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Fundamentally this case involves important issues of shareholder rights and corporate responsibilities. Each stockholder has an individual interest that a given corporation will adhere to its stated and historical purposes so as to maintain the quality and character of the corporate business in terms of risk, income/dividend generation, etc. The law protects the shareholders' individual interest through the laws of corporate governance that define which powers and rights a shareholder delegates to the board of directors and which rights are retained by the shareholder as against the board and its agents. These laws provide that shareholders retain as individuals the right to participate in fundamental transactions.§§ 35-1-227, MCA§ 35-1-227, MCA§ 35-1-815, MCA§ 35-1-932, MCA Specifically, these laws prevent a corporation from defeating or fundamentally changing its corporate purpose without shareholder approval by a vote of 2/3 majority..
For more than 90 years the Montana Power Company (MPC) was (as its name says) a power company. Indeed, the Articles of Incorporation provide that the exclusive purposes of the corporation were related to power generation and transmission.
The purposes and objects of this specialized corporation define the nature of the risk and return for shareholders who purchased this company's stock. Because the company was a regulated utility it was able to generate a steady income and consistently pay dividends. The nature and purpose of the corporate business made shareholdings in the company a conservative, dividend-oriented utility investment suited to retirees and others seeking regular, dependable dividend income.
Despite this corporate purpose, the directors and senior management committed MPC to a breathtakingly rapid transformation from a stable power company to a high risk venture in the telecommunications industry with the December 1999 sale of the company's power generation facilities. The lawsuit alleges that this portion of the transformation was designed, engineered and implemented by defendant Goldman Sachs. Within days, on January 24, 2000, Goldman Sachs was engaged to complete the sale of power-related assets and finish the transformation to a telecommunication company. By August 28, 2000, MPC had agreed to transfer the oil and gas assets to PanCanadian Petroleum Limited of Calgary. By September 15 the company had agreed to transfer the coal business to Westmoreland Coal Company. By September 20 MPC had agreed to transfer the independent power production business to BBI Power Corporation and by September 26 the company announced the divestiture of the last of the utility assets to NorthWestern.
As a result of the above-described selling, Montana Power Company was completely divested of all of its properties necessary to the conduct of power company business.
MPC was required by its bylaws and the laws of corporate governance to seek shareholder approval for all fundamental change events, including any sale of "substantially all" of its property. The defendants concede that shareholder approval was thus required under this statute for the sale of its transmission properties to NorthWestern even though those assets comprised less than 36% of the total assets of MPC. Yet none of the procedures required by statute and MPC's bylaws, including shareholder approval, were followed in regards to the combined sale of the critical generation capacity, oil and gas holdings, coal holdings, and independent power production or any part thereof. It is undisputed that quantitatively the assets sold by MPC constituted well over 90% of the assets of Montana Power, and essentially 100% of the power-related assets. More importantly these assets were essential to Montana Power's corporate purpose: without them Montana Power could no longer generate, transmit or market power. These sales literally took the "power" out of Montana Power.
This case is about injury to the class members' interest in the nature, quality and character of their corporation's business. The gravamen of the complaint is that defendants breached their statutory and common law duties not to harm the interests and rights of shareholders by transforming a conservative, regulated, dividend-oriented utility corporation to a high risk telecom venture in derogation of the shareholders' investment objectives and reasonable expectations, and in derogation of their individual rights to information, voting, and dissenter elections.
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ALLEGATIONS OF FACT
The following are the allegations of fact which support the Montana Power Shareholder Lawsuit.
- The Articles of Incorporation of the Montana Power Company provide that the exclusive purposes of the company were related to power generation and transmission. Second Amended Complaint 8.
- MPC shareholders had the reasonable expectation that the company was and would continue to be a sound and fiscally-stable utility that paid dividends. Id.
- Defendants knew that the shareholders had the reasonable expectations that the company would be operated as a power generation and transmission company. Id.
- Defendants developed an integrated plan to divest all of the energy-related assets of MPC to exit the energy business and transform the company into Touch America, its telecommunications subsidiary. Second Amended Complaint 5 and 6.
- Pursuant to this integrated plan, Defendant pursued the following transactions to complete a sale of power-related assets and transformation to a telecommunications company:
- The December 1999 sale of electrical power generation facilities to PPL Montana (PPLM). Second Amended Complaint 2.
- The sale of oil and gas business to PanCanadian Petroleum Limited of Calgary. Second Amended Complaint 5.
- The sale of independent power production business to CES Acquisition Corp. Id.
- The sale of coal business to Westmoreland Coal Company. Id.
- The agreement to sell transmission assets to NorthWestern Corp. Id.
- The transactions by which Montana Power Company accomplished the sale of its power generation and transmission properties were integrated and related in a number of ways, including the following:
- The transactions were pursued in fulfillment of a preconceived integrated divestiture plan to divest the company of all energy-related assets. Second Amended Complaint 3, 5 and 6.
- The transactions were temporally related such that the announcement of the intention to divest all remaining energy businesses was made just three months after the sale of the power generation assets to defendant PPLM. Second Amended Complaint 5.
- A successful move into the telecommunications industry required a complete transformation into a telecommunication company such that a commitment to execution of all of the power divestiture transactions was triggered by the initiation of this transformation. Second Amended Complaint 9 and 14.
- Initiation of the transactions by which the company sold its power generation and transmission facilities put the financial well-being of the company and the company's entire financial underpinnings at risk if the sale scheme and transformation were not completed. Second Amended Complaint 10 and 14.
- By selling the power generation properties, MPC committed to continued disposition of related businesses because, without power generating capabilities, MPC would be in a high risk situation in continuing to trade and market electricity. Second Amended Complaint 4.
- Electrical power generation facilities are related to transmission facilities such that retention of the latter after sale of the former would require the company which had no generating capacity, to purchase its customers' utility needs on the open market paying a price that it could not pass along to consumers and thereby creating the inevitability that all of the integrated transactions must follow the sale of the generation assets to PPLM. Second Amended Complaint 10.
- The selling of power assets and transformation of the company included the plan that such sale and transformation would proceed without shareholder approval except with respect to the NorthWestern transaction. Second Amended Complaint 14.
- Montana Power Company contracted with Goldman Sachs for provision of expert advice and counsel regarding the legality, advisability and methodology of the above described divestiture and transformation. Second Amended Complaint 7.
- Goldman Sachs knew that the shareholders had the reasonable expectation the company would be operated as a power generation and transmission company. Second Amended Complaint 28.
- Goldman Sachs was intricately involved in the design of the company transformation. Second Amended Complaint 27.
- Goldman Sachs was intricately involved in the promotion of the transformation of the company. Second Amended Complaint 27.
- Goldman Sachs was intricately involved in the execution of the transformation of the company. Second Amended Complaint 27.
- Goldman Sachs developed the MPC's plan to convert from a utility to telecommunications company. Second Amended Complaint 28.
- Goldman Sachs urged and encouraged MPC's plan to convert from utility to telecommunications company. Second Amended Complaint 28.
- MPC's bylaws and Montana law required shareholder approval by a two-thirds majority of all outstanding shares for the selling of all or substantially all of corporate properties. Second Amended Complaint 7.
- Goldman Sachs developed and urged a plan of conversion whereby shareholder approval would not be obtained. Second Amended Complaint 28.
- Goldman Sachs aided and abetted the directors and officers of the Montana Power in a scheme and methodology to deprive the shareholders of essential information regarding the transformation of the company. Second Amended Complaint 29.
- Goldman Sachs aided and abetted a scheme and methodology to deprive MPC shareholders of their rights to participate in the divestiture scheme decisions. Second Amended Complaint 29.
- Goldman Sachs knew that the sale of power company assets and transformation to a telecommunications company would be a fundamental change of the corporation destroying MPC's means to accomplish the purposes and objects of the corporation and thereby destroying and fundamentally changing the character and quality of the shareholders' investment. Second Amended Complaint 28 and 30.
- Defendant PPLM was privy to and part of the strategy whereby the transfer of power generation assets to it by MPC would be done without shareholder approval as part of a scheme to divest all power-related assets. Second Amended Complaint 33.
- The selling of the power related properties of MPC, and the complete transformation of the company was accomplished in a manner which deprived the shareholders of their individual rights to the disclosures, meetings, voting, notice and extension of dissenters rights. Second Amended Complaint 10, 14, 20 and 29.
- The selling of the power related properties of MPC, and the complete transformation of the company fundamentally and drastically changed and damaged the shareholders' individual interests in the value, character and quality of their investment. Second Amended Complaint 10, 14, 20 and 29.
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Time Line of Significant Public Events
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1997 |
May |
Deregulation passed by the Montana Legislature
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1998 |
December |
PPL Montana formed
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1998 |
Annual Report |
Gannon publicly announces decision to exit power business and enter telecom
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1999 |
December |
MPC sale (1) to PPL Montana Generating facilities
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2000 |
March |
MPC states intent to divest energy business
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October |
MPC sale (2) to PanCanadian Oil & gas
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2001 |
February |
MPC sale (3) to CES/BBI Independent power production
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April |
MPC sale (4) to Westmoreland Coal business
MPC sale (5) to Northwestern Corp. Transmission facilities
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August |
Class action lawsuit filed on behalf of Montana Power Company Shareholders
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2002 |
February |
Former Montana Power Company is merged into Montana Power LLC, renamed NorthWestern Energy, LLC and sold to NorthWestern Corporation.
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2003 |
April |
Montana Legislature Passes Bail-Out Bill
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June |
Touch America files for Bankruptcy
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September |
Northwestern Corporation files for Bankruptcy Protection
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2004 |
March |
NorthWestern Files Bankruptcy Reorganization Plan
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If you wish to discuss this action with us, or have any questions concerning your rights and interests with regard to this case, please contact us:
McGARVEY, HEBERLING, SULLIVAN & McGARVEY, P.C.
745 S. Main
Kalispell, MT 59901
(406) 752-5566
Counsel for Plaintiffs
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If you have general questions or trouble signing up for the e-mail please e-mail:
info@montanapowerlawsuit.com
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