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BACHE & CO. v. INTERNATIONAL CONTROLS CORP.

February 4, 1972

BACHE & CO., INCORPORATED, Plaintiff,
v.
INTERNATIONAL CONTROLS CORPORATION, Defendant


Levet, District Judge.


The opinion of the court was delivered by: LEVET

OPINION, FINDINGS OF FACT AND CONCLUSIONS OF LAW ON QUESTION OF DAMAGES.

Levet, District Judge.

 This is an action brought by plaintiff Bache & Co., Incorporated ("Bache") against defendant International Controls Corporation ("ICC") for damages resulting from a breach of a tender offer to purchase securities (common stock and debentures convertible into common stock) of Electronic Specialties Co. ("ELS").

 The issue of liability has already been tried to the court without a jury. As a result of that trial, this court granted plaintiff judgment that defendant is liable to plaintiff for 30,649 shares of common stock and 42 $1,000 debentures of ELS. The determination as to damages follows.

 Two main questions are presented. First, whether New York or New Jersey law governs. Second, what is the amount of damages under that law.

 After hearing the testimony of the parties, examining the exhibits and the Proposed Findings of Fact and Conclusions of Law submitted by counsel, this court makes the following Findings of Fact and Conclusions of Law.

 FINDINGS OF FACT

 I. Question of New York or New Jersey Law

 1. Plaintiff is a corporation organized and existing under the laws of the state of Delaware, engaged in a general securities business, a member of the New York Stock Exchange and other national securities exchanges and has its principal office at 100 Gold Street, New York, New York.

 2. Defendant is a corporation of the State of Florida having its principal place of business at 88 Clinton Road, Fairfield, New Jersey.

 3. The significant and relevant contacts in the tender offer took place in New York as hereinafter appears:

 (A) The tender offer which defendant ICC made in the fall of 1968 for the securities of ELS was received by plaintiff Bache by mail in New York. (Pl. Ex. 1.)

 (B) Bache accepted this tender offer in New York by delivering the letters of transmittal to Chemical Bank in New York which thus created binding contracts between August 30 and September 12, 1968. (See opinion on liability, Bache & Co., Inc. v. International Controls Corp., 324 F. Supp. 998, 1005 (1971).)

 (C) Subsequently, Bache was requested to deliver the securities to Chemical Bank in New York and payment was to be received in New York. Bache did this by delivering the certificates representing the tendered securities to Chemical Bank, the forwarding agent named in the letter of transmittal, in New York on October 2, 1968. (Tr. 71-73, 129-130; Pl. Ex. 17, Pl. Ex. 22, Pl. Ex. 23.)

 (D) The dealer-manager appointed by ICC to manage the tender office (Orvis Brothers), the broker hired by ICC to assist in solicitation (D.F. King & Co.), and the forwarding agent (Chemical Bank) were all located in New York. (Pl. Ex. 1.)

 (E) ICC's depositary banks were located in California and New Jersey, but ICC specifically provided a forwarding agent (Chemical Bank) in New York for Bache to deal with. (Tr. 103-106; Pl. Ex. 1.) Bache had no direct dealings with either of the out-of-state banks.

 Hence, I find that the significant contacts took place in New York.

 II. QUESTION OF DAMAGES

 The number of ELS securities involved in this case is not at issue here as both parties are in agreement. (See Pl. Ex. C, "Computation of Damages Under the Theory Asserted by Plaintiff," November 8, 1971 (hereinafter referred to as Pl. Ex. C, Nov. 8, 1971).) It is rather the theory of damages that divides the parties. I find it necessary, nevertheless, to make findings as to the specific number of shares and debentures held or resold by Bache for itself or for its customers so as to facilitate the application of the theories of law (see Discussion, infra).

 4. Subsequent to defendant's tender offer, I find that an exchange agreement was consummated whereby each share of common stock of ELS was exchanged for.7 shares of defendant's common stock and 1.5 of its class A warrants. There has been no exchange or conversion of the ELS debentures. (Stipulation of Facts with Respect to Damages, October 7, 1971, at 1.)

 5. This court has already decided that Bache is the real party in interest and is the proper party to bring this action on behalf of its customers. (See opinion on liability, Bache & Co., Inc. v. International Controls Corp., 324 F. Supp. 998, 1005 (1971).)

 6. On the date of the breach of the tender offer, October 2, 1968, the New York Stock Exchange was closed. On October 3, 1968 the closing market price on the New York Stock Exchange for the ELS common stock was $30.50 and for the ELS convertible debentures was $1,050. (Stipulation of Facts with Respect to Damages, October 7, 1971, Ex. F.)

 7. Defendant is liable to plaintiff for 30,649 shares of ELS common stock, 21,301 of which are being held for Bache's customers and 9,348 of which for Bache itself. (Pl. Ex. C, Nov. 8, 1971, at 1.)

 8. Defendant is also liable to plaintiff for 42 $1,000 ELS convertible debentures all of which are being held for Bache's customers. (Pl. Ex. C, Nov. 8, 1971, at 2.)

 9. Of the 21,301 shares held for Bache's customers, 4,732 are unsold, 15,869 have been resold, 403 have been partially resold and claims for 297 have been withdrawn because sufficient information is not available to determine damages. (Pl. Ex. C, Nov. 8, 1971, at 1.)

 10. Of the 9,348 shares being held for Bache, 2,148 are unsold, 7,100 have been resold, and claims for 100 have been withdrawn because sufficient information is not available to determine damages. (Pl. Ex. C, Nov. 8, 1971, at 2.)

 11. In all, claims for 397 shares have been withdrawn because of insufficient information to determine damages. Consequently, defendant is liable for only 30,252 shares.

 12. Of the 42 $1,000 debentures being held for Bache's customers, 28 are unsold and 14 have been resold. (Pl. Ex. C, Nov. 8, 1971, at 2.)

 13. In ICC's tender offer ICC agreed to pay "to any securities dealer whose name appears on the letter of transmittal a commission of $.70 per share Common . . . on all Common stock . . . solicitated by such dealer and purchased by the Company." (Pl. Ex. 1; see opinion on liability, Bache & Co., Inc. v. International Controls Corp., 324 F. Supp. 998, 999 (1971).)

 In ICC's tender offer ICC also agreed to pay "to any securities dealer whose name appears on the letter of transmittal a commission of $22.19 per $1,000 debenture on all . . . convertible debentures solicited by such dealer and purchased by the Company." (Pl. Ex. 1; see opinion on liability, Bache & Co., Inc. v. International Controls Corp., 324 F. Supp. 998, 999 (1971).)

 Hence, I find that plaintiff is entitled to recover the full amount of the commissions as specified in the tender offer.

 14. I find that plaintiff is entitled to interest at the legal rate on the amount of damages awarded.

 15. $236.30 has been received by plaintiff as a result of exchanges in the common stock and will be deducted from plaintiff's final award. (Pl. Ex. C, Nov. 8, 1971, at 2.)

 16. I find that plaintiff is entitled to costs as taxed.

 17. The ELS securities presently being held by Bache for itself and for its customers and the dates on which the securities were resold are listed in Exhibits A and B of the Stipulation of Facts with Respect to Damages of October 7, 1971. Those exhibits will be filed with this opinion. I find that plaintiff is entitled to recover the following amount of damages: (A) Unsold Securities (see Discussion, III(A), infra) (1) 4,732 shares: $39 (tender price) X 4,732 = $184,548.00 (2) 2,148 shares: $39 (tender price) X 2,148 shares = $ 83,772.00 (3) 28 $1,000 debentures: $1,236 (tender price) X 28 = $ 34,608.00 (B) Resold Securities (see Discussion, III(B), infra) (1) 15,869 shares: (a) 1,283 shares: $39 (tender price) minus resale price for each share resold by November 1, 1968 *fn1" = $ 10,119.37 (b) 14,586 shares: $39 (tender price) minus $30.50 (market price at time and place of tender) for each share resold after November 1, 1968: 14,586 X $8.50 = $123,981.00 (2) 7,100 shares: $39 (tender price) minus $30.50 (market price at time and place of tender) for each share: 7,100 X $8.50 = $ 60,350.00 (3) 14 $1,000 debentures: (a) 1 $1,000 debenture: $1,236 (tender price) minus resale price for the debenture resold by November 1, 1968: $1,236 minus $1,062.50 = $ 173.50 (b) 13 $1,000 debentures: $1,236 (tender price) minus $1,050 (market price at time and place of tender) for each debenture resold after November 1, 1968: $186 X 13 = $ 2,418.00

 (C) Partially Resold Shares (see Discussion, III(B), infra)

 (1) 403 shares : Three Bache customers converted their 403 ELS shares into 282 ICC common stock and 604 ICC class A warrants. 210 ICC common stock and 177 ICC class A warrants (equivalent of 300 ELS shares) were resold after November 1, 1968 and 72 ICC common stock and 427 ICC class A warrants (equivalent of 103 ELS shares) are unsold. (a) Equivalent of 103 unsold ELS shares $39 (tender price) for each unsold ELS share: $39 X 103 = $ 4,017.00 (b) Equivalent of 300 resold ELS shares $39 (tender price) minus $30.50 (market price at time and place of tender) for each ELS share resold after November 1, 1968: $8.50 X 300 = $.. 2,550.00 (D) Commissions (see Discussion, III(C), infra) (1) 30,649 shares: $.70 X 30,649 shares = $ 21,454.30 (2) 42 $1,000 debentures: $22.19 X 42 = $ 931.98 (E) Money Already Received by Plaintiff $236.30 (to be deducted) $ 236.30 TOTAL DAMAGES (without Interest or Costs) = $528,686.85

 18. Plaintiff is entitled to interest on the net amount found to be due as specified in Finding 17. The interest shall commence on the date of breach of the tender offer, i.e., October 2, 1968, and shall continue until the date on which judgment is to be entered. During the period from October 2, 1968 to February 15, 1969, the interest is to be computed at the rate of 7 1/4% per annum. From February 16, 1969 to the date on which judgment is entered, the interest is to be computed at the rate of 7 1/2% per annum.

 DISCUSSION

 I. What Law Applies: New York or New Jersey

 In a contract, the parties, subject to certain limitations, have the power to choose the law of the state which will govern their contractual rights and duties by means of including an explicit provision in their agreement directed to that issue. Absent a clear indication of what law is to govern, the applicable law will be the local law of the state which, with respect to the particular issue, has the most significant relationship to the transaction and the parties. See Restatement (Second) of Conflict of Laws §§ 186-188 (1969).

 It is a fundamental principle that "a contract is governed by the law with a view to which it was made." Pritchard v. Norton, 106 U.S. 124, 136, 1 S. Ct. 102, 112, 27 L. Ed. 104 (1882). Section 1-105(1) of the Uniform Commercial Code, which is adopted in both New York and New Jersey, likewise gives the parties power to choose the applicable law. In this case we do not have such a situation. There was neither an ...


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