470 F.2d 1259 (D.C. Cir. 1972), 24443, Weiss v. Kay Jewelry Stores, Inc.

Docket Nº:24443, 24444.
Citation:470 F.2d 1259
Party Name:Walter A. WEISS v. KAY JEWELRY STORES, INC., et al., Cecil D. Kaufmann and Simon Hirshman, Appellants. Walter A. WEISS v. KAY JEWELRY STORES, INC., Joel S. Kaufmann, Appellant, Cecil D. Kaufmann et al.
Case Date:November 03, 1972
Court:United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit
 
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Page 1259

470 F.2d 1259 (D.C. Cir. 1972)

Walter A. WEISS

v.

KAY JEWELRY STORES, INC., et al., Cecil D. Kaufmann and Simon Hirshman, Appellants.

Walter A. WEISS

v.

KAY JEWELRY STORES, INC., Joel S. Kaufmann, Appellant, Cecil D. Kaufmann et al.

Nos. 24443, 24444.

United States Court of Appeals, District of Columbia Circuit.

November 3, 1972

Argued Jan. 27, 1972.

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Mr. Hugh B. Cox, Washington, D. C., with whom Mr. Michael Boudin, Washington, D. C., was on the brief, for appellants in No. 24443.

Mr. Francis M. Shea, Washington, D. C., with whom Messrs. Martin J. Flynn and Anthony A. Lapham, Washington, D. C., were on the brief, for appellant in No. 24444.

Mr. Joseph Forer, Washington, D. C., with whom Mr. David Rein, Washington, D. C., was on the brief, for appellee, Walter Weiss.

Mr. James R. Stoner, Washington, D. C., entered an appearance for appellees, Kay Jewelry Stores, Inc., and others.

Before MacKINNON and ROBB, Circuit Judges, and MATTHEWS, [*] Senior Judge, United States District Court for the District of Columbia.

MATTHEWS, Senior District Judge:

A stockholder's derivative action was filed in the United States District Court for the District of Columbia by Walter A. Weiss (Weiss), a stockholder of Kay Jewelry Stores, Inc. (Kay), a Delaware corporation. From a summary judgment entered against them jointly and severally, the defendants Cecil D. Kaufmann (Cecil), Joel S. Kaufmann (Joel), and Simon Hirshman (Hirshman), president, treasurer and secretary, respectively, of Kay, and directors thereof, appeal. 1 The question on this appeal is the propriety or merit of the grant of summary judgment.

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The controversy here centers around shares of stock of 39 of Kay's subsidiary corporations and three of Kay's affiliated corporations which Joel sold to Kay after Joel had previously acquired them at a judicial auction. 2

In the complaint it is charged that Joel, with the prior knowledge of the other defendants, bought the subsidiary shares at auction "in accordance with an arrangement among the individual defendants" that Joel would later "resell the shares to [Kay] at a price higher than he would pay at the public sale"; that thereafter Kay's board of directors authorized the purchase of the shares from Joel at a price including Joel's "acquisition cost"; that the board knew that such cost was not properly to be included because of embracing large expenses incurred by Joel in contesting the will of his brother Robert "which contest was for the personal benefit and interest of Joel"; and that by these actions the individual defendants breached their fiduciary obligations as directors of Kay, and enabled Joel "to profit personally at the expense of the company."

A judgment was sought for $191,870.26, being the difference between the cost to Joel of the subsidiary shares at the auction ($205,330.03) and the price paid to him by Kay ($397,200.29).

While conceding in their answers the purchase of the stock by Joel at the auction and its subsequent sale to Kay, the defendants denied that there was any pre-auction arrangement or agreement that Joel would resell the stock to Kay. They averred that prior to the auction Kay's board of directors discussed the securities to be offered thereat and authorized negotiation for the purchase from Joel of the sudsidiary shares should he acquire them, and that these discussions contemplated that if any such purchase eventuated the price would be measured by the cost of the shares to Joel and "some fair share" of the expenses incurred by him in the litigation which resulted in the sale of such securities. Responding to the allegation in the complaint that the shares had a book value of $469,653.00, defendants asserted that their book value was $490,420.67. The defendants denied that the will contest "was for the personal benefit and interest of Joel" and that Joel was enabled "to profit personally at the expense of the company." Moreover, the defendants denied any breach of their fiduciary obligations to Kay and its stockholders.

Immediately following oral argument for and against the motion of Weiss for summary judgment the court expressed its views as follows:

"While on some of the Plaintiff's theories in this case, there may be disputes, genuine disputes of issues of fact, the Court holds that there is no * * * genuine dispute of any issue of fact involving this question, and that is that the purchase by Joel S. Kaufman of the stock in question and its resale to Kay's was a scheme devised by the Defendants to reimburse Joel S. Kaufman for his personal expenses in a will contest unconnected with the corporate business of the case; that such on the part of the Defendants was a gross violation of their duties to the corporation and to the stockholders, and that the corporation is entitled to recover the excess price, and I'll grant summary judgment." Transcript of Proceedings, April 30, 1970, p. 47.

I

A summary judgment is authorized only if "there is no genuine issue as to any material fact and * * * the moving party is entitled to a judgment as a matter of law." 3 The function of the court on a summary judgment motion "is limited to ascertaining whether any factual issue pertinent to

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the controversy exists; it does not extend to resolution of any such issue." 4 Once it is determined that material facts are in dispute "summary judgment may not be granted," and in "making this determination doubts * * * are to be resolved against the granting of summary judgment." 5 To warrant summary judgment the record "should show the right of the [movant] to a judgment with such clarity as to leave no room for controversy, and * * * should show affirmatively that the [adverse party] would not be entitled to [prevail] under any discernible circumstances. * * * A summary judgment is an extreme remedy, and, under the rule, should be awarded only when the truth is quite clear." 6

On appeal from a summary judgment entered by the District Court on pleadings, depositions, affidavits and other evidentiary papers, this court as the reviewing tribunal must give to the parties against whom the summary judgment was entered the most favorable view of the record. 7 So viewed, we perceive genuine issues of material fact over the motive and intent of Joel in buying the shares and in later selling them to Kay, the motivation of Cecil and Hirshman in any action taken by either or both of them in respect of the two above-mentioned transactions, and whether the defendants or any of them devised a scheme, including such transactions, for the purpose of reimbursing Joel for his personal expenses in a will contest unconnected with the corporate business of Kay.

Questions of material fact are also involved (1) in the claim of Joel that he bought the shares in his individual capacity in a non-corporate matter and, as an incident of his private ownership, had the right to name the price at which he would sell; and (2) in the claim of Cecil and Hirshman that in the absence of a factual finding that they acted in bad faith the law presumes that as directors they exercised good faith.

Accordingly we hold that the defendants are entitled to have the factual issues resolved by a trial on the merits.

As there are many background facts without substantial controversy, we relate them as they may serve to elucidate the legal problems presented when later we reach them for discussion.

II

The Will Contest: The shares of stock involved in this case were a part of the estate of Robert D. Kaufmann, unmarried brother of Joel and a cousin of Cecil, who died in 1959 while domiciled in New York. Joel and his invalid brother, Aron, were Robert's nearest blood relatives and would have been entitled to Robert's estate had he died intestate. 8

Three wills were left by Robert. In his earliest will Robert gave his estate in the main to his brother Aron and to Joel's two minor sons. The next to the last will was one in which Robert gave his residual estate, including the shares in this litigation, half to Joel's two minor sons and half to Weiss. The purported last will of Robert gave virtually

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his entire estate to Weiss, including such shares, and named Weiss sole executor.

Believing that Weiss had procured the purported last will by exercising undue influence over Robert, Joel contested the will, and litigation ensued covering a span of almost six years. Two juries found that Weiss had exercised undue influence over Robert, and the will leaving virtually all of Robert's estate to Weiss was denied probate. 9 Thus the will next in line for consideration for probate was the one giving the residual estate half to Weiss and half to Joel's two minor sons. The total litigation expenses incurred by Joel in the will contest up to that point, as later determined by a committee appointed to report on the matter to Kay's board of directors, were $284,838.28.

Auction of Stock Ordered: Litigation over the estate continued. 10 Funds being needed to meet administration expenses and estate obligations, the temporary administrator of Robert's estate obtained a court order authorizing the sale at public auction of the stock held by the estate. The court fixed a minimum price that the administrator was authorized to accept, and in the aggregate it was $299,388. However, the court was careful to point out that such minimum price was not an appraisal or determination of the market value of the shares.

Intending to bid on these securities, and aware that Weiss was claiming the shares were worth at least $500,000 and was trying to get bidders or to get financing for a bid of his own, Joel arranged financing at a bank up to $500,000 for his...

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