NEW YORK — Saying that B. F. Goodrich directors may have acted in their own self-interest in paying corporate raider Carl C. Icahn $41 million in "greenmail" in 1984, a federal judge Thursday refused to dismiss a shareholders' lawsuit seeking return of the money and a new election of directors.
U.S. District Judge John M. Walker said Goodrich's management and directors may have systematically misrepresented the terms of the payoff in statements to shareholders, possibly out of fear that its disclosure could provoke the shareholders to unseat them.
Goodrich had asked Walker to dismiss the case on grounds that the plaintiffs had not raised their objections first with the company. Relying on a standard legal rule, Walker found that there was enough evidence that the directors were acting in their own interest that the shareholders' demand would have been fruitless.
Walker also refused to dismiss the shareholders' claims that Icahn and his partners "aided and abetted" an alleged breach of fiduciary duty and an act of corporate waste by the Goodrich directors. Pending further appeals, those contentions will become the subject of further litigation and the taking of pretrial testimony from Icahn and others.
In a prepared statement Goodrich general counsel Jon V. Heider said Walker's ruling is an intermediate step in the case "and in fact (he) has not received any evidence regarding the allegations." Judge Walker relied on briefs from both sides in making his ruling.
Goodrich is a diversified company that makes, among other things, plastics, specialty chemicals, tires and industrial rubber goods.
Greenmail is a corporation's repurchase of its own stock from a large shareholder for more than the market price. In practice, it is undertaken to remove the threat of a takeover by a large shareholder by encouraging him to sell back his shares at a generous profit.
Greenmail is perhaps the most controversial corporate defensive maneuver for several reasons. Because it decisively eliminates the prospect of a takeover by the bought-out shareholder, it has a sharply depressing impact on the price of stock owned by all other shareholders--a key allegation in the shareholder lawsuit on which Walker ruled Thursday.
Goodrich in November, 1984, repurchased more than 1.1 million shares, or 4.9% of those outstanding, from Icahn at a price 25% higher than the market price at the time. Icahn had told Goodrich management that he was planning to acquire up to 30% of the company's shares and to seek control of the company or a seat on its board.
As Securities and Exchange Commission investigators found later, Goodrich's management and board then systematically suppressed information about the terms of the transaction.