A Delaware Chancery Court judge ruled yesterday that the two brothers who founded the giant tire retail chain NTW Inc. can continue to own the company, thus blocking a claim to control of the company by Washington investor G. Bradford Cook.
The decision apparently settles a bizarre dispute in which one brother turned on the other, gave a controlling interest in the firm to Cook -- and then was reunited with his brother in the battle against Cook.
The judge ruled that a crucial 30-share block of the company's roughly 1,000 shares of stock had been issued improperly -- thus reducing the shares of NTW controlled by Cook to less than 50 percent of the total.
The judge did not rule, however, on a variety of other charges in the case, including fraud and breach of contract, saying that they were moot as long as it could be established that Tom and Reed Pumpelly legally controlled the company.
Cook could not be reached for comment. His Delaware attorney, Edward Maxwell, said no decision had been made whether to appeal the ruling.
William Daniel Sullivan, an attorney for the Pumpelly brothers, called the ruling "an incredible victory."
Unless it is appealed, the decision will resolve a messy battle for control of the company, which is operating under Chapter 11 of the federal bankruptcy code. The dispute arose after Tom and Reed Pumpelly had a falling out and Reed Pumpelly joined with Cook in an effort to gain control of NTW -- only to later break with Cook and join his brother in the lawsuit to regain control.
In a series of transactions last fall, Cook bought or gained control of a number of shares held by Reed Pumpelly, the Pumpellys' stepmother, and Richard Strother, a consultant to NTW. In all, Cook claimed control of slightly more than 50 percent of the company's shares.
In the Delaware suit, the Pumpellys charged that Strother had improperly gained control of his 30 shares of NTW, which had been put in escrow for him and then released to him by Tom Pumpelly, NTW's president, last August when Strother said he needed them to block a takeover attempt. The court ruled that the shares could only have been released from escrow by a vote of the company's board.
Without Strother's 30 shares, Cook would not have control of enough shares to take over NTW, even if Reed Pumpelly had not defected back to his brother's side.
Reed Pumpelly claimed Cook improperly gained control of his shares. Among other things, he alleged Cook misled him by not telling him Cook had been forced to resign from the Securities and Exchange Commission and suspended for a time from the practice of law as a result of his role in a Watergate-related scandal. Pumpelly also claimed the lawyer Cook had recommended to him had ties to Cook and therefore did not give an impartial opinion of the transactions under which Cook took control of Reed Pumpelly's stock. The Delaware court did not rule on these allegations.
Sullivan said yesterday that the Delaware decision would allow NTW to get back to a more orderly course of business, including the finalization of a plan for reorganization under bankruptcy laws. He said it also clarifies an important issue in another legal case, in which the company is fighting for royalties owed it by a group of NTW franchisees.