Disher v. Information Resources, Inc., 83 C 6964.

• Decision Date: 27 May 1988
• Docket Number: No. 83 C 6964.,83 C 6964.
• Citation: 691 F. Supp. 75
• Parties: David C. DISHER, Plaintiff, v. INFORMATION RESOURCES, INC., a Delaware corporation, John L. Malec, Gian M. Fulgoni, both individually and as voting trustee, William C. Walter, both individually and as voting trustee, Defendants.
• Court: U.S. District Court — Northern District of Illinois

691 F. Supp. 75

David C. DISHER, Plaintiff, v. INFORMATION RESOURCES, INC., a Delaware corporation, John L. Malec, Gian M. Fulgoni, both individually and as voting trustee, William C. Walter, both individually and as voting trustee, Defendants.

No. 83 C 6964.

United States District Court, N.D. Illinois, E.D.

May 27, 1988.

COPYRIGHT MATERIAL OMITTED

Katherine Rakowsky, Grippo & Elden, Chicago, Ill., for plaintiff.

William E. Snyder, Laura DiGiantonio, Chadwell & Kayser, Ltd., William J. Harte, Chicago, Ill., for defendants.

MEMORANDUM OPINION AND ORDER

HART, District Judge.

A. Background

For about five years this case and a parallel case in the state courts of Illinois have been pending. Some of the claims had exclusively federal jurisdiction and were brought only in this court. Other federal claims, although not exclusively federal, were also brought only in this court. A number of state claims were brought in both courts. Through various amendments, plaintiff, usually with the agreement or acquiescence of defendants, has attempted to leave all of his damages claims for this court. Three "trials" have been held before Judge Albert S. Porter of the Circuit Court of Cook County and the Illinois Appellate Court has issued two published opinions. The first "trial" was on plaintiff's motion for preliminary injunction enjoining the enforcement of a confidentiality agreement he had with his employer. The injunction was denied by the Circuit Court, but the Appellate Court remanded the case for further consideration of the preliminary injunction. See Disher v. Fulgoni, 124 Ill.App.3d 257, 79 Ill.Dec. 735, 464 N.E.2d 639, appeal denied, 101 Ill.2d 564 (1984). In the meantime discovery was proceeding in this court, but the court ordered the parties not to duplicate discovery that was being taken in the state court proceedings. In December 1984, this court entered a judgment in favor of plaintiff dismissing defendant Information Resources, Inc.'s ("IRI") counterclaim. This court continued to monitor the status of this case while the state court proceeded to trials on the merits.

The Circuit Court bifurcated the case and conducted two trials. Disher succeeded on some claims and lost on others. Most important for him, he succeeded in having his stockholdings in IRI released from a voting trust. He also obtained a permanent injunction against enforcement of the confidentiality agreement. On appeal, the Circuit Court was affirmed in part and reversed in part, but Disher's success at having the stock released and the confidentiality agreement enjoined remained intact. The case was to be remanded to the Circuit Court for further proceedings and the Illinois Supreme Court only recently denied leave to appeal. See Disher v. Fulgoni, 161 Ill.App.3d 1, 112 Ill.Dec. 949, 514 N.E. 2d 767 (1987) ("Disher II"), appeal denied, 119 Ill.2d 555, 119 Ill.Dec. 384, 522 N.E.2d 1243 (April 7, 1988).

Following the decision in Disher II, the parties stipulated to the dismissal of Counts VI and VII and defendants have moved for summary judgment on all other Counts. Plaintiff has also conceded that Count V should be dismissed.

Plaintiff David Disher was formerly employed by defendant IRI. The other three defendants are officers or directors of IRI who were also trustees of a voting trust that is central to this litigation. Disher directed IRI's BehaviorScan program which involved market research through the use of consumer panelists, supermarket product scanners, and cable television. Through the scanners, the purchases of the panelists were monitored and through the cable television hookups with the panelists certain advertising could be directed toward different groups of panelists. From the data gathered, various conclusions could be made as to the effect of the advertising. This type of research was only feasible for companies who spent large sums on advertising, estimated to be about 150 companies in the United States. At the time Disher was discharged, A.C. Nielsen Company was considering establishing a competitive system.

When Disher started with IRI in 1981, he took a lower salary than he previously earned because of the opportunity to purchase IRI stock through stock option rights. In 1982, IRI wanted to buy out the shares of one of its founders, Penny Baron, but did not have sufficient capital to do so. Instead, certain employees, including Disher, were given the opportunity to surrender their option rights in return for the ability to purchase twice as many shares of Baron stock. IRI arranged partial financing and paid interest on the loans. The employees were required to place the stock in a voting trust of which defendants were the trustees. Defendant Fulgoni acted as Disher's agent in purchasing the stock for Baron and placing it in the voting trust. The details of this arrangement are described in Disher II, 112 Ill.Dec. at 951-52, 514 N.E. 2d at 769-70. In February 1982, Disher purchased 1,000 shares. In April he was promoted and was able to purchase 500 more shares under the same conditions as the original purchase.

Disher was discharged in April 1983 and sought to obtain release of his stockholdings, but was unable to. IRI offered to seek to get his stock for him if he would sign a noncompetition agreement, but he declined the offer. Disher was offered a position with A.C. Nielsen, but after A.C. Nielsen received correspondence from IRI, the offer was made conditional on rescinding a confidentiality agreement Disher had with IRI. Although Disher ultimately succeeded in having the state court enjoin enforcement of the confidentiality agreement, he never obtained the job with A.C. Nielsen. Without adequate income, Disher eventually had to sell off his property, including his home. Disher eventually succeeded at having the voting trust rescinded and the stock he had purchased for $18,000 was sold for over $1,000,000. However, Disher had earlier demanded that it be sold at the time individual shares were selling for about $6 more. Had he been able to sell at that time, he would have sold the stock for about $236,000 more.

B. Count I — Securities Fraud

Count I alleges a federal claim for securities fraud. Defendants claim this Count should be dismissed because the undisputed facts show Disher suffered no damage. They argue he instead made a profit of more than $1,000,000. Disher argues he lost $236,000 by not being able to sell his shares when he wanted to and that he also suffered consequential damages of having to sell his home and other property below market value due to his lack of financial resources. For purposes of deciding the present motion, it is assumed that defendants induced plaintiff to trade his stock options for the right to purchase Baron stock by falsely representing that the voting trust would end when the stock began to be publicly traded. There were also other alleged false representations, but they need not be delineated.

Plaintiff does not point to evidence that he was induced to enter into the voting trust separate from the arrangement to purchase the Baron stock. He also points to no evidence that he could have purchased the Baron stock without entering into a voting trust. Therefore it must be assumed, as is alleged in paragraph 18 of plaintiff's amended complaint, that the false representation about voting trusts was for the purpose of inducing plaintiff to enter into the transaction involving Baron stock. If Disher had not entered into the transaction, he would have had only half as much stock under his prior stock option plan. Even if he had sold that amount at the highest price, it would have been worth less than the amount he was able to sell at a lower price in September 1985 since the price of a share had not dropped over 50% from the highest price. Additionally, plaintiff has not shown an amount of consequential damages that exceeds the greater profit he made by being able to purchase twice as many shares.

Plaintiff correctly argues that the general rule is that a securities fraud plaintiff is to be placed in the same position as he would have been had there been no fraud. Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 155, 92 S.Ct. 1456, 1473, 31 L.Ed.2d 741 (1972). This includes that such a plaintiff is entitled to profit to the full extent that he would have profited had there been no fraud. Levine v. Futransky, 636 F.Supp. 899, 900 (N.D. Ill.1986). The plaintiff is limited to actual damages, except where the defendant's profit from the transaction exceeds the plaintiff's actual damages. See Affiliated Ute, 406 U.S. at 155, 92 S.Ct. at 1473; Harris Trust & Savings Bank v. Ellis, 810 F.2d 700, 706-07 (7th Cir.1987); Torres v. Borzelleca, 641 F.Supp. 542, 544-45 (E.D. Pa.1986). The plaintiff is not entitled to the full benefit of his bargain, Madigan, Inc. v. Goodman, 498 F.2d 233, 239-40 (7th Cir.1974), except where necessary to prevent unjust enrichment of the defendant. Hackbart v. Holmes, 675 F.2d 1114, 1122 (10th Cir.1982).

As discussed above, plaintiff has not suffered any actual loss. Had he not been induced to trade his rights under the stock option plans for his right to purchase Baron stock, his profits would have been less than they actually were. Plaintiff has not shown that he is entitled to the full benefit of his bargain because defendants would otherwise be unjustly enriched. Instead, plaintiff tries to separate out the fraud regarding the voting trust from the fraud inducing the purchase. Such a split, however, is inconsistent with the facts. Also, one of the cases relied on by plaintiff is contrary to plaintiff's argument. Abrahamson v. Fleschner, 568 F.2d 862, 878-79 (2d Cir.1977), cert. denied, 436 U.S. 905, 913, 98 S.Ct. 2236, 56 L.Ed.2d 403 (1978), holds that a plaintiff cannot recover for losses and ignore profits where both result from a single wrong. Instead, under Abrahamson, a plaintiff can only recover for net losses occurring after...