Delano v. Kitch
| Decision Date | 01 October 1976 |
| Docket Number | 75-1012,75-1443 and 75-1444,Nos. 74-1897,75-1442,74-1898,s. 74-1897 |
| Citation | 542 F.2d 550 |
| Parties | Victor DELANO, Individually and Derivatively on Behalf of Wichita Eagle and Beacon Publishing Company, Inc., Plaintiff-Appellant, v. Paul R. KITCH, et al., Defendants-Appellees. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Paul Martin Wolff, of Williams, Connolly & Califano, Washington, D.C. (Paul R. Connolly, Jeremiah C. Collins, and Allan A. Ryan, Jr., Washington, D.C., Robert Martin and Paul B. Swartz, of Martin, Pringle, Schell & Fair, Wichita, Kan., of counsel, with him on the brief), for plaintiff-appellant Victor Delano.
Ronald K. Badger, Wichita, Kan., for plaintiff-appellant Victoria Bloom.
Charles W. Harris, of Curfman, Brainerd, Harris, Bell, Weigand & Depew, Wichita, Kan. (Lawrence E. Curfman, Jack Scott McInteer, and Sidney J. Brick, Wichita, Kan., with him on the brief), for plaintiff-appellant First National Bank in Wichita.
Wayne Coulson, Wichita, Kan., for defendants-appellees.
Before SETH, McWILLIAMS and DOYLE, Circuit Judges.
These consolidated appeals arose from an amended complaint filed by Victor Delano against all defendants, on a cross-claim by the Executor Bank against Paul R. Kitch and Harry B. Brown, Jr., and on a cross-claim of Victoria Bloom against Paul R. Kitch. These were claims for breach of fiduciary duties. They were tried to a jury which entered verdicts in favor of the appellees. The cross-claimants and plaintiff Delano have taken this appeal.
The points urged by appellants relate to the instructions given by the trial court and the refusal to give certain instructions offered by the appellants.
The dispute arose from a contract for the sale of all the outstanding shares of stock in the Wichita Eagle and Beacon Publishing Company, Inc., a Wichita, Kansas, newspaper publishing firm, to Ridder Publications, a national newspaper chain. The contract of sale was negotiated by the defendants without the knowledge of some of the stockholders. The contract provided that Ridder Publications would buy all the outstanding stock of the Eagle-Beacon corporation for a stated price per share, and provided further that the incumbent officers and directors would resign. The minority stockholders who were not privy to the negotiations, and initial execution of the contract, were given about ten days after disclosure of the agreement in which to sign if they wished to sell to Ridder. All the stockholders signed.
The sales agreement contained a provision that defendant, Paul Kitch, would receive a commission on the sale of the shares. The total commission under the contract terms amounted to $1,215,000.00. The sales agreement also provided that the defendant Brown would be employed by Ridder Publications at the Wichita paper for a period of ten years at the rate of $65,000.00 per year. His salary had been about $40,000.00 per year.
As indicated above, a certain group of stockholders, owning about fifty-five per cent of the outstanding stock, were advised of the negotiations by the defendants. The others were not so advised, and the appellant Executor did not know of the negotiations or of a possible contract until it was signed by the inside group, and a story about it appeared in the newspaper. Appellant, Victoria Bloom, also did not know about until it was signed by the controlling group. Appellant, Victor Delano, apparently knew that a contract was being negotiated somewhat earlier, but did not know of the commission and employment elements until the contract was being, or had been, drafted.
Mr. Kitch and Mr. Brown thus conducted all the talks relative to the stock sale. At the time they were directors of the corporation. Also Mr. Kitch was the attorney for the corporation, and Mr. Brown an officer. The issue raised on this appeal concerns the duties owed by these directors to the appellants as to the commission to Mr. Kitch and the employment of Mr. Brown included in the sales contract for the stock. More particularly the issues concern the instructions given by the trial court on the fiduciary duties of the appellees under Kansas law.
We must conclude that the instructions given did not represent the prevailing case law of Kansas on the duties owed by the directors to the stockholders in these circumstances, or on the related matter of personal profit by the directors gained in the transaction. The sale of the shares was consummated, and the issues here only relate to the asserted breach of fiduciary duty by appellees.
The facts need not be detailed at length and will only be described as to the particular points considered on this appeal.
One of the most significant aspects of this appeal is the clear and direct evidence that Mr. Kitch placed the opportunity for personal profit above all else in negotiating the sale of the newspaper. He was very frank in his testimony on this point, as follows:
And further:
Thus the negotiations with possible purchasers were conditioned upon the payment of a fee to Mr. Kitch by the purchasers. If they would not agree to a three per cent fee, apparently he would not discuss the sale with them. It could be presumed that this condition limited the buyers who sought to buy the stock, but in any event, this certainly placed the personal profit of Mr. Kitch first. The employment contract for Mr. Brown may be described in the same way.
The trial court did not instruct the jury on the fiduciary duty of the defendants Kitch and Brown as it related to this matter of priorities. Under the Kansas decisions, an instruction was called for as to these defendants' duties, and it was clear error not to give it.
As to the bank, the defendant Kitch was equally frank in his testimony as to the secrecy of the negotiations with Ridder. He testified "Q Did the bank, at any time, ever authorize you to negotiate in its name, or for the stock that its that is titled in the bank?
When the bank read about the sale in the paper, and when it was given a copy of the sales agreement negotiated by Mr. Kitch, there were ten days remaining in which to agree to the sale or to reject it. This pressure served to force consent. It is obvious that all the outsiders were faced with this same compulsion to quickly agree to sell or to become minority shareholders in a situation much different than ever before, that is with a large corporate newspaper chain as the controlling stockholder rather than a number of individuals. There was no real choice given to the bank as a practical matter if it wanted to...
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