Aschinger v. Columbus Showcase Co.
| Decision Date | 06 June 1991 |
| Docket Number | No. 90-3938,90-3938 |
| Parties | Fed. Sec. L. Rep. P 97,267 Ralph E. ASCHINGER, Plaintiff-Appellant, v. COLUMBUS SHOWCASE COMPANY, Carl J. Aschinger, Sr., Defendants-Appellees. |
| Court | U.S. Court of Appeals — Sixth Circuit |
David W. Alexander (argued), Philomena M. Dane, Squire, Sanders & Dempsey, Columbus, Ohio, for plaintiff-appellant.
Robert M. Duncan, Jones, Day, Reavis & Pogue, Columbus, Fordham E. Huffman (argued), Jones, Day, Reavis & Pogue, Columbus, Ohio, for defendants-appellees.
Before KRUPANSKY and MILBURN, Circuit Judges; and CONTIE, Senior Circuit Judge.
Plaintiff-appellant, Ralph E. Aschinger, appeals the district court's grant of summary judgment to defendants-appellees, Columbus Showcase Co. and Carl J. Aschinger, Sr., in this action alleging violation of Sec. 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. Sec. 78j and common law fraud and breach of fiduciary duty under Ohio law. For the following reasons, we affirm.
Plaintiff-appellant, Ralph E. Aschinger ("Ralph"), has brought suit against his brother, Carl J. Aschinger, Sr. ("Carl Sr."), and his former employer, the Columbus Showcase Company ("the Company"), a family owned corporation in the business of manufacturing and distributing showcase display and promotional materials to retailers throughout the United States. The Company was first run by the brothers' father, William Aschinger, Sr., and both plaintiff Ralph and defendant Carl Sr., along with a third brother named William, Jr., worked their entire careers for the Company. Defendant Carl Sr. eventually became treasurer, president, and upon the retirement of William Jr., the Chairperson of the Board of Directors, a position he held from 1976 through 1985. Plaintiff Ralph Aschinger was secretary and subsequently vice chairman and executive vice president in charge of production. Before he retired from the Company, plaintiff also acted as the Company's principal negotiator with the seven labor unions represented in its work force. As members of the Board of Directors, plaintiff and defendant both had access to all financial reports, audit and finance committee reports, and annual reports of the Company. Although the brothers performed different tasks for the Company, they each received the same salary and an equal distribution of the Company's stock from their father's estate upon his death in 1963. This was in accordance with their father's philosophy that his sons should be treated equally despite the fact that each performed different tasks for the Company. This philosophy of equal treatment was maintained for the third generation by means of the Company's stock purchase agreement, which specified that all common stock owned by family members, which became available for purchase, had to be made available to each member of the third generation who was active in the management of the Company in equal proportions.
This case arises from plaintiff's disposition of his stock shortly after his retirement from the Company in January 1979. At the time of his retirement, plaintiff owned approximately twenty percent of the outstanding common stock: 1,175 shares of voting common stock and 12,797 shares of nonvoting common stock. Plaintiff also owned 555 shares of preferred stock. 1 Plaintiff's stock was disposed of in two different transactions, one concerning plaintiff's nonvoting shares and another, his voting shares.
Because of the concurrence of plaintiff's retirement and the death of the third brother, William Jr., there was a need in the late seventies to reorganize the corporate structure of the Company as the second generation passed on the active management of the business to the third generation. As members of the second generation retired or died, they or their survivors suffered from the Company's traditional policy of paying low dividends on its stock. In an effort to convert the nonvoting stock into a more productive investment, the Board of Directors proposed a voluntary exchange of the Company's outstanding nonvoting common and preferred stock for twelve percent promissory notes payable over a ten-year period. The Exchange Offer was made available to all shareholders except for those family members still engaged in active management of the Company, who were excluded from participating based on tax considerations. The Board of Directors--including plaintiff--reviewed the Exchange Offer and unanimously approved it as a proposal to shareholders on December 4, 1980. The sale of nonvoting common stock pursuant to the Exchange Offer was purely voluntary and was accepted and consummated with respect to every shareholder who was eligible to participate in it. Because defendant Carl Sr. was still active in the management of the Company, he was not eligible to participate in the Exchange Offer.
The second transaction involved the sale of plaintiff's shares of voting common stock. It had long been the Company's policy that control of voting stock should reside with family members active in the operation of the business. Under the Company's stock purchase agreement, each member of the third generation had an opportunity to purchase any offered shares in equal amounts. A brief review of the family tree as it existed in 1980 illustrates the members of the third generation at the time plaintiff sold his stock.
FAMILY TREE
1st generation William Sr
(deceased)
2nd generation
Plaintiff Defendant
Ralph Carl Sr. William Jr. Jerry
(Retired) (Chairman (deceased) Montgomery
of Bd. of (deceased)
Directors)
3rd generation
Jerry Wilson Carl Jr. & Berge Jim Montgomery
(son-in-law) William Juskalian
of plaintiff) (defendant's
sons)
----------
In 1980, defendant Carl Sr., the Chairman of the Board of Directors, proposed to his retired brother, the plaintiff herein, that defendant's two sons, Carl Jr. and William, purchase all of plaintiff's voting common stock. Plaintiff rejected this proposal and instead agreed to sell his shares of voting common stock to defendant's two sons, Carl Jr. and William, and to his own son-in-law, Jerry Wilson. Two members of the third generation, Berge Juskalian and Jim Montgomery, waived their rights under the Company's stock purchase agreement to purchase plaintiff's shares of voting stock in equal proportions. Plaintiff and defendant then agreed that three-fifths of plaintiff's voting stock would be sold to defendant's son Carl Jr., one-fifth to defendant's son William, and one-fifth to plaintiff's son-in-law, Jerry Wilson. In 1980, defendant approached plaintiff with a written proposal regarding the transfer, which proposed a price of $50.00 per share. In his deposition, plaintiff stated that he and defendant negotiated only about who would purchase the voting shares. Plaintiff conceded that he never negotiated about the price of the stock and never attempted to discover how the price had been determined.
In October 1980, plaintiff agreed to sell his 1,175 shares of voting common stock for $50 per share. Plaintiff sold four-fifths of his voting common stock to defendant's sons and one-fifth to his own son-in-law, Jerry Wilson. In March 1981, plaintiff agreed to sell his 12,797 shares of nonvoting common stock to the Company for $10.00 per share or $127,970 pursuant to the Exchange Offer, which had been approved by the Board of Directors unanimously on December 4, 1980.
In September 1983, the Company's existing stock purchase agreement was amended to limit the third generation's ability to purchase the shares of stock owned by defendant, Carl Sr. Rather than allowing all members of the third generation to purchase defendant's shares of stock in equal proportions, the new agreement limited that right only to the direct descendants of defendant.
In 1986, defendant Carl Sr., upon retirement from the Company, sold his shares of common stock to his sons, Carl Jr. and William, at a price of $338 per share. Prior to the sale, defendant's common stock had been appraised for estate tax purposes.
On August 8, 1987, plaintiff filed suit in the Federal District Court for the Southern District of Ohio, alleging violation of section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5 of the Securities Exchange Commission, and common law fraud and breach of fiduciary duty under Ohio law. On January 31, 1989, defendant filed a motion for summary judgment, which was granted by the district court on September 17, 1990. Plaintiff timely filed this appeal.
Plaintiff Ralph contends that defendant Carl Sr. violated the Securities and Exchange Act of 1934, because defendant omitted material facts and misrepresented other facts in regard to the sale of plaintiff's voting and nonvoting common stock. Plaintiff alleges that because he trusted his brother and assumed that the price offered for the stock was fair, he failed to discover by independent means, such as an appraisal, that his stock was worth more than what he sold it for. This court must first determine whether these allegations state a claim for violation of the federal securities law.
Plaintiff maintains that by virtue of defendants' omissions, defendants are liable for a violation of section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. Sec. 78j, and Rule 10b-5 of the Securities and Exchange Commission, 17 C.F.R. Sec. 240.10b-5. Plaintiff contends that in 1980, defendant Carl Sr. proposed that plaintiff sell his shares of voting stock in the Company for $50.00 per share and his nonvoting stock for $10.00 per share. However, defendant did not disclose the method by which he determined the price for the shares of stock and did not disclose that an independent appraisal of the stock had not been made. Plaintiff also alleges that he...
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