Ansin v. River Oaks Furniture, Inc.

• Decision Date: 05 November 1996
• Docket Number: Nos. 96-1734,96-1735,s. 96-1734
• Citation: 105 F.3d 745
• Parties: Fed. Sec. L. Rep. P 99,417 Harold S. ANSIN, et al., Plaintiffs, Appellees, v. RIVER OAKS FURNITURE, INC., et al., Defendants, Appellants. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 745

105 F.3d 745

Fed. Sec. L. Rep. P 99,417

Harold S. ANSIN, et al., Plaintiffs, Appellees, v. RIVER OAKS FURNITURE, INC., et al., Defendants, Appellants.

Nos. 96-1734, 96-1735.

United States Court of Appeals First Circuit.

Heard Nov. 5, 1996.

Decided Feb. 3, 1997.

Edward P. Leibensperger, with whom John C. Fitzpatrick, Glenn E. Deegan, and Nutter, McClennen & Fish, LLP were on brief, Boston, for plaintiffs, appellees.

Ames Davis, with whom Nancy S. Jones and Waller Lansden Dortch & Davis were on brief, Nashville, TN, for defendants, appellants.

Before CYR, BOUDIN, and LYNCH, Circuit Judges.

LYNCH, Circuit Judge.

This case arises from a series of transactions among former fellow shareholders of a Mississippi close corporation, River Oaks Furniture, Inc. The Ansins, ¹ Massachusetts investors, allege that Thomas Keenum and Stephen Simons, officers and directors of River Oaks, fraudulently induced them to sell their shares in River Oaks ten months before a successful initial public offering ("IPO"). The Ansins also allege that Keenum and Simons violated the contractual terms of a stock subscription agreement and other corporate documents by causing an unauthorized transfer of a number of the Ansins' shares to other corporate insiders. The Ansins sued Keenum, Simons and River Oaks Furniture in federal court in Massachusetts, alleging securities law violations under Section 10(b) of the Securities Exchange Act of 1934, conversion, breach of contract, breach of fiduciary duty, common law fraud, legal malpractice and a violation of Mass. Gen. Laws ch. 93A.

The jury found for the plaintiffs on all counts then remaining in the case and awarded both compensatory and punitive damages. Defendants appeal from the judgment against them, arguing that they were entitled to judgment as a matter of law on all counts, that the action was barred because of laches and related doctrines, and that both the compensatory and punitive damages awards are legally unsustainable. The Ansins cross-appeal the pre-trial dismissal of their Mass. Gen. Laws ch. 93A claim, and also argue that the district judge improperly denied their request for prejudgment interest. They also ask this court to correct a clerical error in the judgment.

I.

When the losing party challenges the sufficiency of the evidence, as defendants do here, this court views the record in the light most favorable to the jury's verdict. See Correa v. Hospital San Francisco, 69 F.3d 1184, 1188 (1st Cir.), cert. denied, 517 U.S. 1136, 116 S.Ct. 1423, 134 L.Ed.2d 547 (1996). The facts are described as the jury might have found them, drawing reasonable inferences in favor of the plaintiffs.

A. The Ansin Investment in River Oaks

Lawrence (Larry) Ansin, a Massachusetts fabric manufacturer, met Stephen Simons, then a furniture buyer with a Texas retailer, in the mid-1970s. What began as a business relationship grew, over the next decade, into a friendship. The two men vacationed together and visited each other's homes.

In 1987, Simons started his own upholstered furniture company in Mississippi. The company had six original investors in addition to Simons; five of these men, including Thomas Keenum, had been involved with the start-up and eventual IPO of another Mississippi upholstery manufacturer. The sixth investor was Larry Ansin, who was, at that time, the chief executive officer and sole shareholder of Joan Fabrics, a Massachusetts-based company.

River Oaks Furniture, Inc. was incorporated in August 1987. Larry Ansin's total investment in the venture was $100,000, for which he was issued a certificate, dated September 1, 1987, for 7,500 shares of common stock. That was 10% of the then-issued shares. Simons owned 30,000 shares and was president of the company; Keenum owned 7,500 shares and was secretary and treasurer. Keenum and Simons were two of the three members of the Board of Directors.

In March 1988, the River Oaks investors set up another Mississippi corporation, R-O Realty, Inc., to own real estate which would then be leased to River Oaks. Each of the original investors contributed another $500 in capital and Larry Ansin was issued a share certificate for 437.5 shares in R-O Realty.

In 1988, Larry Ansin decided to sell Joan Fabrics. Larry Ansin expected that, as part of such a transaction, he would have to sign a non-competition agreement, which would preclude him from owning stock in another furniture company. Accordingly, Larry Ansin arranged to sell his River Oaks shares to his father, Harold Ansin, for the $100,000 he had originally invested. The Ansins executed a Stock Purchase Agreement dated May 31, 1988. Harold Ansin did not know how many shares he was purchasing, but understood that he was buying his son's entire 10% interest in River Oaks.

In April 1992, Larry Ansin learned that he had an inoperable brain tumor. He died on June 24, 1993, before the commencement of this litigation.

B. The Reduction of the Ansin Interest to 4,000 Shares

Harold Ansin did not sell any of the River Oaks shares until 1992. Nonetheless, at some point in 1989, the Ansin ownership interest was reduced from 7,500 to 4,000 shares, or from 10% to 4% of the company. ² The company issued 25,000 new shares in 1989, but that legitimate dilution would only have reduced the Ansin stake to 7.5%.

Following Harold Ansin's purchase of his son's shares, River Oaks did not issue a new stock certificate in Harold Ansin's name. Harold Ansin was upset about this and kept asking Larry to do something about it. Larry Ansin wrote to Simons twice in 1989 requesting a new share certificate for Harold. Eventually, a certificate was issued on September 22, 1989 which indicated that, as of January 1, 1988, Harold Ansin owned 4,000 shares of River Oaks.

The Stock Transfer Ledger of River Oaks Furniture, which was not actually typed up (from Keenum's notes) until 1993, shows Lawrence Ansin as originally owning 7,500 shares. However, according to the Ledger, Ansin transferred only 4,000 shares to his father on January 1, 1988, and then transferred 1,000 shares to Simons and 2,500 shares to Donald Franks, another of the original River Oaks investors, on January 1, 1989.

Simons testified that these transfers of stock by Larry Ansin were part of a general reallocation of shares undertaken in early 1989. According to Simons, during a telephone conversation in February or March 1989, he told Larry Ansin that, in order to recruit talented new employees, the company wished to issue 25,000 new shares of stock. Simons further testified that Larry Ansin then orally agreed to reduce his ownership interest to 4%. However, Simons acknowledged that there is no record of this conversation nor any contemporaneous records or correspondence memorializing the transfers to Simons and Franks. Simons also testified that he and Ansin only discussed percentages of ownership, as opposed to numbers of shares, and that Ansin did not receive any money for the transfers. Simons did not speak to Harold Ansin about the transfers.

Thomas Keenum, who, as company secretary, was responsible for maintaining the Stock Transfer Ledger, testified that no document, other than his personal notes, records these stock transactions, and that only Simons, and not the Ansins, ever communicated with him about the decrease in the Ansin ownership interest. Although other capital transactions are recorded in the minutes of the Board of Directors, the Ansin transfers were not, nor to Keenum's knowledge, were there any signed agreements, letters, or memoranda noting these transfers.

The foundation documents of River Oaks included Articles of Incorporation, By-Laws, and a Subscription Agreement among the stockholders. These documents regulated, among other things, the transfer of shares in the company. Paragraph 12 of the Articles of Incorporation provided that:

before a transfer [of stock] may be made, [the] owner or holder shall notify the secretary/treasurer of this corporation in writing of the number of shares to be transferred, the certificate involved [and other pertinent information].

The Subscription Agreement, which was "binding upon and shall inure to the benefit of each individual Stockholder and his respective heirs, executors, administrators, assigns and legal representatives," recited that "[e]ach Stockholder agrees that all shares of Stock of the Company ... shall be subject to the terms and conditions of Paragraph Number 12 of the Articles of Incorporation." The By-Laws, which charged the secretary with maintaining the stock transfer books of the corporation, stated that:

Transfer of shares of the corporation shall be made only on the stock transfer books of the corporation by the holder of record thereof or by his legal representative....

At trial, the plaintiffs argued that these documents constituted an enforceable contract, and that defendants' unauthorized transfer of 3,500 River Oaks shares to Simons and Franks amounted to a breach of that contract.

C. The Repurchase of the Ansin Interest and the IPO

The original investors in River Oaks had hoped, from the beginning, eventually to take the company public. During the first quarter of 1992, the company took the first step of talking to an investment banker about a public offering. Breck Walker, a managing director of J.C. Bradford & Co., a Nashville investment bank, visited River Oaks several times during the first half of 1992, to evaluate the company's prospects as an IPO candidate.

These contacts culminated in an April 23, 1992 meeting in Nashville between the River Oaks management, including Keenum and Simons, and the J.C. Bradford commitment committee. ³ At the meeting, River Oaks' value was discussed and, according to the notes of a J.C. Bradford analyst, Keenum stated that a value of $25 million was "about right." Analyses prepared by J.C. Bradford for internal use projected a range of values from $16.3 million to $31 million, depending on the...