McKinney v. Gannett Co., Inc., CIV-78-630 C.

Decision Date25 August 1981
Docket NumberNo. CIV-78-630 C.,CIV-78-630 C.
Citation660 F. Supp. 984
PartiesRobert M. McKINNEY, Plaintiff, v. GANNETT CO., INC., a corporation, and the New Mexican, Inc., a corporation, Defendants.
CourtU.S. District Court — District of New Mexico

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W.A. Sloan, Rodey, Dickason, Sloan, Akin & Robb, Albuquerque, N.M., for plaintiff.

Nixon, Hargrave, Devans & Doyle, John B. McCrory, Robert C. Bernius, Rochester, N.Y., Jones, Gallegos, Snead & Wertheim, Jerry Wertheim and John Wentworth, Santa Fe, N.M., Ortega & Snead, Albuquerque, N.M., for defendants.

MEMORANDUM OPINION

CAMPOS, District Judge.

THIS CASE was heard by the Court sitting with a jury during the period from March 24, 1980, to June 26, 1980; the jury returned special verdicts on June 27, 1980, finding for Plaintiff on all five claimed breaches of contract and for Defendants on the fraud claim. My independent findings and conclusions are consistent with the jury's verdicts and are more particularly set forth below. Based on these, I will order that Plaintiff, if he elects to have it so after the accounting, may have rescission of the transaction consummated by the parties in February of 1976. An accounting also will be ordered. Rescission shall be on terms set after the accounting. The reason for extending Plaintiff the option to rescind or not to rescind after the accounting will be explained subsequently.

Plaintiff is Robert M. McKinney ("McKinney"), a citizen of the State of Virginia. He filed suit on September 1, 1978, against Gannett Co., Inc. ("Gannett"), a Delaware corporation, with its principal place of business in Rochester, New York, and against The New Mexican, Inc. ("The New Mexican"), a New Mexico corporation. Jurisdiction is based on diversity.

In his First Amended Complaint, McKinney sought rescission of the contract by which he had conveyed his ownership of The New Mexican to Gannett plus an accounting and $5 million incidental and consequential damages. He also sought "legal damages", or actual and compensatory damages, in the amount of $10 million against both Gannett and The New Mexican. Finally, McKinney prayed for exemplary or punitive damages in the amount of $10 million.

As a basis for these remedies, McKinney alleged eleven causes of action against Gannett and The New Mexican: breach of contract, federal securities fraud, fraud and deceit, constructive fraud, negligent misrepresentation, meeting of the minds, inducing breach of contract, interference with prospective advantage, conspiracy, unjust enrichment and breach of duty of good faith. By my rulings on pre-trial motions and my rulings during the trial, I dismissed all but the breach of contract claim and the claim of fraud and deceit.

Gannett answered, denying any wrongdoing and asserting eight affirmative defenses. The New Mexican answered, also denying any wrongdoing and asserting 26 affirmative defenses. At the trial, I submitted only two affirmative defenses for consideration by the jury: waiver, and legal excuse for the alleged breaches of contract.

The New Mexican, by way of counterclaim, sought judgment against McKinney for $100,000 compensatory damages and $1 million punitive damages for his alleged wrongful acts and breaches of contract. After hearing all testimony, I dismissed The New Mexican's counterclaim.

A jury was demanded by McKinney and by The New Mexican. Because of the estimated length of trial, five weeks, a jury consisting of six regular and four alternate jurors was empaneled.

STATEMENT OF THE CASE

For many years prior to February 27, 1976, McKinney owned, either directly or through his personal holding company (El Nuevo Mexicano, Inc.), all of the stock of The New Mexican, which publishes The New Mexican, the only daily newspaper in Santa Fe, New Mexico. He held the highest position of authority at the newspaper, that of publisher. McKinney held many other positions with other corporations and government agencies, and frequently was away from Santa Fe. He maintained an apartment in New York City as well as a residence in New Mexico. To manage the day-to-day affairs of the newspaper, McKinney employed a general manager. Reporting to the general manager were the department heads, to whom the departmental staff were directly responsible.

Gannett is a large newspaper group or chain which owns over 80 newspapers as well as several radio and television stations.

In 1975 McKinney negotiated with Gannett for the transfer of all the shares of common stock of The New Mexican to Gannett in return for 300,000 shares of Gannett common stock. These negotiations culminated in an "Agreement and Plan of Reorganization" dated as of December 18, 1975, which agreement was to be supplemented and closed at a later time. Signatories to the agreement are Gannett on the one hand and McKinney, El Nuevo Mexicano, and The New Mexican on the other. That agreement was closed on February 27, 1976. During the interim, several issues had to be resolved and several documents prepared or finalized. Prior to the closing, McKinney and The New Mexican had agreed to the terms of an "Employment Agreement." These are contained in Plaintiff's Exhibit 505, attached hereto. Under the Employment Agreement, McKinney retained certain rights and responsibilities at the newspaper for a term of 10 years and certain others for a term of 5 years. The transactions between Gannett and McKinney of February 1976 included the acquisition by Gannett of The Taos News, a newspaper published at Taos, New Mexico. The reasons for this acquisition and the general terms thereof are treated elsewhere in this opinion. (See pp. 18-19)

This lawsuit concerns the promises contained in the Employment Agreement. McKinney claims Gannett and The New Mexican breached that contract on several occasions. He also claims that Gannett defrauded him by entering into the Agreement and Plan of Reorganization with the intention not to fulfill its contractual obligations and undertakings contemplated by that Agreement and that The New Mexican participated in that fraud later on down the line. Because Gannett was not a party to the Employment Agreement, McKinney seeks to hold it liable for breach of contract by several theories: that The New Mexican was the alter-ego of Gannett, that Gannett induced The New Mexican to commit breaches, and that Gannett and The New Mexican conspired to breach McKinney's contract.

The New Mexican by its counterclaim avers that McKinney breached the Employment Agreement on several occasions and committed other wrongful acts, resulting in damage to The New Mexican.

DISCOVERY MATTERS

Shortly after McKinney filed this lawsuit, the Board of Directors of The New Mexican met and effectively removed McKinney's authority at The New Mexican pending this litigation. During pre-trial discovery, Gannett took the position that information about any events which occurred after McKinney's suspension was not discoverable. McKinney applied to the magistrate for relief, contending that under the liberal rules of discovery such information should be compelled. After an adverse ruling by the magistrate, McKinney appealed to this Court in a Motion to Reconsider the magistrate's order. He argued that even after removal of his authority at The New Mexican, subsequent acts taken by Gannett and The New Mexican could constitute separate breaches of his contract. He also argued that information about events occurring after his removal was relevant to the issue of punitive damages and to the issue of fraud.

Under Rule 26, Federal Rules of Civil Procedure, there is no bar against discovery of information about events occurring after the filing of a complaint. It is my view that while events occurring after McKinney's authority was removed might not constitute separate breaches of the Employment Agreement, such events may shed light on prior events. Thus, the information is discoverable because it may be admissible at trial or lead to admissible evidence.

The order of the magistrate denying discovery of information subsequent to the filing of the complaint was, therefore, set aside and the parties were directed to proceed under the rules of discovery without any arbitrary cut-off dates.

Another serious discovery matter came up late in the trial. After McKinney had rested, Gannett called as its next witness Larry Miller, Gannett's controller and vice president in charge of accounting. Through Miller, Gannett sought to introduce into evidence certain internal Gannett financial statements and comparisons of The New Mexican with other newspapers, Defendants' Exhibits GK-31, 33-36 and GX-45, 46. McKinney objected on the basis that these documents had not been produced during discovery despite requests for production covering this type of document. I ruled that Miller could not testify about the documents until a complete set was provided to McKinney, and scheduled a hearing the next day to determine whether these documents were in fact called for by McKinney's requests. Gannett attorneys then attempted to withdraw their offer of the exhibits and suppress them from being seen by McKinney's attorneys on the ground that they contained "sensitive financial data". McKinney pressed for discovery, and convinced me that the documents had clearly been called for in requests for production.

Gannett argued that the burden was on McKinney to request specific documents if they were not produced. This is not the intent of the rules of discovery. A party seeking discovery of documents is often unable to request them specifically, and a general request is all that is required. Gannett attorneys then asserted that they were not produced because the attorneys had never seen the documents. However, it turned out that at least one of Gannett's attorneys had actually discussed these particular documents with Miller in reference to...

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