Helman v. Murry's Steaks, Inc.

• Decision Date: 09 July 1990
• Docket Number: Civ. A. No. 86-469 LON.
• Citation: 742 F. Supp. 860
• Parties: Gloria HELMAN, individually and, as a representative of the Estate of Sandra Mendelson, Plaintiff, v. MURRY'S STEAKS, INC., Murry Mendelson, Ira Mendelson and the Rymer Company, Defendants.
• Court: U.S. District Court — District of Delaware

742 F. Supp. 860

Gloria HELMAN, individually and, as a representative of the Estate of Sandra Mendelson, Plaintiff, v. MURRY'S STEAKS, INC., Murry Mendelson, Ira Mendelson and the Rymer Company, Defendants.

Civ. A. No. 86-469 LON.

United States District Court, D. Delaware.

July 9, 1990.

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Leone L. Ciporin of Lassen, Smith, Katzenstein & Furlow, Wilmington, Del., for plaintiff; Entin, Schwartz, Margules & Lazarus, Fla., of counsel.

Michael D. Goldman and Stephen C. Norman of Potter Anderson & Corroon, Wilmington, Del., for defendants; Herbert E. Milstein and Andrew N. Friedman of Cohen, Milstein & Hausfeld, Washington, D.C., of counsel, for defendants Murry's Steaks, Inc. and The Rymer Co.; Burton A. Schwalb, Steven Sarfatti and Joe D. Jacobson of Schwalb, Donnenfeld, Bray & Silbert, Washington, D.C., of counsel, for defendants Murry Mendelson and Ira Mendelson.

OPINION

LONGOBARDI, Chief Judge.

The Plaintiff Gloria Helman commenced this action individually and as a personal representative of the estate of her deceased mother, Sandra J. Mendelson, seeking damages against Murry's Steaks, Inc. ("MSI"), her uncle, Murry Mendelson, her cousin, Ira Mendelson (the "MSI Defendants") and the Rymer Company ("Rymer") for violations of Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5, the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962, the Delaware and/or Maryland Blue Sky Laws as well as fiduciary and other common law duties. The Second Amended Complaint (the "Complaint"), Docket Item ("D.I.") 54, alleges that the MSI Defendants conspired with and entered into a course of conduct with the Defendant Rymer designed to defraud Plaintiff and her mother by withholding material information regarding the business of MSI, its financial condition and its future values through a proposed merger with Rymer. The fraud allegedly caused the Plaintiff and her mother to sell their minority interest in MSI for less that its true value.

Presently before the Court are Plaintiff's motion for partial summary judgment on Counts I, II, III, V and VI of the Complaint, the MSI Defendants' motion for summary judgment on all Counts and Defendant Rymer's motion for summary judgment.

I. FACTS

MSI, until it was acquired by Rymer in 1985, was a family owned and operated retail food business specializing in economically processed frozen meats. D.I. 35, ¶ 6. It was founded in the 1940s by the late Alfred G. Mendelson, father of Murry Mendelson and the late Sandra Mendelson. Id., ¶ 10. Upon the death of Alfred G. Mendelson in 1972, controlling ownership of MSI was transferred to his spouse, Ida Mendelson, and to the Alfred G. Mendelson Trust (the "Mendelson Trust").¹ Minority interests were transferred to his children, Murry Mendelson and Sandra Mendelson.

Defendant Murry Mendelson was integrally involved in the operation of the company since its inception. D.I. 77A, Exhibit ("Ex.") C. He subsequently became president and served as a director for most of the time relevant to this lawsuit. Defendant Ira Mendelson is Murry Mendelson's son who also served as an officer and director at all times relevant to the lawsuit. Both the Plaintiff and her mother, Sandra Mendelson, had been employed by MSI in various capacities. Id., Ex. E at 59.

In 1977, MSI underwent a recapitalization which created new classes of voting, non-voting and preferred stock. Pursuant to this recapitalization, each MSI stockholder signed a stock redemption agreement granting MSI the option to purchase their stock at "book value" based on the preceding fiscal year should they decide to sell their MSI stock during their lifetime. D.I. 77A, Ex. A. at 5.²

At some point in 1980, Sandra Mendelson approached Murry Mendelson and asked to have her MSI stock purchased by MSI. Id., Ex. C.³ At that point, the Plaintiff joined in her mother's request. Shortly thereafter, Sandra Mendelson's attorney, Saul Schwartzbach, and MSI's attorney, Richard Meyer, began negotiating the terms under which MSI would repurchase Sandra Mendelson's and the Plaintiff's MSI interests.⁴ The result of these negotiations was a Letter of Intent setting forth the complete details of the stock redemption by MSI. The Letter of Intent was signed by the Plaintiff and Sandra Mendelson in March of 1982 and was reduced to a Definitive Agreement (the "Definitive Agreement") embodying the same terms which became effective on November 30, 1982. D.I. 77A, Ex. O. The Definitive Agreement provided for two separate closings. At the first closing, MSI was to pay for all MSI stock that Sandra Mendelson and the Plaintiff owned outright in their own names. Sandra Mendelson was to receive 1.7 million dollars, $540,000 in cash and the remainder in a note and the Plaintiff was to receive $18,000 in cash. D.I. 77A, Ex. O, ¶¶ 3, 11. At the second closing, which was to occur either sixty days after the death of Ida Mendelson or, pursuant to MSI's option, at an earlier date, MSI would close on and pay for the Plaintiff's and Sandra Mendelson's contingent interest in the Mendelson Trust. Under the terms of the Letter of Intent and the Definitive Agreement if at the time of the second closing, Ida Mendelson had predeceased Sandra Mendelson, then Sandra Mendelson would be entitled to 1.33 million dollars in the form of a promissory note for her interests in the Mendelson Trust. If at the time of closing, Ida Mendelson and the Plaintiff survived Sandra Mendelson, then the Plaintiff would be entitled to a note worth $665,000 for the 50% of her mother's interest in the Mendelson Trust which she would have inherited. Id., ¶ 13.

The first closing occurred on February 28, 1983, at which time MSI tendered the cash and note pursuant to the Definitive Agreement. In consideration for these payments, Sandra Mendelson and the Plaintiff endorsed and delivered over the certificates to the MSI stock registered in their own names. In addition, Sandra Mendelson and the Plaintiff assigned to MSI all right, title and interest in any MSI stock they might subsequently acquire. D.I. 77A, Ex. Q.⁵

In the autumn of 1984, Rymer, a major supplier of portion-controlled meat, expressed an interest in acquiring MSI. D.I. 73A, Ex. 1 at 40. Murry Mendelson and Ira Mendelson visited Rymer's plant in Chicago but indicated that at that point that they were uninterested in being acquired by Rymer. D.I. 77A, Ex. T. However, at a meeting in February of 1985 attended by Murry Mendelson, Ira Mendelson and Norman Chapman, an investment banker representing Rymer, Rymer again made an offer to purchase MSI. D.I. 77A, Ex. B. This offer was for 30 million dollars plus 200,000 shares of Rymer which was then trading at $15 per share. D.I. 73A, Ex. 1. Although remaining noncommittal with respect to the second Rymer offer, MSI retained the investment banking firm of First Boston to conduct an analysis of what MSI might be worth if it were sold to a third party. Id., Ex. B at 43-47. With the aid of First Boston, negotiations continued between Rymer and MSI. On September 27, 1985, the parties signed an agreement whereby Rymer would acquire MSI for 57 million dollars.⁶

On July 23, 1985, MSI sent a notice to the Plaintiff advising her that pursuant to the Definitive Agreement, the second closing would take place in 60 days. D.I. 77A, Ex. U. Upon receiving this information, Plaintiff contacted several of her lawyers to determine whether she was obligated to perform under the agreement. One of her attorneys, John Cogar, who represented both the Plaintiff and Sandra Mendelson at the first closing, advised the Plaintiff that she was required to go through with the second closing. Id., Ex. G at 154. Maurice Rhinehardt, another of the Plaintiff's attorneys, contacted MSI's counsel, Richard Meyer, requesting a description of the terms of the second closing and financial information regarding MSI. D.I. 73C, Ex. 24. MSI declined to provide Rhinehardt with their financial information. Id. at Ex. 19.

Meyer and Rhinehardt had several conversations regarding the terms of the second closing. D.I. 77A, Ex. S at 23-24. In one of the earliest conversations, Meyer stated to Rhinehardt that MSI was presently negotiating for the sale of the company to a third party but declined to provide any further information. Id. at 56-59.

MSI's contention with resect to the terms of the closing were that the Plaintiff was entitled to a note in the amount of $665,000. Rhinehardt, however, questioned whether the Plaintiff was entitled to more money under the agreement. Ultimately, MSI amended the Definitive Agreement to allow for the Plaintiff to receive $665,000 in cash and a note for another $665,000.⁷ Included in the amended agreement which was signed at the second closing was a clause releasing both parties from any liability associated with the amendments. D.I. 77A, Ex. B.

II. DISCUSSION

In Plaintiff's motion for partial summary judgment, she contends that there are no genuine issues of material fact with respect to the 10b-5 claim, the fraud claim, the negligent misrepresentation claim and the breach of fiduciary duty claims as they relate to the second closing. Plaintiff asserts that she is entitled to judgment as a matter of law on the 10b-5 claim because the Defendants, in the face of an uncompromising duty to disclose the terms of the Rymer transaction, knowingly misrepresented or omitted material facts in connection with the purchase of a security. Plaintiff further asserts that because she is entitled to judgment as a matter of law on the 10b-5 claim, she is also entitled to judgment on the fraud claim. Finally, Plaintiff asserts that she is entitled to judgment as a matter of law on the breach of fiduciary duty claims. She contends that Ira Mendelson in his capacity as a director of MSI...