IN RE: Commonwealth Oil/Tesoro Petroleum Securities Litigation

_ Case MDL No. 347Document 2 Filed 05/05488-Bag	gelof1s
MULTICISTRIE Le| | FILED EE
BEFORE THE JUDICIAL PANEL SEP	20 1978 Ln EI
LTT IST LITIGATION CLE aE Boar 9 F SoIn re Commonwealth 0il/Tesoro ) DOCKET NO. 347 ) orp |
Petroleum Securities Litigation ) rr
OPINION AND ORDER |
BEFORE JOHN MINOR WISDOM, CHAIRMAN, AND EDWARD WEINFELD, Tn Lo Ee
EDWIN A. ROBSON, STANLEY A. WEIGEL, ANDREW A. CAFFREY*, EE
AND ROY W. HARPER, JUDGES OF THE PANEL. SERIE
PER CURIAM RE
I. BACKGROUND
This litigation consists of four actions vending in -
Two districts——three in the Southern District of New York oo | :
~ and one in the Western District of Texas. The actions are oo
| all brought under, inter alia, the federal securities laws. -
The major defendants in these actions are Commonwealth Oil
Refining Company (CORCO), TESORO Petroleum Corporation (TESORO) Co
and certain present and former officers and directors of |
CORCO and/or TESORO. TESORO and eight of the individual
iefendants are named in all four actions, one individual
iefendant is named in thre= actions, CCRCC and five individual Sn
defendants are named in two actions, and seven individual a.
defendants are named in only one action. Additional defendants,
cach in only one action, include CORCO's accountants and :
a stockbrokerage that handled a 1975 tender offer pursuant BN N oo
to which TESORC purchased 5.5 million shares of CORCO stock.
F Judze Calirey LOOK no pars in tne decision of this matter. oo

Case MDL No. 347 ‘Document 2 Filed 05/05/15 Page 2 of 13 ~ ) |
AR These four actions center around that tender offer: as
vd the subsequent disclosure by CORCO of financial difficulties, ooAe
EE eventually leading in March 1978 to the filing by CORCO
of a voluntary petition under Chapter XI of the Bankruptcy
: Act in the Western District of Texas;L/ and a resulting Sa oo
substantial decrease in the price of TEISOR0 and CORCO securities. CL ER
The specific allegations in each action are as follows:
A. New York Actions ) 0
1) Bouchard - Plaintiffs are shareholders of CORCO.
They bring this action as a derivative action pursuant to Co
Fed.R.Civ.P. 23.1, and as a class action pursuant to oo
Fed.R.Civ.P. 23 on behalf of the following two classes: oo :
1) all holders of CORCO common shares as of June 6, 1975 :
who did not tender those shares to TESORO on that date; i -
and 2) all purchasers of CORCO common stock aftar June 6, a
1975. Defendants ars CORCO: TESORO; Z. F. Hutton & Co.,
the stockbrokeraze that handled the purcnase of 5.5 million
shares of CORCO by TZ30R0; and twenty nresent or former k
officers and directors of CORCO and/or TESORO.
The factual allegations made ov the vlaintiffs in Bouchard
are as follows: | :
1/ i motion to transiar The oanirustcy proceeding to the
bistrict of Puerto Aico, where CORCO's major rafininz facilities
are located, was denied by the canxruptey court iurinz lav -
1573.

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® a) During April 1975 TZSORO made a tender offer for
5.5 million shares of CORCO at $11.50 per share. Norman
C. Keith, CORCO's chief executive officer and the largest
single shareholder in CORCO, publicly opposed the offer
as inadequate, expressing an optimistic outlook for CORCO's
future following the resolution of past financial difficulties.
CORCO also instituted suit to block the offer.
b) During May 1975 TESORO raised its offer from $11.50
to $14.25 per share. In a joint vress release, TESORO and
CORCO stated that CORCO had rejected other voroposed tender
offers; that, upon completion of the tender offer, a new
board of directors for CORCO would be nominated in which
C TESORO would have 3 majority of one; that TESORO and CORCOwould begin planning a merger between the two companies;
and that Keith would remain as a director of and senior
consultant to CORCO and would become a director of TESORO.
¢) During June 1975 TESORO completed its tender offer,
acquiring approximately 37 percent of all outstanding shares
of CORCO.
d) During July 1975 a number of new members were appointed
to the board of directors of CORCO with the result that
TESORO was thereafter in full and effective control of CORCO.
e) During May 1976 CORCO's corporate headquarters
were moved from New York, New York to San Antonio, Texas.
@

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£) During December 1976 TESORO and CORCO announced Cthat tne contemplated merzer between the two companies
would be deferred until CORCO could demonstrate its financial
solvency.
Plaintiffs further allege that CORCO's financial condition
was bleak because of commitments to sell refined petroleum
at prices below those at which CORCO could purchase and
refine crude petroleum; that the CORCO management misrepre-
sented the financial condition and future earning prospects
of CORCO in connection with TESORO's tender offer; that
Keith, in exchange for dropping his opposition to the TESORO
tender offer, arranged for and has received excessive remuner-
ation and expense funds in comparison to the services he
has performed for CORCO; that the defendants failed to disclose ®
fully the terms of the contract made with Keith; that the
CORCO management failed to disclose the terms of competing
proposals made at the time of the TESORO tender offer; that
the defendants falsely stated that a merger between CORCO
and TESORO was under contemplation; that TESORO, upon gaining
control of CORCO, discovered the true financial condition
of CORCO and adopted the false representations of the previous
management to TESORO's own benefit; and that TESORO, also
upon gaining control of CORCO, discovered the previous mis-
management of CORCO and continued that mismanagement until
the true financial condition of CORCO finally became known
during early 1977, when CORCO was on the verge of bankruptcy. ®

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® The derivative claims are brought 1) to recoup the allegedly
excessive sums spent on Keith, 2) to recover damages allegedly
suffered by CORCO from the rejection by CORCO's management
of competing proposals made at the time of TESORO's tender
offer, and 3) to recover other damages allegedly suffered
by CORCO. The class action claims are brought to recover
"damages allegedly suffered by members of the two classes
as a result of substantial declines in the price of CORCO
stock caused by defendants' misconduct.
2) Lewis - Plaintiff is an individual purchaser of
CORCO securities who seeks to reoresent a class comprised
o of all purchasers of CORCO securities between April 22,1975 and April 1, 1977. Defendants are CORCO, TESORO and
fifteen present or former officers and directors of CORCO
and/or TESORO. The factual contentions made by the plaintiff
in Lewis are substantially the same as the factual contentions
made by the plaintiffs in Bouchard. Plaintiff alleges that,
as a result of the misrepresentations of defendants concerning
the financial status of CORCO, plaintiffs and members of
the plaintiff class were induced to purchase securities
of CORCO at artificially inflated prices and suffered substan-
tial damages when the true financial condition of CORCO
became known and the orice of CORCO securities dropped.
|

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®
3) Joseph - Plaintiff is an individual who purchased
shares of stock in TESORO on December 31, 1976. Plaintiff
seeks to represent a class consisting of all purchasers
of shares of TESORO from November 1975 through June 7, 1977.
Defendants are TESORO and nine present officers and directors
of CORCO and TESORO. Plaintiff alleges that, soon after
TESORO completed its tender offer and acquired control of
CORCO, TESORO discovered that CORCO was in desperate financial
condition, that CORCO was likely to suffer substantial operating
losses, and that as a result the shares TESORO had acquired Chad a value much lower than the price it had paid for them.
TESORO did not disclose this scenario to its shareholders
or to the public, plaintiff alleges, and continued to list
its investment in CORCO at the amount it had paid for the
shares. By failing to write down the value of its investment
in CORCO, plaintiff alleges, TESORO grossly overstated its
income and assets in its financial reports. Plaintiff alleges
that he and the members of the plaintiff class thereafter
suffered damages when TESORO disclosed that 1t was substantially
writing down the value of its investment in CORCO, and TESORO
shares suffered a significant decline in price as a result.
®

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|
B. Texas Action
Plaintiff is an individual who purchased a number of
shares of CORCO stock during July 1976 and later sold those
shares at a loss. This plaintiff seeks to represent a class
comprised of all purchasers of CORCO stock between February
17, 1976 and December 31, 1976. Defendants include eleven
present or former officers and directors of CORCO and/or
TESORO; Deloitte, Haskins & Sells, CORCO's accountants;
~ and TESORO. Plaintiff alleges that the defendants conspired
C to conceal from the public adverse information concerningthe financial condition of CORCO, that the defendants inflated
the assets and profits of CORCO, that the defendants failed
to disclose substantial operating losses suffered by CORCO,
and that, as a result of these activities, the price of
CORCO shares was artificially inflated. Plaintiff also
alleges that CORCO's accountants failed to discover and
disclose the true financial condition of CORCO. When the
true financial condition of CORCO became known, plaintiff
alleges, the price of CORCO stock declined substantially
and plaintiff and members of the plaintiff class suffered
losses.
®

Case MDL No. 347 Document 2 Filed 05/05/15 Page	8 of 13 ) i
II. PROCEEDINGS BEFORE THE PANEL ®
Defendant TESORO and eight individual TESORO directors
who are defendants in two or more actions move the Panel,
pursuant to 28 U.S.C. §1407, for transfer in this litigation
to the Western District of Texas. Several parties, each
of whom is a party in only a single action, oppose transfer
with respect to all or some of the actions in this litigation.
In the alternative, the Southern District of Hew York and
the District of Puerto Rico have been suggested as transferee
forums.
We find that these actions involve common questions
or fact and that transfer of the three New York actions
to the Western District of Texas for coordinated or consolidated C
oretrial proceedings with the action pending there will
serve the convenience of the parties and witnesses and promote
the just and efficient conduct of the litigation.
III. THE QUESTION OF TRANSFER
The opponents of transfer admit that these actions
involve some common questions of fact, but they maintain
that these common issues appear in a much larger context
of issues that are unicue to each action. Opponents emphasize
tnat, though =2acn acticn nas been brought as a class action,
the class period assertad and the composition of the class
for wnich reoresentation is sought is different in eacn ®

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~O—
® action. In particular, opponents contend, Joseph, which
is brought on behalf of TESORO shareholders and concerns
allegedly false and misleading statements in TESORO financial
reports, is entirely distinct from the other three actions,
which are brought on behalf of CORCO shareholders and are
concerned primarily with false and misleading statements
in CORCO financial reports. The opponents of transfer conclude
that the common issues involved in these actions are not
complex, and that the common discovery will not be time-
consuming. Rather, it is the unigue issues in each action
whicn are complex and which will involve time-consuming
discovery, opponents argue. Voluntary cooperation among
® the parties and the two involved courts, including agreement
to share any common aspects of discovery, would serve as
a suitable alternative to transfer, opponents assert.
2.F, Hutton, a defendant in Bouchard only, requests
that the Panel delay decision on the question of Section
1407 transfer until the resolution in Bouchard of pending
motions to dismiss for lack of subject matter jurisdiction
and failure to state a claim. These motions have been briefed
and oral argument has been requested. E.F. Hutton argues
that the disposition of these motions could have a substantial
impact on the eventual scope of the issues in Bouchard.
“We Tind the arguments in ooposition to transfer unpersua-
C sive. These four actions share complex questions of factconcerning tne financial condition of CORCO, the adequacy

Case MDL No. 347 Document2 Filed 05/05/15 Page 10 of 13 ' 3
-10-
AT disclosure of that financial condition to the oublic, C
and TESORO's involvement in any cuestionable non-disclosure
of that condition after TISOR0 assumed control of CORCO
sarouzh the 1975 tender offer. Though Joseph is brouzht
an behalf of TZSNAL sharenolders, the claims asserted in
that action are based on TE30RO's investment in CCRCO and,
like the other three actions, will necessitate substantial
inquiry into ths Tinancial condition of CORCO and the management
of C0200. Our findinz of substantial common questions of
fact amonz these four actions ic augmented by the presence
~f nines common defendants, “ncludinz TZEORO, in 2ll four
actions. Transfer under Section 1LC7 is thus necessary
to mrevent duplicative nretrial procsedings and =2liminate Cthe possibility of inconsistent pretrial rulings. See In
ra Amtel, Inc. Securities Litization, 447 F.Supp. L6H, LEO-OT
(J.P.0.L. 1978). ‘nile voluntary coordination of discovery
efforts among parties and their counsel is always commendable,
transfer of these actions to a sinzle district under Section
1.07 will ansure tne streanlininz of discovery and all other
aretrial nrocesedinzs as well. 3e2 In re First Jfationzl 3ank,
Hsavensr, Oxlanoma (First iortzasze Revenue Zonds) Securities
Litization, 451 F. Supp. 995, 997 (J.P.M.L. 1978).
We note that each opponent of transfer is a party in
onlv one action, and that it is not uncommon for such parties
®

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®
to oppose inclusion in Section 1407 proceedings. But the
Panel must consider the interests of all parties, and must
consider multidistrict litigation as a whole in the light
of the purposes of Section 1407. See In re Library Fditions
of Children's Books, 297 F.Supp. 385, 386 (J.P.M.L. 1968).
The transferee judge, of course, has the broad discretion
‘to design a pretrial program that will allow discovery on
any issues unique to any action or party to proceed concurrently
with the common discovery. See In re Reoublic Mational-Realty
Equities Securities Litigation, 382 F.Supp. 1403, 1405-06
(J.P.M.L. 1974). And no party need participate in pretrial
C proceedings unrelated to that party's interests. See, e.8.,
Parts I and II, §§2.31, Manual for Complex Litigation (rev.
ed. 1977) : i a
The pendency in Bouchard of certain motions to dismiss
is not a versuasive reason to delay transfer in this litigation.
These motions can be presented to and decided by the transferee
judge following transfer. See In re Midwest {ilk “onopolization
Litigation, 398 F.Supp. 676, 678 (J.P.#.L. 1975); In re
VMolinaro/Catanzaro Patent Litization, 380 F.Supp. 794, 795
(J.P.¥4.L. 197L).
®

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IY. SELECTION OF THE TRANSFEREL FORUH
Of the three transferee forums suggested for this liti- C
zation, the Western District of Texas is clearly the most
aporovriate. Since CORCO is involved in a Chapter XI reorgani-
zation proceeding in the Western District of Texas, transfer
there will facilitate coordination between that proceeding
and the instant actions. See In re J.S. Financial Securities
Litigation, 375 F.Supp. 1403, 1404 (J.P.M.L. 1974); In re
Squity Funding Corporation of America Securities Litigation,
375 F.Supp. 1378, 13387 (J.P.M.L. 1974); In re four Seasons
Securities Laws Litigation, 323 F.Supp. 221, 223 (J.P.M.L.
1971): In re Penn Central Securities Litization, 322 F.Supp.
1021, 1023 (J.P.¥.L. 1971). Furthermore, the corporate
neadquarters of CORCO and TIZISORO are located in the Jestern CDistrict of Texas and, as a result, many relevant documents
and witnesses are located there. See In re Investors Funding
Corporation of lew York Securities Litigation, 437 F.Supp.
1199, 1203 (J.P.¥.L. 1977).
IT IS THEREFORE ORDERED that, pursuant to 28 U.S.C.
§1407, the actions listed on the following Schedule A and
pending in the Southern District of New York be, and the
same hereby are, transferred to the Western District of
Texas and, with the consent of that court, assigned to the
Honorable patrick E. Higginbotham, sitting by designation
pursuant to 28 U.S.C. §292 (b), for coordinated or consolidated
pretrial proceedings with the action listed on Schedule
A and pending in that district. ®

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SCHEDULE A MDL-347
o SOUTHERN DISTRICT OF NEW YORK
Morton S. Bouchard, et al. v. Tesoro Civil Action
Petroleum Corp., et al. No. 77-Civ-2037 (KTD)|
Harry Lewis v. Norman C. Keith, et al. Civil Action
No. 77-Civ-3402 (KTD)|
Seymour Joseph v. Peter M. Detwiler, et al. Civil Action
No. 77-Civ-3809 (WK)
WESTERN DISTRICT OF TEXAS
David Jaroslawicz v. James C. Phelps, Civil Action
et al. No. SA-~78-CA-101-
(DWS)