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January 7, 1986

LEONA S. SHULTS, Individually and as Stockholder on Behalf of HORNELL BROADCASTING CORPORATION, and all other similarly situated stockholders, Plaintiff,

The opinion of the court was delivered by: PLATT


Plaintiff Leona S. Shults ("Shults") sues "individually and as stockholder on behalf of Hornell Broadcasting Corporation ("HBC") and all other similarly situated stockholders" in an amended complaint charging defendants with violation of federal securities laws *fn1" and (in a pendent claim) of Section 717 of the New York State Business Corporation Law *fn2" and common law fraud and deceit.

 Defendant Charles D. Henderson ("Henderson") claims (i) there is no federal jurisdiction of plaintiffs' claims (ii) plaintiffs' claims are barred by the applicable statute of limitations, (iii) plaintiffs have failed to prove fraud, deceit or breach of fiduciary obligation, and (iv) plaintiffs have failed to show that she, he or any other stockholders sustained any damages.

 A trial was held before the undersigned (without a jury) on October 28 and 29, 1985.

 HBC is a New York corporation whose principal asset from its formation in the early 1950's until 1971 was radio station WLEA in Hornell, New York.

 Defendant Henderson during the relevant times herein owned approximately 60% of the stock of HBC; plaintiff Shults owned approximately 18% of the stock, and plaintiff Donald Sellers ("Sellers") (whose separate complaint was dismissed from the bench during the trial as time-barred by the applicable statute of limitations) owned approximately 20% of the stock.

 From the early 1950's through 1971, Henderson was president of HBC and directed and managed the affairs of WLEA. Henderson was also a New York State Assemblyman and for some time prior to and during 1970 he found it difficult to perform both jobs and the station was sustaining annual losses. In addition Mrs. Henderson, who worked at the station, became seriously ill, further complicating Henderson's ability to run the station.

 In 1970 HBC had a part-time manager, Kevin Doran, working at the station. In late 1969 or early 1970 he first indicated to Henderson his interest in purchasing WLEA.

 Shults's son David A. Shults, who is an attorney, testified that for some period of time he had on behalf of his mother attempted to determine the value of his mother's stock and that on April 23, 1970, Henderson telephoned him, asked if his mother would be willing to sell her shares to him and advised that the stock was not worth "a hell of a lot." David Shults replied that his mother would not do so.

 Jerome Kornfeld ("Kornfeld"), the attorney for Henderson and HBC, testified that Henderson first communicated with him in August 1970, advising that he had a buyer for WLEA. Henderson stated that the purchase price was to be $80,000 and that he would receive a consulting contract for $70,000.

 Kevin Doran testified that prior to the meeting in the Binghamton area on or about August 10, 1970, there had been no discussion of price but he identified certain notes (Ex. 29) which he had made prior to the meeting in which he indicated a proposed purchase price of $150,000 and his thought that he could put $15,000 down and pay the $135,000 balance over a ten-year period. He further testified that at the said meeting attended by Henderson and Kornfeld and his brother, Stanley Doran, representing him as his attorney, the figure of $150,000 came up. Stanley Doran, he said, was opposed to this price on the ground that it was "too much" and that Kevin Doran could not afford it. Henderson, Kevin Doran testified, then came up with the breakdown of $80,000 for the assets and $70,000 for a consulting agreement.

 Stanley Doran testified that he was aware of the two and one-half times gross billings rule of thumb for valuation of a business and that the station's gross billings were almost $60,000. He was also aware of the $150,000 suggested price and was opposed to it because he did not think Kevin Doran could handle it financially. He knew Kevin Doran only had $15,000 in cash for a down payment.

 Stanley Doran said Henderson asked for $150,000 and Stanley Doran's answer was "Forget it." Henderson then said "Give me $15,000, sign a ten-year note for $65,000 at 7% interest, and retain me at $7,000 per year for ten years or a total of $70,000." Stanley Doran asked his brother whether he could handle it, and Kevin Doran said "Yes." Kornfeld then said he would prepare the papers. Stanley Doran recalls that he asked Henderson whether this bound the other stockholders and Henderson said "Yes."

 Both Kornfeld and Kevin Doran, however, said there was no discussion about minority stockholders' ...

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