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Frontier Oil Corp. v. Holly Corp.4/29/2005
nd a "Hollywood stunt."
Frontier was most persuasive, not in attacking Brockovich's motivations or her science, but with its argument that Frontier was protected from liability because of the separate and distinct corporate structure of Wainoco. In short, Frontier assured Holly that any liability could be confined to the subsidiary Wainoco and would not reach the parent Frontier. Frontier bolstered this argument by producing a Canadian tax ruling which, it claimed, demonstrated that the manner in which Frontier operated its subsidiaries would minimize the risk of any successful veil-piercing effort by toxic tort plaintiffs.
G. The Boards' Reactions
On March 28, at a special meeting, Frontier's Board unanimously approved the Merger Agreement, authorized Frontier's management to execute the Merger Agreement and related documents, and established a special committee to which it delegated the power to approve changes to the Merger Agreement.
Holly's Board also met on March 28. That meeting did not go as well as Frontier's. Holly's Board was informed of the potential for litigation arising out of the Beverly Hills problem. Alan Bogdanow, who led V&E's merger efforts for Holly, told the Board what was known about Beverly Hills and reviewed its potential consequences. Holly's Board minutes reflect Bogdanow's concerns:
In respect of the potential California litigation, Mr. Bogdanow informed the Board that a recent article stated that Erin Brockovich and Ed Masry were preparing a lawsuit against the city of Beverly Hills, Beverly Hills Unified School District and three oil companies, alleging that there was an abnormally high rate of cancer, or a "cancer cluster," among former Beverly Hills High School students due to polluted air caused by oil wells operating in the area. Mr. Bogdanow noted that this raised the issue of a potential toxic tort claim against the Frontier subsidiary which once owned oil and gas wells in the Beverly Hills area that were sold in 1995 to Venoco, Inc. . . . Mr. Bogdanow, among other things, noted that (i) Frontier had not publicly disclosed the potential claim in its Securities and Exchange Commission filings, (ii) Frontier had a strong indemnity right against Venoco, but Venoco may not have the financial ability to satisfy all of its indemnification obligations,
(iii) Frontier probably did not have insurance coverage that would cover such potential claim, (iv) potential legal defenses that might be available to Frontier, including expiration of the applicable statute of limitations period, whether any potential liability could be limited to Frontier's subsidiary, whether California has damage caps, and burden of proof issues were being looked at, (v) the Company was assessing whether the potential claim was a substantial practical risk, but there was no assurance as to whether a more meaningful assessment could be made in any particular time frame, (vi) Mr. Gibbs, the Chief Executive Office of Frontier, had stated that Frontier was not concerned about this matter becoming significant and that the previous Longhorn litigation against the Company had been much worse than this potential claim, which was considered by Frontier to be only a nuisance claim, . . . and (vii) he did not know if the potential claim might raise a financing issue for Frontier.
Thus, the Board concluded that it would need additional information before deciding to proceed with the Merger. Holly's desire to take the time necessary to acquire the additional information was tempered by Frontier's concern that the plans for the Merger might be leaked to the public or that stock might be traded based on nonpublic information regarding the
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