Hess v. Gray

85 F.R.D. 15, 29 Fed. R. Serv. 2d 565, 1979 U.S. Dist. LEXIS 8556
CourtDistrict Court, N.D. Illinois
DecidedNovember 14, 1979
DocketNo. 79 C 2023
StatusPublished
Cited by48 cases

This text of 85 F.R.D. 15 (Hess v. Gray) is published on Counsel Stack Legal Research, covering District Court, N.D. Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Hess v. Gray, 85 F.R.D. 15, 29 Fed. R. Serv. 2d 565, 1979 U.S. Dist. LEXIS 8556 (N.D. Ill. 1979).

Opinion

MEMORANDUM OPINION AND ORDER

ASPEN, District Judge:

This securities action has been brought by the plaintiff Peter A. Hess against defendant United Technologies Corporation (“United”), a Delaware corporation with its principal place of business in Hartford, Con[19]*19necticut, and two of United’s officers, defendant Harry J. Gray (“Gray”), Chairman, Chief Executive Officer, President and Member of the Board of Directors, and Edward L. Hennessy (“Hennessy”), Executive Vice-President, Chief Financial Officer, and Member of the Board of Directors. Hess is seeking damages from the defendants on behalf of himself and all other stockholders similarly situated. Jurisdiction arises under the Securities Exchange Act of 1934, 15 U.S.C. § 78aa and principles of pendent jurisdiction.

In November of 1978, United made a tender offer for up to 17,000,000 shares of Carrier Corporation (“Carrier”) common stock at $28 per share.1 Upon receipt of this offer, plaintiff promptly tendered his 3,000 shares of Carrier common stock. However, only 2,553 were purchased by United, and the remaining 447 shares were returned to the plaintiff. During the period of the offer, extending from November 7 to early December of 1978, several Carrier stockholders “double-tendered” their shares to United.2 When more than 17,000,000 shares were tendered, United stated that it would take, pursuant to the terms of the tender offer, approximately 85.07 percent of that stock on a pro rata basis. The complaint alleges that this plan was carried out in spite of the fact that United allegedly knew that some of these shares had been double-tendered.

It is further alleged in.the complaint that United purchased only 16,250,000 shares on a pro rata basis due to incorrect calculations. In order to gain control of the company and meet the terms of the tender offer, United had to purchase an additional

750,000 shares. In doing so, United allegedly failed to accord both the plaintiff individually and the plaintiff class as a whole the opportunity to resubmit to United the shares that had been returned on the pro rata plan. Instead, the remaining shares were purchased directly from institutional sellers and on the open market at prices below the $28 offer price. As a consequence of these transactions, plaintiff contends that not only did United accept a lower percentage of the tendered shares than it had stated would be accepted, but also that the institutional sellers were able to sell a higher percentage of their tendered shares for themselves or their customers, both being directly contrary to the terms and conditions of the original offer.

Based on this series of transactions, the plaintiff alleges that the defendants violated §§ 10(b), 13(d), 14(d)(6) and 14(e) of the 1934 Act and Rules 10b — 4, 10b-5 and 10b-13, thereby causing damages to be sustained by the plaintiffs, shareholders of Carrier.

In July of 1979, the defendants filed a motion requesting a transfer of venue to the Southern District of New York. Plaintiff opposed this motion and in response filed a motion to amend the complaint and to add two new defendants, Connecticut General Life Insurance Company (“Connecticut General”) and Continental Illinois National Bank and Trust Company (“Continental”). If Continental is joined as a defendant, this would preclude a transfer of this cause of action to New York. The venue provision of the National Bank Act, 12 U.S.C. § 94, allows civil actions against national banks to be brought only in the [20]*20district where it is established,3 in this case the Northern District of Illinois.

The issues before the Court are (1) whether the complaint can be amended to add two new defendants and (2) whether all or part of this action should be transferred to the Southern District of New York.

AMENDING THE COMPLAINT

Normally, Rule 15(a), Fed.R.Civ.P. allows an amendment to the complaint to be made as a matter of course any time before a responsive pleading is served:

A party may amend his pleading once as a matter of course at any time before a responsive pleading is served or, if the pleading is one to which no responsive pleading is permitted and the action has not been placed upon the trial calendar, he may so amend it at any time within 20 days after it is served.

The plaintiff failed to amend his complaint before the defendants filed their answer on July 24, 1979. The motion to amend was filed some eight days later on August 1.

Although the plaintiff can no longer amend as a matter of right, Rule 15(a) does provide for liberal amendment after responsive pleadings have been filed:

. . Otherwise a party may amend his pleading only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires.

This rule has been interpreted and applied by federal courts in a liberal fashion absent some justification for refusal. “The central inquiry in each case is whether an amendment would result in undue prejudice to the defendant.” Alberto-Culver Company v. The Gillette Company, 408 F.Supp. 1160, 1161 (N.D.Ill.1976). See also Foman v. Davis, 371 U.S. 178, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962), 3 Moore’s Federal Practice ¶ 15.08(2), and United States v. Hougham, 364 U.S. 310, 81 S.Ct. 13, 5 L.Ed.2d 8 (1960).

Generally, almost every amendment to a complaint results in some prejudice to the defendant, either in the form of additional counts or new discovery resulting in delay. The test in each case is whether undue prejudice will result. As the court in Alberto-Culver, supra, stated, the trial court, in exercising its discretion, must balance the general policy behind Rule 15 (that controversies should be decided on the merits) against the prejudice that might result from amendment. A motion to amend should be denied only in those instances where the prejudice outweighs the right to have the case tried on the merits.

The defendants argue that undue prejudice will result from this amendment should it be allowed because the joinder of Continental will prevent.a change of venue to the Southern District of New York. The Court disagrees in that even though Continental may be added, Rule 21, Fed.R.Civ.P. provides for severance, thus a transfer with respect to a severed party is possible if the requirements of 28 U.S.C. § 1404(a) are met. Rule 21 provides in part: “Any claim against a party may be severed and proceeded with separately.” Therefore, even though the amendment would prevent transfer of the cause of action as against Continental, there is no undue prejudice with respect to United because of the provision in Rule 21 for severance.

A. Activities of Continental and Connecticut General

Plaintiff has moved to amend the complaint and add two new defendants, Connecticut General and Continental, either as indispensable parties under Rule 19, Fed.R. Civ.P. or under permissive joinder pursuant

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Cite This Page — Counsel Stack

Bluebook (online)
85 F.R.D. 15, 29 Fed. R. Serv. 2d 565, 1979 U.S. Dist. LEXIS 8556, Counsel Stack Legal Research, https://law.counselstack.com/opinion/hess-v-gray-ilnd-1979.