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STRATFORD GROUP v. INTERSTATE BAKERIES CORP.

July 10, 1984

THE STRATFORD GROUP, LTD., DPF ASSET MANAGEMENT CORP., and DPF COMPUTER LEASING CORPORATION, Plaintiffs, against INTERSTATE BAKERIES CORPORATION and FOSTER BAM, Defendants.


The opinion of the court was delivered by: SWEET

SWEET, D.J.

On January 31, 1984, The Stratford Group Ltd., DPF Asset Management Corp. and DPF Computer Leasing Corporation (collectively "Stratford") commenced an action (the "Stratford action") against Interstate Bakeries Corporation ("Interstate") and Foster Bam ("Bam"), a director of Interstate, in New York Supreme Court, alleging breach of fiduciary duty, breach of contract, fraudulent misrepresentation, inducing breach of contract and prima facie tort. Straftord seeks more than $20,000,000 in damages. On March 1, 1984, Interstate commenced an action (the "Interstate action") in this court against Stratford and directors and stockholders of Stratford, seeking to foreclose on certain assets. On the same day, Interstate removed the Stratford action to this court. Because the two cases arise out of the same transaction, the two cases were consolidated on May 9, 1984.

 Interstate and Bam have moved pursuant to Fed.R.Civ.P. 12(b)(6) and 56 to dismiss all claims in the complaint filed in the Stratford action for failure to state a claim upon which relief may be granted or for summary judgment dismissing those claims. For the following reasons, the motion of Interstate and Bam will be granted in part and denied in part. The first claim in the Stratford action will be dismissed to the extent it asserts a claim against Interstate for breach of fiduciary duty. The third and fourth claims, which are asserted against Bam for inducing breach of contract and prima facie tort, will be dismissed.

 Facts

 Defendant Interstate, formerly DPF Incorporated, is a Delaware corporation with its principal offices in Kansas City, Missouri. Defendant Bam has been a director of Interstate since 1974. Until the fall of 1981, Interstate was engaged in two principal businesses, baking and purchasing and leasing computers. Interstate's Computer Leasing Division (the "Division") was managed for many years by the four principals of the plaintiffs in this action, Jerome H. Naftol ("Naftol"), Anthony Pintauro, I. Martin Goldstein and Kenneth J. Endick (collectively "the Management Group").

 In 1981, Interstate decided to withdraw from the computer leasing business. In June 1981, Interstate and the Management Group commenced negotiations with respect to a transfer of the Division to the Management Group. The Management Group formed The Stratford Group, Ltd., a holding company, in which the members of the Management Group were sole stockholders. In addition, they formed two wholly-owned subsidiaries of The Stratford Group, Ltd., DPF Asset Management Corp. ("Management Corp.") and DPF Computer Leasing Corporation ("Leasing Co.").

 On September 1, 1981, Interstate and Management Corp., entered into a Purchase and Sale Agreement (the "Agreement") which transferred a substantial portion of the Divison to Management Corp. In turn, Management Corp. assumed substantially all of the Division's liabilities, including a loan for $22,400,000 from First National Bank of Boston and Continental Illinois Bank & Trust Company of Chicago. Interstate guaranteed payment of the bank debt and remained contingently liable for other liabilities of the Division. Paragraph 17(a) of the Agreement provided, in pertinent part:

 This writing constitutes the entire agreement of the parties with respect to the subject matter hereof and may not be modified, amended or terminated except by a written agreement specifically referring to this Agreement signed by all the parties hereto; . . .

 Included in the subject matter of the Agreement were specific financial commitments made by Interstate to Management Corp.

 Under the terms of the Agreement, Interstate was granted an option through December 31, 1983 to acquire 15% of Management Corp.'s stock for $50,000. In addition, Interstate retained Management Corp., pursuant to an equipment management agreement, to manage certain assets not sold under the Agreement, principally equipment and leases insured by Lloyds of London. Leasing Co., which was formed for the purpose of engaging in new computer leasing business, was not a party to the Agreement. Under the terms of an indemnification agreement, however, Leasing Co. was obligated to pay Interstate a maximum of $4,000,000 in reimbursement, reduced to $2,000,000 if Interstate elected to pursue its foreclosure remedy, if Management Corp. defaulted on the assumed debt or breached any other obligation.

 The Agreement became binding on the parties, subject to fulfillment of specified conditions precedent, on September 25, 1981. The transaction closed on October 1, 1981. In October 1983, Stratford defaulted on the bank debt, and the parties commenced this litigation.

 Discussion

 Stratford contends that the transaction between Interstate and the Management Group in 1981 was not simply a purchase and sale but rather a complex joint venture arrangement by which Interstate transferred a substantial portion of its computer leasing portfolio and related debt to Management Corp. Stratford maintains that the Agreement was not intended to provide all the rights and obligations of the parties with specificity and, because of the interdependent, ongoing relationship contemplated by the transaction and certain promises and undertakings allegedly made by Interstate, negotiations did not conclude on October 1, 1981 when the transaction closed.

 Stratford also asserts that Interstate, through its officers, directors and agents, assured members of the Management Group that Interstate would satisfy future requests for financial and other assistance, consistent with the Agreement's purposes. Stratford alleges that such representations were made with the knowledge and intention that the Management Group would rely on them and that but for those representations the Management Group would not have entered into the Agreement. For example, Stratford alleges that in order for Leasing Co. to succeed, it needed "equity-portion financing" to bridge the months between purchase of equipment and resale to investors. When The First National Bank of Boston and Continental Illinois Bank of Chicago informed the Management Group that they would not provide the anticipated $5,000,000 line of credit, Naftol spoke to Bertram J. Cohn ("Cohn"), then Chairman of the Board and Chief Executive Officer of Interstate, and requested a ...


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