Appeal from a judgment of the United States District Court for the Eastern District of New York, Edward J. Neaher, Judge, denying appellant, the purchaser of appellee's stock, relief on its Rule 10b-5 and breach of warranty claims. Judgment Affirmed.
Moore, Smith and Mulligan, Circuit Judges.
A business transaction between Louis J. Bollo, defendant-appellee, as seller of his controlling stock in Standard Aircraft Equipment Company ("Standard"), to Pittsburgh Coke & Chemical Company ("PCC"), plaintiff-appellant, comes before us for review. PCC appeals a judgment of the District Court, after a non-jury trial, dismissing the complaint. The facts are set forth in a lengthy and painstaking analysis by the District Court in an opinion reported at 421 F. Supp. 908. Only such facts as are necessary for a resolution of alleged errors therein need be repeated.
PCC wished to buy Bollo's Standard stock. In this desire it was not without competition. Premier Industries ("Premier") had the same desire. PCC prevailed and a contract to purchase was executed on December 20, 1968. The closing date was originally set for a date not later than June 30, 1969, a date postponed to September 18, 1969 because of delay in obtaining SEC and CAB clearances.
The controversy arises in part out of a provision in the December 20, 1968 contract (paragraph 6(d) thereof) that:
"(d) The representations and warranties contained in Paragraph 2 of this Agreement shall be true and correct as of the Closing Date, with the same force and effect as though they had been made at the Closing Date, and there shall have been delivered to Purchaser the certificate of Bollo, President of Standard, dated the Closing Date to such effect, . . ."
The representations and warranties in Paragraph 2 included the following:
"(f) Since December 31, 1967, there has been no material adverse change in the financial condition or in the business or operations of Standard."
As required by paragraph 6(d), Bollo delivered the certificate which reads in part:
"(f) Since December 31, 1967, there has been no material adverse change in the financial condition of the company as evidenced by most recent balance sheet information except that, as you know, earnings in 1969 have been reduced due primarily to the investment in start up expenses of our Kansas City operation."
PCC, as plaintiff-appellant, claims that an alleged failure by Bollo to disclose events adverse to Standard between the contract date and the closing date constituted (1) fraud under Rule 10b-5 of the Securities and Exchange Act of 1934; (2) breach of the warranties contained in the December 20, 1968 agreement and Bollo's certificate; and (3) common law fraud (an argument not pressed in this appeal).
The alleged non-disclosure may be briefly summarized. Standard's business consisted primarily of buying parts and equipment from manufacturers at a discount and reselling them for use in airplanes. Standard's principal suppliers were Bendix Aviation Corporation and Whittaker Corporation. The suppliers had the right to unilaterally alter the discount rate and to terminate the agreements on short notice.
Prior to the December 20, 1968 agreement, Bendix had reduced its discount rate and Whittaker had indicated that it might discontinue its relationship with Standard in favor of its own subsidiary. Despite the Bendix discount reduction, Standard's sales of Bendix parts increased from $3,921,000 (1965-1967) to $4,883,000 (1968-1970). After the signing of the December 20 agreement, ...