The opinion of the court was delivered by: GLASSER
Plaintiff Alice Bender Klausner brings this action alleging violations of § 10(b) of the Securities Exchange Act of 1934 ("the 1934 Act"), 15 U.S.C. § 78j(b), and the rules promulgated thereunder, in connection with the exchange of her shares of stock in H.J. Bottling Co., Inc. ("HJ") for shares of International Telephone and Telegraph Corp. ("ITT") in August 1976. Plaintiff also alleges pendent state law claims against defendants.
Defendants Gaspare P. Ferro and Alfred DiPasqua have moved for summary judgment dismissing plaintiff's federal claim under the 1934 Act. After a thorough examination of the record, and for the reasons set forth below, I find that defendants' motion for summary judgment should be granted. Because plaintiff's federal claim is insufficient, her pendent state claims must fail as well. United Mine Workers v. Gibbs, 383 U.S. 715, 725, 86 S. Ct. 1130, 1138, 16 L. Ed. 2d 218 (1966).
A great many of the facts underlying this action are undisputed by the parties. Defendant HJ was a closely-held New York corporation, organized on September 5, 1968, which maintained its principal place of business in New Jersey. From the date of HJ's incorporation until August 1976, defendant Ferro was the President and defendant DiPasqua was the Vice President of HJ. Both men were also directors of the company.
In 1968, Ferro owned 1005 issued and outstanding shares of HJ stock, and DiPasqua owned 525 shares. After HJ shares were issued to third parties in November 1968, the individual defendants owned approximately 70% of the company's issued and outstanding stock. In 1972, Ferro and DiPasqua each purchased 172 shares from HJ stockholders who had expressed a desire to sell those shares. Following those purchases, the individual defendants owned a total of approximately 88% of HJ's issued and outstanding stock.
Meyer Bender, HJ's insurance broker and the father of plaintiff, had purchased ten (10) shares of HJ for his son, Stephen Bender, plaintiff's brother, in 1968. In or about June or July 1973, Meyer Bender and Seymour Graubard, acting as trustees for plaintiff, purchased six (6) shares of HJ stock at a price of $3900, which transaction was arranged by Ferro, DiPasqua and HJ's then attorney, Anthony V. Curto, Jr. The six shares were issued to plaintiff's trust on July 2, 1973, represented by Certificate No. 55.
Additional transactions in HJ stock are relevant to this action.First, in August 1975, a letter signed by Ferro was sent to all HJ shareholders, offering to purchase any outstanding HJ shares for the price of $750 per share. Affidavit of Gaspare P. Ferro ("Ferro Aff."), Exh. 19. Informing the shareholders that dividends were not expected to be declared, the letter stated in pertinent part:
From time to time you have been offered the opportunity to sell your interest in the company, and again we feel[,] due to the years that have gone by, compelled to offer you an opportunity to dispose of your interest at this time. Therefore, this is an offer to purchase your stock at the price of $750.00 per share.
The expiration date of this offer was September 12, 1975. As a result of this offer, HJ redeemed 66 shares of its outstanding stock, in addition to some 64 shares which the company had redeemed prior to August 1975. Although plaintiff's trustee did not tender any of the trust's shares for redemption, Meyer Bender informed Ferro, in a series of brief notes, that he would be interested in purchasing additional shares at $750 per share if they became available. Ferro Aff., Exhs. 20-24.
In addition to the above transaction, HJ's pre-1976 contacts with ITT are relevant to a discussion of this motion. ITT first approached HJ as a potential acquisition in early 1973, prior to the purchase of shares by plaintiff's trustee. In March 1973, ITT concluded that it did not want to acquire HJ. See Ferro Aff., Exh. 3. In early 1976, ITT renewed its interest in HJ. Id., Exhs. 4-6. As a result of negotiations between ITT and Ferro and DiPasqua, those parties reached a tentative agreement to exchange all of the issued and outstanding shares of HJ stock for 235,00 shares of ITT stock. A letter of intent was executed on June 24, 1976. Ferro Aff., Exh. 7. At a shareholders' meeting held on July 6, 1976, all of HJ's shareholders gave their authorization for Ferro and DiPasqua to complete negotiations with ITT. As a result, an exchange of shares between HJ and ITT took place on August 13, 1976, pursuant to an Agreement and Plan of Reorganization (the "Agreement"), executed by ITT and all of the shoreholders of HJ.
At that time, plaintiff's trust exchanged her six shares of HJ stock for 657 shares of ITT Series K Preferred Stock, having a value of approximately $32,850 -- or roughly 800% over plaintiff's original investment.
In early 1981, plaintiff instituted this action, alleging that Ferro and DiPasqua failed to make certain disclosures prior to the HJ-ITT stock transfer which amounted to fraud upon her within the meaning of § 10(b) of the 1934 Act. In particular, plaintiff alleges that the individual defendants violated that statute and its rules by failing to disclose in connection with the ITT transaction:
(a) The true value of HJ;
(b) The financial results of HJ from which plaintiff could determine said true value;
(c) That the exchange ratio was determined by defendants' arbitrary value attributed to HJ, which value had been impaired by defendants' improper conduct;
(d) That defendants had acquired 344 additional shares of HJ's stock by causing HJ first to borrow money in the amount of $250,000 and then, in turn, borrowing money from HJ;
(e) That defendants had borrowed the said $250,000 from HJ at no interest and then, upon discovery by HJ's auditors, agreed to repay said loan at an interest rate far below that which HJ had to pay for the $250,000;
(f) That defendants had raised salries, bonuses and expense accounts for themselves in ever-increasing amounts withou ...