The opinion of the court was delivered by: CEDARBAUM
Before: HON. MIRIAM GOLDMAN CEDARBAUM, District Judge
CONCLUSION OF LAW and FINDINGS of FACT and JUDGMENT
THE COURT: At this time, I should like to announce my conclusions of law, my findings of fact and the judgment in this case.
I adopt and incorporate into my final decision the carefully reasoned opinion of Judge Carter, dated February 24, 1986, denying the parties' cross-motions for summary judgment in this case.
The only factual issue left open by Judge Carter was the intention of the parties as to the meaning of "adverse market conditions" as that term is used in paragraph 10(b)(vii) of the firm commitment underwriting agreement in this case.
After examining all of the exhibits in evidence, including the affidavits of the experts, and after listening to the testimony of the principal of the plaintiff and the president of the defendant, and portions of their previous testimony before the Securities and Exchange Commission, and by way of deposition, and after observing the demeanor of these witnesses on both direct and cross-examination, and carefully considering the plausibility and credibility of their testimony, and on the basis of the findings of fact which follow, I have concluded that defendant's termination of the underwriting agreement in this case was not justified under the "market out" clause and constituted a wrongful refusal to pay for plaintiff's securities in accordance with the terms of the agreement.
I turn now to the findings of fact.
First, the uncontested facts.
The parties agree that the following facts are not in dispute in this action:
1. Plaintiff Walk-In is a corporation duly organized and existing under the laws of the State of Florida with its principal office and place of business located in Clearwater, Florida.
2. Defendant Breuer Capital is a corporation duly organized and existing under the laws of the State of Colorado with its principal office and place of business located in Aurora, Colorado.
3. At all times relevant to the action, Walk-In was engaged in the business of establishing, developing and administering centers primarily in Florida which offer medical services to the public for the diagnosis and treatment of nonemergency illness or injury.
4. At all times relevant to the action, Breuer Capital, was and is an investment firm and broker-dealer registered with the United States Securities and Exchange Commission.
5. On or about August 11, 1983, Breuer Capital executed, in New York City, a Letter of Intent to act as the managing underwriter in connection with a proposed firm commitment public offering of 500,000 shares of Walk-In's common stock.
6. The Letter of Intent expressed the understanding that ". . . Breuer Capital Corporation ("BCC") shall underwrite on a firm commitment basis . . . 500,000 shares of (Walk-In's) common stock . . ." The letter stated that it would be Walk-In's obligation to bear the expenses of the offering, and in that connection, the letter stipulated that Walk-In would pay Breuer Capital, on a nonaccountable basis, $ 20,000 upon Breuer Capital becoming a member of the NASD, subject to the understanding that ". . . if the underwriters do not or fail to enter into the proposed underwriting agreement, and the reasons therefor are reasonably related . . . to adverse market conditions. . ., BCC may retain such portion of the $ 20,000 payable to BCC upon BCC becoming a member of the NASD as shall equal actual expenses incurred by BCC . . ." The letter also obligated Walk-In to pay Breuer Capital all of its Blue Sky counsel fees, expenses and Blue Sky filing fees in the event that Breuer Capital was unable to enter into the proposed underwriting agreement on account of ". . . adverse market conditions. . ." (emphasis supplied.)
7. On January 18, 1984, Breuer Capital executed, in New York City, a firm commitment underwriting agreement, pursuant to which Breuer Capital agreed to purchase from Walk-In and Walk-In agreed to sell to Breuer Capital 500,000 shares of Walk-In's common stock at a purchase price of $ 5.40 per share with an option granted to Breuer Capital to purchase at the same price up to an additional 75,000 shares to cover over-allotments. Breuer Capital agreed in the Underwriting Agreement to make a public offering of Walk-In's common stock.
8. Pursuant to its terms, the Underwriting Agreement was to be "governed by and construed and enforced in accordance with the laws of the State of New York."
9. Paragraph 10(b) of the Underwriting Agreement, commonly known as a "market out" clause, provided:
"You shall have the right to terminate this Agreement at any time prior to the closing date (i) if any domestic or international event or act or occurrence has materially disrupted, or in your opinion will in the immediate future materially disrupt, security markets; or (ii) if trading on the New York Stock Exchange, the American Stock Exchange, or in the over-the-counter market shall have been suspended, or minimum or maximum prices for trading shall have been fixed, or maximum ranges for prices for securities shall have been required on the over-the-counter market by the NASD or by order of the Commission or any other government authority having jurisdiction, or (iii) if the United States shall have become involved in a war or major hostilities; or (iv) if a banking moratorium has been declared by a New York State or federal authority; or (v) if a moratorium in foreign exchange trading by major international banks or persons has been declared; or (vi) if the Company or any of its future subsidiaries shall have sustained a loss material or substantial to the Company and its subsidiaries, if any, taken as a whole by fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity or malicious act which, whether or not such loss shall have been insured, will, in your opinion, make it inadvisable to proceed with the delivery of the Shares; or (vii) if there shall have been such change in the conditions or prospects of the Company and its subsidiaries, if any, taken as a whole, or such adverse market conditions as in your judgment would make it inadvisable to proceed with the offering, sale and delivery of the shares." (Emphasis supplied.)
10. From January 10, 1984 to January 18, 1984, the Dow Jones Industrial Average declined from 1295.44 to a close of 1269.37.
11. On January 18, 1984, at approximately 3:00 p.m., Eastern Standard Time, the Registration Statement became effective and Breuer Capital commenced the initial offering of 500,000 shares of Walk-In stock.
12. The parties agreed that the closing of the Underwriting Agreement, originally scheduled for January 30, 1984, be accelerated to January 25, 1984.
13. The following are the closing quotes for the Dow Jones Industrial Average for the period from January 18, 1984 to January 24, 1984, as reported in The New York Times and in The Wall Street Journal :
January 18 (Wed.) 1,269.37.
January 19 (Thurs.) 1,266.02.
January 20 (Fri.) 1,259.11.
January 23 (Mon.) 1,244.45.
January 24 (Tues.) 1,242.88.
14. The following are the closing quotes for the NASDAQ-OTC market for the period from January 18, 1984 to January 24, 1984, as similarly reported:
January 18 (Wed.) 286.86.
January 19 (Thurs.) 287.21.
January 20 (Fri.) 286.49.
January 23 (Mon.) 284.41.
January 24 (Tues.) 280.20.
15. During the afternoon of January 23, 1984, Faye Breuer informed George Resch that, based upon advice received from its counsel, Breuer Capital was claiming "adverse market conditions" and was forthwith terminating the Underwriting Agreement pursuant to paragraph 10(b)(vii).
16. The underwriting agreement was terminated by Breuer Capital as of the close of the Market on January 23, 1984.
17. By a telegram transmitted to Walk-In at or around 9:00 a.m. on January 24, 1984, and by a confirming letter dated the same date, Breuer Capital notified Walk-In that because of alleged "adverse market conditions" it had elected to terminate the Underwriting Agreement and was therefore refusing to proceed with the offering, sale and delivery of Walk-In's common stock.
18. Between January 18, 1984 and January 23, 1984, Breuer Capital secured firm offers for 601,500 shares of Walk-In stock.
That concludes the findings of fact that the parties agree are not in dispute in this action.
The following are my findings of fact, and I continue with the following numbering:
19. Before the Letter of Intent was executed by the parties, a meeting was held at the offices of Whitman & Ransom on August 10, 1983, in New York City. In attendance at that meeting were George Resch, Donald Parson, Walk-In's counsel, Faye Breuer, and Lawrence Fisher, Breuer's counsel. The purpose of the meeting was to review a draft of the proposed Letter of Intent in order to make final changes and modifications before it was signed.
20. Resch testified, and I find his testimony credible, that during the meeting, in the course of discussing paragraph 4 of the Letter of Intent, Parson asked Fisher what he meant by the term "adverse market conditions." Fisher responded that that language was in all of his agreements. Parson then asked whether the decline by approximately 20 points in the Market in the last few days was the type of "adverse market conditions" contemplated by the agreement. Resch testified that Breuer responded that that was not what the language meant; rather, that adverse market conditions meant a market in which underwriters could not sell their shares.
21. There was no discussion by the parties of the meaning of "adverse market conditions" as used in paragraph 10(b)(vii) of the Underwriting Agreement.
22. Breuer testified both at trial and under oath before the Securities and Exchange Commission that her understanding of adverse market conditions is "where the market is going down, there are no buyers, everyone wants to sell, everyone is losing money." Breuer also testified ...