Opinion
C.A. No. 17651.
Submitted: March 25, 2003.
Decided: April 10, 2003. Revised: April 17, 2003.
Joseph A. Rosenthal, Esquire, Carmella P. Keener, Esquire, ROSENTHAL, MONHAIT, GROSS GODDESS, PA., Wilmington, Delaware; Robert M. Kornreich, Esquire, Patricia I. Avery, Esquire, Kent A. Bronson, Esquire, WOLF POPPER LLP, New York, New York, Attorneys for the Plaintiff and the Class.
P. Clarkson Collins, Jr., Esquire, Lewis H. Lazarus, Esquire, Elizabeth A. Brown, Esquire, MORRIS, JAMES, HITCHENS WILLIAMS LLP, Wilmington, Delaware; Cornelius P. McCarthy, Esquire, ALLEGAERT BERGER VOGEL LLP, New York, New York, Attorneys for the Defendant.
MEMORANDUM OPINION AND ORDER
I.
In September 1999, Garden Ridge Corporation purchased about 1.2 million shares of its own common stock pursuant to a self-tender offer at $7 per share. Soon thereafter, Garden Ridge was taken private at a significantly higher price. A stockholder whose common stock was purchased in the self-tender sued the corporation and its directors, claiming that the tender offer materials were false and misleading because they failed to disclose that the going private transaction was then under consideration. Initially, the complaint charged a broad ranging conspiracy among the corporation, its directors and other persons who ultimately participated in the going private transaction.
Discovery showed that the buyout proposal originated with a managing director in the investment firm under contract to advise Garden Ridge, who began his initial consideration of that proposal while the tender offer was in progress. The plaintiffs efforts to show a broader conspiracy were less successful. Thus, after the completion of discovery, the court granted summary judgment in favor of the corporation and all but one of the director defendants because there was no evidence to support any inference that they knew about the proposed going private transaction until after the tender offer closed and the corporation had accepted all tendered shares for payment. The court refused, however, to grant summary judgment as to one individual, who both served as. a director of Garden Ridge and was managing director in the investment firm that initiated the going private proposal. Because there was enough evidence (viewed most favorably to plaintiff) to support an inference that this one defendant learned about the buyout proposal before the conclusion of the tender offer, the court found that the plaintiff was entitled to go to trial against him.
The trial is now over and the question remaining to be answered is whether, considering all of the testimony and other evidence adduced at trial, the plaintiff has met his burden of proving that the remaining defendant knew about the buyout proposal during the relevant time. If the plaintiff has met this burden, the failure to disclose the information in the tender offer materials would establish a breach of fiduciary duty and constitute a basis for holding the defendant director liable for damages.
As will be discussed in this opinion, however, the court must answer the question in the negative. There is, of course, some evidence supporting an inference that the buyout proposal was discussed among the partners of the investment firm during the pendency of the tender offer. Perhaps the most troublesome fact is that the other managing director began his consideration of the buyout during this timeframe at all, apparently without regard for the obvious duty of his fellow managing director to disclose such activities to Garden Ridge once he learned about them. Similarly, there is some evidence found in agendas for meetings held within the investment advisory firm that can be interpreted as showing that the buyout proposal was disclosed to the defendant director during the pendency of the self-tender. In the final analysis, however, this evidence is not enough to satisfy the plaintiff's burden of proof and cannot overcome the uniform and unequivocal denials of all knowledgeable witnesses. However foolish it may have been for the defendant's fellow managing director to begin exploring the buyout while the tender offer was in existence, there is not enough evidence in the record to warrant a conclusion that the defendant director gained guilty knowledge of his partner's activities at any time relevant to this action. For that reason, judgment will be entered in favor of the defendant and the complaint will be dismissed with prejudice.
II.
A. Background
Three Cities Research, Inc. ("TCR") is a small private equity firm that occupies a single floor office in New York City. TCR, through the funds it advised, is in the business of investing in under-performing, mid-sized companies with the specific goal of obtaining a controlling interest, or implementing "change of control" transactions in the companies in which it invested. In 1999, TCR employed approximately ten investment professionals, five of whom were TCR "managing directors" and constituted the "senior officers" of the firm. The five TCR senior officers were, as follows: H. Whitney Wagner, the sole remaining defendant in this action, J. William Uhrig, Willem de Vogel, Thomas G. Weld, and W. Robert Wright.
TCR has had a long-standing relationship with Garden Ridge. In 1992, TCR led the acquisition of Garden Ridge by several TCR-advised funds. Since then, TCR has served as Garden Ridge's paid financial advisor pursuant to a written advisory agreement. In 1995 and 1996, Garden Ridge sold shares of its common stock to the public. Thereafter, TCR, and specifically Wagner, continued to follow Garden Ridge on behalf of TCR investors who still owned a significant number of shares in Garden Ridge. During 1999, Wagner was TCR's "designated representative on the Garden Ridge board." Wagner has described himself as "the principal member of TCR responsible for the Garden Ridge investment" who "monitored Garden Ridge for TCR." Nevertheless, others at TCR also took an interest in Garden Ridge. For example, as will be discussed, infra, it was Uhrig, not Wagner, who conceived of the buyout proposal at issue in this case.
Trial Transcript ("Tr.") at 24.
Id. at 26-27; 96. Pursuant to the advisory agreement between the two companies, TCR had the right to designate two directors to Garden Ridge's board.
B. The Garden Ridge Self-Tender
In July 1999, the Garden Ridge board authorized the repurchase of up to 3 million shares of Garden Ridge stock in the open market. This repurchase program was originally designed to last approximately eight months, but was subsequently converted to a self-tender offer (the "Self-Tender") for 3 million Garden Ridge shares in order to "accelerate the repurchase of Garden Ridge stock." Garden Ridge's board, including Wagner, first set a ceiling price for the Self-Tender at $7.50 per share. A pricing committee (including Wagner) then set the final Self-Tender price at $7 per share. The Self-Tender finally commenced on August 26, 1999. Other than Wagner's activities in his capacity as a member of the Garden Ridge board, TCR was not involved in the planning or execution of the Self-Tender.
Id. at 33.
The Self-Tender offering materials explicitly represented that Garden Ridge knew of no plans or proposals to take it private. Those materials also stated that a binding agreement did not arise between the tendering stockholders and Garden Ridge until Garden Ridge accepted the shares for payment. Approximately 1.2 mill. shares were tendered in the Self-Tender, which officially closed on September 23, 1999, Garden Ridge accepted the shares for payment by letter dated September 28, 1999. In that letter, Jane Arbuthnot, Garden Ridge's CFO, directed that the tendered shares be canceled and transferred to Garden Ridge's account effective September 28, 1999. Garden Ridge paid for and purchased the shares on or after September 28, 1999. The class plaintiffs in this action tendered their shares in the Self-Tender.
Specifically, the offering materials stated: Except as disclosed in this Offer to Purchase, (Garden Ridge] currently has no plans or proposals that relate to or would result in: (a) the acquisition by any person of additional securities of (Garden Ridge] or the disposition of securities of (Garden Ridge]; (b) an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving (Garden Ridge] or any of its subsidiaries; (c) any change in the present Board of Directors or management of [Garden Ridge]; (d) any material change in the present divided rate or policy, or indebtedness or capitalization of [Garden Ridge]; (or] (e) any other material change in [Garden Ridge's] corporate structure or business[.]
Ex. 208, at 5-6.
The offering materials provided that Garden Ridge's "acceptance for payment of shares tendered pursuant to the Offer will constitute a binding agreement between the tendering stockholder and [Garden Ridge] upon the terms and conditions of the Offer." Id. at 9.
The offering materials further provided that Garden Ridge was "deemed to have accepted, and therefore purchased, Shares that are validly tendered and not withdrawn — — — only when and if it gives written notice to the Depositary of its acceptance of the Shares for payment pursuant to the Offer." Id. at 10.
C. The Buyout Proposal
By the beginning of September 1999, Uhrig began to contemplate a proposal through which TCR advised funds and investors would take Garden Ridge private. On September 16, 1999, Uhrig asked TCR's lawyers, Rogers Wells, LLP, to work on such a proposal. On September 24, 1999, Rogers Wells sent Uhrig a draft of a buyout proposal letter that would be issued to Garden Ridge less than a week later. That same day, Uhrig called Arbuthnot to obtain the results of the Self-Tender and expressed disappointment upon hearing that only 1.2 million of a possible 3 million shares had been tendered.
The parties have stipulated that on September 28, 1999, de Vogel contacted Paul Davies, Garden Ridge's CEO, to arrange a breakfast meeting with him in Houston, Texas for early Wednesday morning, September 29, 1999. At that meeting, de Vogel told Davies that TCR was about to issue a formal proposal to take Garden Ridge private, and that the proposal would be delivered to Davies on September 30, 1999. That letter, which was delivered to Davies on September 30, expressly "conveyed a proposal that a fund advised by [TCR] and a group of investors including investors in prior [TCR] funds who still hold Garden Ridge corporation stock, acquire all the stock of Garden Ridge through a tender offer and a merger" in which Garden Ridge's public stockholders would receive $9.50 per share. The letter also proposed that the acquisition not be disclosed to the public until an agreement on the transaction was in place or it was otherwise sufficiently definite that the transaction would proceed.
Trial Exhibit ("Ex.") 8 at 1.
On November 22, 1999, after negotiations, a special committee and the board of directors at Garden Ridge approved an agreement for a going private transaction priced at $11.50 per share.
III.
On December 10, 1999, Dennis Johnson, the named plaintiff in this class action, filed his complaint against Wagner. Garden Ridge, and six other then directors of Garden Ridge — Armand Shapiro, Sam J. Susser, Terry S. Boyce, Alyson Henning, Ira Neimark and Barbara Tapp. The complaint alleged that Garden Ridge and each of the named directors breached their fiduciary duty to the stockholders who tendered pursuant to the Self-Tender by failing to disclose that TCR was planning to take Garden Ridge private shortly after the close of the Self-Tender. The complaint also alleged that these defendants had conspired among themselves and with TCR to undertake both the Self-Tender and two earlier share repurchase programs in order to lower the cost of the planned buyout.
On August 5, 2002, the defendants moved for summary judgment on the plaintiffs complaint. In response, the plaintiff abandoned his theory of an overarching, long-term conspiracy, and voluntarily agreed to dismiss defendants Boyce, Henning, Neimark, Tapp and Garden Ridge. The plaintiff continued to assert a claim that the remaining three defendants — Shapiro, Susser and Wagner — learned about Uhrig's buyout plan while the Self-Tender was in progress and failed to disclose that plan in breach of their fiduciary duty. In an opinion dated October 18, 2002, the court granted summary judgment in favor of Shapiro and Susser but denied the motion made by Wagner.
See generally Johnson v. Shapiro, 2002 WIL 31438477 (Del.Ch. Oct. 18, 2002).
As part of the joint pre-trial order in this case, the plaintiff reiterates his claim that Wagner allegedly breached his fiduciary duty to tendering stockholders, As to motive, the plaintiff sets forth his theory as follows:
Wagner had a motive not to disclose the existence of TCR's Buyout Proposal to Class members, because it was in his and TCR's interests to minimize the possibility of competing bids for Garden Ridge which would have either made it more expensive for TCR to acquire Garden Ridge or prevented TCR from successfully acquiring Garden Ridge. There was no disclosure of the Buyout Proposal or the negotiations which took place concerning the acquisition of Garden Ridge until the merger agreement had been signed.
Joint Pretrial Stipulation and Order at 11.
IV.
To prevail at trial, the plaintiff must prove his case by a preponderance of the evidence. Determination of the weight to be given any evidence is a matter for the trier of fact. Moreover, "[a] trial court may determine the weight and credibility to be accorded any witness," and is responsible for resolving "conflicts in the evidence. Where "state of mind or `consciousness' and 'conscious' is involved, credibility — a [fact-finder] determination — is often central to the case."V.
This case essentially comes down deciding what Wagner knew about Uhrig's proposal and when he knew it. This court has already determined that Wagner's fiduciary duties to Garden Ridge tendering stockholders did not expire on September 23, 1999, the date on which the Self-Tender formally closed. Rather, Wagner's fidiciary duties extended until (at the earliest) September 27, 1999, the apparent date on which notice was sent (by letter dated September 28, 1999) by Garden Ridge to its depository. Moreover, this court has also already determined that if Wagner knew of the buyout, proposal while he still owed fiduciary duties to tendering stockholders, such knowledge necessarily must be deemed material for two reasons:
First, it would have "significantly altered the "total mix' of information made available" to the stockholder in deciding whether to tender one's shares. By holding out, a stockholder may have been able to reap greater gains when selling pursuant to a going private transaction rather than the Self-Tender. Second, disclosure would be necessary, even if it is not considered "material" in the traditional sense, because it would be the only way to make the previously disclosed information in the Prospectus not materially misleading. The Prospectus specifically stated that Garden Ridge knew of no plans or proposals to take [Garden Ridge) private. Necessarily, this statement means that none of [Garden Ridge]'s directors had such knowledge either, because such knowledge would be imputed to the corporation for these purposes.
Id. at *4 (citations omitted).
Thus, the sole remaining question to be answered is whether Wagner had knowledge of the buyout proposal before September 27 (or September 28), 1999. A review of the record, as a whole, leads the court to conclude that the plaintiff has failed to show that it is more probable than not that Wagner had such knowledge.
The plaintiff also argues that liability can be imposed on Wagner if he was reckless in not knowing about the Self-Tender. As discussed further in this opinion, the court is unconvinced by the plaintiffs theory of recklessness, and, in any event, finds that Wagner was not reckless.
A. Nobody Outside of TCR became Aware of The Buyout Proposal Until September 29 At The Earliest
Although not dispositive by any means, the record is clear that nobody outside of TCR became aware of Uhrig's buyout proposal until de Vogel went to Texas to discuss the proposal with Davies. First, each Garden Ridge director testified that s/he did not learn of Uhrig's buyout proposal until on or after the September 30 date on which it was sent. Second, two senior officers of Garden Ridge at the time — Davies, the CEO and Arbuthnot, the CFO — also testified that they too did not learn of the buyout proposal until September 29 (in the case of Davies) and October 1 (in the case of Arbuthnot).
1. Armand Shapiro
In September 1999, Shapiro was Chairman of Garden Ridge's board of directors, its former President and CEO, and its largest individual stockholder. This court, in its decision granting summary judgment dismissing Shapiro from this case, explained:
Although the plaintiff argues that Shapiro and Susser had knowledge of the plan to take [Garden Ridge] private on or before September 28, the record is clear that they did not. The plaintiff asserts that "the record suggests substantial uncertainty regarding when Shapiro and Susser actually learned of TCR's buyout proposal, and clearly implicates the possibility that this knowledge could have been obtained on or before September 28." The court disagrees. Mr. Shapiro unambiguously testified that, at the earliest, he first leaned of the proposal on September 29th. In fact, Shapiro's admission is more limited than that, conceding only that on September 29, he knew Uhrig would be "sending a communication" to Davies. There is no evidence that Shapiro knew what the communication said until it was received at Garden Ridge on September 30.
Johnson, 2002 WL 31438477, at *6. (emphasis added) (citations omitted).
2. The Other Named Directors
The court, as noted above, also dismissed the plaintiffs case as to Susser (for the same reasons cited in dismissing the claims against Shapiro), and the named plaintiff himself stipulated to the dismissal of his case with prejudice against Boyce, Henning, Neimark and Tapp. At deposition, each of these directors testified that they first learned of Uhrig's proposal either on or after September 30, 1999.
See Boyce Dep. at 92; Henning Dep. at 23-24; Neimark Dep. at 113-15; Shapiro Dep. at 57-58; Susser Dep. at 114-16; Tapp Dep. at 52, 55.
Each of these witnesses also testified that he or she was surprised by Uhrig's buyout proposal (or to quote Susseil, "had no inkling of it coming"). Indeed, in describing a board meeting at Garden Ridge on October 6 at which all of Garden Ridge's directors (including Wagner) first convened as a group to discuss Uhrig's proposal, Henning testified that it "was clear to [her that] this was the first we were all hearing about it." Thus, the record testimony indicates that none of the Garden Ridge directors appeared aware of the buyout proposal before it was actually sent by Uhrig on September 30.
Susser Dep. at 117; see also Boyce Dep. at 105; Henning Dep. at 83-84; Tapp Dep. at 55.
Henning Dep. at 84.
3. Davies and Arbuthnot
As noted above, in September 1999, Davies was Garden Ridge's CEO and Arbuthnot was Garden Ridge's CFO. At his deposition. Davies testified that he first learned of Uhrig's buyout proposal on September 29 at a breakfast meeting requested by de Vogel. In addition, Arbuthnot testified that she did not see Uhrig's proposal letter until October 2, and that she first learned of the proposal on October 1, 1999.
Davies Dep. at 73.
Arbuthnot Dep. at 127-28.
B. The References To Garden Ridge In Internal "TCR Documents During September 1999
The plaintiff contends that Uhrig's incipient plan or proposal was discussed internally at TCR at meetings attended by Wagner during the time the Self-tender was outstanding. The evidence supporting this contention is found principally in agendas mentioning Garden Ridge that were prepared for certain internal TCR meetings.
Throughout 1999, TCR scheduled and held biweekly Monday Morning Meetings ("MMMs"), typically attended by all of TCR's investment professionals and managing directors, including Uhrig and Wagner. These meetings usually lasted between one to two hours. Agendas for these MMMs were generally distributed to attendees either at the beginning of these meetings or on the day before. There is a section at the top of each of the agendas distributed in 1999 that lists TCR's "New Deals in [the] Pipeline. Items listed in this section generally refer to potential investment transactions "that may or may not happen" for TCR. These agendas are not, however, minutes of what occurs at those meetings, nor were minutes of the meetings prepared.
See generally Ex. 24.
Tr. at 131.
In addition, the MMMs do not typically cover all the items that may appear on a particular agenda. For that reason, some items may be listed as a "New Deal' when it in fact is not a "new deal" at all, but rather an important item that someone at TCR wants to make sure is discussed.
Following the biweekly MMMs, TCR managing partners typically met. Both Uhrig and Wagner routinely attended these partners' meetings. The partners also sometimes held lunch meetings during this period.
Uhrig indicated that he attended TCR partners' meetings in July through September 1999. Wagner indicated that it was his practice to attend TCR Partners' meetings when he was in New York, where he was for most of September 1999, including on Monday, September 13, 1999 and Monday, September 27, 1999.
There was a MMM held on Monday, September 13, 1999, and the agenda for that meeting lists Garden Ridge under the heading of "New Deals in [the] Pipeline." Both Uhrig and Wagner attended the September 13, 1999 meeting. Garden Ridge next appeared as a "New Deal] in [the] Pipeline" on the agenda for TCR's MMM on September 27, 1999. Wagner and Uhrig also attended this meeting. Following the September 27 MMM, TCR's senior officers also held a partners' meeting (again attended by both Wagner and Uhrig). This partners' meeting was followed by a partners' lunch that same day.
The plaintiff contends that the two references to Garden Ridge in these agendas relate to Uhrig's buyout proposal and prove that Wagner was aware of that proposal at a time when he had a duty to disclose in connection with the Self-Tender. These references are the only positive evidence that the plaintiff can point to that supports his argument. If these references constituted the entire evidentiary record in this case, the court may very well conclude that the Self| Tender was discussed at these two MMMs. These references, however, are not the entire evidentiary record. The record evidence in this case, when viewed in its totality, simply does not support the conclusion that these references to Garden Ridge relate to Uhrig's buyout proposal. Most significantly, all of the testimony in this case relating to what occurred at these MMMs suggests that something other than Uhrig's buyout proposal was discussed.
1. Wagner's Testimony
As to the September 13 MMM, Wagner at trial recalled de Vogel asking about the progress of the Self-Tender, and he unequivocally testified that there was no discussion of any prospective buyout. In addition, as to the September 27 MMM, Wagner specifically testified that there was no discussion concerning a buyout. Wagner's self-serving testimony, standing alone, does not sufficiently persuade this court as to what was discussed at these two MMMs. Wagner's testimony, however, is supported by several other witnesses from within TCR.
Tr. at 82-84.
Id. at 109.
2. De Vogel, Wright And Weld
In September 1999, de Vogel, Wright and Weld were all managing directors at TCR. In addition, de Vogel was President of TCR. Both Wright and Weld have unambiguously testified that they were unaware of Uhrig's buyout proposal until after it had been sent to Garden Ridge on September 30. De Vogel testified that he learned of the buyout proposal for the first time on September 28 in a conversation with Uhrig.
Wright Dep. at 74-76; Weld Dep. at 84.
De Vogel Dep. at 97-98. Moreover, as part of the summary judgment record, de Vogel submitted an affidavit testifying that he did not learn of Uhrig's proposal at any MMM or partners' meeting. He was never asked about this during his deposition, and after he submitted his affidavit, the plaintiff made no further attempts to re-depose him.
Under the plaintiffs theory, Uhrig's proposal was supposedly discussed at both the September 13 MMM and September 27 MMM, as well as at a September 27 partners' meeting and partners' lunch. These three individuals were present at all of these meetings. Thus, for the plaintiff to prove his case, the court would have to find that all three of these senior executives at TCR falsely testified about the point at which (Uhrig's proposal was first disclosed. This is a finding the court declines to make.
Pl. Br. at 7-9.
3.Uhrig
Finally, the testimony of Uhrig, who has never been a defendant in this case, corroborates Wagner's denial of: any knowledge about the buyout proposal before the end of September. On the question of what Uhrig told Wagner and when, Uhrig's testimony is unequivocal. He did not have any discussion with Wagner about the buyout proposal before giving Wagner a copy of the September 30 letter.
Q. I want you to look at the exhibit book that has been given to you and turn to Exhibit 8 [the September 30 letter]. Did you have any discussion regarding Exhibit 8 with Mr. Wagner prior to September 30th?
A[Uhrig]. No.
Q. Did you have any discussions regarding any buy-out proposal with Mr. Wagner prior to September 30th?
A. No.
Q. Did you have any discussions with Mr. Wagner regarding the idea of taking Garden Ridge private with Mr. Wagner prior to September 30th?
A. No.
Q. Now, you've testified that you attended a Monday morning meeting on September 13th correct?
A. Correct.
Q. Okay. Did you discuss any buy-out proposal of Garden Ridge at that specific meeting?
A. No.
Q. How do you know that?
A. I know that because I didn't discuss it with anybody other than [de Vogel] before the 30th in the firm. Just didn't do it.
Q. At the August 30 Monday Morning meeting, was there any discussion of a buyout?
A. No,
Q. At the August 30 partners' meeting, was there any discussion of a buyout?
A. No.
Q. At the September 13th partners' meeting, was there any discussion of a buyout?
A. No.
Q, At the September 27th partners' meeting, was there any discussion of a buyout?
A. No.
Q. At the September 27th partners' lunch, was there any discussion of a buyout?
A. No.
Q. Mr. Uhrig, prior to September 30th, did you disclose any buyout prospect, idea, letter, or proposal to Whit Wagner?
A. No.
Tr. at 163.
Id. at 172.
Id. at 175-76
Id. at 184.
In response to a question posed by the court, Uhrig explained why he did not speak to Wagner about the buyout proposal before giving Wagner a copy of the letter. When asked Uhrig "[w]hy" he "didn't ... speak to Mr. Wagner," Uhrig replied "Well, first of all, he was on the [Garden Ridge] board." Uhrig also explained that the September 30 letter was a non-binding proposal that did not need the approval of his co-managing directors before it was sent.
Id. at 195.
Id. at 191-92.
Uhrig made a credible witness at trial. His manner was forthright, and he responded directly to questioning by counsel and by the court. While he had occasional lapses of memory, he also remembered and testified to some facts that, at first, seemed inconvenient for the defense. For example, it is fair to say that nearly everyone in the courtroom was surprised when Uhrig testified that it was only when he was preparing to testify at trial that he learned about de Vogel's meeting with Davis in Houston on or about September 28, 1999. This testimony caused considerable head scratching by the attorneys involved in the case but was undoubtedly the truth.
The plaintiff advances several reasons why the court should discount virtually all of Uhrig's testimony that is helpful to Wagner's position. The first relates to Arbuthnot testimony about a conversation she had with Uhrig after the litigation began and questions about insurance coverage arose. She testified that she called to ask Uhrig whether he had begun to plan the buyout during the time the Self-Tender was in existence. According to her testimony, which stands uncontradicted, Uhrig answered that he had not. Assuming the truth of Arbuthnot's testimony, it would appear that Uhrig's response was not accurate. Uhrig was not asked about this conversation during his deposition and testified at trial (some three years after the event) that he has no recollection of it. Arbuthnot testified about the call she received from Uhrig on September 24, 1999, in which Uhrig asked about the success of the Self-Tender and expressed disappointment with the low response. Uhrig also does not recall that conversation.
See page 8, supra.
Tr.. at 126-27.
The plaintiff points out that Uhrig testified that no one other than a few TCR associates went to Texas to work on the buyout proposal when, in fact, de Vogel had gone to meet with Davies. But this point is easily explained. The record appears abundantly clear that Uhrig was unaware of de Vogel's trip until a couple of weeks before trial. In any event, once the plaintiff became aware of de Vogel's trip (after deposing Davies), he made no effort to re-depose de Vogel (despite the court's urging) to determine the facts and circumstances surrounding it. Finally, the plaintiff claims that there were various material inconsistencies with Uhrig's testimony. The court has reviewed this testimony and finds that, to the extent there were inconsistencies in Uhrig's testimony, none of them was material.
Id. at 124.
Weighing all the facts: and arguments relating to Uhrig's credibility, the court concludes that it is appropriate to give credence to the testimony he gave in which he denied telling Wagner about the buyout proposal. It may seem improbable that Uhrig kept this information from Wagner, given the proximity of their offices and the absence of any formal procedures to protect the confidentiality of this information. Indeed, the very fact that Uhrig began to consider the buyout during the pendency of the Self-Tender suggests a certain reckless indifference on his part. Nevertheless, the court is satisfied that, while such suspicions were enough to warrant a trial, by creating a material issue of fact suspicions alone are not enough to overcome the clear and direct testimony of the only knowledgeable witnesses.
B. The Fact That The First Two References To Garden Ridge In The MMM Agendas Did Not Contain A Codename Supports Wagner's Case
There is also substantial evidence to support the defense position that the references to "Garden Ridge" in the MMM Agendas were to the Self-Tender, not to the incipient buyout proposal. TCR witnesses testified that references to actual proposed transactions on those agendas typically employ codenames. That is how TCR generally proceeded in situations where it was contemplating a going.| private transaction. Indeed, MMM agendas for meetings held after the buyout proposal was made to Garden Ridge refer to that proposal by using the codename "Daisy." The first appearance of that codename is on the October 27 MMM agenda, which is well after any relevant time period in this case. An October 12 MMM agenda was also prepared electronically, but subsequently overwritten. That agenda also probably referenced "Daisy" as a new deal in the pipeline.
Uhrig Dep. at 135-36.
The fact that the MMM agendas for the meetings held on September 13 and 27 refer to "Garden Ridge" rather than "Daisy" suggests that the point of discussion was the Self-Tender and not Uhrig's buyout proposal, as testified to by numerous witnesses. The plaintiff challenges this argument by pointing out that TCR's practice was not invariable and that it failed to use a codename when making reference to a proposed transaction involving another public company on the April 20 and May 3 MMM agendas. The record reflects differences of opinion about why that deal was not given a codename, but ultimately this court does not need to decide why that did not happen in that case. It remains a fact that the MMM agendas usually employed codenames, and it is also a fact that the buyout of Garden Ridge was referred to by a codename in agendas dated after the close of the Self-Tender. All of this supports the conclusion that, to the extent Garden Ridge was discussed at either of the September MMM meetings, that discussion related to the Self-Tender, not the buyout proposal.
Moreover, as was explained at trial and in earlier depositions, consistent with the informal nature of these agendas, TCR listed items for discussion under this section that involved significant internal corporate developments, and not strictly speaking "new deals." This was often done so that a particular topic in fact was discussed during the meeting. For example, Garden Ridge is not the only company referenced in the "New Deal" section of the September 13 agenda for which a "new deal" was not discussed. The agenda lists "Pameco" as well, which at the time was undergoing a significant refinancing. The same is true of the September 27 MMM agenda.
For all these reasons, 1 the court concludes that references to Garden Ridge in the MMM agendas for September 13 and September 27 related to the Self-Tender and not Uhrig's buyout proposal. There is also no evidence in the record to satisfy the plaintiff's burden of showing that the buyout proposal was discussed in any other context (i. e., the partners" meetings or partners' lunches) with Wagner before Uhrig's letter was actually sent to Garden Ridge on September 30.
B. Wagner Was Not Reckless In Failing To Inform Himself of The Buyout Proposal
The plaintiff makes a second argument that even if Wagner was unaware of Uhrig's buyout proposal, "the record still demonstrates that he was reckless in such ignorance." To support this argument, the plaintiff claims that "Wagner, with his background, experience and principal position at TCR, should [I have realized at least the substantial possibility that one or more of his fellow business partners at TCR . . was considering a plan to acquire Garden Ridge . . . ." This is so, the argument goes, because "Wagner failed to walk a few doors down and ask his partner Uhrig — or anyone — a simple question about whether he had any plans involving Garden Ridge." There are several responses to such an argument.
Pl. Rep. Br. at 26.
Id.
Id.
It is not true that Wagner could have asked a "simple question" to "anyone" at TCR about the buyout proposal. The record evidence is abundantly clear that nobody, other than Uhrig (and de Vogel at the eleventh hour) knew about the buyout proposal before shares tendered in the Self-Tender were accepted for payment. Moreover, the record does not suggest any reason why Wagner should have harbored any suspicion that Uhrig was planning a buyout proposal for Garden Ridge. Uhrig testified that he intentionally kept Wagner in the dark on this proposal because, among other things, he "was on the Garden Ridge board." In fact, the record demonstrates that Uhrig, who admittedly began considering the plan in early September, never told anybody at TCR, or outside TCR, about the proposal until, at the earliest, September 28, when he had a discussion with de Vogel regarding TCR's ability to finance such a transaction.
Tr. at 195.
Either Wagner had knowledge of the buyout proposal before his fiduciary duties to tendering stockholders ceased, or he did not. If he did and intentionally or recklessly failed to disclose such information Wagner would have breached his fiduciary duties. The court concludes, however, that Wagner did not have such knowledge. For Wagner to track down Uhrig and specifically ask whether he was considering a plan to take Garden Ridge private is not something that could be expected of him. Essentially, the plaintiff's theory of recklessness in this case would impose liability, not simply on the basis of a failure to disclose known information, but also and additionally on the basis of a failure to discover unknown information from third parties, even when those third parties clearly intend to keep the information to themselves and take steps to insure that their information is not made public. The court is unwilling to impose such a duty.
VI.
For the foregoing reasons, judgment will be entered in favor of Wagner and against the plaintiff. IT IS SO ORDERED.