Harsco Corp. v. Segui
| Citation | 91 F.3d 337 |
| Decision Date | 01 August 1996 |
| Docket Number | No. 1073,DKM-MLP,D,1073 |
| Parties | Fed. Sec. L. Rep. P 99,276 HARSCO CORPORATION, Plaintiff-Appellant, v. Rene SEGUI, Defendant, MHC Holding Corp.; Dyson-Kissner-Moran Corp.;Limited Partnership and Adler & Shaykin Fund II, L.P., Defendants-Appellees. ocket 95-7929. |
| Court | U.S. Court of Appeals — Second Circuit |
James J. Hagan, New York City (Joseph M. McLaughlin, Nancy L. Swift, Simpson Thacher & Bartlett, New York City, of counsel), for Plaintiff-Appellant.
Alvin B. Davis, Miami, FL (Jeffrey L. Kravetz, Steel Hector & Davis, Miami, FL, of counsel), for Defendants-Appellees MHC Holding Corp., Dyson-Kissner-Moran Corp. and DKM-MLP Limited Partnership.
Yosef J. Riemer, New York City (Aitken Thompson, Kirkland & Ellis, New York City, Darrell K. Fennell, Philip M. Chiappone, Fennell & Chiappone LLP, New York City, of counsel), for Defendant-Appellee Adler & Shaykin Fund II, L.P.
Before: NEWMAN, Chief Judge, FEINBERG and PARKER, Circuit Judges.
The central issue in this case is whether parties who negotiate at arm's length for the sale and purchase of a company can define the transaction in a writing so as to preclude a claim of fraud based on representations not made, and explicitly disclaimed, in that writing. The United States District Court for the Southern District of New York (Lawrence M. McKenna, Judge ) answered this question affirmatively in dismissing plaintiff's complaint for failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. We agree and affirm the dismissal of plaintiff's fraud claims. We also agree that plaintiff's other causes of action should be dismissed.
Plaintiff, the Harsco Corporation ("Harsco"), a Delaware corporation, sued various officers and shareholders of MultiServ, a Netherlands corporation which Harsco purchased. All of Harsco's claims arise out of its purchase of MultiServ.
Harsco's complaint contained eight counts. Count I charged all defendants with federal securities fraud under Rule 10b-5, 17 C.F.R. § 240.10b-5. Count II charged some defendants with breach of the written Purchase Agreement ("Agreement"). Count III sought indemnification from certain defendants stemming from the breach of contract claimed in count II. Count IV charged all defendants with common law fraud. Count V charged all defendants with common law negligent misrepresentation. Count VI charged two defendants with breach of fiduciary duty. And counts VII and VIII charged certain defendants under the theory of respondeat superior for the acts of other defendants.
The district court explained its dismissal of all counts in a Memorandum and Order dated April 4, 1995. The court dismissed the two fraud claims (counts I and IV) and the claim for negligent misrepresentation (count V), concluding from the complaint that Harsco would be unable to prove reasonable reliance--a required element of each claim. The court dismissed the breach of contract claim (count II), holding that the complaint failed to allege a breach of any specific representation. The indemnification claim (count III) was dismissed because it was contingent on the breach of contract claim. The court dismissed the breach of fiduciary duty claim (count VI), declining to hear a case over which the court had only supplemental jurisdiction when all federal claims had already been dismissed. Lastly the court dismissed the respondeat superior claims (counts VII and VIII) because the dismissal of their underlying theories of liability eliminated the prospect of vicarious liability.
The district court's substantive analysis of the various common law claims assumed that New York law applies. That assumption is not contested by the parties.
As discussed in greater detail below, the district court offered Harsco the opportunity to replead its theories of fraud and breach of contract in so far as those claims related to specific statements in the Agreement. Harsco declined the invitation to amend its complaint. Instead Harsco sought and received an order dismissing its case in order to take this appeal.
Because this is an appeal from a Rule 12(b)(6) dismissal, we review only the adequacy of the complaint, assuming the truth of plaintiff's factual allegations. Allen v. WestPoint-Pepperell, Inc., 945 F.2d 40, 44 (2d Cir.1991). Accordingly, the following factual summary is culled entirely from the complaint.
Harsco "engaged in domestic and international manufacturing and marketing of diverse goods and industrial services, principally for steel, industrial, commercial construction and infrastructure." p 7. In early 1993, Harsco was interested in expanding its business internationally. p 15. MultiServ's business, which was also connected to the steel industry, fit with Harsco's interest in international expansion. p 15.
In April 1993, representatives of Harsco and MultiServ met to discuss the possibility of the purchase of MultiServ by Harsco. p 17. One issue discussed during this meeting was a projection of future earnings contained in an offering memorandum, prepared by Morgan Stanley & Co., an investment banking firm. p 17. At this meeting MultiServ's representatives stated that these projections reflected conservative economic assumptions and accounted for the prospects of "questionable plants." p 17. The offering memorandum prompted Harsco to continue negotiations. p 18. As part of the negotiating process, Harsco representatives were given access to MultiServ's chief financial officer during three days in May 1993. During this period of "exploratory due diligence," Harsco made numerous inquiries into the affairs of MultiServ. However, some of the documents which Harsco asked to see were not provided by MultiServ. pp 17-18.
On July 8, 1993, Harsco and MultiServ entered into the written "Agreement." p 20. Harsco attached the Agreement to the complaint. Thus the Agreement became part of the complaint pursuant to Rule 10(c) of the Federal Rules of Civil Procedure. The Agreement is a sixty-plus page, single-spaced document, consisting of seven "articles" which in turn consist of numerous subsections, a definitions Section, and other schedules and attachments.
The Agreement's second article details the "Representations and Warranties" of the parties involved in the transaction. The only portion of the Agreement's second article which the complaint cites is "Section 2.04." pp 33, 34, 102, 107, 108. Section 2.04 is fourteen pages, single spaced, and consists of seventeen subsections, which in turn consist of numerous sub-paragraphs. Section 2.04 constitutes the defendants' "Representations and Warranties." A partial list of the numerous topics relating to the representations contained in Section 2.04 includes the capitalization of MultiServ, MultiServ's financial statements, MultiServ's liabilities, the ownership and condition of MultiServ's assets, MultiServ's litigation exposure, taxes, contracts, and environmental matters. Significantly, Harsco's complaint nowhere draws the court's or the defendants' attention to any specific portion or passage of Section 2.04.
Pursuant to the Agreement, Harsco agreed to buy all of MultiServ's outstanding stock and some of MultiServ's subordinated debt. The Agreement made the purchase of MultiServ contingent on fourteen days of "confirmatory due diligence." p 22. The fourteen days of confirmatory due diligence occurred from July 8 to July 23, 1993. Section 1.04 of the agreement explained the terms of the confirmatory due diligence. p 26. Section 1.04, which consists of only two paragraphs, states that
purchaser and its accountants, consultants, and advisers shall be permitted ... to review the premises, facilities, books and records and Contracts of [MultiServ], and to conduct interviews with Senior MultiServ Officers ... regarding the business operations, financial condition and results of operations of [MultiServ], for the purpose of confirming the accuracy of the representations and warranties of the [sellers] contained in Article II hereof.
Section 1.04 also provided that Harsco's advisor, Coopers & Lybrand, would be allowed to review materials which MultiServ deemed confidential, such as pricing information, in order to determine MultiServ's overall profitability. However, Section 1.04 made clear that "Coopers & Lybrand shall not disclose any such [confidential] information to [Harsco]."
If Harsco learned that any of the seller's representations were not true during the fourteen days of confirmatory due diligence, then Harsco could terminate the deal. p 25. Section 1.06(a) of the Purchase Agreement stated that if Harsco "determined, as a result of its Confirmatory Due Diligence, that the representations and warranties of the [Sellers] set forth in Article II hereof shall not have been, or shall not be, true and correct in all material respects ... then [Harsco] shall have the right to terminate" the sale during the fourteen days of confirmatory due diligence. Harsco did not terminate the deal, and the purchase closed on August 31, 1993. p 28. The purchase required cash payments totalling $216 million and the acquisition of roughly $164 million in MultiServ debt. p 29.
In a separate document, also dated July 8, Adrian Bowden, the CEO of MultiServ wrote a letter to Harsco stating that he was unaware of any significant problems facing MultiServ. 1 p 24.
Harsco claims generally that "the representations and warranties made in Section 2.04 of the Agreement, and other representations made by [the sellers] contained misrepresentations and omissions of material facts." p 34. Harsco alleges that because the purchase price was $380 million less the amount of certain debt, including project finance debt, the seller had a motive to misrepresent the extent to which new projects were completed. pp 41-43. Against the background of this general allegation,...
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