Polin v. Conductron Corp.

Decision Date23 January 1976
Docket NumberNo. 72 C 244(2),72 C 245(2).,72 C 244(2)
PartiesHoward POLIN on behalf of himself and on behalf of all other similarly situated shareholders of Conductron Corporation and derivatively, on behalf of Conductron Corporation, Plaintiff, v. CONDUCTRON CORPORATION et al., Defendants.
CourtU.S. District Court — Eastern District of Missouri

COPYRIGHT MATERIAL OMITTED

Edward F. Mannino, Dilworth, Paxson, Kalish, Levy & Coleman, Harold E. Kohn, Philadelphia, Pa., Robert S. Allen, Lewis, Rice, Tucker, Allen & Chubb, St. Louis, Mo., for plaintiff.

Richmond C. Coburn and John C. Shepherd of Coburn, Croft, Shepherd & Herzog, St. Louis, Mo., Robert V. Seymour and Paul R. Trigg, Jr. of Dykema, Gossett, Spencer, Goodnow & Trigg, Detroit, Mich., for defendants Louis J. Cutrona, R. A. Olsen, Wm. D. Prosnitz, Keeve M. Siegel and Richard D. Mange.

Veryl L. Riddle and Bryan, Cave McPheeters & McRoberts, St. Louis, Mo., for McDonnell Douglas Corp., Conductron Corp. and certain other defendants.

Robert L. Pratter, Duane, Morris & Heckscher, Philadelphia, Pa., for Conductron Corp.

Veryl L. Riddle, St. Louis, Mo., and Donald A. Scott, Philadelphia, Pa., for defendants.

MEMORANDUM OPINION AND ORDER

REGAN, District Judge.

This action filed by Howard Polin, a shareholder of Conductron Corporation, was transferred to this Court from the Eastern District of Pennsylvania.1

The consolidated amended complaint charges defendants with various violations of the Securities Exchange Act of 1934 and regulations thereunder as well as with breaches of fiduciary duties owing by them under Delaware law. Basically, the complaint attacks the acquisition by McDonnell Douglas Corporation of a controlling interest in Conductron stock in January, 1966, the operation of Conductron thereafter, and the ultimate merger of Conductron into a wholly owned subsidiary of McDonnell Douglas. Both individual and derivative claims are alleged.

Defendants are McDonnell Douglas Corporation which, since January, 1966, and until the merger owned 80.5% of the capital stock of Conductron and a number of individuals who at various times were officers or directors of either or both Conductron and McDonnell.

Conductron, a Delaware corporation, was an electronics research and development firm in Ann Arbor, Michigan, with sales for the year ending December 31, 1963 of some $5,000,000. McDonnell Aircraft Corporation (which later became defendant McDonnell Douglas Corporation) was a St. Louis-based manufacturer of aircraft and aerospace products with sales for the year ending June 30, 1964 of $865,000,000. In that year it purchased 20% of the outstanding common stock of Conductron, following which defendants Lewis and Roudebush (directors and officers of McDonnell) were elected to Conductron's Board of Directors.

On January 7, 1966, after arms-length negotiations which extended well over a year, McDonnell and Conductron entered into a conditional agreement whereby McDonnell was to acquire 1,850,000 newly issued shares of Conductron stock in return for the business and assets of McDonnell's Electronic Equipment Division, five million dollars cash, and all the capital stock of Tridea Electronics Company, a wholly owned subsidiary of McDonnell. Such acquisition, together with its contemporaneous purchase of 50,000 shares of stock owned by defendant Keeve M. Siegel, would result in McDonnell owning 80.5% of Conductron's outstanding stock, thereby placing it in "control" as that term is defined in the Internal Revenue Code. A Conductron stockholders meeting was called for January 25, 1966, to consider the transaction. Notice of the meeting, together with a proxy statement and a letter from Siegel (its president and principal individual stockholder), was mailed to shareholders at their addresses of record. With Siegel and McDonnell constituting a majority of the voting stock, stockholders' approval was little more than a formality. Following that approval at the January 25 meeting, the transaction was closed on January 27, 1966.

We first consider plaintiff's individual claims. These are based on alleged violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10(b)5 thereunder. The violations consist of allegedly misleading statements and reports made by various defendants, following each of which plaintiff continued his pattern of making additional purchases of Conductron stock. Complained of are the January 12, 1966 proxy statement and the various annual and quarterly earnings reports issued by Conductron thereafter, as well as press releases.

Whether plaintiff actually received and read the various statements and reports is a controverted issue. The credibility of plaintiff is attacked by defendants, and we have concluded that plaintiff has failed to establish by credible evidence that he received and read the documents in question. Complicating the situation is the fact that plaintiff made some 65 separate purchases of Conductron stock prior to filing suit.

It is plaintiff's contention that the proxy statement was fraudulently misleading by reason of alleged omissions of material facts chiefly relating to aircraft simulators and various problems likely to be encountered by Conductron in that business, at least for the first several years. In the light of hindsight, it may well be that the proxy statement was conservative in its estimates as to the future. However, considering the then known facts, it is our view that the projections made in the statement are neither false nor misleading, either by way of affirmative representations or omissions therefrom.

As of the date of the January, 1966 proxy statement, plaintiff was the owner of 200 shares of Conductron stock which he had bought in May, 1965, at an average cost of 23 1/8 per share. On February 18, 1966, plaintiff purchased an additional 400 shares, 100 at 50¾ and 300 at 50 5/8 . No further purchases were made until October 12 (100 shares at 42).

In April, 1966, after McDonnell had acquired its controlling interest, Conductron's 1965 annual report was issued, this being followed in September by its "Annual" report for the six months ending June 30, 1966. As to these and the other reports, it is plaintiff's contention that they too contain omissions of essential facts relating to difficulties likely to be encountered by Conductron, by reason of which they presented a false and misleading picture of Conductron's operations and prospects. After the 1965 and the 1966 Annual reports were issued plaintiff purchased an additional 600 shares of Conductron. The prices paid (in February, 1967) ranged from a high of 58½ to a low of 44¾.

In the latter part of April, 1967, Conductron's "Annual" report for the last six months of 1966 (which included the sales and earnings of the first quarter of 1967) was issued. The reports disclosed very substantial losses which had been incurred in Conductron's aircraft simulator program. Nevertheless, plaintiff continued his purchases, acquiring some 2600 shares prior to the issuance of a press release in January, 1968. Thereafter, before Conductron issued its 1967 annual report in April, 1968 and a press release at that time, plaintiff purchased an additional 500 shares. Then he acquired another 3700 shares of Conductron stock from April, 1968 through December of that year, including 1400 shares which he purchased after correspondence with the then president of Conductron relating to plaintiff's allegations of McDonnell improprieties. In April, 1969, the 1968 annual report was issued. This was after plaintiff had consulted with counsel in March of 1969 concerning the liability of defendants for their alleged fraud. It is also not without significance that as early as December, 1968, plaintiff had complained to the Securities Exchange Commission respecting what he believed to be improper actions of McDonnell Douglas. This was shortly after he had purchased 1900 shares of Conductron stock in September and November of that year.

As we have indicated, we have carefully reviewed each of these reports, as well as the earnings statements and the press releases, in light of plaintiff's complaints and find that none of them are fraudulently misleading either by omissions or by affirmative statements. It is true, of course, that each report painted a gloomier picture of the extent of the losses incurred and anticipated than the preceding one, but there is no substantial basis for the contention that any of the reports withheld material information or fraudulently minimized losses which should have been anticipated.

In view of our holding that plaintiff neither received nor read these reports, he could not have relied thereon in making any purchases of Conductron stock. In truth, the pattern of his acquisitions is difficult to understand from the point of view of reliance on the alleged fraud. Thus, after his initial acquisition of 400 shares in the month after the proxy statement was issued, no purchases at all were made until October 12, 1966, some eight months later, when plaintiff bought 100 shares of stock at 42, down 8 5/8 ths from his earlier purchases. Then, in February of 1967, about four months later, before any other material was issued by Conductron, plaintiff purchased some 400 shares of stock in 100 share lots at prices ranging from 58½ on February 1st to 54 3/8 on February 16th, followed by a fifth 100 share purchase on February 24th at 44¾. No explanation is given of this 10 point drop in an 8-day period. In the two month period commencing September 21, 1967, as the price of the Conductron stock he bought fell from 41 7/8 to 31, plaintiff made nine additional purchases aggregating some 1800 shares. And in the month ending January 16, 1968, when Conductron price was hovering in the mid-thirties, another 800 shares were purchased. In April, 1968, prior to the issuance of the 1967 annual report, plaintiff resumed his purchases with the...

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3 cases
  • Umbriac v. Kaiser
    • United States
    • U.S. District Court — District of Nevada
    • March 27, 1979
    ...1062, 97 S.Ct. 786, 50 L.Ed.2d 777 (1977); Swanson v. Amer. Cons. Industries, Inc., 475 F.2d 516 (7th Cir. 1973); Polin v. Conductron Corp., 411 F.Supp. 698, 702 (E.D.Mo.1976), aff'd, 552 F.2d 797 (8th Cir.), cert. denied, 434 U.S. 857, 98 S.Ct. 178, 54 L.Ed.2d 129 (1977). In that instance,......
  • Polin v. Conductron Corp.
    • United States
    • U.S. Court of Appeals — Eighth Circuit
    • April 14, 1977
    ...individual claims as class actions. After trial by the Court, judgment on the merits was entered for defendants. Polin v. Conductron Corp., 411 F.Supp. 698 (E.D.Mo.1976). We Conductron was incorporated in Delaware in November, 1960. Initially, Keeve M. Siegel held 80 per cent of its stock a......
  • Harris v. Lynn, 74-125c(2).
    • United States
    • U.S. District Court — Eastern District of Missouri
    • February 9, 1976

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