Burke v. Jacoby

• Decision Date: 29 December 1992
• Docket Number: No. 1063,D,1063
• Citation: 981 F.2d 1372
• Parties: Fed. Sec. L. Rep. P 97,649 Jean Lorelle BURKE, Plaintiff-Appellant, v. Robert E. JACOBY, Defendant-Appellee. ocket 91-9148.
• Court: U.S. Court of Appeals — Second Circuit

Page 1372

981 F.2d 1372

Fed. Sec. L. Rep. P 97,649

Jean Lorelle BURKE, Plaintiff-Appellant, v. Robert E. JACOBY, Defendant-Appellee.

No. 1063, Docket 91-9148.

United States Court of Appeals, Second Circuit.

Argued March 4, 1992.

Decided Dec. 29, 1992.

Richard M. Meyer, New York City (Lee S. Shalov, Milberg Weiss Bershad Specthrie & Lerach, on the brief), for plaintiff-appellant.

John Hartje, New York City (A. Kaiper Wilson, Robert S. Shwarts, Kronish, Lieb, Weiner & Hellman, on the brief), for defendant-appellee.

Before KEARSE and ALTIMARI, Circuit Judges, and TELESCA, Chief Judge ^*.

KEARSE, Circuit Judge:

Plaintiff Jean Lorelle Burke, a former employee and stockholder of Ted Bates Worldwide, Inc. ("Bates" or the "Company"), appeals from a final judgment of the United States District Court for the Southern District of New York, Miriam Goldman Cedarbaum, Judge, dismissing her complaint for damages against defendant Robert E. Jacoby under § 10(b) of the Securities Exchange Act of 1934 ("1934 Act"), 15 U.S.C. § 78j(b) (1988), Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5 (1992), and state law, alleging misrepresentations, omissions, breach of contract, and breaches of fiduciary duty in connection with the acquisition of Bates by another company. The district court granted summary judgment dismissing the complaint principally on the grounds (1) that certain of the alleged omissions concerned facts already known by Burke, (2) that Burke failed to come forward with evidence that she had relied on the alleged misrepresentations or omissions or that they had caused her claimed loss, and (3) that certain of her claims were barred by the statute of limitations. On appeal, Burke contends, inter alia, that the district court applied erroneous legal standards of reliance and causation in assessing her federal securities claims and that partial summary judgment should have been entered in her favor on the breach-of-contract claim. She also argues that the district court's statute-of-limitations ruling with respect to one of the federal securities claims must be set aside in light of a recent amendment to the 1934 Act. For the reasons below, we reject her contentions and affirm the judgment of the district court.

I. BACKGROUND

A. The Bates-Saatchi Merger

Prior to August 1986, Bates was an employee-owned advertising company. Jacoby was its president, chairman, and chief executive officer, as well as its controlling All of the Bates Class B stock, of which there were 30,000 shares, was owned by Jacoby. The Stockholders Agreement also restricted transfer of the Class B stock, the repurchase price of which was fixed at $.50 per share. Under the certificate of incorporation, each Class A share, of which fewer than 500,000 were outstanding, had one vote; each of the 30,000 Class B shares had 50 votes. Thus, Jacoby, with more than 1,500,000 votes, had voting control of the Company.

                stockholder.   Bates had two classes of stock.   Class A was issued to key executives of the Company.   A "Stockholders Agreement" limited the transferability of such stock, permitting its resale only to the Company, or to designated employees, at a price calculated principally by dividing the Company's net asset value by the number of Class A shares outstanding.   Burke owned 700 shares of the Class A stock.   Jacoby owned 27,750 Class A shares;  in addition, as authorized by a shareholder resolution adopted in 1982, he had options covering 80,000 Class A shares
                

In August 1986, Bates was acquired by Saatchi & Saatchi Company, PLC ("Saatchi"). The Acquisition Agreement, approved by the Bates stockholders in May 1986, principally (1) required Bates prior to the closing (a) to redeem 22,788 Class A shares for $17.4 million, and (b) to redeem Jacoby's 30,000 Class B shares for $40 million; (2) allowed Bates prior to the closing to sell some 30,000 Class A shares to approximately 20 employees; and (3) required Saatchi to pay a total of $450 million in cash to persons who, at the time of the closing, held Class A shares or options. Each holder of Class A stock was to receive $765.3953 per share upon completion of the acquisition, plus $87.6286 per share two years later, for a total of approximately $853 per share. Holders of stock options were to receive the same price per share, minus the exercise price of the option. The Acquisition Agreement also provided appraisal rights for stockholders who dissented.

At the May 1986 stockholders' meeting, Jacoby spelled out the above terms, noting that, absent the acquisition, the book value of the Class A stock at the end of the fiscal year would be $390 per share. When he announced the acquisition price of approximately $853 per Class A share, the stockholders, including Burke, applauded. As to the Class B stock repurchase, Jacoby stated, "We have had a separate outside investigation by a respected investment banking house, Lazard Freres, and they have stated that the price to be paid for Class B shares which will be redeemed at or prior to closing for $40,000,000 is a fair one." The shareholders, including Burke, approved the proposed Saatchi transaction. They also unanimously approved a resolution terminating the Stockholders Agreement, effective upon consummation of the acquisition.

Pursuant to the Acquisition Agreement, Jacoby received a total of $112.6 million, consisting of the $40 million for his 30,000 Class B shares, $23.6 million for his 27,750 Class A shares, and $49 million for his Class A stock options. For her 700 shares, Burke received the per-share amounts specified by Jacoby in the May 1986 stockholders' meeting presentation. In her letter transmitting her stock to Saatchi, Burke acknowledged that the Stockholders Agreement restricting transferability of the stock was rescinded concurrently with the consummation of the acquisition.

B. The Present Lawsuit

In March 1989, Burke commenced the present action for damages, alleging that Jacoby had misrepresented or failed to disclose certain material facts in connection with the Saatchi acquisition. The complaint alleged principally (a) that Jacoby had failed to disclose in 1982 that he would receive options on the Class A shares; (b) that Jacoby had failed to disclose in May 1986 that, while negotiating with Saatchi, Bates had received a competing offer that Jacoby summarily rejected; (c) that Jacoby had failed to disclose in May 1986 how many Class A stock options he held; and (d) that Jacoby had misrepresented the investment banker's opinion of the price for the Class B shares, stating that the banker had termed the price "fair," when in fact Following a period of discovery, Burke moved for partial summary judgment principally on the ground that Jacoby's receipt of $40 million for his Class B shares breached the Stockholders Agreement. Jacoby cross-moved for summary judgment dismissing the entire complaint on the grounds, inter alia, that Burke could not show that any of the alleged misrepresentations or omissions had been relied on or had caused her injury, and that she was not entitled to damages on any of her state-law claims.

                the banker had said that the price was "reasonable."   The complaint also alleged, inter alia, that Jacoby breached his fiduciary duty (a) by accepting $40 million for his 30,000 Class B shares as, in essence, a "control premium," and (b) by having Bates sell a total of 3,500 Class A shares to two employees who were not executives but secretaries.   Burke sought damages and an "accounting" of Jacoby's profits from the Saatchi transaction
                

After receiving voluminous papers and hearing oral argument, and after inviting and receiving a postargument affidavit from Burke, the district court granted Jacoby's motion for summary judgment and denied Burke's motion. In a Memorandum Opinion and Order dated October 10, 1991, 1991 WL 221417 ("Opinion"), the court ruled that insofar as Burke's securities claims rested on events that occurred in 1982, they were barred by the one year/three year statute of limitations adopted in Ceres Partners v. GEL Associates, 918 F.2d 349 (2d Cir.1990) (one year from discovery, but not more than three years from occurrence), and Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, --- U.S. ----, 111 S.Ct. 2773, 115 L.Ed.2d 321 (1991) (same), and made retroactive by James B. Beam Distilling Co. v. Georgia, --- U.S. ----, 111 S.Ct. 2439, 115 L.Ed.2d 481 (1991). As set forth below, the court dismissed the remaining securities claims on the ground that Burke had not come forward with evidence of reliance or causation, noting that Burke "does not assert that she would have voted against the merger even if she had been aware of the extent of [Jacoby]'s self-dealing, and even now, she does not wish to undo the merger." Opinion at 2.

As to the claim based on Jacoby's statement that the investment banker had said that $40 million was a "fair," instead of a "reasonable," price for the Class B stock, the court stated that Burke failed to show that the "misrepresentation complained of was at least a 'but for' cause of the transaction in question," Opinion at 12, and that there was "no evidence of loss causation," noting as follows:

At the oral argument of this motion, I invited Burke's counsel to submit evidence, in the form of an affidavit from Burke, that she relied upon Jacoby's description of Lazard's opinion in deciding to sell her shares. (See Hearing Tr. at 19-20.) In response, Burke submitted an affidavit stating only: "Had I known of the falsity of that representation, I would have objected to the allocation of the proceeds of the merger on the terms then set forth." She does not state that she would have dissented from the merger. Thus, since there is no evidence of loss causation, an essential element of a claim of fraud in connection with the purchase or sale of securities, Jacoby's motion for summary judgment on this part of the Section 10(b) claim is granted.

Opinio...