Howing Co. v. Nationwide Corp.

826 F.2d 1470 (6th Cir. 1987)

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Nature of the Case

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Facts

D is one of the largest life insurance holding companies in the United States. D issued a special class of common stock (Class B common) which was held entirely by two Nationwide companies: Nationwide Mutual Insurance Company and Nationwide Mutual Fire Insurance Company. The Class A common stock continued in the hands of individual shareholders. Because of the way voting rights were allocated between the Class A and Class B stock, complete ownership of the Class B shares gave Nationwide Mutual and Nationwide Mutual Fire effective control of the corporation. The Class B shares were entitled as a class to one-half of the voting power of the corporation as long as the percentage of Class B shares outstanding relative to outstanding shares of all classes combined did not fall below forty percent. Nationwide Mutual and Nationwide Mutual Fire held the same voting power as all the Class A shares combined. Under these circumstances, it is clear that these companies controlled the corporation despite wide public ownership of the Class A shares. They began to eliminate public ownership of D in December 1978 when these companies made a tender offer to buy the Class A shares for $20.00 per share net in cash. After the tender offer, they continued to purchase shares in the open market at prices ranging between $ 22.50 and $ 24.62 per share. These transactions ultimately gave Nationwide Mutual and Nationwide Mutual Fire ownership of 85.6% of the Class A common stock formerly held by the public. The Board of Directors of D then approved a transaction in which Nationwide Mutual and Nationwide Mutual Fire would acquire the remaining Class A shares at $42.50 per share. This transaction was approved by 94.7% of the Class A shares. Ps abstained from voting their shares respecting the merger or seeking their appraisal remedy under state law. Ps brought a class action against the proposed merger. Ps raised claims under the Securities Exchange Act of 1934 §§ 10(b), 13(e), and 14(a) and rules promulgated thereunder as well as state law claims based on a breach of fiduciary duty. Ds moved for summary judgment, and it was granted. Ps appealed.