Estate of Pidcock v. Sunnyland America, Inc.

• Citation: 726 F. Supp. 1322
• Decision Date: 08 May 1989
• Docket Number: Civ. A. No. 486-352.
• Parties: The ESTATE OF John F. PIDCOCK, By and Through Jane Rainaud PIDCOCK as Executrix and Frank R. Pidcock, III, as Executor, Plaintiffs, v. SUNNYLAND AMERICA, INC., Joseph C. Harvard, individually, as officer of Sunnyland America, Inc. and as Co-Executor of the Estate of L.B. Harvard, Sr., and L.B. Harvard, Jr., as Co-Executor of the Estate of L.B. Harvard, Sr., Defendants.
• Court: U.S. District Court — Southern District of Georgia

726 F. Supp. 1322

The ESTATE OF John F. PIDCOCK, By and Through Jane Rainaud PIDCOCK as Executrix and Frank R. Pidcock, III, as Executor, Plaintiffs, v. SUNNYLAND AMERICA, INC., Joseph C. Harvard, individually, as officer of Sunnyland America, Inc. and as Co-Executor of the Estate of L.B. Harvard, Sr., and L.B. Harvard, Jr., as Co-Executor of the Estate of L.B. Harvard, Sr., Defendants.

Civ. A. No. 486-352.

United States District Court, S.D. Georgia, Savannah Division.

February 8, 1989.

On Motion for New Trial May 8, 1989.

COPYRIGHT MATERIAL OMITTED

J. Wiley Ellis, Ronald C. Berry, Savannah, Ga., for plaintiffs.

William U. Norwood, Thomasville, Ga., Malcolm R. Maclean, Savannah, Ga., Griffin B. Bell, William S. Duffy, Jr., Atlanta, Ga., for defendants.

ORDER

EDENFIELD, District Judge.

Introduction

This action, brought pursuant to § 10(b) and § 20(a) of the Securities and Exchange Act of 1934 (15 U.S.C. § 78j(b) and 78t(a), respectively), SEC Rule 10b-5 (17 C.F.R. § 240.10b-5), and state law on fraud, was tried before the Court on September 15 and 16, 1987. The Court entered an Order in the case on November 16, 1987, and judgment was entered against plaintiff John F. Pidcock ("Pidcock")¹ and for defendants Sunnyland America, Inc. ("Sunnyland"), Joseph C. Harvard, the Estate of L.B. Harvard, Sr., and L.B. Harvard, Jr. ("Harvards"), on November 17, 1987. See Pidcock v. Sunnyland American, Inc., 682 F.Supp. 1563 (S.D.Ga.1987). This Court found that plaintiff had failed to establish causation, an essential element of a cause of action under Rule 10b-5. See 682 F.Supp. at 1577-82.

Plaintiff appealed from that judgment to the United States Court of Appeals for the Eleventh Circuit, which reversed the judgment of this Court in favor of defendants and remanded this case for further proceedings. See Pidcock v. Sunnyland America, Inc., 854 F.2d 443, reh'g denied, 861 F.2d 1281 (11th Cir.1988). The Court of Appeals upheld this Court's finding that Pidcock had proved three essential elements of a cause of action under Rule 10b-5: (1) materiality, (2) scienter, and (3) reliance. Id. at 446. The Court of Appeals reversed this Court's conclusion with respect to causation. Id. at 448. On remand this Court must consider the issue of damages, the only issue remaining to be decided. See generally Pidcock, supra, 854 F.2d 443.

As outlined in the Eleventh Circuit opinion, Pidcock is entitled to the following presumption: "that the damages he suffered as a result of the fraud perpetrated by the Harvards are equal to the profits the Harvards realized upon the sale of Sunnyland to Soparind." Id. at 448. This presumption operates to require the Harvards to show that the profits are "attributable to causes other than their fraudulent purchase of Pidcock's interest." Id. Pidcock retains the ultimate burden of proof on the issue of damages; however, if the Harvards fail to demonstrate that the profit was attributable to other causes, then Pidcock will prevail on this issue on the strength of this presumption. If the Harvards appear to have met their burden, then Pidcock must convince the Court that the Harvards' explanation should not be accepted. Id.

The Court of Appeals directed this Court to make new findings and conclusions consistent with its opinion; however, whether further evidence should be taken was left to this Court's discretion. 854 F.2d at 448. Because this case was already tried before the Court, because the Court had the benefit of hearing the testimony of the various witnesses, and because the documentary evidence and exhibits and the transcript of that trial provide an adequate basis for further findings of fact, the Court has determined that additional proceedings in this matter are unnecessary; however, the Court has had the benefit of briefs from the parties to this action.² In accordance with the directives of the Eleventh Circuit, this Court now makes further findings of fact and conclusions of law consistent with the opinion of the Circuit reported at 854 F.2d 443. The Court adopts the findings and conclusions set forth in its Order dated November 16, 1987, and reported at 682 F.Supp. 1563, to the extent that such findings and conclusions are not inconsistent with the opinion of the Eleventh Circuit, as part of its additional findings and conclusions set forth below.³

Findings of Fact

1. The agreement for redemption by Sunnyland of Pidcock's stock, see Exhibit 33, dated December 21, 1982, states that the purchase price for the stock shall be $2,406,305.00, including $2,212,690.00 to be paid by the closing date and a promissory note for $193,615.00 bearing interest at fifteen percent per annum and payable over five years in yearly installments.⁴ This agreement was conditioned upon the company obtaining approval of the transaction from the United States Farmers Home Administration.⁵

2. Included in the purchase agreement was a provision indicating that at the time of the closing the parties would enter into several further agreements.⁶ One of these was a five-year non-competition agreement. The purchase agreement stated that "as consideration for this agreement not to compete" which applied to both Pidcock and his wife, they would be paid $90,000.00 per year for five years from the closing date.

3. At trial Pidcock testified that he had stressed to the Harvards the importance of any information regarding any potential buyer of Sunnyland and the effect such information would have on his willingness to sell his half interest in the company to the Harvards. The Court credits his testimony that, had he known in the fall of 1982 or the spring of 1983 of certain inquiries and the prospects for selling Sunnyland, he would have retained his interest in the company. Transcript at 49 & 56. As Pidcock emphasized at trial, "you would have had to drag me out." Transcript at 96.

4. On March 30, 1983, Sunnyland and John Pidcock closed on the redemption of Pidcock's stock, at which time Sunnyland redeemed Pidcock's 2,500 voting shares and 47,500 non-voting shares, which had constituted his one-half ownership of Sunnyland.⁷ As a result of this purchase, L.B. "Dude" Harvard was the owner of all Sunnyland stock on that date except a small portion of Class B shares purchased by the Sunnyland profit sharing plan.

5. The covenant not to compete which was executed at the time of closing included the following clause: "The provisions of this covenant have been separately bargained for. Sellers shall report all sums received hereunder as ordinary income for Federal income tax purposes." The payments of $90,000.00 per year would be due to Pidcock or, in the event of his death before the expiration of the five year period, to his wife; however, if both Pidcock and his wife died before the expiration of the five year period, the payments would terminate.

6. Also to be executed at closing was a consulting agreement listed separately in the purchase agreement and providing for a yearly fee of $10,000.00. In exchange, Pidcock would act "as a professional consultant to the company in matters involving the operation and management of its companies" although the "time and manner of providing such services" would be determined by Pidcock.

7. The consulting agreement further provided that the company would maintain its existing office space in Savannah for Pidcock's use for the five year duration of the agreement, but limited Sunnyland's potential expenditures for that office to $20,000.00 per year. The consulting agreement also provided for medical and life insurance coverage for both Pidcock and his wife.⁸ In addition, Pidcock would be permitted the reasonable use of any aircraft owned or leased by Sunnyland America, Inc., during the five year period.⁹ In the event of Pidcock's death, the consulting agreement would be terminated except for insurance benefits for Pidcock's wife.

8. At the closing Pidcock purchased the outstanding share of his company car, a Mercedes, for $10,000.00, and his office furniture and fixtures for $10.00. He also resigned as an officer and director of Sunnyland America, Inc.

9. On March 30, 1983, the date on which Pidcock's 2,500 voting shares and 47,500 non-voting shares were redeemed, Sunnyland sold 10,000 shares of the redeemed non-voting stock to Citizens & Southern National Bank as Trustee for the Sunnyland employees Profit Sharing Plan for $469,000.00 in order to finance in part the purchase of Pidcock's shares, and then cancelled the remaining 37,500 non-voting shares and the 2,500 voting shares which had been redeemed. On April 14, 1983, Dude Harvard gave each of his four children 3,000 shares in Sunnyland. At the same time he sold to each of them an additional 3,500 shares of his non-voting stock for the same price per share as that sold to the Trustee.¹⁰

10. After the resignation of Pidcock, Dude Harvard's sons, L.B. Harvard, Jr., and Joseph C. Harvard, operated Sunnyland. During the period leading up to and the period after the resignation of Pidcock, Joseph Harvard served as President and Chief Operating Officer of Sunnyland, while L.B. Harvard, Jr., was Vice President in Charge of Operations. Each received a salary of $94,000.00 during 1983. Dude Harvard was not involved in the day-to-day management of Sunnyland but received a salary of $70,000.00 in 1983.

11. In 1981 and 1982 Sunnyland had suffered its first net yearly losses of $1,900,000.00 and $1,100,000.00, respectively. These losses were due partly to natural market forces, partly to plant construction costs, and partly to poor management on the part of the Harvard sons. By the end of 1982, Sunnyland had apparently adapted to the market forces which caused the prior losses by consolidating operations and closing or selling unprofitable plants such as the Gainesville and Orlando plants. New auditing procedures were instituted leading to more accurate cost and sales information, thereby increasing profitability. A new truck lease...