Milton v. Van Dorn Co.

• Decision Date: 05 November 1991
• Docket Number: No. 91-1544,91-1544
• Parties: Fed. Sec. L. Rep. P 96,601 James W. MILTON, et al., Plaintiffs, Appellants, v. VAN DORN COMPANY, Defendant, Appellee. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 965

961 F.2d 965

Fed. Sec. L. Rep. P 96,601

James W. MILTON, et al., Plaintiffs, Appellants, v. VAN DORN COMPANY, Defendant, Appellee.

No. 91-1544.

United States Court of Appeals First Circuit.

Heard Nov. 5, 1991.

Decided April 14, 1992.

Stephen R. Delinsky with whom Treazure R. Johnson, Brian M. Martin and Eckert, Seamans, Cherin & Mellott, Boston, Mass., were on brief, for plaintiffs, appellants.

Charles L. Freed with whom James B. Niehaus, Thompson, Hine and Flory, Washington, D.C., Raymond J. Kenney, Jr., and Martin, Magnuson, McCarthy & Kenney, Boston, Mass., were on brief, for defendant, appellee.

Before BREYER, Chief Judge, COFFIN, Senior Circuit Judge, and CYR, Circuit Judge.

CYR, Circuit Judge.

Plaintiffs-appellants, purchasers of the capital stock of Milton Can Company ("Milton Can") from defendant-appellee Van Dorn Company ("Van Dorn"), appeal from the summary judgment dismissing their complaint for common law fraud, federal securities fraud, and breach of the stock purchase agreement. We affirm.

I BACKGROUND

A jury reasonably could have found the following facts from the summary judgment record. See Price v. General Motors Corp., 931 F.2d 162, 164 (1st Cir.1991). In 1968, Van Dorn, an Ohio corporation which manufactures various product containers, acquired and merged with Milton Can, a New Jersey can manufacturing company owned and operated by the family of plaintiff James W. Milton. Even after the merger, however, the Milton family continued to manage the new Milton Division for Van Dorn.

In August 1986, James Milton, president of Milton Can since 1979 and a director of Van Dorn since 1984, learned that Davies Can, another wholly-owned Van Dorn division based in Cleveland, Ohio, was in the process of developing a "ringless" one-gallon paint can. Plaintiff Barry Treadwell, an officer of Milton Can, learned in June 1987 that Davies Can had shown a prototype of its new can to Glidden Company, one of Van Dorn's existing customers. Glidden operated a major paint manufacturing facility in Reading, Pennsylvania, within the primary paint can marketing area served by Milton Can's New Jersey plant. Although both Davies Can and Milton Can had supplied Glidden's Reading facility with a limited number of one-gallon paint cans in the past, neither was a major supplier prior to 1988.

In September 1987, James Milton, as agent for the fourteen plaintiff-investors, commenced negotiations with Van Dorn for the purchase of all of the capital stock of Milton Can. In his preliminary discussions with Van Dorn's management, James Milton tentatively proposed that the stock purchase agreement ("SPA") contain, inter alia, (1) a "competitive restriction" which would prohibit Van Dorn from competing with Milton Can "within the[ir] presently established geographical areas," and (2) a "non-duplication" restriction which would prevent Van Dorn from constructing any manufacturing facilities, or duplicating any product lines, within Milton Can's "geographical operating area" until such time as plaintiffs had amortized their purchase money note to Van Dorn. Van Dorn consulted Davies Can's management, which categorically rejected both of James Milton's proposals. While Davies Can's outright rejection was not communicated to plaintiffs, James Milton allowed the proposals to lapse and neither the competitive restriction on marketing nor the "non-duplication" provision was included in the SPA.

On November 10, 1987, two days before a scheduled meeting of the Van Dorn Board of Directors ("Board") which was to have been attended by James Milton, Van Dorn decided to postpone a planned Board presentation by Davies Can aimed at obtaining Van Dorn's authorization to commence commercial production of its "ringless" can, as well as possible construction of additional paint can manufacturing facilities outside Ohio, specifically in Chicago, Dallas, or Los Angeles. Nonetheless, the Board approved further capital expenditures in the amount of $300,000 for continuing development, research, and feasibility In an acquisition financing proposal prepared by Paine Webber in January 1988, Milton Can's management forecast "a unique opportunity for a substantial increase in [projected] revenues in 1988 ... due to ... an improved marketing strategy targeted at new customer accounts and an increased penetration of existing accounts." The Paine Webber financing proposal identified Glidden as one of "the principal sources of this significant increase."

studies relating to the production of the "ringless" can.

On February 11, 1988, while Van Dorn was negotiating the sale of the capital stock of Milton Can with James Milton, Davies Can proposed, inter alia, to construct a new one-gallon paint can manufacturing facility in eastern Pennsylvania provided Glidden would enter into an agreement to purchase the new "ringless" one-gallon paint cans to be produced there. Another presentation by Davies Can to the Van Dorn Board, originally scheduled for the end of February 1988, was postponed.

On March 31, 1988, Van Dorn and James Milton finalized the SPA, which transferred all Milton Can capital stock to the plaintiffs. ¹ The SPA contained no reference to Davies Can's preliminary discussions with Glidden. James Milton's resignation as a Van Dorn director became effective the day of the closing. On June 14, 1988, Davies Can formally apprised the Van Dorn Board of its impending agreement to supply "ringless" one-gallon paint cans to Glidden, and of its proposed construction of a Georgia plant and a Pennsylvania plant to produce the cans to be supplied to Glidden. The written instrument whereby Davies Can agreed to supply Glidden with "ringless" one-gallon paint cans was executed on August 8, 1988. The Van Dorn Board immediately approved the agreement and authorized capital expenditures for the construction of two new plants. The Board approved Atlanta, Georgia, as the site of the first new plant. Not until May 1989 did the Board approve eastern Pennsylvania as the site of the second new Davies Can manufacturing facility.

The fourteen plaintiffs filed a complaint in the United States District Court for the District of Massachusetts, alleging that Van Dorn's written and oral representations during the course of their negotiations for the sale of the capital stock of Milton Can misled plaintiffs reasonably to believe that neither Van Dorn nor its wholly-owned Davies Can Division had taken any actions, prior to the sale of Milton Can's capital stock, to duplicate either Van Dorn's or Davies Can's paint can manufacturing facilities within Milton Can's primary marketing area, which includes eastern Pennsylvania. Although plaintiffs concede that some customers within Milton Can's primary marketing area previously were supplied by Davies Can from its facility in Solon, Ohio, the complaint alleges that the proposal to construct the eastern Pennsylvania plant was material information which would have affected plaintiffs' investment decision. James Milton provided competent deposition testimony that geographic location is crucial in the can manufacturing business due to the high cost of transporting bulky cans and containers and that it is customary industry practice for paint can manufacturers to serve limited geographic markets.

The complaint asserted a securities fraud claim under Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), Rule 10b-5, and state law claims for common law fraud and breach of contract. ² The district court granted summary judgment in favor of Van Dorn on all counts. On the federal securities fraud and common law fraud counts, the court concluded that any impendent supply agreement between Glidden and Davies Can would be

"material" information, but that there was no duty to disclose the information to plaintiffs because Van Dorn never represented that it would disclose plans to compete after plaintiffs acquired Milton Can. ³ Finally, the district court determined that Van Dorn did not breach the SPA, since its unambiguous terms applied only to Van Dorn's pre-SPA operation of Milton Can, and not Van Dorn's actions in connection with its other divisions.

II DISCUSSION

Plaintiffs contend that several SPA provisions contain broad language reasonably interpreted as a representation by Van Dorn that it would disclose to plaintiffs any pre-SPA proposal of the type here at issue: the proposal Davies Can made to Glidden in February 1988 to construct a one-gallon paint can manufacturing facility in eastern Pennsylvania. Specifically, plaintiffs cite Section 2.14(a) of the SPA, in which Van Dorn represented that it had taken no undisclosed action in the three months prior to the execution of the SPA which would result in "[a]ny change in the financial condition, earnings, book value, assets, business, operations or prospects of the [Milton Can] Division ... whether nor (sic) not arising in the ordinary course of business [which] has been materially adverse with respect to [Milton Can]." (emphasis added). Plaintiffs argue that Van Dorn, throughout their negotiations, continually represented, orally and in Section 2.30 of the SPA, that James Milton "knew more" than Van Dorn about Milton Can's business and that Van Dorn would limit its disclosures to any unilateral "actions" Van Dorn had taken "in connection with" Milton Can. Citing our decision in Backman v. Polaroid Corp., 910 F.2d 10 (1st Cir.1990) (en banc), the district court held that these representations were unambiguous references to Van Dorn's actions in relation to the internal operations of Milton Can and that a jury could not reasonably conclude that Van Dorn had undertaken a "duty to disclose" any competitive actions taken by its other divisions. ⁴

We need not decide whether the contract language relied on by the plaintiffs is reasonably susceptible of their interpretation. Rather, assuming arguendo that a jury reasonably could conclude that Van Dorn had...