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WILSON v. GREAT AM. INDUSTRIES

April 25, 1991

ALEXANDER WILSON, INDIVIDUALLY AND AS REPRESENTATIVE OF ALL MINORITY SHAREHOLDERS OF CHENANGO INDUSTRIES, INC., OTHER THAN DEFENDANTS ON AND BEFORE OCTOBER 18, 1979, PLAINTIFF,
v.
GREAT AMERICAN INDUSTRIES, INC. AS A CORPORATE ENTITY AND AS A SOLE SHAREHOLDER OF CHENANGO INDUSTRIES, INC., MILTON KOFFMAN, BURTON I. KOFFMAN, RICHARD E. KOFFMAN, AS DIRECTORS OF GREAT AMERICAN INDUSTRIES, INC., CHENANGO INDUSTRIES, INC., JOSEPH M. STACK AS THE REPRESENTATIVE OF CHENANGO INDUSTRIES IN THE MERGER BETWEEN CHENANGO AND GREAT AMERICAN INDUSTRIES, AND GARY CROUNSE, DAVID KEITH DYER AND SHARON LEE DYER, AS CO-EXECUTORS OF THE ESTATE OF DAVID L. DYER, DECEASED, WILLIAM STARNER, AND ANTHONY MINCOLLA AS DIRECTORS OF CHENANGO INDUSTRIES, INC., DEFENDANTS.



The opinion of the court was delivered by: McCURN, Chief Judge.

MEMORANDUM-DECISION & ORDER

On September 5, 1990, this court issued a memorandum-decision and order in which it awarded $776,000.00 in damages to the plaintiffs, a class of former minority shareholders in defendant Chenango Industries, Inc. ("Chenango"), for the fraudulent conduct of Chenango and defendant Great American Industries, Inc. ("GAI") in issuing a proxy statement as part of Chenango's merger into GAI in 1979. Wilson v. Great American Indus., Inc., 746 F. Supp. 251 (N.D.N.Y. 1990) ("Wilson III"). The clerk of the court was directed to enter an award of pre-judgment interest at a rate of 9 percent compounded annually from the date the merger was finalized, October 31, 1979, to the date of the court's decision, September 5, 1990.

That decision was made on remand from the Second Circuit, which reversed this court's earlier judgment in favor of the defendants. Wilson v. Great American Indus., Inc., 855 F.2d 987 (2d Cir. 1988) ("Wilson II"). The Second Circuit found that the proxy statement issued by the defendants contained material omissions and misrepresentations in violation of section 14(a) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78n(a); and Rule 14a-9, 17 C.F.R. § 240.14a-9. The Second Circuit held that the plaintiffs were entitled to recover damages "equivalent to the benefit of the bargain they would have obtained had full disclosure been made," and directed this court to provide plaintiffs with another chance to prove their damages. Wilson II, 855 F.2d at 996-97. This court subsequently conducted another trial on the damages issue, and set forth its September 5, 1990, decision on damages upon consideration of the evidence presented there and at the previous trial.*fn1

The plaintiffs and defendants Chenango and GAI have filed motions for reconsideration of the September 5, 1990, decision. The court granted reconsideration and heard oral argument on the motions on December 27, 1990. The following constitutes the court's rulings on the motions.

Discussion

I. DEFENDANTS' MOTION

The defendants moved for reconsideration on several grounds, which will be addressed seriatim.

A. Calculation of Interest

The defendants contend, and the plaintiffs agree, that the clerk of the court's calculation of pre-judgment interest was erroneous, in that the clerk apparently included an extra year of interest in the calculation. Nine percent interest compounded annually on $776,000 from October 31, 1979, to September 5, 1990, would amount to $1,201,043.00. The amount of interest calculated by the clerk's office was $1,364,777.03, a difference of approximately $163,734.00. The court agrees with the parties that the interest was mistakenly calculated, and directs the clerk's office to amend the judgment accordingly.

B. Fraud

The defendants argue that the court's calculation of damages under the standard enunciated in Janigan v. Taylor, 344 F.2d 781 (1st Cir.), cert. denied, 382 U.S. 879, 86 S.Ct. 163, 15 L.Ed.2d 120 (1965), was erroneous since there was no finding that the defendants acted fraudulently in issuing the proxy statement.*fn2 Although the defendants are correct that the Second Circuit found liability under section 14(a) of the Securities Exchange Act, which does not require a finding of scienter, the court of appeals went on to say that "[t]he district court's finding that nondisclosure was a deliberate decision demonstrates a culpable state of mind far in excess of negligence." Wilson II, 855 F.2d at 995. In addition, the court of appeals found that "[w]hen, as here, the fraudulent buyer received more than the seller's actual loss, damages are the amount of the defendant's profit." Id. at 996 (emphasis added) (citations omitted). Given these findings, there can be no doubt that the Second Circuit determined that, by their actions, the defendants defrauded the plaintiffs. This court is bound by that decision and therefore its computation of damages must be governed by the standard established in Janigan v. Taylor, 344 F.2d 781, 786 (1st Cir.), cert. denied, 382 U.S. 879, 86 S.Ct. 163, 15 L.Ed.2d 120 (1965), as mandated by the Second Circuit.

C. Measure of Damages

Finally, defendants argue that this court "double counted" the earnings for the years 1979-84 in its use of the Gordon Model. This is not the case. Having accepted defendants' argument that Mr. Higgins's calculations resulted in an estimate of Chenango's future earnings power as of 1984, rather than 1979, Wilson III, 746 F. Supp. at 265, this court's calculation had to account for these five "missing" years. This calculation thus does not result in double counting, but rather makes up for Mr. Higgins's misapplication of the Gordon ...


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