Appeal from judgment entered after a bench trial in the Southern District of New York, Edmund L. Palmieri, District Judge, dismissing complaint which alleged violations of the antifraud provisions of the federal securities laws and related pendent state claims, and awarding defendants $529,940 damages, plus interest, on their counterclaims which alleged breach by plaintiff of obligations under stock purchase agreement. Affirmed in part; remanded in part.
Hays and Timbers, Circuit Judges, and Davis, Judge.*fn*
On this appeal from a judgment entered July 12, 1973 after a bench trial in the Southern District of New York, Edmund L. Palmieri, District Judge, (1) which dismissed a complaint in an action brought to recover damages for alleged violations of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) (1970), and Rule 10b-5 promulgated under the 1934 Act, 17 C.F.R. § 240.10b-5 (1973), and related pendent state claims, all in connection with defendants' sale in 1968 of common stock in their closely held corporation, and (2) which awarded defendants $529,940 damages, plus interest from June 5, 1970, on their counterclaims which alleged a breach by plaintiff of its obligations under a stock purchase agreement, the principal issues are whether the record supports the district court's findings that there were no material misrepresentations or omissions and whether the district court correctly computed defendants' damages.
We affirm in part, and remand in part for a minor recomputation of damages.
The action arises from the 1968 purchase by Ply-Gem Industries, Inc. (Ply-Gem) of 90% of the common stock of Harcord Manufacturing Company, Inc. (Harcord) from John J. Albert and Maxwell B. Gold.*fn1 Ply-Gem is a publicly held corporation. It is engaged in the manufacture and distribution of plywood and related products. Its common stock is traded on the American Stock Exchange. Harcord is engaged in the manufacture of cardboard and fibre containers.
After months of discussions, appraisals and negotiations between representatives of Ply-Gem and Harcord and pursuant to a formal stock purchase agreement, Ply-Gem acquired the 90% interest of Albert and Gold in Harcord on June 5, 1968.*fn2 In accordance with the agreement, Albert and Gold received $450,000 in cash and 22,500 shares of Ply-Gem common stock at the closing on June 5.*fn3 The agreement guaranteed that Albert and Gold would receive from Ply-Gem $20 per share for their 22,500 shares of Ply-Gem stock. Moreover, the agreement provided that, if on the second anniversary of the June 5, 1968 closing (the valuation date) the 10 day average closing price for Ply-Gem stock was less than $20 per share, Ply-Gem at its option would pay the sellers either $20 per share, or the difference between $20 and the average market price. The agreement further provided that, in the event Ply-Gem stock were selling below $15 per share on the valuation date, Ply-Gem could elect to pay the sums due under the alternate repayment options outlined above in four annual installments, with interest at 5% per annum commencing on the valuation date. Finally, Albert and Gold were guaranteed under the agreement an annual 5% cash or stock dividend, or an annual $1.00 per share increase in the $20 guaranteed repurchase price, for "each year . . . so long as the stock is not repurchased".
On June 2, 1970, three days prior to the valuation date, Ply-Gem notified Albert and Gold that it elected to rescind the purchase agreement because of allegedly material misrepresentations and omissions made in 1968. This notification -- Ply-Gem's first hint of dissatisfaction with its acquisition of Harcord -- was given when Ply-Gem stock was selling at approximately $6.50 per share and shortly before Ply-Gem would have been required under the agreement to make substantial payments to Albert and Gold.
Ply-Gem on July 30, 1970 commenced the instant action, alleging that Albert and Gold had induced it to purchase Harcord by misrepresentations and omissions of material facts, and seeking either rescission or damages. Albert and Gold counterclaimed for the amount due them under the agreement.
After a bench trial, Judge Palmieri filed a comprehensive opinion which included detailed findings of fact and conclusions of law. He rejected Ply-Gem's numerous allegations of fraud, deceit, negligent misrepresentation and breach of warranty, and he awarded Albert and Gold recovery on their counterclaims. The crux of the judge's holding is the following:
"On the basis of the entire record, the conclusion is inescapable that Ply-Gem's last minute attempt[s] to rescind its contract and its subsequent repudiation of its terms . . . were afterthoughts designed . . . to obviate the fulfillment of its commitments. . . . Ply-Gem's charges of fraud and misrepresentation are unsubstantiated by any credible proof in the case."
On appeal Ply-Gem has narrowed its position. It now claims only that Albert and Gold failed to disclose to Ply-Gem the fact that Harcord had committed a major portion of its 1968 production capacity to two allegedly unfavorable government contracts for the manufacture of ammunition containers. This claim is contrary to specific and unchallenged findings of the ...