Lumbard, Chief Judge, Anderson, Circuit Judge, and Wyatt, District Judge.*fn*
The defendants appeal from a judgment of the Southern District of New York against them in the sum of $4.355,595 in favor of plaintiff in a diversity stockholders' action brought for the benefit of Defiance Industries, Inc.
Judge Mansfield found defendants liable for damages because they had breached their fiduciary duties, as the controlling persons in Defiance, in causing Defiance to issue its stock, on July 12, 1962, at a valuation of $14.49 per share in exchange (at a ratio of 4 7/8 shares to one) for all the stock of IIE*fn1 which he found they valued at the excessive value of $70.51 a share. He found the fair value of IIE stock was $40.58 per share and that the consequent loss to Defiance was $2,992,940. The district court also found that the defendants had improperly appropriated to themselves an opportunity of Defiance to purchase 10,507 shares of IIE by purchasing them at $20.94, and for which shares they shortly thereafter received Defiance stock on the basis of IIE stock being valued at $70.51 per share, thus realizing a profit of approximately $520,832.*fn2 With the prejudgment interest allowed at 6% from July 13, 1962 on the exchange offer and from September 6, 1961 on the improper appropriation, the judgment totals $4,355,595.
A study of the record shows ample support of Judge Mansfield's findings and his conclusion that in the acceptance of the comparative valuations of Defiance and IIE stock and in the measures that were taken to bring about approval of the Defiance stockholders to the purchase of IIE stock, the defendants acted in violation of their fiduciary duties as controlling officers and stockholders of Defiance. Likewise, there is abundant support for the district court's finding that Defiance had been improperly deprived of the opportunity to acquire, at $20.94 per share, 10,507 shares of IIE for which it later issued stock for IIE valued at $70.51 per share. Nor do we find any basis for error in Judge Mansfield's denial of the motion for a new trial, for reasons he set forth in a careful opinion reported at 288 F. Supp. 855 (S.D.N.Y.1968).
We find only two allegations of error which require comment. Appellants argue that equity requires that under circumstances present here the court should have limited the award of damages to those who were stockholders of Defiance at the time of the exchange of stock.
We can find no reason or precedent to support the theory advanced by the defendants -- a theory which is wholly impractical and unmanageable in that it would shift the burden of proving a right of recovery to a large class of persons many of whom may never be determined and found.
The corporation by issuing shares to its controlling officers and directors for less than their fair value was obviously damaged to the extent of the difference which was $2,992,940 because it received IIE shares worth only $40.58 per share in return for its shares which were worth $70.51 per share. Under such circumstances those fiduciaries who caused the corporation to part with its assets for less than their fair value must make up the difference to the corporation.
Our decision in Perlman v. Feldmann, 219 F.2d 173 (2 Cir. 1955) gives no support to the appellants' suggestion of fragmented judgments. There the plaintiffs were individually injured and sued for injuries caused them by the defendants who sold their controlling stock at a premium without offering plaintiffs an opportunity to sell their stock on similar terms. We held, with Judge Swan dissenting, that the controlling stockholders had breached a duty to the plaintiffs who were minority stockholders and therefore were liable to the minority stockholders for the premium they would have received had they been included. Thus, in Perlman there was no injury to the corporation but only to the few minority stockholders and it was appropriate that they should recover individually.*fn3
We conclude that it was entirely appropriate for the court to direct judgment in favor of Defiance for the entire amount of the damages suffered by it.
The appellants also contend that the court should not have awarded prejudgment interest, amounting to over one million dollars, on so large an award of unliquidated damages. However, as the corporation had been deprived of almost $3,000,000, the difference between the fair value of the stock issued and what it actually received, through the calculated fraud of the defendants, there was good reason for the district court to award interest as compensatory damages. And it is clear that under both New York and Ohio law interest is recoverable for the damages here suffered. See, N.Y.C.P.L.R. § 5001; In re Chambers Estate, Ohio App., 16 Ohio Op. 519, 36 N.E.2d 175 (Ct.App.1939); Cincinnati v. Whetstone, 47 Ohio St. 196, 202, 24 N.E. 409 (1890). Under the federal cases the award of interest is said to be discretionary, and the authorities indicate that it is customary to award it in cases involving a breach of fiduciary duties. See Stella v. Graham-Paige Motors Corp., 232 F.2d 299, 302 n.4 (2d Cir. 1956); Blau v. Mission Corp., 212 F.2d 77, 82 (2d Cir.), cert. denied, 347 U.S. 1016, 74 S. Ct. 872, 98 L. Ed. 1138 (1954). Judge Mansfield rested his decision to award interest on the fundamental "consideration of fairness," citing Board of County Commissioners v. United States, 308 U.S. 343, 352, 60 S. Ct. 285, 84 L. Ed. 313 (1939). We agree that it was wholly appropriate for him to exercise his discretion as he did.
On Petitions for Rehearing of Defendants Victor Muscat and R. L. Huffines, Jr.
The petitions for rehearing are granted. We remand to the district court for further ...