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IN RE BLAKEMAN

July 20, 1981

In the Matter of the Application of Janet L. BLAKEMAN as Executor of the Estate of Louis F. Lauck, Deceased, to Compel Delivery of Property of said Estate in the Possession of William Conroy


The opinion of the court was delivered by: NICKERSON

MEMORANDUM AND ORDER

This case was the subject of the court's memorandum and order dated April 22, 1981, denying a motion of Edwin Gruner to dismiss or stay the action. Familiarity with that opinion is assumed.

Gruner owns 21.5 shares or about 18% of the stock of Litchfield Fabrics, Inc. ("the corporation"). He has claimed a right to buy all of the stock held by Louis Lauck at the time of his death, namely, 85.5 shares or 71.85%. His will allocated this stock to his three daughters' shares of the estate. Janet L. Blakeman, Lauck's daughter and executrix of his estate, asks the court for a declaration that Gruner has no right to purchase the stock and for a dismissal of his claim.

 Gruner says his right stems from two sources: (1) a May 9, 1966 agreement between the corporation's then four stockholders of which Gruner was not one, and (2) a by-law provision endorsed on the shares. The issues are governed by Connecticut law.

 I

 In 1966 Lauck bought into the corporation, and on May 9, 1966 an agreement was executed by the then four equal stockholders, whom the agreement described as "Louis Kaplan, Murray S. Kaplan, Louis F. Lauck and Joseph Versari (hereinafter called "Stockholders')." The agreement provides, among other things, that a Stockholder wishing to sell his stock will notify the corporation and the other Stockholders, that the corporation will have the first option to buy the stock at book value as determined by the last quarterly audit, and that, if the corporation does not exercise the option, "the remaining Stockholders" will have the option to purchase the stock "in equal shares" or "in such proportion as the remaining Stockholders may agree upon."

 The agreement also provides that in the event of the death of a Stockholder the corporation would have first option to purchase at book value, and if the corporation declined "the surviving Stockholder" (sic) would have the option, the shares to be purchased "in equal shares by each of the remaining Stockholders" or in such proportion as they agree upon.

 The agreement also recites that the parties have full knowledge of the restrictions placed on their stock by Article VI, Section 7 of the corporate by-laws and relinquish any rights to repurchase under those provisions as long as the agreement is in effect. The agreement provides for its termination upon the "written consent of the parties hereto" or on dissolution or bankruptcy.

 In 1958, long before the Kaplans or Lauck were interested in the corporation, Versari, who ran the business, hired Gruner, who had emigrated from Germany, as a mechanic. In 1959, he became plant superintendent. In February 1967 Versari sold 191/2 of his shares to Gruner for $ 7,747. No formal waiver or consent was executed by the three other Stockholders, but apparently the matter was approved by the board of directors. Gruner did not sign the 1966 agreement or any other document reciting that he was a party to that agreement. Nor did Lauck, the Kaplans, or Versari execute any agreement recognizing that Gruner was a party to the 1966 agreement.

 In the summer of 1967 Versari died, and on August 8, 1967 Lauck became president of the corporation, while Gruner was appointed general manager. From that time on Lauck and Gruner developed a close business and personal relationship.

 In March of 1968 the corporation redeemed Versari's 72 shares. In October 1969 Louis Kaplan bought all the shares of Murray S. Kaplan, and the corporation redeemed 971/2 shares owned by Louis Kaplan. In connection with the transaction between the Kaplans the attorney for Louis Kaplan prepared an agreement reciting that the 1966 agreement placed restrictions on Murray Kaplan's shares, that the undersigned and the corporation "do hereby waive the provisions of said agreement only insofar as they relate" to the sale by Murray Kaplan to Louis Kaplan, and that the "undersigned further acknowledge that the aforesaid agreement dated May 9, 1966 shall, except to the extent herein waived, remain effective." Lauck, Louis Kaplan and Gruner signed in the places provided for their signatures.

 In March 1972 the corporation redeemed all of Louis Kaplan's then owned 971/2 shares. This left only two stockholders, Lauck with approximately 82% of the stock and Gruner with approximately 18%. Gruner owned 21.5 shares, the corporation having issued to him in 1970 two shares as compensation.

 Some time in the summer or early fall of 1972 it came to the attention of Blakeman, a lawyer who had acted in some matters as attorney for her father and the corporation, that the 1966 agreement did not include Gruner. On October 5, 1972 she wrote to Gruner stating that the agreement "does not include you" and that since all parties to it other than Lauck "no longer have any interest in the corporation, it seems advisable that a new agreement be prepared and that the original agreement dated May 9, 1966 be formally terminated." The letter concluded: "Accordingly, I shall appreciate your consenting to the termination of the agreement and preparation of a new agreement to be submitted to you for your approval. Your consent can be indicated by signing the copy of this letter and returning it to me." At the bottom of the letter was a line for Gruner's signature under the words "I consent to the above."

 By mistake Gruner sent a copy back without his signature, and on November 21, 1972 Blakeman wrote him again stating that she had received back her previous letter "without any indication as to whether or not you consent to the preparation of a new stockholders agreement," and asking him, if he did ...


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