The opinion of the court was delivered by: GOETTEL
The complaint herein alleges five causes of action. The first is brought under Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C.A. § 78j(b) and Rule 10b-5, 17 C.F.R. § 240.10b-5 (1971), and the four others, respectively, allege breach of implied covenant in a stockholder's agreement, common law fraud, "intentional infliction of temporal damage to plaintiff without excuse or justification," and wanton, willful and malicious conduct toward plaintiff warranting an award of punitive damages. All claims arise from the same operative facts and constitute an exhaustive effort to find a sustainable cause of action therein. In response, defendants have moved to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief may be granted.
Defendant, BBDO International, Inc. ("BBDO"), is an advertising firm incorporated under the laws of the State of New York. Defendants, Tom Dillon, James J. Jordan, Jr., Bruce E. Crawford, E. E. Norris, Clayton Huff and Raymond E. McGovern, are the corporation's six directors. Plaintiff, Thomas B. Keating, Jr., had been employed by the company for upwards of twenty years and had accumulated 1800 shares of stock in the corporation pursuant to an employee stock option incentive plan. All such stockholders were required to become parties to a written agreement initially executed in 1949 which prohibited any sale or transfer of BBDO stock except to the company, and the company, in turn, was required to repurchase the stock upon the death, resignation, retirement or discharge of any employee holding stock. Neither the purchase price nor the reacquisition price contained an allowance for the current good will of the business.
Keating had no employment contract with BBDO and, although he was employed from 1952 through 1972, he served at the pleasure of his employer. The controversy herein arises out of the circumstances of his discharge, which occurred about a year and one-half prior to the date on which BBDO made a public stock offering. Had plaintiff been with the company when it made its public offering, the value of his shares would have increased almost three-fold. The undisputed facts and circumstances of Keating's discharge and BBDO's decision to go public are as follows:
BBDO is one of the largest advertising agencies in the world and yet was a closely-held corporation up until November 24, 1973 when its stock was offered for sale to the public. Plaintiff had served the company, as one of its many vice-presidents, since 1963 and was also a group supervisor directly responsible for certain accounts. In early 1971, plaintiff was assigned to one Joseph Henrici, who was a vice-president and management supervisor of BBDO. At that time, Keating was entrusted with the New York State Department of Commerce, Chevron East, and Remington Arms accounts which had a collective billing of $3.8 million from which BBDO realized a profit of $600,000.
Around July of 1971, Henrici assigned Keating to the DuPont Textiles Fibres account. Almost simultaneously, the New York State account left BBDO for another agency. (Keating claims that he had been contacted by the commissioner of the department and had been assured that the switch was entirely for political reasons.)
Shortly thereafter, DuPont notified BBDO of an internal reorganization and requested a parallel reorganization at BBDO so that accounts formerly segregated by department were consolidated into one account. Keating claims that he recommended his own removal from the account because he felt it was in the best interests of the company under the circumstances.
In early 1972, Chevron requested that plaintiff be replaced because it was dissatisfied with his performance. BBDO, in response to the wishes of its client, assigned another employee to the account.
This left Keating with but one client -- Remington. It was imperative at this time that the company secure further assignments for Keating since one account was insufficient to occupy his time fully. Bayard Pope, director of internal operations, was responsible for insuring that employees were carrying a sufficient work load and was, therefore, notified of the plaintiff's unfortunate situation. Pope attempted to find new assignments but was unsuccessful and, in view of unsatisfactory reports received from Henrici, decided to discharge Keating. Plaintiff maintains that he, himself, had considered leaving BBDO because of the status of his accounts but had held off because he was due to retire shortly and, more importantly, because he had heard that the company might go public.
In early March, at a meeting with Pope, Keating expressed a willingness to work at a reduced salary since loss of salary would be insignificant compared to the gain he would realize if company stock was sold on the open market. However, Pope ruled out any possibility of continued employment. According to plaintiff, Pope maintained that plans for going public were indefinite and, in any event, participation in a future public sale would be limited to those stockholder-employees with a future in BBDO. Pope thereafter notified Keating that his official termination date would be May 31, 1972. Upon termination, Keating received vacation pay and seventeen weeks severance based upon the company's plan.
Keating maintains that all during this period prior to his severance he had heard rumors of the possibility of BBDO going public. In fact, some general statements to that effect had been made by management at the annual stockholder's meeting in February, 1972. Defendants' undisputed assertions in this respect are more explicit. According to Raymond E. McGovern, a defendant and general counsel to BBDO, the company had contemplated a public sale as early as 1969 but declined to follow through because market conditions were unfavorable. In 1972, Merrill, Lynch, Pierce, Fenner & Smith, Inc. were retained as investment counselors and, again, advised that a public offering was presently undesirable. Rogers & Wells, a law firm, was subsequently approached for its advice and, as late as February 14, 1972, the proposition lacked approval. McGovern maintains that no firm commitment was made until June 15, 1972 when BBDO retained Dean Witter & Co. as underwriters for a proposed public offering. At the same time, a registration statement was prepared for submission to the Securities and Exchange Commission. The Board of Directors had authorized the amendment of the stockholder's agreement of 1949 and the calling of a special shareholders' meeting to approve such changes. That special meeting was held on June 27, 1972 and the shareholders voted to amend the agreement to suspend BBDO's rights to exercise any option to repurchase shares until November 1, 1973, or until such date, if earlier, that a public offering of its stock was made.
Prior to the June 27th meeting, BBDO called all exercisable options. This was a necessity since failure to do so would have permitted public sale of the stock which, in turn, would violate the company's policy of employee ownership before the public sale was a fact.
On August 23, 1972 BBDO filed with the Securities and Exchange Commission. However, then present plans for the proposed offering were abandoned and on December 22nd of that year the registration statement was withdrawn. In September, 1973 another registration statement was filed with the Securities and Exchange Commission and, finally, on November 24, 1973, 705,515 shares of BBDO capital stock was marketed at $18 per share.
Defendants, apparently recognizing the antipathy in this circuit to summary judgment procedures, seek to have the motion considered as a motion to dismiss. However, since the papers submitted by the parties are accompanied by affidavits seeking to support their respective positions, defendants' motion may be considered a motion for summary judgment, rather than one pursuant to Rule 12(b)(6) of the Federal Rules, since matters outside the pleadings are "presented to and not excluded by the court." Evans v. McDonnell Aircraft Corp., 395 F.2d 359, 361 (8th Cir. 1968); Gager v. "Bob Seidel", 112 U.S. App. D.C. 135, 300 F.2d 727 (D.C. Cir.), cert. denied, 370 U.S. 959, 8 L. Ed. 2d 825, 82 S. Ct. 1612 (1962); Hirsch v. Archer-Daniels-Midland Co., 258 F.2d 44 (2d Cir. 1958); Klein v. Spear, Leeds & Kellogg, 306 F. Supp. 743, 745 n.1 (S.D.N.Y. 1969). Furthermore, there is ample authority for the proposition that once the court decides to accept extra-pleading material, it must convert the 12(b)(6) motion into a Rule 56 motion. Carter v. Stanton, 405 U.S. 669, 31 L. Ed. 2d 569, 92 S. Ct. 1232 (1972); Hammond v. United States, 388 F. Supp. 928 (E.D.N.Y. 1975); Baynes v. Ossakow, 336 F. Supp. 386 (E.D.N.Y. 1972); Ringling Bros., Inc. v. Chandris America Lines, Inc., 321 F. Supp. 707 (S.D.N.Y. 1971). It is inconsequential that the moving party has not sought summary ...