Jackvony v. RIHT Financial Corp.

• Decision Date: 06 December 1988
• Docket Number: Nos. 88-1446,88-1600,s. 88-1446
• Citation: 873 F.2d 411
• Parties: Fed. Sec. L. Rep. P 94,361 Louis V. JACKVONY, Jr., Plaintiff, Appellant, v. RIHT FINANCIAL CORPORATION, etc., et al., Defendants, Appellees. John R. CIOCI, et al., Plaintiffs, Appellees, v. RIHT FINANCIAL CORPORATION, etc., et al., Defendants, Appellants. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 411

873 F.2d 411

Fed. Sec. L. Rep. P 94,361

Louis V. JACKVONY, Jr., Plaintiff, Appellant, v. RIHT FINANCIAL CORPORATION, etc., et al., Defendants, Appellees.

John R. CIOCI, et al., Plaintiffs, Appellees, v. RIHT FINANCIAL CORPORATION, etc., et al., Defendants, Appellants.

Nos. 88-1446, 88-1600.

United States Court of Appeals, First Circuit.

Heard Dec. 6, 1988.

Decided March 30, 1989.

John R. Fornaciari, P.C., with whom Robert M. Disch and Steele & Fornaciari, Washington, D.C., were on brief, for plaintiff, appellant.

Paul B. Galvani with whom Harvey J. Wolkoff and Ropes & Gray, Boston, Mass., were on brief, for defendants, appellees.

Before COFFIN, BREYER and TORRUELLA, Circuit Judges.

BREYER, Circuit Judge.

In September 1982 the Rhode Island Hospital Trust Bank bought the Columbus National Bank by purchasing its shares. It agreed to give the Columbus shareholders their choice of $25 cash or $25 worth of Hospital Trust stock for each Columbus share (five Hospital Trust shares for six Columbus shares). In November 1983 the Bank of Boston entered into an agreement to acquire Hospital Trust; the final acquisition price was $73 per share. The appellant, Louis Jackvony, was a major Columbus shareholder. He sued Hospital Trust (and related entities) claiming that Hospital Trust "defrauded" him in 1982 by (1) making certain misleading statements about Hospital Trust, and (2) omitting to disclose certain material facts about Hospital Trust, which misleading statements and important omissions led him to choose (in exchange for his Columbus shares) fewer Hospital Trust shares (and far more cash) than he would otherwise have done. Jackvony added that Hospital Trust again defrauded him in 1983 by omitting to tell him certain important information (about the upcoming Bank of Boston acquisition), an omission that led Jackvony to sell the comparatively few shares of Hospital Trust stock that he owned (and had pledged) at a price lower than what Bank of Boston paid for Hospital Trust shares when the merger was completed. Jackvony claimed that this "fraud" violated the federal securities laws, 15 U.S.C. Sec. 78j(b) (1982); Rule 10b-5, 17 C.F.R. Sec. 240.10b-5, and constituted common law fraud. He made several other, less significant, state law claims.

After Jackvony presented his case to the jury, the defendant moved for a directed verdict. The district court granted the defendant's motion. The court concluded that no reasonable juror could find that Jackvony's evidence showed fraud or any other violation of law. Jackvony appeals. After reviewing the evidence in the record, we conclude that the district court was correct. In our view, the evidence (insofar as counsel specifically and clearly calls our attention to that evidence in his brief) does not show any violation of law, and we do not believe any reasonable juror could find to the contrary. See Goldstein v. Kelleher, 728 F.2d 32, 39 (1st Cir.) ("In order to uphold grant of directed verdict we must find that, viewing the evidence in the light most favorable to the non-moving party, reasonable jurors could come but to one conclusion."), cert. denied, 469 U.S. 852, 105 S.Ct. 172, 83 L.Ed.2d 107 (1984). Consequently, we affirm the district court's judgment.

I.

The 1982 "Fraud"

Jackvony rests his 1982 "fraud" claims on (1) the failure of Hospital Trust, during 1980--1982, to disclose various events related to a possible acquisition of Hospital Trust by another corporation ("acquisition-related events"), and (2) Hospital Trust's specific misrepresentation that it would operate Columbus as an "independent entity" after acquiring it. Jackvony says that if Hospital Trust had told him about the "acquisition-related events," he would have exchanged more of his Columbus stock for Hospital Trust stock, rather than for cash; he says that if Hospital Trust had told him the truth about its plans not to run Columbus as an independent entity, he would not have sold Hospital Trust his Columbus stock. We shall consider each of these claims in turn.

A. The "Acquisition-Related Events".

The specific facts that Jackvony believes that Hospital Trust should have disclosed, and virtually all the favorable evidence in the 1,000 page record in respect to those facts, consist of the following:

1. In 1980 Hospital Trust's President told the bank's Planning Committee that the bank was "an attractive takeover candidate by a foreign bank."

2. A Hospital Trust Vice President, in late 1980, referred in a memo to Hospital Trust's "growth/restraint, acquire/be acquired, bank/non-bank options."

3. Hospital Trust's President testified that "[t]here had been two or three contacts made to me in a very vague sense of the word ... starting in 1979 of whether we would have any interest in a voluntary way of affiliating with other banks." These contacts, in the President's view, did not amount to "discussions." And, he denied that "these offers of interest [were] of any significance."

4. Hospital Trust's President, at a meeting in April 1981, made some remarks about "being acquired" and "being an acquiror ... both were considerations" for the bank.

5. In September 1981, the bank's Planning Committee was "considering" whether to take some "protective policies against takeovers."

6. Hospital Trust's executive committee's minutes for December 2, 1981, state: "Expressions of interest for affiliation continue from two banks, one in Connecticut and one in Massachusetts."

7. Hospital Trust's president said that Hartford National contacted him about a potential "affiliation" in 1981.

8. Hospital Trust's Planning Committee minutes say that its President referred to it as an "attractive target" for a takeover (Dec. 10, 1981), that its General Counsel had prepared "a position paper" assessing "the realities of any offers seeking to buy" the bank (Jan. 14, 1982), and that he made "a broad review ... of the legal considerations" if the bank "should ... become a takeover target," and made a recommendation about acquiring outside services "relating to mergers and acquisitions" (May 5, 1982).

9. Hospital Trust officials, on various occasions, expressed the view that it had to be a $6 billion bank to survive. (It said so publicly.) Its assets then amounted to about $1.5 billion (presumably a matter of public information). It was having some difficultly raising the capital needed to grow.

In our view, this evidence, taken in the context of this case, could not show any violation of federal Rule 10b-5, or common law fraud. Irrespective of the evidence, Jackvony would not prevail in his Rule 10b-5 claim because Rule 10b-5 prohibits false or misleading statements or omissions only "in connection with the purchase or sale of any security." 15 U.S.C. 78j(b); Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975) (emphasis added). Jackvony did not buy or sell Hospital Trust shares in 1982; rather he decided not to "buy" (i.e., he decided to turn in his Columbus shares for cash rather than for Hospital Trust stock). The Supreme Court, in Blue Chip Stamps, makes clear that a potential purchaser of shares, who decides not to purchase, does not have a Rule 10b-5 claim. Blue Chip Stamps, 421 U.S. at 737-38, 95 S.Ct. at 1926-27. Of course, for purposes of Rule 10b-5, a "purchase" includes "any contract ... to purchase." See 15 U.S.C. Sec. 78c(a) ("the terms 'buy' and 'purchase' each include any contract to buy, purchase, or otherwise acquire"); Blue Chip Stamps, 421 U.S. at 750-51, 95 S.Ct. at 1932-33; L. Loss, Fundamentals of Securities Regulations 800-801 (2d ed. 1988); and Jackvony did enter into a "contract to buy" Hospital Trust shares: the Hospital Trust/Columbus merger agreement was itself a "contract" in connection with the purchase or sale or securities. Marsh v. Armada, 533 F.2d 978, 981-82 (6th Cir.1976) (exchange of shares in a merger qualifies as purchase or sale under Rule 10b-5), cert. denied, 430 U.S. 954, 97 S.Ct. 1598, 51 L.Ed.2d 803 (1977); Knauff v. Utah Construction & Mining Co., 408 F.2d 958, 961 (10th Cir.), cert. denied, 396 U.S. 831, 90 S.Ct. 83, 24 L.Ed.2d 81 (1969) (same); Brooks v. Land Drilling Co., 564 F.Supp. 1518, 1523 (D.Co.1983) (same). But, insofar as Jackvony's claim concerns his (or other Columbus shareholders') decision to enter into that basic contract, the failures to disclose of which he complains helped him; they could not have hurt him. That is to say, full disclosure that Hospital Trust might have expected to be acquired could only have made Hospital Trust stock seem more valuable, not less valuable, and it could therefore only have led to an agreement that offered Columbus shareholders fewer Hospital Trust shares, not more. Jackvony could not have suffered damages in respect to the terms of the Hospital Trust/Columbus merger contract itself.

Jackvony still could have suffered harm in respect to his decision to exercise the option the contract gave him. But we are aware of no authority holding that an option holder's failure to exercise an option to buy falls within the critical language: "purchase," or "contract to buy, purchase, or otherwise acquire." Blue Chip Stamps in our view, suggests the contrary. See Marsh, supra (shareholders who retained their shares rather than sell or tender them during merger negotiations did not have standing to sue given Blue Chip Stamps ).

We need not decide the Blue Chip Stamps point definitively, however, for, when we return to the evidence, we find that Jackvony cannot prevail under either state or federal "anti-fraud" law. He cannot show that Hospital Trust failed to disclose information that was "material." The Supreme Court has indicated that the materiality of "information concerning the existence and status of preliminary merger discussions" turns on whether "there is a substantial likelihood that a reasonable" investor "would have considered" it "significant" (by which the court means "im...