Heffernan v. Pacific Dunlop Gnb Corp.,

965 F.2d 369 (1992)

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Nature of the Case

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Facts

Daniel Heffernan is a former director and 6.7% shareholder of GNB Holdings, Inc. (Holdings) and its wholly-owned subsidiary GNB Inc. (GN). In October 1987, a third firm, Pacific Dunlop Holdings, Inc. (Pacific) acquired control of Holdings (and in turn, GNB) pursuant to a stock purchase transaction whereby Pacific acquired approximately 60% of Holdings' stock, boosting its total ownership of 92%. Prior to Pacific's purchase, Holdings filed a registration statement with the Securities and Exchange Commission (SEC) in contemplation of an initial public offering of its stock. It later abandoned this idea and chose a private transaction with Pacific. The transaction was pursuant to an agreement (Stock Purchase Agreement, here SPA) by and among Pacific, Holdings, certain management shareholders, Heffernan and Allen & Co. (an investment company that owned approximately 20% of Holding's stock and for which P was a vice president). Pursuant to the Stock Purchase Agreement, which apparently incorporated the material that Holdings previously had prepared for the SEC, P sold Pacific his 6.7% interest in Holdings and ceased to be a director. Litigation subsequently arose out of the SPA. In September 1990, Pacific sued P and Allen & Co. under section 12(2) of the Securities Exchange Act of 1933, and under Illinois securities law. D sought to rescind its purchase of P's and Allen's shares in Holding on the ground that the SPA was materially misleading in regard to its disclosure of certain liabilities facing Holdings and GNB. At oral argument, the parties indicated that Pacific has sued some of the other parties to the SPA as well, although the record leaves unclear specifically whom it sued. P requests indemnification and an advance on his litigation expenses from Holdings and GNB pursuant to section 145 of the Delaware General Corporation Law and the company’s corporate bylaws. When Holding refused and GNB failed to respond to P's request, he initiated this action against the two companies seeking to establish his rights to indemnification and advances.