ALA, Inc. v. CCAIR, Inc.
| Decision Date | 07 July 1994 |
| Docket Number | No. 93-5688,93-5688 |
| Citation | 29 F.3d 855 |
| Parties | 24 UCC Rep.Serv.2d 23 ALA, INC., A Maryland Corporation; Larry H. Schatz, an individual residing in, and a citizen of, the State of New York, v. CCAIR, INC., a Delaware Corporation ALA, Inc. and Larry H. Schatz, Appellants. |
| Court | U.S. Court of Appeals — Third Circuit |
Thomas J. Bradley (argued), Steven B. Kantrowitz, McBreen, McBreen & Kopko, Philadelphia, PA, for appellants ALA, Inc. and Larry H. Schatz.
Steven J. Fram (argued), Patricia L. Carbone, Archer & Greiner, A Professional Corp., Haddonfield, NJ, for appellee CCAIR, Inc.
Before: BECKER and LEWIS, Circuit Judges, and POLLAK, District Judge. *
This appeal requires us to construe the statute of frauds governing the sale of securities under Article 8 of the Uniform Commercial Code ("U.C.C.") as enacted by New Jersey and North Carolina, the two jurisdictions relevant to this dispute. The question presented is whether the district court, pursuant to Federal Rule of Civil Procedure 12(b)(6), properly dismissed the claim of plaintiff ALA, Inc. ("ALA") that defendant CCAIR, Inc. ("CCAIR") was in breach of an alleged agreement to sell ALA a controlling block of its common stock on the ground that the statute of frauds, Sec. 8-319 of the U.C.C., N.J.Stat.Ann. Sec. 12A:8-319; N.C.Gen.Stat. Sec. 25-8-319, made the alleged agreement unenforceable.
ALA assigns two grounds of error. First it argues that the district court erred in holding that a letter outlining the terms of the proposed deal that CCAIR's CEO Kenneth Gann sent to ALA's investment banker Larry Schatz was insufficient to satisfy Sec. 8-319(a) of the statute, which provides that the statute of frauds is satisfied if there is a "writing signed by the party against whom enforcement is sought ... sufficient to indicate that a contract has been made for sale of a stated quantity of described securities at a defined or stated price." ALA also submits that the district court's order dismissing the action was premature because Sec. 8-319(d), which provides that the statute of frauds is satisfied if a party against whom enforcement is sought admits in a "pleading, testimony or otherwise in court that a contract was made," entitled it to an opportunity for discovery during which such an admission might be obtained, and hence precluded the granting of a Rule 12(b)(6) motion.
Although we agree with the district court that the Gann letter does not sufficiently indicate that a contract had been made and thus that Sec. 8-319(a) was not satisfied, we agree with ALA that Sec. 8-319(d) of the statute prevents the district court from granting a Rule 12(b)(6) dismissal here. In order to give effect to Sec. 8-319(d), ALA must have some opportunity to secure an admission from CCAIR. We will therefore vacate the order of dismissal and remand the case to the district court with directions to grant ALA limited discovery to determine whether CCAIR will admit that an agreement was made. We note that at the close of that limited discovery, the district court may again address the statute of frauds issue in a motion for summary judgment.
In late 1992 and early 1993, ALA, an investment firm based in New Jersey, became interested in making an investment in CCAIR, an airline based in North Carolina, which operates the commuter airline USAir Express. In early January 1993, ALA instructed investment banker Larry Schatz (also an appellant in this case) to approach CCAIR and explore the possibility of a major stock transaction. Schatz contacted the officers of CCAIR and told them that he had a client who was interested in purchasing a sizeable stake in the company. The CCAIR officials expressed interest and a meeting was scheduled for January 18, 1993. On that date, Schatz, acting as the agent for ALA, met with upper level management of CCAIR, including a majority of the CCAIR Board of Directors, in North Carolina.
According to ALA's complaint, the two companies struck a deal at the meeting in which ALA agreed to buy and CCAIR agreed to sell approximately 3.5 million shares of authorized but unissued CCAIR stock for $3.15 per share or some lesser figure to be agreed upon by the parties. Although the agreement reached at the meeting was oral, it was, ALA submits, memorialized by a letter Kenneth Gann, President and CEO of CCAIR, sent to Schatz on January 18, 1993 (the "Gann letter"). The Gann letter stated:
Dear Mr. Schatz:
It was a pleasure meeting with you today and exploring with you the investment potential of CCAIR (the "Company").
If your clients acquire the remaining approximately 3.5 million authorized but unissued common shares of the Company on or before ninety (90) days from the date hereof for $3.15 per share or such lesser amount [as] may be agreed by your client and the Company, we agree to pay you at the time of said share acquisition, an investment banking fee of $.15 per share.
In connection therewith, we will cause the appointment of two (2) nominees of your client to serve as board members of the Company for the remaining unexpired term of this current board.
Further, we agree to provide your client with such information as may be requested by your client in connection with the customary and permissible due diligence in a private place by a company whose securities are publicly traded.
The Company's agreement to complete this transaction is of course subject to our reasonable approval of your clients, the prior sale of the same securities and the requisite corporate approvals of both the Company and the purchasers.
If the foregoing accurately sets forth your understanding of the proposed transaction, please so indicate by executing and returning to me a copy of this letter.
Thank you.
CCAIR, Inc.
Gann signed the letter, and Schatz agreed and accepted its terms by returning a signed copy.
Shortly after January 18, the parties took a number of steps to consummate the deal. On January 25 they entered into a confidentiality agreement in which they agreed not to disclose confidential information exchanged between them. On January 26, the representatives for each party met in New Jersey to discuss how financial and other confidential information would be exchanged, and they decided that further refinement of the transaction would be handled by counsel. On February 3, counsel for ALA forwarded a term sheet to CCAIR outlining the terms for the purchase of CCAIR common stock. It proposed that ALA acquire the stock at $2.65 per share.
On February 11, however, CCAIR abruptly terminated discussions with ALA and told ALA that it no longer wished to complete the transaction. Although ALA tried to revive the negotiations by submitting a revised term sheet offering to purchase the securities for $3.15 per share, CCAIR was unmoved. 1 Once it became clear to ALA that it could not persuade CCAIR to close the deal, both ALA and Schatz sued CCAIR in federal district court in New Jersey for breach of the agreement allegedly reached on January 18. ALA sought specific performance of the contract and Schatz sought a commission. 2
Instead of answering the complaint, CCAIR filed a motion to dismiss for failure to state a claim upon which relief may be granted. See Fed.R.Civ.P. 12(b)(6). 3 The district court granted the motion, holding that Sec. 8-319 made the agreement alleged by ALA unenforceable.
Section 8-319, the statute of frauds for securities transactions, provides in pertinent part:
A contract for the sale of securities is not enforceable by way of action or defense unless:
(a) There is some writing signed by the party against whom enforcement is sought or by his authorized agent or broker, sufficient to indicate that a contract has been made for sale of a stated quantity of described securities at a defined or stated price; [or]
. . . . .
(d) The party against whom enforcement is sought admits in his pleading, testimony or otherwise in court that a contract was made for the sale of a stated quantity of described securities at a defined or stated price. 4
N.J.Stat.Ann. Sec. 12A:8-319. 5 During the motion proceedings, ALA argued that the Gann letter was a writing sufficient to satisfy subsection (a) and that the language of subsection (d) made any Rule 12(b)(6) motion premature because it was possible for CCAIR to make admissions during the course of discovery that would allow ALA to satisfy the statute.
The district court rejected these contentions and granted the motion to dismiss. The court held that the Gann letter did not satisfy Sec. 8-319(a) because it did not constitute a contract for the sale of securities. It rejected ALA's claim that Sec. 8-319(d) made the dismissal premature because "taking into account the allegations in [the plaintiffs'] complaint and the exhibits attached thereto, it seems highly unlikely that plaintiffs could ever obtain this admission." 6 ALA claims that both of these grounds for dismissal were erroneous. Our review of the order granting the dismissal is plenary. 7
In considering whether a complaint should have been dismissed for failure to state a claim upon which relief can be granted, the court must consider only those facts alleged in the complaint and accept all of the allegations as true. Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984). Unless the plaintiff can prove no set of facts in support of the claim that would entitle him to relief, the complaint should not be dismissed. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957); D.P. Enters., Inc. v. Bucks County Community College, 725 F.2d 943, 944 (3d Cir.1984). When reviewing a complaint, a court should consider not only the allegations contained in the complaint itself but also the exhibits attached to it which...
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