Appeal from an order of the United States District Court for the Southern District of New York, Vincent L. Broderick, Judge, entering a permanent injunction, pursuant to 28 U.S.C. § 2283, restraining Richard Rothenberg from relitigating, in the New Jersey courts, any action "premised upon the asserted validity" of NL Industries, Inc.'s preferred share purchase rights plan.
Oakes, Meskill, and Pratt, Circuit Judges.
Richard Rothenberg, owner of 100 shares of NL Industries, Inc. ("NL"), appeals from an order of the District Court for the Southern District of New York, Broderick, Judge, entering a permanent injunction pursuant to 28 U.S.C. § 2283 enjoining Rothenberg from pursuing any action "premised upon the asserted validity" of NL's preferred share purchase rights plan ("purchase rights plan"), sometimes referred to as a "poison pill".
The district court granted the injunction because it found that (1) both the preliminary injunction it had granted earlier, see Amalgamated Sugar Co. v. NL Industries, Inc., 644 F. Supp. 1229 (S.D.N.Y. 1986), and a final consent judgment it had entered, had established the invalidity of the purchase rights plan and were valid final judgments entitled to res judicata effect; (2) Rothenberg was raising, in New Jersey litigation, the same claim that had been decided adversely to him in the district court; and (3) NL and its directors had adequately represented Rothenberg in the earlier litigation.
Rothenberg appeals. Because we agree that the final consent judgment entered by the district court is entitled to res judicata effect, we hold that the district court properly exercised its authority under § 2283 to enjoin relitigation in the New Jersey courts and affirm.
NL is a corporation, with its principal place of business in New York, that is engaged primarily in the oil service and chemical production businesses. Id. at 1231. Amalgamated Sugar is a Utah corporation with its principal place of business in Utah. The two other appellees, LLC Corp. and LN Partnership, are organized and exist under the laws of Delaware and Texas, respectively. Both have their principal places of business in Texas.
The litigation leading to this appeal began on June 25, 1986, when Amalgamated Sugar Co., LLC Corporation, and LN Partnership (collectively, "Amalgamated") sued NL and 12 of its directors in federal court, seeking a declaration that NL's purchase rights plan was invalid under New Jersey law and a preliminary injunction against its implementation. See 644 F. Supp. 1229 (S.D.N.Y. 1986). The effect of the purchase rights plan, which had been adopted by the NL directors on April 22, 1986, was, simply put, to dilute the voting power and equity of any acquiring shareholder whose holdings of NL common stock exceeded 20 percent. See id. at 1232-34. The plan reflected NL's concern that, because its shares were undervalued in the market, it was vulnerable to takeovers at less than adequate prices. Id. at 1231.
The validity of the purchase rights plan was crucial to Amalgamated because it was seeking to negotiate a cash merger with NL and had already acquired approximately 17 percent of NL's stock prior to filing suit. On July 3, 1986, after filing suit, it announced that it had acquired over 20 percent of NL's common stock and commenced a tender offer for all of NL's shares, conditioned on judicial invalidation of the purchase rights plan.
A hotly contested litigation battle ensued in the district court, in which NL and its directors vigorously defended the validity of the purchase rights plan. The proceedings included extensive briefing, five lengthy hearings, and discovery that produced nearly 9,000 pages of documents. The evidence included depositions from 18 people, including the chief executive officers and chief financial officers of NL and Amalgamated, 16 affidavits, and courtroom testimony. Judge Broderick commented that he had "rarely, in ten years on the bench, seen a matter as vigorously and effectively contested", and that no additional evidence "could have been adduced on the subject" of the validity of the purchase rights plan.
Although NL shareholders, including Rothenberg, were notified of the litigation and of the attack on the purchase rights plan's validity, Rothenberg did not move to intervene but, through his counsel, wrote to Judge Broderick to inform the court that he planned to bring an action in the New Jersey state court seeking a declaration of the purchase rights plan's validity.
On August 5, 1986, the district court denied NL's motion to stay or dismiss on the grounds that the matter concerned New Jersey state law, and preliminarily enjoined NL and its directors from implementing or otherwise utilizing the purchase rights plan pending final adjudication of the matter. 644 F. Supp. at 1240. The court found that the purchase rights plan was ultra vires as a matter of New Jersey state law because it allowed discrimination among shareholders of the same class and series, id. at 1234, and because the plan effectively prevented stockholders from receiving tender offers. Id. at 1238.
On August 6, 1986, Rothenberg filed suit in the New Jersey state court against Amalgamated and NL, seeking to relitigate the validity of the purchase rights plan that ...