Field management, learned of Joseph H. Flom's retainer by the company, and he was familiar with the advice Flom had given management and the directors. Arena knew that Flom's advice to his clients when faced with the prospects of an unfriendly takeover was to raise questions concerning possible violations of the antitrust laws. Arena knew that once a board of directors, in good faith, considers any merger proposal, one of the questions to be addressed is ...

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