A federal appeals court on Tuesday upheld a Delaware judge's rejection of billionaire investor Kirk Kerkorian's claims that he was defrauded in the 1998 merger of DaimlerBenz and Chrysler.
A three-judge panel of the 3rd U.S. Circuit Court of Appeals also affirmed a $556,000 sanction against DaimlerChrysler for the late production of documents, an error that abruptly forced the halt of a 13-day bench trial in December 2003.
Kerkorian sued DaimlerChrysler in 2000, claiming that DaimlerBenz engineered a takeover of Chrysler, then cheated him out of billions by casting the deal as a merger of equals. Kerkorian's wholly owned Tracinda was Chrysler's largest shareholder at the time.
After rejecting Tracinda's demand for a jury trial, U.S. District Court Judge Joseph Farnan Jr. presided over a bench trial and ruled in favor of DaimlerChrysler in 2005.
Kerkorian's attorneys argued on appeal that Farnan erred in ruling that DaimlerChrysler did not misrepresent the deal as a "merger of equals" in a proxy statement and other documents.
Farnan determined that nothing in the merger agreement or proxy statement, which outlined a roughly even initial split of Daimler-Benz and Chrysler designees on the management and supervisory boards, precluded a later change in the governance structure of the combined company.
Kerkorian's lawsuit relied heavily on a 2000 interview with The Financial Times of London in which DaimlerChrysler Chief Executive Juergen Schrempp said the German-heavy management of DaimlerChrysler that emerged after the deal was what he always envisioned, and that the combination of the companies was billed as a merger of equals "for psychological reasons."
In a 69-page opinion, however, the Third Circuit found no "clear error" in Farnan's ruling and his decision not to grant Tracinda a jury trial.
"The clearly erroneous standard is a high hurdle," said Tracinda attorney Terry Christensen.
"We feel that we did our duty to try to protect Chrysler shareholders," Christensen added.
Jonathan Lerner, an attorney for DaimlerChrysler, said the proxy statement made clear that the initial governance structure of the combined company was subject to change.
"We're obviously delighted that the Third Circuit has finally put an end to this litigation," said Lerner, who doesn't expect Tracinda to ask for a review of the panel's decision by the full appeals court.
"As they say, game over," he said.
While disagreeing with the court's decision to uphold the sanction against DaimlerChrysler for late document production, which the company blamed on errors by copy vendors, Lerner noted that Kerkorian passed up $35 million when he opted out of a class-action settlement with other shareholders to pursue his own lawsuit.
"You've got to know when to hold them, and when to fold them," Lerner said.