submitted to and rejected by the board. Lipton, supra, 35 Bus. Law. at 116.
The weight of all these authorities strongly suggests that the Board was under no duty imposed by any federal, state, or common law standard to communicate the terms of the SGS proposal (and the Board's decision to reject it) to Enterra's shareholders. Under the peculiar circumstances of this case, wherein SGS has bound itself not to present an offer to purchase the corporation's stock in excess of the limit provided for in the Agreement directly to the shareholders, it may well be that there was no obligation on the part of the Board to inform the shareholders of SGS' proposal and the Board's reasons for rejecting it. However, assuming without deciding that the Board was obliged, under the circumstances of this case, to convey this information to the shareholders, the movants' request that this Court order the Board to do so has been rendered moot by Enterra's publication of its 1984 Second Quarterly Report (sent to all shareholders), wherein Enterra's Chairman briefly describes the SGS proposal, the Board's reason for rejecting it, and the status of this litigation.
It is apparent that much of the relief requested by the movants in their motions for a preliminary injunction (i.e., that the Board consider the adequacy of the SGS proposal, and that the Board disclose the terms of the proposal and the basis for its decision to reject it) is no longer at issue. However, although the movants rely heavily upon the shareholders' alleged "right to know" of the Board's determination of the SGS proposal, clearly the movants' primary interest lies in obtaining an order from this Court which would effectively convey SGS' offer to Enterra's shareholders without fear that SGS will incur liability for breach of the standstill agreement. The movants contend that the Board's consideration and disclosure of the SGS proposal are not sufficient, and that the Board itself is obliged to extend, on behalf of SGS, the SGS offer to all of Enterra's shareholders and provide a means by which each shareholder can accept or reject the SGS offer. The movants contend that as an absolute principle of corporate law (and notwithstanding any agreements to the contrary) no board of directors can fail to convey to the shareholders an offer received by the board to purchase the shareholders' stock.
The movants have not cited, nor has this Court discovered, any federal or state statute (or any common law authority) which requires the board of directors to convey to all shareholders (and permit them to accept or reject) any offer for the purchase of all the shareholders' stock where, as in the present case, the offeror and the corporation have entered into a standstill agreement limiting the percentage of the corporation's stock which the offeror can acquire. As noted above, it may well be that the Board is not even obliged to simply inform the shareholders of the offer. Accordingly, this Court therefore has determined at this stage of the proceedings that no reasonable likelihood of success on the merits of the movants' legal claim has been demonstrated.
This Court has concluded, for all of the reasons set forth above, that the movants have not demonstrated any reasonable likelihood of success on the merits of their legal claims. The motions for preliminary injunctive relief, therefore, must be denied on this basis alone.
D. Irreparable Injury and the Equity Factors
As heretofore pointed out, in addition to demonstrating a likelihood of success on the merits of its legal claim, a party seeking a preliminary injunction also must show that absent the relief requested, it will suffer irreparable injury. In this case, the movants have not demonstrated that they would suffer any irreparable injury, absent injunctive relief, as a result of the Board's alleged breach of fiduciary duty. The Third Circuit has held that a district court should not "exercise the delicate power of injunctive relief" absent a "clear showing of immediate irreparable injury." Ammond v. McGahn, 532 F.2d 325, 329 (3d Cir. 1976). An alleged ongoing financial loss cannot support a claim for preliminary injunctive relief, because "the injury must be of a peculiar nature, so that compensation in money alone cannot atone for it." In Re Arthur Treacher's Franchisee Litigation, 689 F.2d at 1146. The movants have not shown that any injury suffered as a result of the Board's actions could not ultimately be compensated in damages. In the context of shareholder derivative suits, courts have refused to grant injunctive relief to shareholders who allege that actions taken by the directors have deprived them of an opportunity to accept a tender offer, see FMC Corp. v. R.P. Scherer Corp., 545 F. Supp. 318, 322 (D. Del. 1982), or who allege that actions taken by the Board have diminished the value of their holdings, see Northwest Industries, Inc. v. B.F. Goodrich Co., 301 F. Supp. 706, 711 (N.D. Ill. 1969), on the ground that any financial injury ultimately suffered by the shareholders can be adequately compensated by a damages award.
Furthermore, the Court has considered the interest of third parties and the public in the grant or denial of the requested injunctive relief, and has determined that the equities clearly weigh in favor of denying the requested injunction. As noted above, standstill agreements have generally been recognized as valid contracts achieving a measure of stability between a corporation and a substantial investor, and many such agreements are currently in effect and presumed to be valid and binding. If this Court were to grant the relief requested by the movants, the validity and enforceability of all such agreements would be cast into doubt. The resultant disruption of the relations between corporations and their major shareholders, as well as the possible disruption of the trading market for securities of those corporations which have entered into such agreements, clearly would not be in the best interests of the parties to those agreements or to the public.
For all of the reasons set forth above, this Court has determined that Wallen and SGS have failed to satisfy the burden necessary to justify the issuance of mandatory injunctive relief. The movants have failed to demonstrate any reasonable likelihood of success on the merits of their legal claims, and have failed to demonstrate the immediate threat of irreparable injury necessary to sustain the grant of a preliminary injunction. Moreover, the Court has determined that the interests of third parties and the public would not be well served by granting the requested injunctive relief. Accordingly, the motions for a preliminary injunction filed by defendant SGS in the Enterra case, and by plaintiff Wallen in the Wallen case, must be denied.
[EDITOR'S NOTE: The following court-provided text does not appear at this cite in 604 F. Supp.]
AND NOW, this 9 day of January, 1985, upon consideration of the plaintiff's motion for a preliminary injunction, for the reasons stated in this Court's Memorandum of January 9, 1985, IT IS HEREBY ORDERED that the plaintiff's motion for a preliminary injunction is DENIED.
AND NOW, this 9 day of January, 1985, upon consideration of the motion for a preliminary injunction filed by defendant SGS Associates, for the reasons stated in this Court's Memorandum of January 9, 1985, IT IS HEREBY ORDERED that the defendant's motion for a preliminary injunction is DENIED.
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