List v. Fashion Park, Inc.

• Decision Date: 13 February 1964
• Citation: 227 F. Supp. 906
• Parties: Albert A. LIST, Plaintiff, v. FASHION PARK, INC., et al., Defendants.
• Court: U.S. District Court — Southern District of New York

227 F. Supp. 906

Albert A. LIST, Plaintiff, v. FASHION PARK, INC., et al., Defendants.

United States District Court S. D. New York.

February 13, 1964.

O'Brien, Driscoll & Raftery, New York City, Edward C. Raftery, Arthur F. Driscoll, Milton Rosenbloom, New York City, of counsel, for plaintiff.

Nixon, Hargrave, Devans & Dey, Rochester, N. Y., Frederick W. C. McNabb, Jr., Rochester, N. Y., of counsel, for defendant Fashion Park, Inc., et al.

Leonard I. Schreiber, New York City, for defendant Lerner.

Baer, Marks, Friedman & Berliner, New York City, William E. Friedman, New York City, of counsel, for defendants Hentz and William P. Green.

COOPER, District Judge.

This is an action for damages based upon an alleged violation of the Securities Exchange Act of 1934 and Commission Rule X-10b-5.

Plaintiff List seeks to recover $160,650. He bases his claim on the difference between the price ($18.50) at which he sold 5100 shares of Fashion Park, Inc., stock on November 17, 1960, and the price ($50.00) at which Hat Corporation of America, on December 7, 1960, pursuant to an acquisition agreement, offered to pay for shares of Fashion Park.

List sold the 5100 shares to Hentz & Co. (hereinafter "Hentz"). Hentz, as broker, purchased 400 of these shares for defendant William P. Green and his daughter, 400 for Beaver Associates and 4300 for defendant Louis Lerner. The 5100 shares had been purchased by plaintiff on January 29, 1959 for $13.50 a share. His profit was $25,500.

The sale originated November 16, 1960, when plaintiff's broker, Textile Shares Corporation, acting through Roy Robinson, telephoned Hentz, stated he had seen Hentz in the National Quotation Bureau "sheets", and inquired if Hentz would buy a block of about 5000 shares of Fashion Park at $20. Hentz, dealing through defendant Green, replied that he had an order to buy only 400 shares but agreed to try and place the block offered. The 400 share order was from Beaver Associates. On November 16, 1960, Green telephoned Lerner and was informed by the latter that he would not pay more than $17.50 and that he had refused a large block offered at over $19 a share shortly before.

The next day and several telephone calls later, a price of $18.50 was agreed upon, and the shares sold. Green knew Lerner was a director of Fashion Park. So too did plaintiff and his broker.

Of the 4300 shares purchased by Lerner, also a broker, 1163 were retained for his own investment account, and the remaining 3137 shares were promptly resold at a small profit ranging from 17 cents to $1.50 a share.

In accordance with usual brokerage practice at the time of the sale, Green did not know the name of the seller and Robinson did not know the name of the buyer. List at no time inquired as to the identity of the buyer.

In January, 1959 when List, an experienced investor and chief executive officer of Glen Alden Corporation, purchased 5100 shares of Fashion Park, he knew that absolute control of Fashion Park was held by certain members of the Rosenberg family, (among defendants here) who owned over 30,000 shares out of some 59,000 shares of the corporation's outstanding common stock. At that time, plaintiff and his broker Robinson were also aware that Fashion Park, a manufacturer of men's clothing and the operator of a chain of men's retail stores, had not been doing well for several years; that the market value of the stock ($13.00) was substantially less than its book value ($56.00); and that the Rosenbergs had indicated their unwillingness to sell out or merge the business.

Plaintiff also conceded at the trial that he neither knew nor cared whether the persons whose stock he purchased were insiders of Fashion Park, and that his broker made no inquiries on this subject.

Notwithstanding their knowledge of the declared opposition by the Rosenbergs to a sale or merger, plaintiff, in February of 1959, asked Robinson to get information as to whether the Fashion Park business could be bought. Although Robinson reported back that the Rosenbergs were not interested in selling, Robinson apparently continued his efforts to reach the principals of Fashion Park. In April or May of 1960, Harold P. Seligson telephoned Robinson and expressed an interest in bringing about a merger involving Fashion Park. Robinson gave Seligson a proxy for the May, 1960 Fashion Park annual meeting and kept in communication with him thereafter.

Prior to the trial of this action, Seligson and List had neither met nor ever spoken to each other. Seligson was not representing List, and just prior to plaintiff's sale of his Fashion Park stock in November, 1960, plaintiff had never even heard of Seligson.

Similarly, Seligson never told anyone, including the people at Fashion Park, that he was in any way acting on behalf of plaintiff, and as far as the officers of Fashion Park were concerned, Seligson was acting on his own behalf. Seligson's role, by his own admission, was that of an outsider seeking to earn a finder's fee for bringing about a merger involving Fashion Park. In this role, he attended the Fashion Park annual stockholders' meeting in May, 1960, spoke by telephone with Rosenberg, Jr., president of the corporation, at the offices of Fashion Park in Rochester, New York, on October 24, 1960, and at other times, and corresponded with Rosenberg, Jr., on several occasions.

In these communications, it was obvious to Rosenberg, Jr., that Seligson's purpose was to "intrude into our business in the hope that * * * he would either get a finder's fee or be paid something by Robinson, who was the only name that he ever mentioned to me that he represented." (Transcript of Record, 101.) It must also be noted that in his communications, Seligson neither made any bid for Fashion Park stock nor did he quote a price.

It was in this frame of reference and acting on the advice of counsel that Rosenberg, Jr., wrote to Seligson on October 31, 1960 stating that Fashion Park was not interested in selling its business and that "you have not had and do not have any authority from us to confer with Mr. Robinson or any other person or firm with respect to our company." (Plaintiff's Exhibit 5.) This positive position was reiterated in a further letter sent by Rosenberg, Jr., to Seligson on November 10, 1960.

Notwithstanding the stricture contained in Rosenberg's letters, Seligson promptly communicated their contents to Robinson, who in turn informed plaintiff thereof.

Plaintiff had long known that a majority of Fashion Park's stock was owned by management, that the stock was not listed and was not dealt in generally by the public, and that management was unwilling to sell. However, confirmation by Rosenberg, Jr. of management's unwillingness to sell is alleged by plaintiff to have triggered his sell order.

During the period when Seligson was attempting to deal with the principals of the corporation, certain events were transpiring at Fashion Park. In May, 1960 defendant Lerner, who together with members of his family and an investment company (in which he had a 30% interest) held stock and debentures in Fashion Park (then worth approximately $100,000.00), was elected to its Board of Directors. At a meeting of the Fashion Park Board held on May 16, 1960, Lerner proposed that it would be advisable for the corporation to look into the possibility of a merger or sale as an alternative to suggested plans for rearranging bank loans or negotiating new factoring agreements to meet rising financial obligations. However, this suggestion was opposed by the Rosenberg family, whose representatives on the Board of Directors reiterated their firm position against such a move, and it was never mentioned again by Lerner.

Early in September, 1960, Abraham Chatman, manager of the Rochester Joint Board, Amalgamated Clothing Workers of America, conferred privately with Rosenberg, Sr. Chatman stated that he wished to take away a substantial number of employees from Fashion Park since there was not enough full time work available, and that he was trying to interest another manufacturer to operate in Rochester and use these Fashion Park employees. Chatman repeated this to Rosenberg, Jr. on October 4, 1960.

On October 7, 1960, Rosenberg, Jr. telephoned the three out-of-town directors of Fashion Park, including Lerner, and told them Chatman's position. Three days later, Lerner called Rosenberg, Jr. and suggested that the company retain a labor lawyer to combat the threatened action by the union. On about November 1, 1960, Rosenberg, Jr., at the suggestion of counsel to the company, called a directors' meeting for November 4, 1960 to consider the union's threat. At that meeting Chatman was present and again reiterated his position concerning the prospective removal of 300 to 350 Fashion Park employees. Chatman also indicated to the Fashion Park Board that he had someone in mind interested in buying Fashion Park, but he withheld the name. He also admitted that he had no knowledge concerning any possible price or terms of sale.

Following receipt of this information, and at that same meeting, the Fashion Park directors adopted a resolution to the effect that the company seek to negotiate its sale or merger. As was testified to by Rosenberg, Jr., the resolution was adopted because the union was putting "a gun to my head." (Transcript of Record, 70.) The Rosenbergs continued to entertain genuinely the hope that the sale of the company could be averted, and as they saw it, the resolution was adopted in order to satisfy Chatman temporarily and gain time to resolve the ultimatum by a different course. On November 11, 1960, Rosenberg, Jr. delivered a copy of the resolution to Chatman.

On November 14, 1960 Chatman privately told Rosenberg, Jr. that his prospective purchaser was the Hat Corporation of America (hereinafter "Hat Corporation"). No one else was present at this meeting; defendant Lerner was not informed thereof.

On November 16, 1960, Robinson...