Bailey v. Meister Brau, Inc.
| Decision Date | 21 June 1976 |
| Docket Number | No. 74-1695,74-1695 |
| Citation | 535 F.2d 982 |
| Parties | Fed. Sec. L. Rep. P 95,543 Thomas B. BAILEY, Plaintiff-Appellee, v. MEISTER BRAU, INC., Defendant, and Continental Illinois National Bank and Trust Company of Chicago, Individually and as Executor of the Estate of James H. Black, Deceased, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Seventh Circuit |
George W. Hamman, Chicago, Ill., for defendant-appellant.
Arthur W. Hahn, Norman H. Nachman, Chicago, Ill., for plaintiff-appellee.
Before SWYGERT and BAUER, Circuit Judges, and BRYAN, Senior District Judge. *
FREDERICK van PELT BRYAN, District Judge.
Continental Illinois National Bank and Trust Company of Chicago ("Continental") appeals from a judgment of the United States District Court for the Northern District of Illinois, Eastern Division, in the sum of $307,770.78 entered against it individually and as executor of the estate of James H. Black, Sr., deceased. The judgment was entered after trial without a jury before Honorable Richard W. McLaren, J.
The facts in the case are discussed at length in the opinions of the court below, Bailey v. Meister Brau, Inc., 378 F.Supp. 869 (N.D.Ill.1973) (Bailey I ), and 378 F.Supp. 883 (N.D.Ill.1974 ) (Bailey II ), which set forth the court's findings of fact and conclusions of law. 1 The following is a brief summary of the facts which gave rise to the litigation:
In the spring of 1969 plaintiff-appellee Bailey had for some years been president, treasurer, a director, and the principal operating officer of the James H. Black Company ("Black Company"), a manufacturer of salad dressings with its principal place of business in Streator, Illinois. James H. Black, Sr., the founder of the Company and chairman of the board, had died in the fall of 1968. He had been the owner of 57,000 of the 70,000 shares of the Black Company which were held after his death by Continental as his executor. Bailey was the owner of 3,000 shares; the balance of 10,000 shares was owned by Mrs. Harre, whose husband was a director.
In 1966 Bailey had entered into a new employment contract with the Black Company which, in addition to providing a 15-year term of employment, minimum compensation of $30,000 per year, annual bonuses, and life retirement benefits, gave Bailey a 60-day right of first refusal to meet any offer to purchase the majority of the shares of the corporation held by Black, Sr. or his estate.
Continental determined on the advice of Foster, legal counsel, secretary, and a director of Black Company, as well as attorney for the estate and investment adviser to the executor, that the best interests of the estate required liquidation of its Black Company shares and sought offers to purchase them. After Continental had rejected an offer by Bailey to purchase the 57,000 shares held by the estate for $680,000, on April 11, 1969 Meister Brau, Inc offered to purchase the shares of the estate and those of Mrs. Harre for $950,000. This offer was ratified by the Meister Brau board of directors on April 30 and was to remain open until July 8, 1969. Bailey was informed of the offer and in turn advised Continental that he would give notification within the 60-day first refusal period provided in his employment contract that he would meet the terms of the Meister Brau offer.
On May 16, 1970, at the annual meeting of the Black shareholders at which Continental through an officer voted the Black estate controlling shares, a new board of directors was elected which included Cappadocia, a senior vice president of Meister Brau, and did not include Bailey. The new board then elected Cappadocia as chairman, appointed him as president, appointed Berry, the comptroller of the Black Company, as treasurer, removed Bailey from those positions, and reduced his salary to the minimum provided in his employment contract.
On June 6, 1969, well before Bailey's 60-day right of first refusal would have expired and without notice to him, the sale of the estate's and Mrs. Harre's Black Company stock to Meister Brau was closed in the following manner: (1) Meister Brau agreed to indemnify the estate, Continental, and others concerned in the transaction against liability to Bailey because of the accelerated closing date; (2) all of the Black Company assets were transferred to a newly formed Black Products Company of Delaware, Inc. ("Black Products") in exchange for all of the stock of Black Products; (3) all of the shares of Black Products stock were transferred to Meister Brau in exchange for 70,000 shares of Meister Brau stock (unregistered with the Securities and Exchange Commission); (4) Meister Brau purchased all of the 67,000 shares of Black Company stock held by the estate and Mrs. Harre for $950,000; (5) the Black Company agreed to indemnify Meister Brau for liability or loss arising out of its acquisition of the Black Company shares; and (6) Meister Brau agreed not to sell, pledge, or mortgage any Black Company assets (which now consisted solely of Meister Brau stock) as long as it remained indebted to Continental as executor on a note given in partial payment for the Black Company stock.
Bailey, who had remained as principal operating officer of the Black Company subsequent to his demotion as president, treasurer, and director on April 16, was then discharged "for cause" by the Black Company acting through Cappadocia as its president.
On June 9, 1969 Bailey, who had arranged financing of the purchase of the Black Company shares, advised Continental that he had elected to match the terms of the Meister Brau offer, and tendered a cashier's check for $25,000 on account. Continental advised Bailey that the estate had already sold its stock to Meister Brau, but refused to discuss the terms of sale. Meister Brau then offered to sell its Black Company stock to Bailey for $950,000, but advised him that the Black Company's only assets were the unregistered Meister Brau stock. Bailey rejected the offer.
Bailey then commenced the present action, naming as defendants Continental, individually and as executor of the Black estate; Foster; Meister Brau, Inc.; Mullen and Schaeffer, officers of Continental who had represented Continental in the transactions at issue; Cappadocia; Mr. and Mrs. Harre; James H. Black, Jr., and Mrs. Black, Sr., heirs of the Black estate; Berry, the new treasurer of the Black Company; and the Black Company.
The complaint set forth three claims for relief. Count I, a derivative claim brought by Bailey as minority stockholder of the Black Company, alleged that the defendants had defrauded the Black Company by exchanging all the Black Company assets for the much less valuable unregistered Meister Brau stock in violation of SEC Rule 10b-5, 2 Section 10(b) of the Securities Exchange Act of 1934, 3 and Section 17(a) of the Securities Act of 1933. 4 It sought rescission or damages in favor of the Black Company, the nominal defendant.
Count II alleged a similar claim for relief, on behalf of Bailey individually.
Count III, a pendent claim for relief on behalf of Bailey individually, alleged that defendants had conspired to commit and committed the common law tort of intentional interference with Bailey's contractual right of first refusal and sought damages therefor.
Judge McLaren, in Bailey I, made findings of fact after trial which will be referred to in some detail later. On the derivative count I, he concluded that Continental and Foster had violated Rule 10b-5 and were liable to the Black Company therefor. However, he refused to award damages on that count.
Count II of the complaint was dismissed and no appeal has been taken from that dismissal.
On count III of the complaint, Judge McLaren concluded that Foster and Continental, individually and as executor, acted in concert with Meister Brau and intentionally interfered with and induced a breach of Bailey's contractual right of first refusal to purchase the Black Company shares. He found that Bailey had been damaged in the sum of $214,336.20 and that Continental and Foster were liable to Bailey in that amount. 5
In a supplementary opinion, Bailey II, the court determined that Bailey was entitled to $50,000 in attorneys' fees and $27,339.90 in expenses of litigation against Continental and Foster on Count I. It also awarded Bailey $19,094.68 as costs.
Foster settled with Bailey prior to the entry of judgment. Judgment against Continental was duly entered.
On this appeal Continental does not challenge the findings of fact made by the court below. With respect to count I, it contends (a) that upon the facts in the record it is not liable to the Black Company as a matter of law, and (b) that, in any event, the court below was in error in awarding attorneys' fees and expenses of litigation to Bailey on that count.
As to count III, Continental contends that as a matter of law it is not liable to Bailey for inducing breach of contract, either individually or as executor, and that, in any event, the damages awarded were incorrectly computed and excessive. Finally, it contends the court below was in error in its computation of taxable costs.
Count III
Since the major portion of the liability imposed on Continental by the judgment below is based on count III of the complaint, we first deal with that count.
Continental does not question (1) that, under the terms of his 1966 employment contract, Bailey had a 60-day right of first refusal of Meister Brau's offer to purchase the shares of the Black Company held by the Black, Sr. estate; (2) that the sale of the Black estate stock to Meister Brau on June 6, 1969 without Bailey's knowledge or consent destroyed his contractual right of first refusal; and (3) that Continental, through its officers Schaeffer and Mullen, with full knowledge of Bailey's contract rights and induced by Meister Brau's offer of indemnity acted in concert with Meister Brau and Foster and brought about...
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