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ELKIND v. LIGGETT & MYERS

November 17, 1978

Arnold B. ELKIND, Plaintiff,
v.
LIGGETT & MYERS, INC., Defendant



The opinion of the court was delivered by: MOTLEY

OPINION AMENDING FINDINGS OF FACT AND CONCLUSIONS OF LAW

Defendant Liggett & Myers, Inc. (Liggett) has timely moved to amend the findings of fact and conclusions of law entered by this court on November 17, 1978. This court found that plaintiffs had failed to meet their burden of proof on their first claim of nondisclosure. The court found for plaintiffs on their second claim of tipping. As set out in this court's earlier opinion, the court awarded plaintiffs damages equivalent to the difference between what the plaintiffs paid for their stock and the value they received that is, what they would have paid had there been disclosure of the tipped information at the time they bought Liggett stock. The present controversy centers on the calculation by the court of what the stock would have sold at during the tipping period if there had been disclosure of the tipped information. The court used the "value line" method as suggested by Judge Sneed in Green v. Occidental Petroleum Corp., 541 F.2d 1335, 1341 (9th Cir. 1976) (concurring opinion). The court constructed a value line which showed what the price of Liggett stock would have been for each day of the tipping period if the tipped information had been publicly disclosed on the first day of the tipping period.

 Defendant does not quarrel with the value line method but rather contends that there was insufficient evidence to construct a value line for Liggett stock during the tipping period, July 11 through July 18, 1972. Liggett argues that plaintiffs' Exhibit 152, which was attached to this court's earlier opinion as an appendix, and the testimony of Mr. Torkelson, plaintiffs' expert witness, with respect to Plaintiffs' Exhibit 152 were relevant only to plaintiffs' first claim of nondisclosure which was dismissed by the court. It was this evidence on which the court based its award of damages. The court agrees that Plaintiffs' Exhibit 152 was not probative on the issue of damages under the tipping claim and amends its earlier opinion in accordance with this opinion.

 Plaintiffs' Exh. 152 estimated what the price of Liggett stock would have been had there been disclosure in June 1972 of Liggett's internal reports which indicated a down swing in profits. Plaintiffs' Exhibit 152 showed the estimated price of Liggett stock for each day of the period June 19 to July 18, the day Liggett issued a press release disclosing the anticipated dip in profits. It was plaintiffs' first claim that Liggett had "puffed" the value of its stock by overestimating its projected earnings during the winter and spring. Plaintiffs claimed that Liggett was under a duty to disclose its internal reports in June. As Liggett now points out, Mr. Torkelson's testimony about the value line and Plaintiffs' Exh. 152, which summarized his testimony, was based on the premise that Liggett breached its duty in June, 1972. Since the court explicitly declined to make that finding, the testimony based on that premise is without evidentiary value on the question of damages on the tipping claim. Therefore the court finds that it cannot rely on Plaintiffs' Exh. 152 as evidence of the value line of Liggett stock during the tipping period.

 Plaintiffs now argue that the court should rely on other testimony of Mr. Torkelson which was given in answer to a question about what the price of Liggett stock would have been had there been public disclosure at the time of the illegal tips. Mr. Torkelson stated:

 
". . . I believe that the stock would have gone down substantially.
 
It eventually went down to a price in the low 40-dollar area, approximately $ 42 a share, and it is my opinion that approximately half of that decline from $ 64 a share, which the stock was selling at at that time, to $ 42, which is a $ 22 decline, half of that would have occurred promptly, $ 11 a share. The stock would have sold at a price of $ 53.
 
Q. And on the date July 11 through July 18, 1972?
 
A. On July 11, additional information became available and the stock would have continued to sell off. We are dealing with a period July 11 through 18, which represents six trading days. The stock, in order to reach its final level, had to go down approximately 12 more points. It is my opinion that it would have gone down 2 points each day."
 
(Tr. 457-8).

 Unlike Plaintiffs' Exh. 152, this testimony is clearly relevant to the issue of damages under the tipping claim. However, the court finds that Mr. Torkelson's testimony on this point is speculative and is not supported by the evidence in the record. Therefore the court will not construct a value line for Liggett stock based on this testimony.

 Liggett argues that since plaintiffs have failed to introduce sufficient evidence to allow the court to construct a value line for Liggett stock during the July 11-July 18 period, that plaintiffs have failed to prove damages with adequate certainty and cannot recover. Alternatively, Liggett proposes a calculation of a value line that would yield an award of approximately $ 279,000, a significantly smaller amount than the approximately $ 791,000 awarded by the court in its earlier opinion.

 Few ยง 10b-5 cases have gone to judgment. Consequently, the law on the method of calculating damages for a defrauded purchaser in a tipping case is still in flux. This court is not bound to deny recovery because the plaintiffs have failed to prove a value line in accordance with Judge Sneed's concurring opinion in Green v. Occidental Petroleum Corp., 541 F.2d 1335, 1341 (9th Cir. 1976), if there is sufficient evidence from which the court can calculate damages based on a different method.

 The court ordered the parties to brief the issue of computing damages by the method suggested by the Tenth Circuit in Mitchell v. Texas Gulf Sulphur Co., 446 F.2d 90 (10th Cir.), Cert. denied, 404 U.S. 1004, 92 S. Ct. 564, 30 L. Ed. 2d 558 (1971). The court also referred the parties to an article, Damages under Rule 10b-5, ...


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