552 F.2d 797 (8th Cir. 1977), 76-1207, Polin v. Conductron Corp.
|Citation:||552 F.2d 797|
|Party Name:||Howard POLIN, etc., et al., Appellants, v. CONDUCTRON CORPORATION et al., Appellees.|
|Case Date:||March 23, 1977|
|Court:||United States Courts of Appeals, Court of Appeals for the Eighth Circuit|
[Copyrighted Material Omitted]
Submitted Nov. 9, 1976.
Rehearing and Rehearing En Banc Denied April 14, 1977.
Edward F. Mannino, Philadelphia, Pa., for appellants; Jeffrey A. Less and Lawrence D. Berger, Dilworth, Paxson, Kalish & Levy, Philadelphia, Pa., Robert S. Allen, Lewis, Rice, Tucker, Allen & Chubb, St. Louis, Mo., Harold E. Kohn and Stuart H. Savett, Kohn, Savett, Marion & Graf, Philadelphia, Pa., on the brief.
Richmond C. Coburn, St. Louis, Mo., for appellees, Siegel, Olsen and Cutrona; G. Lane Roberts, Jr., and Thomas E. Douglass, St. Louis, Mo., Dykema, Gossett, Spencer, Goodnow & Trigg, Detroit, Mich., on the brief.
Veryl L. Riddle, St. Louis, Mo., for appellees, McDonnell Douglas Corp., et al.; Thomas C. Walsh and John J. Hennelly, Jr., of Bryan, Cave, McPheeters & McRoberts, St. Louis, Mo., on the brief.
Before GIBSON, Chief Judge, BRIGHT, Circuit Judge, and TALBOT SMITH, [*] Senior District Judge.
TALBOT SMITH, Senior District Judge.
This is an action brought by plaintiff Howard Polin, a shareholder of Conductron Corporation (hereafter Conductron), charging defendants with violations of the federal securities laws and breach of their fiduciary duties. 1 Named as defendants are Conductron, McDonnell Douglas Corp. (MDC) and several officers and directors of Conductron
and MDC. Plaintiff asserts both individual and derivative claims. Additionally, plaintiff seeks to maintain his individual claims as the representative of the class of similarly situated stockholders of Conductron.
Prior to trial, the District Court 2 refused to certify plaintiff's 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 affirm.
Conductron was incorporated in Delaware in November, 1960. Initially, Keeve M. Siegel held 80 per cent of its stock and Paramount Pictures the other 20 per cent. Siegel, who had been a Professor of Electrical Engineering at the University of Michigan and the director of the University's Radiation Laboratory, became Conductron's President and, in 1961, Chairman of the Board.
Conductron, the bulk of whose facilities were in Ann Arbor, Michigan, was engaged in electronics research and development. The major part of Conductron's business, until 1966, was with the United States Government and its contractors.
By 1964, Conductron scientists and engineers had made several advances, particularly in radar. Conductron, however, lacked the large scale production facilities needed to obtain government production contracts. In the spring of 1964, Conductron entered into negotiations with McDonnell Aircraft Corp. (MDC 3, which had only a few months earlier purchased Paramount's Conductron stock, for the acquisition of additional production facilities. An agreement was signed on January 7, 1966. According to the agreement, MDC would receive 1,850,000 newly-issued shares of Conductron stock, giving it over 80 per cent of Conductron's outstanding stock. Conductron would receive all of the business and assets of MDC's Electronic Equipment Division (EED), all of the capital stock of Tridea Electronics Co., a wholly-owned subsidiary of MDC, and $5,000,000 in cash. A notice of a special shareholders' meeting, proxy material, and a letter from Siegel recommending approval of the transaction were sent to Conductron's shareholders. The Conductron shareholders voted to approve the transaction, which was closed on January 27, 1966.
Approximately a year later, on January 30, 1967, the Executive Committee of Conductron voted to acquire the assets subject to liabilities of Advanced Communications, Inc. (ACI) in exchange for 3,482 shares of Conductron stock. As additional consideration for the purchase, Conductron assumed a $300,000 note, then owing by ACI. Forty-six per cent of ACI's stock had been owned by MDC. The Conductron acquisition of ACI was consummated on February 25, 1967.
At the same meeting, Conductron's Executive Committee decided to reject a proposal that Conductron acquire Hoffman Products Co., a manufacturer of radios, televisions, and stereo equipment for Montgomery Ward, and Hoffman Electronics Co. The Hoffman acquisition had been negotiated by Siegel, who had continued as Chairman of the Board and President of Conductron after MDC's acquisition of 80 per cent of Conductron's stock. Siegel favored Conductron's acquisition of Hoffman, but was opposed to the ACI acquisition. However,
he was outvoted 2-1 in Conductron's Executive Committee. Siegel then resigned from all of his positions with Conductron, and disposed of all of his Conductron stock during February, 1967. 4
Siegel's responsibilities were assumed on a temporary basis by R. A. Olsen, Vice President of Conductron, who was given the additional title, "Acting General Manager." On April 27, 1967, Walter F. Burke, a director and officer of MDC was elected President of Conductron. Olsen disposed of his Conductron stock in July, 1967. He left Conductron on October 21, 1967 and immediately became an officer and director of K.M.S. Industries, Inc., in which he had invested the proceeds from the sale of his Conductron stock.
Conductron was eventually merged into McDonnell Douglas Electronics Co. (MDEC) and its separate corporate existence terminated. This merger as well has been the subject of attack and will be considered by us infra.
Originally, two suits were filed respecting different aspects of Polin's claims. Both were transferred to the Eastern District of Missouri and, by order of the Court, consolidated into one action. Thereafter, as we have noted, plaintiff filed a consolidated amended complaint covering both actions. The consolidated amended complaint contained five counts. Counts I and II, resolved adversely to plaintiff at trial, have not been pursued in this Court.
In Count III of plaintiff's consolidated amended complaint, he brought an individual and class action under §§ 10(b) and 14(a) of the Securities Exchange Act of 1934 (1934 Act) and Rules 10b-5 and 14a-9 thereunder, 5 for damages allegedly suffered by plaintiff and "all other similarly situated
shareholders of Conductron" as a result of their purchases of Conductron stock between 1966 and 1969. The plaintiff twice moved to have this count certified as a class action, the District Court rejecting both motions.
The first motion was submitted after extensive discovery with respect to the class action issue, the submission of briefs and oral argument thereon. 6 The court denied class action certification, pointing out that the charges made related to allegedly false and misleading statements in proxy statements, financial statements, Annual Reports and other documents allegedly relied upon by purchasers of Conductron stock in the years 1966, 1967, 1968, and 1969, that the number of such purchasers was estimated to be in excess of 2600, that the purchase dates of the various buyers would be of importance in determining the rights of each purchaser, 7 that 1966 buyers could not have been influenced by the alleged 1967, 1968 or 1969 false representations, and that the facts common to purchasers "in the various years do not, under the present record, predominate." 8 It was the court's final conclusion that the factual issues were "too diverse to warrant class treatment." 9 Moreover, it was clear on the record, that plaintiff had, throughout the years, while charging various malfeasances and misfeasances against the defendants, continuously purchased Conductron stock himself, despite the gravity of the charges made, thereby raising the most serious questions as to whether or not he was a proper "representative" of the allegedly injured class. 10 The Court's conclusion on all of this was "that the claim would be completely unmanageable if it were sustained as a class action." 11
It is well settled that the trial court has broad discretion in determining whether a class action may be maintained and its determination should be given great weight by a reviewing court. Wright v. Stone Container Corp., 524 F.2d 1058, 1061 (8th Cir. 1975); 3B Moore's Federal Practice P 23.50. 12
We are satisfied that the court has carefully weighed the controlling factors and we are unpersuaded that there has been any abuse of discretion in the subject rulings.
It is the claim of the plaintiff that the January, 1966 proxy statement, the 1965 Annual Report, as well as the First 1966 Annual Report, the Second 1966 Annual Report, the 1967 Annual Report, the Press Release of May 3, 1968, and the 1968 Annual Report, all contained false and misleading statements, "particularly with reference to Conductron's aircraft simulator business * * *."
In order to analyze properly the frauds allegedly practiced almost throughout Conductron's entire corporate life, it is necessary to acquire some perspective as to the simulator business, its origins, its prospects, and its costs, since all are comprehended, in one form or another, in fraud charges covering the years in question.
The simulator, as the name implies, simulates something else. With respect to aircraft, the simulator duplicates ("simulates") the cockpit of the plane. Through an intricate system of wiring and programming, and with the aid of computers, aircraft operating characteristics may be simulated for various situations, both routine and of serious nature. The entire plane performance is duplicated, from take-off, through systems performance, radio...
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