| [2] |
|
| [3] |
JOEL GERBER, ON HIS
OWN BEHALF AND ON BEHALF OF ALL
OTHERS SIMILARLY SITUATED,
PLAINTIFF-APPELLEE,
v.
COMPUTER ASSOCIATES INTERNATIONAL,
INC. AND LWB MERGE, INC.,
DEFENDANTS-APPELLANTS.
|
| [4] |
Docket No. 00-9557
|
| [5] |
UNITED STATES COURT
OF APPEALS FOR THE SECOND CIRCUIT
August Term, 2001
|
| [6] |
September 4, 2002
|
| [7] |
Before: Feinberg, Kearse, and B.
D. Parker, Jr., Circuit Judges. |
| [8] |
Wayne N. Elliott (James L.
Holzman, Paul M. Lukoff, on the
brief), Prickett, Jones & Elliott,
Wilmington, De, for
Defendants-Appellants Computer
Associates International, Inc. and
Lwb Merge, Inc. |
| [9] |
Roger W. Kirby (Joanne M.
Cicala, on the brief), Kirby
McInerney & Squire, Llp, New York,
Ny, for Plaintiff-Appellee Joel
Gerber. |
| [10] |
The opinion of the court was
delivered by: B. D. Parker, Jr.,
Circuit Judge |
| [11] |
Argued: May 9, 2002 |
| [12] |
Defendants Computer Associates
International, Inc. and LWB Merge,
Inc. appeal from a judgment of the
United States District Court for the
Eastern District of New York
(Charles R. Wolle, Judge, Southern
District of Iowa, sitting by
designation). The District Court
denied defendants' motion pursuant
to Fed. R. Civ. P. 12(b)(6) to
dismiss plaintiff's Williams Act
claims, and granted in part and
denied in part defendants' motion
for summary judgment. Following a
jury verdict in plaintiff's favor,
the District Court denied
defendants' motion for judgment as a
matter of law or for a new trial. We
affirm. |
| [13] |
This appeal concerns a
transaction in which defendant
Computer Associates International,
Inc. ("CA"), a computer software
company, acquired On-Line Software
International, Inc. ("On- Line"),
another computer software company,
by means of a tender offer and
follow-up merger. Plaintiff Joel
Gerber, an On-Line shareholder,
commenced a class action in 1991 on
behalf of On-Line shareholders who
tendered their stock in CA's tender
offer. Gerber alleged that, in
acquiring On-Line, CA paid more
money per share to Jack Berdy,
On-Line's chairman and chief
executive officer, than it paid to
other On-Line shareholders, in
violation of various provisions of
the Williams Act, 15 U.S.C. §§
78l(i), 78m(d)-(e), and 78n(d)-(f),
and regulations promulgated
thereunder, 17 C.F.R. § 240.14d-10. |
| [14] |
The United States District Court
for the Eastern District of New York
(Sterling Johnson, Jr., Judge)
denied defendants' motion to dismiss
and granted in part and denied in
part their motion for summary
judgment. Following trial, a jury
returned a $5.7 million verdict for
the plaintiff class. Judgment was
entered on the verdict, and the
District Court (Charles R. Wolle,
Judge, Southern District of Iowa,
sitting by designation) denied CA's
motion for judgment as a matter of
law or, in the alternative, for a
new trial. CA and its wholly-owned
subsidiary, LWB Merge, Inc. ("LWB"),
appeal, and we affirm. |
| [15] |
BACKGROUND |
| [16] |
CA is in the business of
designing and marketing computer
software products. In July 1991,
CA's chairman, Charles Wang,
approached the chairman and chief
executive officer of On-Line, Jack
Berdy, to discuss the possibility of
CA's acquiring On-Line. On-Line,
which Berdy founded in 1969, was
also in the software business. Berdy
owned 1.5 million shares of On-Line
stock, representing approximately
25% of the company's outstanding
shares. Berdy and Wang, as well as
Sanjay Kumar, the chief operating
officer of CA, negotiated
extensively over the price that CA
would pay for On-Line's stock. |
| [17] |
Negotiations over the terms of a
non-compete agreement proceeded
concurrently with negotiations over
the purchase price. CA insisted that
Berdy and other On-Line executives,
who would be leaving the company
following the acquisition, agree not
to compete with CA for a specified
period of time, but Berdy initially
resisted entering into a non-compete
agreement. At one point in the
negotiations, CA offered to purchase
On-Line's stock (which was then
trading at approximately $10 per
share on the New York Stock Exchange
(the "NYSE")) for $14 per share and
to pay Berdy $9 million for a
seven-year non-compete agreement.
On-Line's Board of Directors felt
that CA's offer of $14 per share was
too low and that the $9 million
offered to Berdy for his agreement
not to compete was too high. The
On-Line Board sought $16 per share,
and the negotiations continued.
Negotiations stalled when CA offered
$15.50 per share and On- Line
insisted on $16. CA and On-Line
ultimately agreed that CA would
offer to purchase On- Line's stock
for $15.75 per share, and that CA
would pay Berdy $5 million for a
five-year non- compete agreement.
The central issue in this litigation
is whether the $5 million was
compensation for Berdy's non-compete
agreement or unlawful additional
compensation for his On-Line stock. |
| [18] |
On August 15 and 16, 1991, there
was an unusually large amount of
trading in On-Line stock. On August
15, the stock price rose $1, and the
NYSE asked On-Line about the unusual
trading activity. On the morning of
August 16, when the stock price rose
another dollar, On-Line told the
NYSE that it was in discussions with
CA and that a press release might be
issued shortly. Berdy told CA that
On-Line was under pressure from the
NYSE to issue a press release.
Around noon on August 16, On-Line
and CA reached their agreement at
$15.75 per share, On-Line told the
NYSE that it would issue a press
release, and trading in On-Line
stock was halted. Later that day,
each company issued a press release
announcing that it had reached an
agreement with the other. CA's press
release stated in relevant part that
CA has reached an agreement in
principle with the management of
[On-Line] whereby CA will acquire
all of the outstanding common stock
of On-Line for $15-3/4 per share in
cash. The transaction is subject to
the approval of the Boards of
Directors of On-Line and CA, the
execution of definitive agreements
and regulatory approval. |
| [19] |
On-Line's press release was very
similar to CA's, except it also
noted that "no assurance can be
given that a transaction between
On-Line and Computer Associates of
any sort will occur." |
| [20] |
After issuing their August 16
press releases, CA and On-Line
continued to negotiate the terms and
conditions of their agreement. They
agreed that the transaction would
take the form of a tender offer and
a follow-up merger. On August 20,
CA's Board of Directors approved a
Merger Agreement, a Stock Purchase
and Non-Competition Agreement (the
"Berdy Agreement"), and several
related agreements. The CA Board
also authorized the requisite
Securities and Exchange Commission
("SEC") filings and the
dissemination to On-Line
shareholders of an Offer to
Purchase. On August 21, On-Line's
Board unanimously approved the
Merger Agreement, recommended the
transaction to On-Line shareholders,
and authorized the necessary filings
with the SEC. |
| [21] |
Pursuant to the Berdy Agreement,
which was executed by CA, LWB, and
Berdy, LWB purchased Berdy's On-Line
stock for $15.75 per share, the same
price that CA offered to all other
On-Line shareholders. The Berdy
Agreement also provided that he
could not tender his shares in the
tender offer, and that, if another
bidder made a better offer, LWB
retained an option to purchase
Berdy's shares for $15.75 per share.
The Berdy Agreement contained a
provision prohibiting him from
"engag[ing] in any business
activities which are competitive
with the computer software business
activities of CA, [LWB, or On-Line]"
for a period of five years, in
consideration for which CA agreed to
pay Berdy $5 million. Berdy, who in
addition to being On- Line's
Chairman had been a medical student
since 1989, was not restricted from
"engag[ing] in the design,
development, marketing, licensing or
sale of computer software designed
for use in the medical industry, in
the biological sciences or as a
teaching aid for educational
purposes." |
| [22] |
Gerber argues that, because
Berdy was disengaging from the
business to pursue his medical
studies, CA was not genuinely
concerned about the possibility of
his competing and that the $5
million payment to him - or part of
it - was actually additional
compensation to ensure that CA
acquired Berdy's large block of
On-Line shares. CA, on the other
hand, insists that it genuinely
feared potential competition from
Berdy and that the entire $5 million
was consideration for Berdy's
agreement not to compete. |
| [23] |
On August 21, 1991, CA and
On-Line executed the Merger
Agreement, obligating CA to commence
the tender offer "as promptly as
practicable," and CA, LWB, and Berdy
executed the Berdy Agreement. On
August 22, CA and On-Line issued a
joint press release announcing that
the two companies had entered into
an agreement and that CA "will make
a tender offer today" and conduct a
follow-up merger. The same day,
August 22, CA filed with the SEC and
disseminated to On-Line shareholders
the Offer to Purchase, offering to
purchase all shares of On-Line stock
not owned by Berdy for $15.75 per
share. The Offer to Purchase stated
that it would remain open until
September 20, 1991. A majority of
On-Line shareholders tendered their
shares to CA, and CA and LWB
completed the acquisition of On-Line
with the follow-up merger. |
| [24] |
Gerber is an On-Line shareholder
who tendered his stock in response
to CA's tender offer. He brought
this action individually and on
behalf of a class of On-Line
shareholders (excluding the
defendants, their directors, certain
On-Line employees, and their
immediate families) who tendered
On-Line stock to CA in the tender
offer. The complaint alleged that
several defendants (including CA,
Wang, Kumar, and Berdy) had violated
Section 14(d)(7) of the Securities
Exchange Act of 1934, 15 U.S.C. §
78n(d)(7), and SEC Rule 14d-10, 17
C.F.R. § 240.14d-10 (collectively,
the "Williams Act claims"), as well
as various other provisions of the
federal securities laws, by offering
and paying more consideration to
Berdy for his On-Line shares than it
offered or paid to other On-Line
shareholders.1 |
| [25] |
The gravamen of Gerber's
Williams Act claims is that the $5
million that CA paid to Berdy, while
nominally consideration for Berdy's
five-year non-compete agreement, was
actually additional consideration
for Berdy's On-Line stock. The
defendants moved to dismiss the
Williams Act claims, arguing that
the tender offer did not begin until
August 22, 1991 and that the Berdy
Agreement, which was executed on
August 21, preceded the tender
offer. The District Court denied the
motion, concluding as a matter of
law that the tender offer commenced
on August 16, 1991, when CA issued
its first press release. Gerber v.
Computer Assocs. Int'l, Inc., 812 F.
Supp. 361, 366 (E.D.N.Y. 1993). The
court subsequently certified a class
under Fed. R. Civ. P. 23(b)(3)
consisting of "all persons who
tendered stock of On-Line pursuant
to the tender offer announced by
Computer Associates on August 16,
1991." Gerber v. Computer Assocs.
Int'l, Inc., No. 91 CV 3610 (SJ),
1995 WL 228388, at *5 (E.D.N.Y. Apr.
7, 1995). Following discovery, the
defendants moved for summary
judgment. The District Court granted
summary judgment in part but,
finding genuine issues of material
fact, the court denied the motion
with respect to the Williams Act
claims. |
| [26] |
The case went to trial before
Judge Wolle. In order to demonstrate
the legitimacy of Berdy's
non-compete agreement, CA sought to
introduce evidence of other
transactions in which it had entered
into non-compete agreements. Finding
that this evidence would waste time
and confuse the jury, the District
Court excluded it. At the close of
trial, the District Court instructed
the jury, without objection, to
"consider whether the payment of 5
million dollars under the so- called
Berdy agreement was paid to Dr.
Berdy for his On-Line shares, or his
agreement not to compete, or partly
for the shares and partly for the
agreement not to compete." (Trial
Transcript ("Tr.") at 825.) The jury
returned a special verdict in favor
of the plaintiff class, finding that
$2.34 million of the $5 million that
CA had paid to Berdy was
compensation for Berdy's On- Line
shares, while the remainder was
legitimate consideration for the
non-compete agreement. Judgment was
entered in favor of the plaintiff
class in the amount of $5,670,507.
The District Court awarded the
plaintiff class prejudgment interest
of $4,646,242.54. CA moved for
judgment as a matter of law or, in
the alternative, for a new trial,
and the District Court denied the
motion. CA and LWB appealed. |
| [27] |
DISCUSSION |
| [28] |
CA and LWB make three arguments
on appeal. First, they argue that
Gerber's Williams Act claims are
insufficient as a matter of law
because the Berdy Agreement was not
executed during the tender offer and
because the $5 million was not paid
to Berdy during the tender offer.
Second, they argue that the District
Court erred in excluding the
evidence of other CA transactions
involving non-competition payments.
Third, they argue that the District
Court erred in permitting the jury
to find that part of the $5 million
that CA paid to Berdy was
compensation for the non-competition
agreement and part was additional
consideration for Berdy's On-Line
shares. We address each of these
arguments in turn. |
| [29] |
I. Sufficiency of Williams Act
Claims |
| [30] |
Defendants challenge the legal
sufficiency of Gerber's Williams Act
claims. Section 14(d)(7) provides: |
| [31] |
Where any person varies the
terms of a tender offer or request
or invitation for tenders before the
expiration thereof by increasing the
consideration offered to holders of
such securities, such person shall
pay the increased consideration to
each security holder whose
securities are taken up and paid for
pursuant to the tender offer or
request or invitation for tenders
whether or not such securities have
been taken up by such person before
the variation of the tender offer or
request or invitation. 15 U.S.C. §
78n(d)(7) (2000). |
| [32] |
Rule 14d-10 provides in relevant
part: |
| [33] |
(a) No bidder shall make a
tender offer unless: |
| [34] |
(1) The tender offer is open to
all security holders of the class of
securities subject to the tender
offer; and |
| [35] |
(2) The consideration paid to
any security holder pursuant to the
tender offer is the highest
consideration paid to any other
security holder during such tender
offer. 17 C.F.R. § 240.14d-10
(2001). Section 14(d)(7) and Rule
14d-10 collectively are commonly
referred to as the All Holders/Best
Price Rule. See Field v. Trump, 850
F.2d 938, 942-43 (2d Cir. 1988);
Michael D. Ebert, "During the Tender
Offer" (Or Some Other Time Near It):
Insider Transactions Under the All
Holders/Best Price Rule, 47 Vill. L.
Rev. 677, 677 (2002). Rule 14d-
10(a)(1) codifies the All Holders
Requirement, and Rule 14d-10(a)(2)
codifies the Best Price Rule. Field,
850 F.2d at 942-43. |
| [36] |
A. Whether the Berdy Agreement
Was Executed During the Tender Offer |
| [37] |
Defendants' arguments regarding
the legal sufficiency of the
Williams Act claims focus primarily
on timing. First, defendants argue
that CA's $5 million payment to
Berdy could not have violated the
Best Price Rule because the Berdy
Agreement was executed prior to the
commencement of CA's tender offer,
and the Best Price Rule is not
triggered until a tender offer has
begun. According to defendants, the
tender offer did not begin until
August 22, 1991, when CA
disseminated the Offer to Purchase
and issued a joint press release
with On-Line explicitly announcing a
tender offer. Gerber argues that the
Best Price Rule was triggered on
August 16, 1991, when CA and On-Line
issued press releases announcing
that they had reached an agreement
in principle. If defendants are
correct, and the tender offer did
not commence until August 22, then
the Berdy Agreement preceded the
tender offer and is not subject to
the Best Price Rule. If Gerber is
correct, and the tender offer
commenced on August 16, then the
Berdy Agreement was executed during
the tender offer and must satisfy
the Best Price Rule. |
| [38] |
In order to determine when the
tender offer commenced, we turn to
SEC Rule 14d-2. 17 C.F.R. §
240.14d-2 (1991). In 1991, Rule
14d-2(b) provided2: |
| [39] |
A public announcement by a
bidder through a press release,
newspaper advertisement or public
statement which includes the
information in paragraph (c) of this
section with respect to a tender
offer in which the consideration
consists solely of cash and/or
securities exempt from registration
under section 3 of the Securities
Act of 1933 shall be deemed to
constitute the commencement of a
tender offer . . . . 17 C.F.R. §
240.14d-2(b). Rule 14d-2(c)
provided: |
| [40] |
The information referred to in
paragraph (b) of this section is as
follows: |
| [41] |
(1) The identity of the bidder; |
| [42] |
(2) The identity of the subject
company; and |
| [43] |
(3) The amount and class of
securities being sought and the
price or range of prices being
offered therefor. 17 C.F.R. §
240.14d-2(c). |
| [44] |
Under Rule 14d-2(b), if CA's
August 16 press release "include[d]
the information in [Rule 14d-2(c)],"
then the August 16 press release
"shall be deemed to constitute the
commencement of [the] tender offer."
CA's August 16 press release states: |
| [45] |
Computer Associates
International, Inc. ("CA") announced
today that it has reached an
agreement in principle with the
management of On-Line Software
International, Inc. whereby CA will
acquire all of the outstanding
common stock of On-Line for $15-3/4
per share in cash. The transaction
is subject to the approval of the
Boards of Directors of On-Line and
CA, the execution of definitive
agreements and regulatory approval. |
| [46] |
This press release includes all
the information listed in Rule
14d-2(c): (1) it identifies CA as
the bidder; (2) it identifies
On-Line as the subject company; and
(3) it identifies "all . . .
outstanding common stock" as the
amount and class of securities being
sought, and "$15-3/4 per share in
cash" as the offer price. CA
nonetheless contends that its August
16 press release should not be
deemed to have commenced a tender
offer because the press release was
not made "with respect to a tender
offer," because the press release
states that the transaction is
subject to future conditions, and
because CA issued the press release
to fulfill certain disclosure
obligations. For the reasons
discussed below, we reject each of
these contentions. |
| [47] |
In arguing that its August 16
press release was not made "with
respect to a tender offer," CA
confuses the test for whether a
tender offer has occurred with the
test for when a tender offer
commences. CA argues that, under the
"totality of the circumstances" test
of
Hanson Trust PLC v. SCM Corp.,
774 F.2d 47 (2d Cir. 1985), and the
eight-factor test of
Wellman v. Dickinson,
475 F.Supp. 783 (S.D.N.Y. 1979), the tender
offer began on August 22, not August
16, because those tests were not
satisfied until August 22. As the
District Court correctly found,
however, Hanson and Wellman both
involve the issue of whether a
tender offer has occurred, not when
a tender offer starts, and the
parties here do not dispute that a
tender offer occurred. Gerber, 812
F.Supp. at 366. Rather, the only
question is when the tender offer
commenced, a question which is
answered by Rule 14d-2(c), not by
Hanson or Wellman.
Lerro v. Quaker Oats Co., 84 F.3d
239, 246 (7th Cir. 1996) (noting
that "our case is about 'when'
rather than 'what'"). For the same
reason, CA's reliance on
Weeden v. Continental Health
Affiliates, Inc.,
713 F.Supp. 396
(N.D.Ga. 1989), is misplaced.
The court in Weeden concluded that,
although the defendant's press
release included all the information
listed in Rule 14d-2(c), the press
release had not been made "with
respect to a tender offer," and
therefore did not commence a tender
offer, because no tender offer ever
occurred. Weeden, 713 F.Supp. at
402-03. Here, however, it is
undisputed that a tender offer
occurred, and CA's August 16 press
release announced a transaction that
undisputedly was a tender offer.
Thus, we have no trouble concluding
that CA's August 16, 1991 press
release was made "with respect to a
tender offer." |
| [48] |
CA also argues that its August
16 press release was not made "with
respect to a tender offer" because
the press release does not contain
the words "tender offer." While the
August 16 press release does not
contain the words "tender offer,"
Rule 14d-2(c) imposes no such
requirement. Because the entire
purpose of that rule is to prescribe
the information that a public
announcement must contain in order
to commence a tender offer, we deem
it dispositive that the words
"tender offer" are not among the
Rule's prescriptions. To the extent
CA asks us to graft an additional
requirement onto Rule 14d-2(c), we
decline to do so. "Were the label
used by the acquiror determinative,
virtually all of the provisions of
the Williams Act, including the
filing and disclosure
requirements[,] could be evaded
simply by an offeror's announcement
that offers to purchase [] stock
were private purchases." Field, 850
F.2d at 944 (citation omitted). |
| [49] |
We also reject CA's argument
that the press release did not
commence a tender offer because it
stated that the transaction was
subject to future conditions - i.e.,
the approval of On- Line's and CA's
Boards of Directors, the execution
of definitive agreements, and
regulatory approval. Nothing in Rule
14d-2 or Rule 14d-10 renders them
inapplicable to tender offers that
are subject to conditions. Indeed,
CA's ultimate Offer to Purchase,
which CA contends commenced the
tender offer, also states that the
transaction is subject to certain
conditions. Our conclusion that CA's
August 16 press release commenced a
tender offer, despite the presence
of future conditions, is consistent
with the Seventh Circuit's decision
in Lerro, upon which defendants
place considerable reliance. The
plaintiffs in Lerro contended that a
tender offer begins "as soon as a
potential bidder opens negotiation
with a potential target's
management," even if no public
announcement has been made. Lerro,
84 F.3d at 245. The court rejected
this contention, holding that, under
Rule 14d-2, "'the tender offer'
means the definitive announcement,
not negotiations looking toward an
offer." Id. Unlike the situation in
Lerro, CA's August 16 press release
did not announce mere "negotiations
looking toward an offer"; rather,
the release stated that CA and
On-Line had "reached an agreement in
principle." Accordingly, whatever
conditions remained after CA's
August 16 press release do not
prevent that release from marking
the commencement of the tender
offer. |
| [50] |
CA also contends that its August
16 press release did not commence
the tender offer because CA issued
that release in response to NYSE
inquiries and in order to fulfill
disclosure obligations. CA argues
that it cannot be penalized under
one provision of the Exchange Act as
a result of its compliance with a
disclosure obligation under another
provision. We need not reach the
merits of this argument for the
simple reasons that the NYSE did not
make any inquiries of CA on August
16 and CA has not pointed to any
particular disclosure obligation
that it faced on that date. As CA
acknowledges, the NYSE made
inquiries of On-Line, not of CA, and
did so after "unusual market
activity in On-Line stock." On-Line
responded to these inquiries by
issuing its own press release on
August 16, stating that the
management of CA and On-Line had
"reached agreement at $15.75 per
share." Thus, CA's independent press
release was not necessary to respond
to the NYSE's inquiries. Because
there is no evidence that CA issued
its August 16 press release in
response to any NYSE inquiry or to
fulfill any actual disclosure
obligation, and for all the reasons
discussed above, we conclude that
the tender offer commenced on August
16, 1991. |
| [51] |
B. Whether Berdy Was Paid During
the Tender Offer |
| [52] |
Next, CA argues that, regardless
of when the tender offer commenced,
the $5 million payment to Berdy
cannot violate the Best Price Rule
because Berdy was paid after, and
not during, the tender offer. CA
relies on Rule 14d-10(a)(2), which
requires a bidder to pay to any
security holder pursuant to a tender
offer "the highest consideration
paid to any other security holder
during such tender offer." 17 C.F.R.
§ 240.14d-10(a)(2) (emphasis added).
While Rule 14d-2 governs the
determination of when a tender offer
commences, no pertinent rule or
statute addresses when a tender
offer concludes. CA would have us
create a rigid rule equating the
duration of a tender offer, for
purposes of Rule 14d-10(a)(2), with
the offer's self-prescribed
expiration date. Such a rule would
benefit CA, as its tender offer
"closed" on September 20, 1991, and
Berdy was not paid until September
25, 1991. We believe that the phrase
"during the tender offer," however,
is flexible enough to include CA's
payment to Berdy, which occurred
after the shares had been tendered
but before any other On-Line
shareholder was paid.
Epstein v. MCA, Inc., 50 F.3d 644,
654 (9th Cir. 1995) ("[T]he term
'tender offer,' as used in the
federal securities laws, has never
been interpreted to denote a rigid
period of time."), rev'd on other
grounds sub nom.
Matsushita Elec. Indus. Co. v.
Epstein,
516 U.S. 367 (1996). We
deem it significant that Berdy was
paid before all other On-Line
shareholders, so that, if Berdy was
not paid "during the tender offer,"
then neither was any other On-Line
shareholder. |
| [53] |
More fundamentally, equating the
termination of a tender offer with
the offer's self- imposed expiration
date, as CA would have us do, would
make it all too easy to contract
around the Best Price Rule. For
example, the Berdy Agreement
required CA to pay Berdy for his On-
Line stock at a closing which was to
occur "as soon as practicable after
the expiration of the [tender offer]
. . . ." If this agreement removed
Berdy's $5 million payment from the
ambit of the Best Price Rule, then
the Best Price Rule would be
rendered toothless. Rule 14d-10
"cannot be so easily circumvented."
Epstein, 50 F.3d at 655 (noting that
the imposition of a rigid timing
requirement on the duration of
tender offers "would drain Rule
14d-10 of all its force"). |
| [54] |
In concluding that Berdy was
paid during the tender offer, we
draw upon our decision in Field, 850
F.2d 938, where we looked past the
labels that the parties had attached
to their transactions. In Field,
defendants Julius and Eddie Trump
commenced a tender offer at a price
of $22.50 per share for the stock of
Pay'n Save Corporation, withdrew the
tender offer four days later,
acquired an option to purchase the
shares of certain Pay'n Save
directors for $25.00 per share
($23.50 per share plus a $900,000
premium for so-called "fees and
expenses"), then announced a new
tender offer at $23.50 per share.
Field, 850 F.2d at 940, 942. The
plaintiffs argued that the
arrangement violated the Best Price
Rule, as the Pay'n Save directors
received $1.50 more per share than
other Pay'n Save shareholders. Id.
at 942. The defendants argued that
their agreement with the directors
was not executed during a tender
offer, as the agreement was executed
after the original tender offer was
withdrawn and before the second
tender offer commenced. Id. at 943.
We refused to give effect to the
defendants' use of the labels
"withdrawal" and "new" tender offer.
Id. at 944. Instead, we focused on
the Trumps' intent. Id. at 945.
Because the Trumps never abandoned
the goal of their original tender
offer, we concluded that the second
tender offer was a continuation of
the first, and that the Trumps had
entered into the agreement to
purchase the Pay'n Save directors'
stock during the tender offer. Id. |
| [55] |
Like the defendants in Field, CA
continuously pursued the goal of its
tender offer, the acquisition of
On-Line. We have already determined
that the Berdy Agreement was
executed during the tender offer,
and a properly instructed jury
determined that CA paid part of the
$5 million to Berdy as compensation
for his On-Line shares. Far from
having abandoned its intent to
acquire On-Line, CA paid Berdy in
support of its tender offer. In
assessing CA's intent, it is
significant that Berdy was paid
before all other On-Line
shareholders. In purchasing a
majority of the outstanding common
stock of On-Line, and in paying the
On-Line shareholders for that stock,
CA clearly intended to acquire
On-Line. Thus, when CA paid Berdy in
support of its continuous goal of
acquiring On-Line, it did so during
the tender offer. We noted in Field
that "giving effect to every
purported withdrawal that allows a
discriminatory premium to be paid to
large shareholders would completely
undermine the 'best-price rule.'"
850 F.2d at 944. Finding that Berdy
was paid after, and not during, the
tender offer would have the same
effect. |
| [56] |
In summary, the tender offer
commenced on August 16, 1991, the
date that CA issued its press
release announcing its agreement in
principle with On-Line, see 17
C.F.R. § 240.14d-2(a), and Berdy was
paid "during such tender offer," 17
C.F.R. § 14d-10(a)(2). Accordingly,
we conclude that Gerber's Williams
Act claims are sufficient as a
matter of law. |
| [57] |
II. Other CA Transactions
Involving Non-Competition Payments |
| [58] |
At trial CA sought to introduce
evidence of a number of other
transactions in which it made
substantial payments to individuals
in exchange for non-competition
agreements. The District Court
admitted some of this evidence3
but excluded most of it because: |
| [59] |
None [of the other transactions]
were sufficiently similar to the
circumstances of this transaction to
warrant their receipt in evidence.
Defendants did not demonstrate that
any probative value of their proffer
of other transactions would or could
outweigh the waste of time and
potential confusion of the jury that
their receipt in evidence would have
caused. The so-called Berdy
Agreement constituted a transaction
that was quite different from and
could not fairly be compared with
the dissimilar merger and buyout
transactions proffered by
defendants. |
| [60] |
Under Rule 403, "evidence may be
excluded if its probative value is
substantially outweighed by the
danger of unfair prejudice,
confusion of the issues, or
misleading the jury, or by
considerations of undue delay, waste
of time, or needless presentation of
cumulative evidence." In applying
Rule 403, "the trial judge has broad
discretion to weigh the probative
value of the evidence against the
negative factors."
Li v. Canarozzi, 142 F.3d 83, 88 (2d
Cir. 1998). |
| [61] |
"Because the trial judge sees
the witnesses, the parties, the
jurors, and the attorneys, and is
thus in a superior position to
evaluate the likely impact of the
evidence, we will not overturn his
ruling unless he has acted
arbitrarily or irrationally or has
otherwise abused his discretion."
Id.;
Costantino v. Herzog, 203 F.3d 164,
173 (2d Cir. 2000) (noting that
trial judge's "Rule 403 rulings are
entitled to considerable deference
and will not be overturned absent a
clear abuse of discretion"). |
| [62] |
We find no error, and certainly
no abuse of discretion, in the
District Court's evidentiary
rulings. The court permitted CA to
adduce general evidence of other
non-compete agreements, but it
correctly excluded the details of
these other transactions. Details of
the other CA transactions would have
had minimal probative value because,
as CA's Kumar testified, "every deal
is a different deal" and determining
the amount of a non-compete payment
"is an individual evaluation." (Tr.
at 481, 479.) Once the jury learned
of the existence of non-compete
payments in other CA transactions,
the details of those transactions
possessed little probative value.
Accordingly, the District Court
acted well within its discretion in
concluding that "no details of other
transactions may be gone into
because it would lead to a waste of
time, to essentially assess each
other transaction by the same
measure that the jury will have to
assess this transaction." (Id. at
561.) |
| [63] |
III. Jury's Apportionment of $5
Million Payment |
| [64] |
Lastly, CA argues that the
District Court erred in instructing
the jury that it could find that CA
paid $5 million to Berdy "partly for
the shares and partly for the
agreement not to compete" (Tr. at
825) and that the jury's finding
that $2.34 million of the $5 million
was compensation for Berdy's shares
represents an impermissible
compromise verdict. We review the
District Court's jury instructions
de novo.
Perry v. Ethan Allen, Inc., 115 F.3d
143, 153 (2d Cir. 1997). |
| [65] |
CA contends that there was no
evidentiary predicate for the
District Court's apportionment
instruction, which permitted the
jury to apportion the $5 million
between compensation for Berdy's
On-Line stock and compensation for
Berdy's agreement not to compete.
See Perry, 115 F.3d at 153 ("A party
is not entitled to have the court
give the jury an instruction for
which there is no evidentiary
predicate at trial."). We disagree. |
| [66] |
Sufficient evidence was adduced
at trial to support the conclusion
that some, but not all, of the $5
million was consideration for
Berdy's On-Line shares. For example,
CA's expert, Ronald Gilson,
testified that, as of 1991, the
expected loss to CA as a result of
Berdy's competing depended on four
variables: |
| [67] |
a. the percentage decrease in
[CA's] sales resulting from Mr.
Berdy's competition; |
| [68] |
b. [CA's] resulting after-tax
cash flow loss; |
| [69] |
c. the likelihood of Mr. Berdy
competing; and |
| [70] |
d. when Mr. Berdy begins to
compete. (Expert Report of Ronald J.
Gilson at 8; Tr. at 611-12.) |
| [71] |
Gilson's report was admitted
into evidence, and he testified
extensively about its contents. (Tr.
at 713.) According to Gilson's
testimony and report, there were
many scenarios in which the expected
loss to CA as a result of the risk
of Berdy's competing would have been
between $0 and $5 million. (Tr. at
616-18, 649- 50; Expert Report of
Ronald J. Gilson, Exs. C, D, E, F,
and G.) Thus, CA's own expert
provided a sufficient predicate for
the District Court's apportionment
instruction. In addition, Kumar, who
was CA's primary negotiator with
On-Line and Berdy, testified that he
performed no mathematical analysis
in arriving at the $5 million
figure, and that he reached that
amount by "intuition." (Tr. at
480-81.) Finally, because the jury's
verdict draws support from the
evidence introduced at trial, it was
not an impermissible compromise.
Vichare v. AMBAC Inc., 106 F.3d 457,
463 (2d Cir. 1996)
("Traditionally, in order to
constitute an impermissible
compromise the verdict must, at
least, be inconsistent with the
facts adduced at trial." ). |
| [72] |
CONCLUSION |
| [73] |
For these reasons, we affirm the
judgment of the District Court. We
have considered all of appellants'
other contentions on appeal and have
found them to be without merit. |
| |
|
| |
Opinion Footnotes |
| [74] |
1 All claims other than the
Williams Act claims against CA and LWB were either dismissed or
withdrawn before trial and are not
at issue in this appeal. |
| [75] |
2 Rule 14d-2 was amended
subsequent to the events giving rise
to this litigation, but the parties
do not urge us to apply the
amendment retroactively. |
| [76] |
3 The court permitted Kumar
to testify that CA had made payments
in exchange for non- compete
agreements in many other
transactions and that many of those
payments exceeded $5 million. |
|
