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GREATER CONTINENTAL CORP. v. SCHECHTER

September 26, 1969

Greater Continental Corp., Plaintiff,
v.
Schechter, et al., Defendants


Frankel, District Judge.


The opinion of the court was delivered by: FRANKEL

FRANKEL, District Judge:

Characterized briefly for the purposes immediately at hand, this is an action to rescind a partially executed contract under which plaintiff acquired from two of the individual defendants, Marvin Schechter and Hugo Spatenga, all of the stock of defendant Sea-Land Dredging Corp. Plaintiff has moved for various kinds of injunctive relief pendente lite. As will appear, some of the restraints thus sought are essentially undisputed, if not clearly needed. For the rest, the motion will be denied. *fn1"

 I.

 The agreement plaintiff seeks to rescind was made on April 3, 1969. It provided that plaintiff Greater Continental Corporation ("GCC") would acquire the two-thirds of Sea-Land's stock held by Schechter and the one-third held by Spatenga in exchange, respectively, for 100,000 and 50,000 GCC shares. In addition, to pay off Sea-Land's indebtedness to its two shareholders, plaintiff agreed to pay Schechter $10,000 plus 5333 GCC shares and an amount comparably computed for Spatenga. There were standard provisions for "investment letters" from Schechter and Spatenga, with undertakings by plaintiff to comply with S.E.C. registration requirements at later times when these individuals wished to sell their GCC stock. Schechter's 100,000 shares were to be held in escrow for two years, and they are so held, by an agent who is counsel for plaintiff.

 The stock-purchase agreement went on in familiar and lengthy detail for 25 legal-sized pages, followed by a number of pages of exhibits, covering with characteristically exquisite precision the varieties of large and small things likely to be discovered in painstakingly lawyered documents of this kind. To focus upon the items of interest at this juncture, it contained a warranty and representation by Schechter that there had been no materially adverse changes in Sea-Land's condition between December 31 and April 3, 1968, "except for operating losses not in excess of $10,000 in the aggregate." The primary contention of plaintiff in the lawsuit is that this warranty and representation (speaking under the contract as of the closing on April 14, 1969) was false in that there were actually operating losses of over $90,000 during the period described. In addition, plaintiff counts upon two other items of alleged deception:

 
(1) That Schechter failed to disclose that late in 1968, Sea-Land had become financially unable to obtain bonding necessary in order to secure new contracts in its dredging business.
 
(2) That Schechter "represented to GCC that he was experienced and expert in the management of Sea-Land's business and that he had been managing the business" whereas, "upon information and belief [this being the only sworn averment on this subject in the moving papers], Schechter was not experienced and expert in the management of Sea-Land's business, and the business had been managed by Spatenga during all or most of the period prior to GCC's agreement to purchase Sea-Land."

 Returning briefly to the sales agreement in its possibly material aspects, there was a provision for its interpretation in accordance with New York law. And there was a sweeping and detailed integration provision confining the rights and obligations of the parties to the express terms of their lengthy document:

 
"(B) This Agreement constitutes the entire agreement between the parties hereto and supersedes all prior agreements and understandings, oral and written, between the parties hereto with respect to the subject matter hereof. No representation, promise, inducement or statement of fact has been made by Greater Continental or the Stockholders which is not embodied in this Agreement or a written statement, certificate, schedule or other document delivered pursuant hereto or making express reference hereto, and neither Greater Continental nor Stockholders shall be bound or liable for any alleged representation, promise, inducement or statement of fact not so set forth."

 The quoted language is of some interest, as will become clearer, in light of the facts that:

 
(1) there was no representation in the contract that Schechter, repeatedly dealt with as an attorney under
 
the terms of the agreement itself, professed special expertise in the dredging business; and
 
(2) there was no reference to any employment agreement between plaintiff and Schechter.

 Nevertheless, as part of the interconnected body of transactions accomplished as of the closing date, April 14, 1969, GCC and Schechter did make a separate employment contract. Under this agreement, Schechter became an employee of GCC, not of Sea-Land, for a two-year period at an annual salary of $25,000. His duties were to be prescribed by plaintiff's board and to include, "but not be limited to, management of Sea-Land * * *." He was to devote full time to this employment, but it was agreed that he would for six months be devoting "a portion of his time to the closing out of his existing legal cases." Plaintiff reserved the right to terminate the employment "at any time upon thirty (30) days' prior written notice, but only for cause." By a supplemental letter made part of the employment agreement, it was provided that "any ...


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