The opinion of the court was delivered by: SWEET
Defendants Fluor Corporation ("Fluor") and Manufacturers Hanover Trust Company ("Manufacturers") have moved for partial summary judgment limiting the class recovery in this securities fraud case and for summary judgment to dismiss the fourth amended complaint which includes a claim based on the transmission by Fluor to Manufacturers of certain alleged inside information (the "laundry list") alleged to be the subject of a conversation between representatives of the two defendants on February 24, 1975. Once again, this class action securities case has demonstrated its quicksilver character which has made it a difficult case to contain and decide. Familiarity with the background and the prior opinions of the Court of Appeals and this court as set forth in State Teachers Retirement Bd. v. Fluor Corp., 500 F. Supp. 278 (S.D.N.Y. 1980), aff'd in part, rev'd in part, 654 F.2d 843 (2d Cir. 1981); State Teachers Retirement Bd. v. Fluor Corp., 76 Civ. 2135 (S.D.N.Y. Sept. 27, 1982); and State Teachers Retirement Bd. v. Fluor Corp., 76 Civ. 2135 (S.D.N.Y. Mar. 30, 1982), is assumed. The motions will be denied as set forth below, except to the extent indicated herein.
Initially, the action brought by State Teachers Retirement Board ("State Teachers") as class representative was viewed by the court as presenting a claim of violation of the securities laws, section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 of the Securities Exchange Commission, 17 C.F.R. § 240.10b-5, arising out of a tip alleged to have been given to Manufacturers by Fluor on February 24, 1975 concerning the South African Coal, Oil and Gas Corporation Limited ("SASOL") contract, a $1 billion construction project on which Fluor had become the successful bidder. During the conversation, certain additional information was also conveyed, the laundry list, some twenty-one discreet items of information, the details of which were discovered by State Teachers as the action proceeded through pretrial discovery. Leave to amend the complaint to add the laundry list was denied as coming too late in the course of the litigation, a denial found by the Court of Appeals to be an abuse of discretion by the district court. State Teachers Retirement Bd. v. Fluor Corp., supra, 654 F.2d at 855-856. In addition, on the subject of the laundry list, the Second Circuit stated:
The alleged tipped information (relating, inter alia, to the increase in Fluor's backlog, projections of increases in Fluor's earnings per share, and the likelihood of Fluor obtaining projects other than SASOL II) appears to be material. The fact that soon after the information was tipped Manufacturers almost doubled its holdings of Fluor stock underscores the materiality of this information.
Thereafter, on December 29, 1982, the fourth amended complaint was filed alleging that the transmission of information contained in the laundry list constituted additional tips. On March 17, 1983, Fluor and Manufacturers sought by partial summary judgment to limit their liability by invoking a "cap" as described in Elkind v. Liggett & Myers, 635 F.2d 156, 172-73 (2d Cir. 1980). Upon argument of that motion, they were confronted with a claim for damages based not only on the SASOL tip, but also on the laundry list, a claim which Fluor and Manufacturers have characterized as the "new theory" of State Teachers. To meet this challenge, defendants then proceeded to move to establish that the laundry list failed to constitute material, non-public inside information tipped to Manufacturers with scienter. What appeared to be prudence at the time dictated that both motions be decided at the same time.
The jury trial of this action had been set for April 18, 1983 and then for April 25, 1983. The pendency of the current motions, however, has required the postponement of trial once again. Discovery, except perhaps for the testimony of experts, is substantially complete.
The Facts Relating to the Motions
On February 24, 1975, Lester Winterfeldt ("Winterfeldt"), an investment analyst of Manufacturers, met with three executive officers of Fluor, Paul Etter, David Tappan and J. Robert Fluor, at its California headquarters. In his conversation with Etter, Winterfeldt posed certain questions which he had previously prepared on notepaper and he noted Etter's answers on the same sheet. This scratch pad from which the laundry list was derived has become the focal point of these motions.
Following this conversation, Winterfeldt returned to New York, met with the Manufacturers Investment Committee on March 4 and 5, and gave reports about his trip. From March 3 to March 6, Manufacturers purchased 208,600 shares of Fluor stock. Manufacturers' average price for the 208,600 shares was $22.20. From March 3 to March 6, 1975, State Teachers sold its Fluor holdings of 288,257 shares at an average price of $22.18 per share, some of which were purchased by Manufacturers.
During this period there was a heavy volume of transactions in Fluor stock, and trading was halted on March 7, 1975. It was resumed on March 10, after a press release was issued which dealt with the announcement of the SASOL contract. On March 11, Fluor's closing price was $24.125, on March 13 it closed at $27, and by June 27, 1975 it had risen to $48. By February 6, 1976, the time of the issuance of its 1975 Annual Report, the closing price was $35.50.
The laundry list of twenty-one items, (a)-(u), can be characterized as containing financial projections, items (a)-(d), (e), (k), (n), (o), (q), information concerning particular projects, items (f), (g), (h), (j), (p), and (r), and items of overall Fluor policy, items (l) and (s). Two of the items are conceded by State Teachers to have been made public prior to February 24, 1975, the discovery of oil in Greece, item (m), and the anticipated write-off of $6.0 million in real estate, item (t), and these items have been abandoned by State Teachers. State Teachers claims that the remaining items, except for items (g), (h) and (u), which were never the subject of a public release, were publicly disclosed at various times during the months following the disclosure of the SASOL contract, and that it was not until February 6, 1976, when Fluor issued its 1975 Annual Report, that all the allegedly material, non-public information was finally disclosed or became moot.
The defendants seek the dismissal of the fourth amended complaint in which the laundry list is added to the prior claims. In so doing, Fluor and Manufacturers attempt to demonstrate that each item on the laundry list fails to have at least one of the necessary elements of tipping liability, either that it was not non-public, material or transmitted with scienter. See State Teachers Retirement Bd. v. Fluor Corp., supra, 654 F.2d at 854-55; Elkind v. Liggett & Myers, Inc., supra, 635 F.2d at 165-68.
While clearly the motion may raise appropriate issues, as for example, the inclusion of items conceded to have been public, items (m) and (e), it reaches too far, for not all the laundry list items lack a requisite attribute as a matter of law.
Therefore, the motion in its entirety, that is, dismissal of the fourth amended complaint, must be denied, but as to certain particular items, there can be no factual dispute as to their failure to constitute material, non-public tipped information. Thus, in effect, the rulings herein amount to "partial, partial summary judgment" as to particular items, and, of course, no evidence will be permitted at trial on these items.
Finally it must be noted that the denial of summary judgment as to the entire laundry list requires a solution of the appropriate measure of damages, an issue not easy to grasp or resolve in the context of this case. In denying the defendants' motion for partial summary judgment, I am determining to some extent the law to be applied by the jury in its calculation of damages.
The court in considering a motion for summary judgment must resolve all ambiguities and draw all reasonable inferences in favor of the party against whom summary judgment is sought. United States v. Diebold, Inc., 369 U.S. 654, 655, 8 L. Ed. 2d 176, 82 S. Ct. 993 (1962); Friedman v. Meyers, 482 F.2d 435, 438-39 (2d Cir. 1973). The burden is on the moving party to demonstrate the absence of any material factual issue genuinely in dispute. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 26 L. Ed. 2d 142, 90 S. Ct. 1598 (1970).
The defendants' principal attack on the laundry list is that the information allegedly discussed with Winterfeldt was "widely known to the investing public" prior to February 24, 1975, and therefore, that the information was not "non-public." Many financial analysts' reports, press releases, public filings, and newspaper articles issued prior in time to the alleged tip, are cited to demonstrate that the information conveyed to Winterfeldt was already in the marketplace at the time of the alleged tip. In addition, the defendants argue ...