Geller v. Transamerica Corporation

• Decision Date: 31 December 1943
• Docket Number: Civil Action No. 322.
• Citation: 53 F. Supp. 625
• Parties: GELLER v. TRANSAMERICA CORPORATION.
• Court: U.S. District Court — District of Delaware

53 F. Supp. 625

GELLER v. TRANSAMERICA CORPORATION.

Civil Action No. 322.

District Court, D. Delaware.

December 31, 1943.

John Van Brunt, Jr. (of Hastings, Stockly & Layton), of Wilmington, Del., for plaintiff.

Edwin D. Steel, Jr. (of Morris, Steel & Nichols), of Wilmington, Del., for defendant.

LEAHY, District Judge.

Plaintiff says he was induced to sell his Class A stock as a result of acts of misrepresentation and concealment by defendant,¹ at a time when defendant, inasmuch as it was the majority stockholder of Axton-Fisher, stood in a position of a fiduciary to plaintiff as a minority stockholder. I shall treat seriatim the acts of misrepresentation and concealment before discussing the apposite law as to whether a fiduciary relation exists here.

1. Misrepresentation and Concealment

I. The offer of defendant contained in its letter of November 12, 1942. This is the sole communication that ever passed from defendant to plaintiff. It was a general letter addressed to all holders of both Class A and Class B stock. It is a mere offer by defendant to purchase Class A stock for $40 a share and Class B for $12 a share.² This letter expressly invited inquiry concerning the offer made to the holders of the stock.³ Plaintiff and his investment counsel made no inquiry of any kind. Axton-Fisher's letter of February 27, 1942 (to be discussed in detail infra) informed all its stockholders that defendant had purchased a majority of its Class B stock. And in May, 1942, defendant had announced its policy to acquire Axton-Fisher securities. I am unable to understand why plaintiff or his investment counsel made no inquiry of defendant of the present status of Axton-Fisher, prior to December 5, 1942, when plaintiff sold his stock for $40 a share, when plaintiff knew — at least the information was available to his investment counsel — two important facts which the ordinary seller always wants to know, i. e., that the book liquidating value of the Class B stock was $86.42 and that defendant had for practically a year put on a steady campaign to acquire all of such shares. For the moment, at least, I fail to see how plaintiff can argue there was anything false or misleading in the November 12, 1942, letter.

II. Axton-Fisher's filing with the SEC. Axton-Fisher filed a registration statement with the SEC in February 1942, which it abandoned in May 1942. A proposed plan of recapitalization was being considered,⁴ which looked to a cash payment of accrued dividends on the preferred and Class A stock from funds to be procured from defendant who was to purchase certain new prior preferred stock to yield to Axton-Fisher $971,300. The proposed recapitalization was subject to several conditions, among which were certain amendments to Axton-Fisher's charter and an exchange acceptance from the holders of at least two-thirds of the preferred and Class A stock by April 10, 1942. On March 23, 1942, the SEC declared the registration statement had to be amended in certain particulars. The statement and plan of recapitalization were abandoned when defendant refused to continue its commitment. One of the charges of misrepresentation is here involved.

Plaintiff charges that defendant "caused" Axton-Fisher to issue a press release on May 7, 1942, announcing the abandonment of the plan, which, in part, stated: "In view of the changed conditions and a considerable decline in the market prices of preferred stocks since the commitment was originally made, Transamerica Corporation defendant advised the Company that it did not feel justified in making any further commitment." From this plaintiff claims that he, as well as his investment counsel, were lead to believe "that conditions had changed for the worse in the business affairs of Axton-Fisher". There is a short answer to this contention. First, the press release said nothing about the affairs of Axton-Fisher. Second, it merely said that because of "changed conditions"⁵ and the decline in the price of preferred stocks generally, it would not extend its commitment.

A representation must be examined as to its ordinary meaning and in the light of the circumstances in which it is made. Any reference manual will show the effect of the war, during the Spring of 1942, on preferred stocks. I conclude that plaintiff's interpretation of the press release of May 7, 1942, lacks plausibility.

III. Axton-Fisher's press release of November 13, 1942. Plaintiff charges that Axton-Fisher issued a certain press release — denominated by the newsmen as a "hand-out" — which was printed in various metropolitan newspapers and financial periodicals relating to the offer of defendant to purchase Class A stock. The news item reported that defendant owned no Class A stock when, in fact, up to September 1942 it had purchased and owned 16,272 shares of Class A stock. There is nothing to show that this inaccuracy was of defendant's making, especially in the light of the fact that on May 7, 1942, when it announced its abandonment of the plan of recapitalization, defendant issued its own press release which, in part, stated that defendant "Transamerica Corporation * * * has advised that it will feel free to buy or sell or otherwise trade in the various issues of the company's Axton-Fisher's outstanding securities if its judgment should in the future dictate such action." Following this announcement of its desire to acquire the securities of Axton-Fisher, defendant commencing on August 14, 1942, acquired 5,232 or 10% of the Class A stock. As this stock was listed on the New York Curb Exchange, thereafter defendant, under the Securities Exchange Act of 1934, was required and did, in fact, report to the SEC every subsequent purchase. These apparently bona fide acts do not square with holding defendant responsible for an act done by an officer of Axton-Fisher, even if it be assumed that such officer gave the "hand-out" with evil design, and especially where the pleadings and affidavits fail to show any authority on his part to bind defendant.

IV. Axton-Fisher's letter of February 27, 1942. The letter enclosed Axton-Fisher's annual report for the year 1941. Plaintiff's claim is that this communication contained only a partial truth when it stated the company's business was declining, for in fact it had increased its sales of its second largest product — "Spuds" cigarettes. Here, again, an act, without pausing to test its taint of illegality, of Axton-Fisher is charged up to defendant, at a time long before defendant acquired control of that company. However, the uncontradicted facts shown in the affidavits disclose that profits from the sale of Spuds during the first six months of 1942, were offset by substantial losses on this brand for the corresponding period in 1943. In any event, the statements in the affidavits filed by defendant's officers, viz., that they were unaware that this letter of Axton-Fisher had been sent, stands uncontradicted. Moreover, it is difficult to accept plaintiff's construction of that letter in view of the fact that after he read the letter he went out within two weeks and purchased additional shares of Class A stock.

V. Plaintiff's lack of knowledge of Axton-Fisher's earnings. Plaintiff contends that if he had known that the company's earnings were in excess of $800,000 he would not have sold his 240 shares. The uncontradicted facts show that the company's operating profit for 1942, before taxes, was $582,955.65, $398,000 of which was earned in the last quarter. The first six months of 1943 show an operating loss of $128,217.13. It can be readily seen, then, why defendant made no representations or predictions as to Axton-Fisher's business when it made its offer to buy the Class A stock, but simply invited the holders of the stock to make inquiries.

VI. The merger of Axton-Fisher. The charge here is that defendant concealed from plaintiff certain negotiations it had undertaken to merge Axton-Fisher with some other tobacco company. This averment is categorically denied by defendant. It raises what might be called the only substantial issue of fact in the case. Its lack of substantiality is apparent. The fact is Axton-Fisher did not merge with any other company. If it had a vague thought of merging, the non-disclosure of an indefinite intention can have no legal significance.

VII. Increased value of leaf tobacco inventory of Axton-Fisher. In view of the legal relations between plaintiff and defendant at the time he sold his stock, as will be discussed fully below, there was no duty on defendant to say anything about the appreciation of leaf tobacco when defendant made its offer, assuming it had knowledge of the fact as asserted by plaintiff.

VIII. Axton-Fisher's failure to pay dividends during the last six months of 1942. This is the last charge of concealment. True, non-payment of dividends by Axton-Fisher may have induced plaintiff to sell his Class A stock; but I fail to understand how such non-payment may constitute a charge of fraudulent concealment by defendant.⁶ Courts do not inquire as to the failure to declare a dividend in the absence of fraud, and no such fraud is even here alleged.

2. Summary Judgment

In Whitaker v. Coleman, 5 Cir., 115 F.2d 305, 306, in speaking of the circumstances under which a motion for summary judgment should be granted, the Court said: "It must appear that there is no substantial evidence on it, that is, either that the tendered evidence is in its nature too incredible to be accepted by reasonable minds, or that conceding its truth, it is without legal probative force." From the discussion which has so far occurred, I think it manifest that no genuine issues of fact lurk in the case at bar. Where affidavits controvert unverified averments in a complaint, absent the filing of counter-affidavits, I fail to see how genuine issues of fact are created, within the meaning of Rule 56 of the Rules of Civil Procedure, 28 U.S.C.A. following section 723c. Such...