448 F.2d 1 (2nd Cir. 1971), 472, Laurenzano v. Einbender

Docket Nº:472, 35405.
Citation:448 F.2d 1
Party Name:Salvatore and Hilda LAURENZANO, Plaintiffs-Appellants, v. Alvin H. EINBENDER et al., Defendants-Respondents, and Retail Centers of the Americas, Inc., Defendant.
Case Date:September 03, 1971
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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448 F.2d 1 (2nd Cir. 1971)

Salvatore and Hilda LAURENZANO, Plaintiffs-Appellants,


Alvin H. EINBENDER et al., Defendants-Respondents, and Retail Centers of the Americas, Inc., Defendant.

No. 472, 35405.

United States Court of Appeals, Second Circuit.

Sept. 3, 1971

Argued May 4, 1971.

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Sidney B. Silverman, New York City (Joan T. Harnes, New York City, of counsel), for plaintiffs-appellants.

I. Meyer Pincus, New York City (Rapoport, Rubino & Pincus, New York City, Jay W. Seeman, New York City, of counsel), for defendants-respondents.

Before LUMBARD, SMITH and KAUFMAN, Circuit Judges.

J. JOSEPH SMITH, Circuit Judge:

Plaintiffs-appellants, shareholders in Retail Centers of the Americas, Inc. (formerly known as Bargain Town, USA,

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Inc. and referred to herein as "Bargain Town") 1 appeal from a judgment in the United States District Court for the Eastern District of New York (John F. Dooling, Judge), dismissing their derivative and class actions after a non-jury trial. Plaintiffs had brought this action against National Industries, Inc., ("National"), as majority shareholder in Bargain Town, Bargain Town's former controlling shareholders Solomon S. Dobin and Jack Horne, and all but one of Bargain Town's directors at the time of the challenged transactions.

Plaintiffs alleged that Bargain Town had issued a false and misleading proxy statement, in violation of section 14 of the Securities Exchange Act of 1934, 15 U.S.C. § 78n, and Rule 14a-9 (17 C.F.R. 240.14a-9). It was further charged that the issuance of the false and misleading proxy statement violated Rule 10b-5 (17 C.F.R. 240.10b-5), since it was issued in connection with the purchase and sale of securities. Finally, it was contended that most of the transactions which formed the subject matter of the proxy statement were unfair. Defendants' pretrial motion to dismiss the amended complaint was denied by Judge Dooling. 2 This court left all issues raised by that motion and the decision thereon for future consideration, without prejudice. 3

After trial, Judge Dooling found against plaintiffs on each of their claims, in a thorough and highly detailed opinion. We find no error in either his factual or legal conclusions, and affirm the judgment.

Bargain Town was founded in the early 1950's by defendants Dobin and Horne. At that time it consisted of one discount retail store in Brooklyn, but by 1964 it had five stores in operation-two in Puerto Rico, one on Long Island, one in Norwalk, Connecticut, and the original store in Brooklyn. In 1961 a public offering of Bargain Town shares had been made, but Dobin and Horne and persons affiliated with them retained control (approximately 72% of the shares of common stock outstanding). Although the corporation had been in continual expansion, toward the end of 1964 its management believed that a loss for the year was likely. A significant cause of this decline was the apparent failure of the Brooklyn store. Additionally, the Norwalk store was encountering serious financial and managerial difficulties. Troubles were compounded as a result of the development of a strong difference over the philosophy of management between Dobin and his executive vice-president, King.

Because of these ever-increasing problems, defendant Dobin decided to sell out his stock interest and leave the retail business entirely. After consultation with Bargain Town's counsel (who also served as a director of the corporation), Dobin concluded that his group would sell at $4.00 a share, approximately $2.00 below the price at which Bargain Town's stock was being traded on the American Stock Exchange, and approximately equal to the book value of Bargain Town's stock.

Defendant Einbender, a director and official of National, agreed to have National purchase the Dobin group's stock, if the Brooklyn and Norwalk operations could be eliminated, and if Executive Vice-President King could be induced to stay on. In order to make a deal, the Dobin group was required to take over the Brooklyn and Norwalk stores at book value in exchange for redemption by Bargain Town of some of the Dobin stock. An option agreement between National and the Dobin group was executed on September 3, 1964. The agreement gave National the option to purchase all of the Dobin shares, less a number equal to the book value of the Brooklyn and

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Norwalk assets (known collectively as "the Buy-Rite Assets"), divided by $4.00 per share. To exercise this option, National was required to execute a binding purchase agreement for the Dobin shares. Such exercise could not become effective, however, unless the Bargain Town Board, subject to shareholder approval, had agreed to redeem the remaining Dobin shares in exchange for the Buy-Rite Assets. Bargain Town itself was not a party to the...

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