The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [456]
While they were hugging, Milberg Weiss and Orbis’s William Gray were already starting to try to undo the vote. Gray challenged the election and won the right to audit the ballots. The Delaware Chancery Court upheld the vote. Handed defeat, Orbis then joined with Milberg Weiss to ask Tennessee Blount County Circuit Court Judge Dale Young to restrain the deal from being consummated. Judge Young instead said the merger should proceed. With Milberg Weiss barking at the door, the Claytons wasted no time. On August 7, the day the merger was scheduled to close, Clayton’s Delaware attorneys were waiting at the door of the Secretary of State at daybreak to file the paperwork to certify the merger. By seven-thirty a.m. it was done.42
As soon as the merger was effective, Milberg Weiss and Orbis rushed to file an appeal with the Tennessee Court of Appeals to overrule Judge Young’s decision of the day before. The next day, the Tennessee Court of Appeals concurred and temporarily blocked the merger, which had already closed. That prevented Berkshire from paying out the proceeds. The Court of Appeals gave the lower court a homework assignment, asking it to rule on a number of issues within two weeks. Clayton started working to fulfill Milberg Weiss’s eighteen-page document request. Lawyers and company people were working almost around the clock.
Kevin Clayton and his wife had just had a baby; she was colicky from a protein allergy. “It took twenty-seven formulas before we found one from London that would work,” says Clayton. “Plus, I got shingles right in the middle of it, from stress. I called up my dad and said, ‘Dad, this is rough.’ And he said, ‘Well, son, I had paralysis on the left side of my face when I was your age from stress.’ Then I called up Warren, and he said, ‘Well, Kevin, when I was younger, I lost a lot of my hair from stress.’ I got no sympathy from either one of them.”
On August 18, Judge Young ordered a trial before a jury. Clayton immediately appealed.
Clayton stock had ceased trading weeks ago, but Berkshire could not pay out the merger proceeds, since the deal marinated in the galley of the appellate court. Forty thousand shareholders awaited their money from Berkshire Hathaway. All $1.7 billion sat in the bank, earning interest for Berkshire.
Buffett got a fax from a couple who were being foreclosed out of their home. They needed the money from the Clayton stock to pay their mortgage. Pay what you can, he told the couple, and just explain the situation. Probably that will be enough to avoid foreclosure.
“It’s the Perils of Pauline,” he said.
The stalemate dragged on for nearly two weeks. Finally, as the calendar turned to September, the court found “not a scintilla of evidence” that the Claytons had manipulated the voting process. Six days later, Milberg Weiss filed an appeal with the Tennessee Supreme Court. Buffett was incredulous—or, rather, he would have been incredulous had it been any law firm but Milberg Weiss. They were still seeking to have the merger overturned. That was not going to result in a big fat check for the law firm. How did they expect to get paid? The photocopy machines were running late at night at Clayton’s law firm, kachunking forth documents and legal bills. Buffett reasoned that Milberg Weiss must be trying to make such a nuisance of itself that Clayton would simply pay it to go away. He talked to Kevin Clayton. Never, Clayton vowed.43
Buffett mused about the historic position of the Tennessee Supreme Court, which potentially could become the first court in the history of the United States to unwind a merger that was already complete. The court, evidently finding itself of the same mind, dismissed the appeal.
Clayton’s insurance company, St. Paul, wanted to settle the remaining shareholder suit filed by Milberg Weiss for $5 million.