Opposition Brief — Colan v. Cutler-Hammer, Inc.

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No. 86-1864 9) digas

FOR Z4 997

In Th e JOSEPH F. SPANIOL, JR.

CLERK

Supreme Court of the United States

@ctober Germ, 1986

DAVID COLAN,

Petitioner,

v8.

CUTLER-HAMMER, INC.,

EATON CORPORATION, and

KOPPERS COMPANY, INC.

Respondents

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

BRIEF IN OPPOSITION

FRANCIS J. HIGGINS

Larry L. THOMPSON

Counsel of Record

BELL, Boyp & LLoyD

70 West Madison Street

Chicago, Illinois 60602

(312) 372-1121

Attorneys for Respondent

Koppers Company, Inc.

Dated: June 19, 1987

}

Pandick Technologies, Inc. Chicago @ (312) 236-0200 a\

i

QUESTIONS PRESENTED

1. Whether the lower courts properly applied well-

established standards articulated in Rule 56 of the Fed-

eral Rules of Civil Procedure and by this Court in deter-

mining that the petitioner’s wholly unsupported and con-

clusory assertions were insufficient to defeat a motion for

summary judgment.

2. Whether certain fragmentary, hearsay notes which

could never be admissible at trial were properly disre-

garded by the lower courts in their summary judgment

inquiries.

3. Whether the lack of an irrevocably binding agree-

ment and the continued existence of significant unfulfilled

preconditions to a merger preclude the finding of a “sale”

under §16(b) of the Securities Exchange Act of 1934.

ii

TABLE OF CONTENTS

QUESTIONS PRESENTED...................25- i

pe Bh gig tg: |. rrr ore. iii

STATEMENT OF THE CASE................... 1

A. Pemeemiepal PEMMOeey . ww cc ween 1

B. Background of the Case................. 2

REASONS FOR DENYING WRIT................ ;

I. THE LOWER COURTS PROPERLY APPLIED

WELL-ESTABLISHED STANDARDS ARTIC-

ULATED BOTH IN RULE 5€ AND BY THIS

COURT IN DETERMINING THAT THE PETI-

TIONER’S WHOLLY UNSUPPORTED AND

CONCLUSORY ASSERTIONS WERE INSUF-

FICIENT TO DEFEAT A MOTION FOR SUM-

BEATLES GUERIN bcc kas aesaaweaaecns 6

fl. FRAGMENTARY NOTES “RIDDEN WITH

HEARSAY” WHICH WOULD NEVER BE

ADMISSIBLE AT TRIAL WERE PROPERLY

DISREGARDED BY THE LOWER COURTS IN

DETERMINING THAT NO GENUINE ISSUE

OF MATERIAL FACT EXISTED............. 8

Il. THE LOWER COURTS PROPERLY RULED

THAT NO “SALE” BY KOPPERS FOR

§16(b) PURPOSES OCCURRED ON THE AL-

LEGED SALE DATE, WHERE KOPPERS

WAS NOT IRREVOCABLY BOUND TO SELL

“AND WHERE SIGNIFICANT CONDITIONS

REMAINED UNFULFILLED............... 10

OP U. . 4 65's sa yon eae eee 13

ili

TABLE OF AUTHORITIES

Cases: Page

Anderson v. Liberty Lobby, U.S. __, 106 S. Ct.

EE ee ee 6, 7, 8,9

Celotex Corp. v. Catrett, _.U.S. __, 106 S. Ct.

EE a ee 6, 8,9

First National Bank of Arizona v. Cities Service Co.,

391 U.S. 253, 88 S. Ct. 1575 (1968)............. 7

Portnoy v. Revlon, Inc., 650 F.2d 895

ek ss ee bos ae eee se 8 ee 11

Provident Securities Co. v. Foremost McKesson

Inc., 506 F.2d 601 (9th Cir. 1974), cert. denied,

ae 11

Riseman v. Orion Research, Inc., 749 F.2d 914

ee ye ees eee ts 11

Statutes

Rule 56, Federal Rules of Civil Procedure ...... 6, 10

Securities Exchange Act of 1934, Section 16(b), 15

eS | ee 6, 10, 11, 12

In The

Supreme Court of the Hnited States

@rctober Werm, 1986

DAVID COLAN,

Petitioner,

vs.

CUTLER-HAMMER, INC.,

EATON CORPORATION, and

KOPPERS COMPANY, INC.

Respondents

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

BRIEF IN OPPOSITION

STATEMENT OF THE CASE

A. Procedural History

In August 1980, plaintiff-petitioner David Colan

(“Colan”) filed a complaint against defendant-respondent

Koppers Company, Inc.! (“Koppers”), alleging that Koppers

had violated Section 16(b) of the Securities Exchange Act

1 Koppers has no parent or non-wholly owned subsidiary corpo-

rations.

2

of 1934, 15 U.S.C. Sec. 78p(b) in the purchase and sale

of securities of Cutler-Hammer, Inc. (“Cutler~-Hammer’”).

Colan alleged that the “sale” occurred less than six months

after Koppers’ last purchase of stock when Koppers sup-

posedly entered in a “secret agreement” with Eaton Corpo-

ration (“Eaton”), which acquired Cutler-Hammer through

a merger. (SA. 1) Colan, an Eaton shareholder, sued to

recover the profits Koppers eventually realized when it

actually sold its Cutler-Hammer stock at the closing of the

Eaton/Cutler-Hammer merger, long after any six-month

§16(b) period.

In October 1981, Koppers filed a motion for summary

judgment and, after three years of extensive discovery by

Colan, the parties fully briefed the motion. (SA. 2, 3)

On May 23, 1986, the District Court granted Koppers’

motion and on February 24, 1987, the Court of Appeals

for the Seventh Circuit affirmed. Plaintiff now petitions

this Court to grant a Writ of Certiorari.

B. Background of the Case

The factual summary contained in the Petition is

misleading in its characterizations of the facts and con-

tains unfounded inferences properly rejected by the District

Court and the Court of Appeals. A complete statement of

the facts is contained in the District Court’s Memorandum

Opinion and Order and, therefore, only a brief and accurate

statement is required herein.

In March 1978, the Chairman of Cutler-Hammer,

Edmund L. Fitzgerald, certacted the Chairman of Koppers,

Fletcher L. Byrom, to inquire whether Koppers was inter-

ested in investing in Cutler-Hammer. Byrom responded

that he would have to speak with the Boaf of Direc-

tors, and on March 27, 1978 the Koppers Board met and

approved a purchase of Cutler-Hammer stock. (SA. 4,

6) Fitzgerald, who was also an outside director of Kop-

pers, did not attend the board meeting, nor did he partici-

pate in any further negotiations between Koppers and Cut-

3

ler-Hammer concerning the investment. (SA. 4, SA. 5, p.

39-40)

The Cutler-Hammer Board also approved the purchase

and created a special preferred stock series entitled to class

voting and other rights. (SA. 8) On April 10, 1978 Koppers

purchased 650,000 shares of the new preferred stock at

$45 per share. Koppers then purchased 742,500 shares of

Cutler-Hammer common stock in the open market between

April 10 and April 13 at an average price of $44.25 per

share. Later, Koppers converted 640,000 preferred shares

to common shares, retaining 10,000 shares of preferred

stock to preserve its special voting rights. (SA. 7, p. 137-

138, 150, 152)

On June 12, 1978, Eaton purchased approximately

30% of Cutler-Hammer’s common stock then held by Tyco

Laboratories, at a price of $55 per share. On June 26,

1978, the Boards of Eaton and Cutler-Hammer approved a

“merger agreement” which proposed the conversion of each

common and preferred share of Cutler-Hammer stock into

cash or an interest-bearing installment note, at the share-

holder’s option.

The Eaton/Cutler-Hammer merger agreement had sev-

eral preconditions to its completion. Specifically, the

merger was conditioned upon: (1) the approval of Cut-

ler-Hammer’s shareholders, (2) the approval of a Regis-

tration Statement by the Securities and Exchange Com-

mission (“S.E.C.”), (3) the filing of a proxy statement, (4)

antitrust clearance by the Federal Trade Commission and

the Department of Justice, (5) the absence of any litigation

with regard to the merger, and (6) opinion letters of coun-

sel for both companies and a certificate of Cutler-Hammer’s

president. (SA. 17; A. 4, p. 117; SA. 18, p. 128)

On July 17, 1978 Eaton issued a tender offer for all

outstanding shares of Cutler-Hammer stock and acquired

approximately 62% of Cutler-Hammer’s common stock.

(A. 33) Koppers did not tender or otherwise offer to sell

+

to Eaton its Cutler-Hammer preferred or common stock.

On August 23, 1978 the Cutler-Hammer Board of

Directors tentatively set the required shareholder’s meet-

ing for October 2, 1978. The Board also decided that

its chairman, Fitzgerald, could later change the date to

allow for flexibility in proceeding with the merger. (A.

4, p. 98) Cutler-Hammer’s counsel testified that the arbi-

trary date of October 2 was “pulled out of the air,” and

Fitzgerald later postponed the shareholder’s meeting until

December 14, 1978. (SA. 18, 23)

On December 14, 1978 the Cutler-Hammer sharehold-

ers approved the merger, subject to the remaining merger

conditions. The merger was closed on January 2, 1979

(more than 8 months after Koppers’ last purchase) and,

at that time, Koppers received $58 per share for all of its

Cutler-Hammer stock. (SA. 26)

During discovery, the plaintiff took the deposition of

each person who had a significant role in the Eaton/Cutler-

Hammer merger and Koppers’ purchase and sale of Cut-

ler-Hammer stock. Each person expressly denied there

was any “agreement,” secret or otherwise, between Eaton,

Koppers and Cutler-Hammer to postpone the merger and

prevent Koppers from incurring §16(b) liability. (SA. 28,

p.195; 5, p.80)

While the plaintiff has claimed at various times that

an “unwritten,” “informal” and “secret” agreement was

reached by August 23, 1978 (the date the Cutler-Hammer

Board met and tentatively set the later shareholder’s meet-

ing), Fitzgerald testified that he selected the sharehold-

ers’ meeting and closing dates without considering Koppers

and without discussing the matter with Koppers. (SA. 5,

p. 80) Fitzgerald and other persons testified that the pri-

mary reason for delaying the meeting and closing date was

the appearance and later enactment of a new tax bill, to

take effect in 1979, which would benefit long-term Cutler-

Hammer shareholders (but not Koppers). (SA. 5, p.67, 134;

5

A. 2, p.58-59; District Court Opinion, Appendix to the Pe-

tition, p. 15a)

In responding to Koppers’ motion for summary judg-

ment, Colan relied upon certain fragmentary, handwrit-

ten notes prepared by two Eaton advisors, as “evidence”

of the negotiation of an alleged “secret agreement” involv-

ing Koppers, Eaton and Cutler-Hammer. However, the

note-takers testified that the notes were “scribbled... for

memory joggers,” that they contained random thoughts

and reflected “internal speculations,” as opposed to “state-

ments” by anyone. (SA. 29, p. 62-63) Their unreliability is

clearly shown by one author who testified, when asked to

“explain” his own note:

“I suppose what it means, J guess, it’s a presump-

tion that...” [quoted in Petition at 8] [Emphasis

added.].

After careful examination of the notes, the depositions,

and other documents, the District Court found that the

“notes” offered by the plaintiff were “incomplete, unreli-

able and ridden with hearsay statements,” and that “none

of the hearsay exceptions” could apply. (District Court

Opinion, p. 14a, fn. 14)

The District Court held, and the Court of Appeals

affirmed, that “Colan’s conclusory assertion of the exis-

tence of a secret agreement is wholly unsupported and

fails to establish a genuine issue of material fact even

when the facts are viewed in a light most favorable to

Colan.” (District Court Opinion, p. 13a) The District Court

also determined that even assuming such a “secret agree-

ment” existed, it could not constitute a “sale” under Sec-

tion 16(b) because (a) Koppers was never obligated to dis-

pose of its stock prior to the actual closing, and (b) signifi-

cant, unfulfilled preconditions to the merger and any sale

remained unfulfilled until well after any potential liability

period. Accordingly, the District Court granted Koppers’

motion for summary judgment and the Court of Appeals

6

unanimously affirmed, adopting the District Court’s opin-

ion as its own.

REASONS FOR DENYING WRIT

I. THE LOWER COURTS PROPERLY AP-

PLIED WELL-ESTABLISHED STANDARDS

ARTICULATED BOTH IN RULE 56 AND BY

THIS COURT IN DETERMINING THAT THE

PETITIONER’S WHOLLY UNSUPPORTED

AND CONCLUSORY ASSERTIONS WERE

INSUFFICIENT TO DEFEAT A MOTION

FOR SUMMARY JUDGMENT

Rule 56(e) of the Federal Rules of Civil Procedure

requires that the non-moving party “may not rest upon

mere allegations or denials” but instead must “set forth

specific facts showing that there is a genuine issue for tri-

al”. Nothing in the recent decisions of this Court cited

by the petitioner, Anderson v. Liberty Lobby, — USS.

__., 106 S. Ct. 2505 (1986), and Celotex Corp.v. Catrett,

—__U.S. __, 106 S. Ct. 2548 (1986), calls this well-

established standard into question, and it is this standard

which the District Court and the Court of Appeals used

to find petitioner Colan’s allegations insufficient to with-

stand a motion for summary judgment. More specifically,

the lower courts found that Colan failed to produce any

even potentially admissible evidence to oppose the strong

evidence introduced by respondent Koppers that there was

no “secret agreement” which constituted a §16(b) “sale.”

The lower courts therefore granted and affirmed summary

2 Absent such an “agreement,” there could be no “sale” for

§16(b) purposes: However, even if an “agreement” existed, the

District Court determined no sale would have occurred. Thus,

petitioner’s claim that:

“If the parties did reach such an agreement within

the statutory limit of §16(b) liability, then liability for

short swing profits would attach.”

(Petition at 14), is patently erroneous and ignores the alternative

holdings of the lower court. See, Section III, infra.

7

judgment, applying the traditional standards established

by the Federal Rules and articulated by this Court.

Petitioner alleges that the District Court and the Sev-

enth Circuit, in deciding the summary judgment motion,

“weighed competing evidence” and “resolved credibility

issues”. (Petition at 15) Petitioner further asserts that

the lower courts’ decision signals a “confusion” over the

proper application of summary judgment standards set

forth by this Court in Anderson v. Liberty Lobby, supra,

__ U.S. __. , 106 S. Ct. 2505 (1986), which decision’s lan-

guage was “misunderstood” by the lower courts. (Peti-

tion at 14). However, the District Court did not “weigh

the evidence,” judge its “credibility” or “misunderstand”

anything. Instead, the court examined the evidence and

found that petitioner Colan’s submission of notes, which

the court found to be “incomplete, unreliable and ridden

with hearsay statements,” did not constitute a sufficient

showing to defeat respondent’s motion for summary judg-

ment. The District Court clearly and properly stated:

“On a motion for summary judgment, the mov-

ing party has the burden of establishing that there

is no genuine issue of material fact and that it is

entitled to judgment as a matter of law. [citation]

In determining whether any material fact remains

in dispute, the court must view all inferences in

the light most favorable to the non-moving par-

ty. [citation] However, the non-moving party may

not rely on conclusory pleadings to withstand sum-

mary judgment. In responding to a motion for

summary judgment, a non-moving party must set

forth specific facts in affidavits or otherwise show

that there is a genuine issue of material fact that

must be decided at trial. First National Bank of

Arizona v. Cities Services Co., 391 U.S. 253, 289,

88 S. Ct. 1575, 1952-93 (1968)....”

(District Court Opinion, p. 5a-6a) Similarly, the Court of

Appeals set forth the same standard in affirming, stating,

“We agree with the district court that after drawing all rea-

8

' sonable inferences in the light most favorable to the plain-

tiff [citation], no genuine issues of material fact exist.” (Pe-

tition’s Appendix, p.2a)

These findings contradict any notion that the lower

courts “construed Liberty Lobby as an invitation to weigh

competing evidence and resolve disputed fact issues.” (Pe-

tition at 15). Indeed, the District Court’s decision was

issued a month prior to this Court’s decisions in Celotex and

Liberty Lobby. The lower courts only engaged in the nor-

mal summary judgment jnquiries of determining whether

there existed a genuine issue of material fact in the cir-

cumstances of this case. Finding none, both courts deter-

mined summary judgment would be proper. The present

case fails to present any unique or appropriate reason to

grant certiorari.

II. FRAGMENTARY NOTES “RIDDEN WITH

HEARSAY” WHICH WOULD NEVER BE

ADMISSIBLE AT TRIAL WERE PROPERLY

DISREGARDED BY THE LOWER COURTS

IN DETERMINING THAT NO GENUINE

ISSUE OF MATERIAL FACT EXISTED

In opposing Koppers’ motion for summary judgment,

petitioner Colan produced certain handwritten notes from

Eaton advisors. However, as the notes’ authors testified,

they are incomplete and unreliable, reflecting “internal

speculations and ‘flitting’ thoughts.” (District Court Opin-

ion, p. 14a). Moreover, often the notes contain fragments of

information from conversations between people other than

the note’s author. Such double and triple hearsay could

never be admissible as evidence at trial. Therefore, the

lower courts properly disregarded this alleged “evidence”

in their summary judgment inquiries.

An example of this unreliable, inadmissible evidence

is a note written by Robert Brown, an Eaton advisor,

which petitioner claims shows the negotiation of a secret

agreement between Koppers and Eaton. The note is actu-

9

ally brief words of part of a conversation between Peter-

son, another Eaton advisor, and Miller, a Koppers advisor.

Moreover, Brown did not hear this conversation directly

but instead was informed of it by still another person.

(A.15, p.1638-41) Although under Celotex a nonmovant is

not required to produce evidence in a present form that

would be admissible at trial, 106 S.Ct. at 2553, even the

petitioner concedes the evidence must be admissible at

some point to be considered by the court. (Petition at

19) However, the “evidence” petitioner presented, like the

triple hearsay above, could never be admissible and there-

fore was properly disregarded by the lower courts.® Indeed,

petitioner has now apparently abandoned any contention

that the notes were admissible under any exception to the

hearsay rule.

The lower courts’ determination on the notes does not

evidence “confusion over the form of evidence the non-

movant must produce in opposition” or a misapplication of

Celotex, as petitioner claims. (Petition at 20) The lower

courts were fully aware of, and properly applied, well-

established standards, with which this Court’s recent deci-

sions are fully compatible. As stated in Liberty Lobby, “if

evidence is merely colorable or is not significantly proba-

tive, summary judgment may be granted”. Jd. at 2511.

Clearly, evidence which consists entirely of incoher-

ent, virtually undecipherable, and hearsay handwritten

notes is not “significantly probative” to withstand a motion

for summary judgment. Therefore, the lower courts cor-

rectly followed the clear, well-established standards set

5 Petitioner’s claim that he “could call each of the authors to the

stand” and thereby make the contents admissible is nonsense.

First, the authors could not even interpret, much less recall their

notes. Second, each of the authors expressly denied any “secret

agreement”- - the interpretation which the plaintiff seeks.

10

forth in Rule 56 and by this Court.*

Ill. THE LOWER COURTS PROPERLY RULED

THAT NO “SALE” BY KOPPERS FOR

§16(b) PURPOSES OCCURRED ON THE

ALLEGED SALE DATE, WHERE KOPPERS

WAS NOT IRREVOCABLY BOUND TO SELL

AND WHERE SIGNIFICANT CONDITIONS

REMAINED UNFULFILLED

Although the lower courts found no evidence of any

alleged “secret agreement” between Koppers and Eaton,

thay went on to further hold that even if there had been

uch. an agreement, there still would not have been a “sale”

for §16(b) purposes. More specifically, the courts found that

Koppers was not “irrevocably bound” to dispose of its stock

on petitioner’s alleged sale date, that significant conditions

remained open, and thus no sale could have taken place.

In so finding, the District Court and Court of Appeals were

fully in accord with other decisions in the Seventh Circuit

and other circuits, and no “conflict among the circuits”

exists as petitioner now claims.

In support of its finding that Koppers was not irrevo-

cably bound to sell its stock to Eaton the District Court

*It should be noted that the District Court did in fact exam-

ine this “merely colorable” evidence and found that even if it

had been admissible it still did not “create an issue of mate-

rial fact as to the existence of a secret agreement between Kop-

pers and Eaton.” (District Court Opinion, p. 14a, fn. 14). When

reviewed without petitioner’s unfounded characterizations, the

notes were not inconsistent with the deposition testimony of the

participants in the merger negotiations who all testified that no

secret agreement existed. At most, the notes show concern over

whether Koppers might attempt to block or delay the merger

through litigation. However, such concern is certainly not evi-

dence of any type of negotiations or agreement between Koppers

and Eaton. Thus, even if petitioner’s “evidence” is considered,

which it should not be, it still does not create an issue of material

fact to defeat Koppers’ summary judgment motion.

ee

11

stated,

“Koppers never signed a contract to sell the shares

to Eaton, neve~ pledged its support for the merger

or agreed to vote its shares in favor of the merger

and Koppers was not a party to the Eaton/Cutler-

Hammer Merger Agreement.”

(District Court Opinion, p. 23a) In finding no sale because

of no irrevocably binding agreement, the lower courts prop-

erly followed Portnoy v. Revlon, Inc., 650 F.2d 895 (7th

Cir. 1981), Riseman v. Orion Research, Inc., 749 F.2d

914, 918-919 (1st Cir. 1984) and Provident Securities Co.

v. Foremost-McKesson, Inc., 506 F.2d 601, 607 (9th Cir.

1974), cert. denied, 423 U.S. 1077 (1976). Like the defer-

dant in Revlon, Koppers was free to sell its shares unti:

after the §16(b) liability period and, therefore, the Dis-

trict Court was not “rejecting precedent,” as petitioner now

claims, in granting Koppers’ motion for summary judg-

ment.

The decision below was further consistent with Rise-

man and Provident Securities in determining whether, on

the specific facts alleged, significant preconditions to the

merger remained unfulfilled. Although petitioner attempts

to dismiss these particular conditions as “insignificant” or

“technicalities”, the District Court properly found these

particular conditions were significant and remained open

until after the potential §16(b) liability period was long

past.

For example, the absence of threat of litigation

remained an open merger precondition until the closing.

All of the evidence demonstrated only an informal agree-

ment between the advisors of Koppers and Eaton that

they would notify one another before commencing litiga-

tion; there was no evidence of an agreement whereby Kop-

pers would not sue to block the merger. As stated by the

District Court, “Eaton ... recognized that Koppers could

initiate litigation through December of 1978.” (District

Court Opinion, p. 21a). Moreover, parties other than Kop-

12

pers could have sued at least until the date of the Cut-

ler-Hammer shareholders meeting in December, 1978. In

short, the requirement of lack of litigation remained an

open condition until long after the petitioner’s alleged “sale

date” of August 23, 1978.°

Petitioner dismisses all of the preconditions as “in-

significant” and then asserts that the lower courts ignored

precedent in granting summary judgment. However, these

conditions were in fact significant, and as such no sale can

take place under §16(b). The lower courts properly followed

well-established precedent in granting and affirming Kop-

pers’ motion for summary judgment. The precedent as to

what constitutes a “sale” is clear and was followed by the

district and appellate courts.

5 Another significant and unfulfilled condition was the require-

ment of S.E.C. approval, which petitioner claims was “routine”

and “in the hands of Eaton”. (Petition at 3) In fact, the S.E.C.

returned Eaton’s initial application with numerous comments

and changes, and approval was not granted until November 3,

1978.

Similarly, the requirement of F.T.C. approval was not an

insignificant technicality but instead an explicit, unfulfilled con-

dition as of the date of the alleged secret agreement, August

1978. The F.T.C. directed Eaton and Cutler-Hammer to sub-

mit for review certain documents before granting antitrust clear-

ance, and Eaton did not submit the documents until October 20,

1978. F.T.C. approval was not assumed until early December

1978. Like S.E.C. approval, F.T.C. approval was necessary to

the merger and not assured until long after any potential §16(b)

liability for Koppers.

—— "

ee

13

CONCLUSION

For the reasons set forth herein, the petition for a writ

of certiorari should be denied.

Respectfully submitted,

FRANCIS J. HIGGINS

LARRY L. THOMPSON

Counsel of Record

BELL, Boyp & LLoyD

Suite 3200

70 West Madison Street

Chicago, Illinois 60602

(312) 372-1121

Attorneys for Respondent

Koppers Company, Inc.

Dated: June 19, 1987