McLaury v. Duff and Phelps, Inc.

• Decision Date: 13 May 1988
• Docket Number: No. 84 C 4612.,84 C 4612.
• Citation: 691 F. Supp. 1090
• Parties: William W. McLAURY, Plaintiff, v. DUFF AND PHELPS, INC., an Illinois corporation, Claire V. Hansen and Francis E. Jeffries, Defendants.
• Court: U.S. District Court — Northern District of Illinois

691 F. Supp. 1090

William W. McLAURY, Plaintiff, v. DUFF AND PHELPS, INC., an Illinois corporation, Claire V. Hansen and Francis E. Jeffries, Defendants.

No. 84 C 4612.

United States District Court, N.D. Illinois, E.D.

May 13, 1988.

COPYRIGHT MATERIAL OMITTED

Thomas P. Ward, Thomas P. Ward Ltd., Chicago, Ill., for plaintiff.

Shelley Rice, Edward C. Fitzpatrick, C. Joseph Yast, Lord, Bissell & Brook, Chicago, Ill., for defendants.

MEMORANDUM OPINION AND ORDER

ANN C. WILLIAMS, District Judge.

On February 24, 1983, William McLaury sold to Duff and Phelps, Inc. his 800 shares of Duff and Phelps stock. Approximately ten months later, on December 31, 1983, McLaury, an employee for Duff and Phelps for thirty years, worked his last day for that corporation. In this case, McLaury charges that Duff and Phelps and certain of its officers intentionally failed to disclose to McLaury at the time of the sale material information regarding the possibility of a buyout of the corporation, made false statements regarding McLaury's obligations to the corporation and fired McLaury on the basis of his age. The purpose of this opinion is to address the defendants' pending motion for summary judgment on all five counts of McLaury's complaint. Before addressing the merits of that motion, the court believes a recitation of the undisputed facts is in order.

Duff and Phelps is an Illinois corporation engaged in the business of providing investment services. McLaury began working for Duff and Phelps in 1953 and accumulating stock in the company in 1966. McLaury held the stock pursuant to the company's Stock Restriction and Purchase Agreement ("Agreement") made May 10, 1967 and revised March 1, 1982. Paragraph 7 of the Agreement provides in relevant part as follows:

"Upon the termination of the employment with Duff and Phelps of any of the undersigned individuals for any reason, including resignation, discharge, death, disability or retirement, the individual whose employment is terminated shall sell to Duff and Phelps, and Duff and Phelps shall buy, all shares of Duff and Phelps then owned by such individual or his estate."

Defendants' Exhibit ("DX") E. By 1982, McLaury had accumulated 800 of the outstanding 21,500 shares of Duff and Phelps stock.

In 1979, when McLaury was 65 years old, he met with the Chairman and Chief Executive Officer of Duff and Phelps, defendant Claire Hansen, to discuss McLaury's future with Duff and Phelps. McLaury and Hansen agreed at the meeting that effective January 1, 1980, McLaury would work four days per week at a reduced salary. Hansen told McLaury that Duff and Phelps wanted to buy McLaury's stock. The parties dispute whether Hansen definitively told McLaury at that time that McLaury's employment with the company would end by 1983. It is not disputed that the parties did not discuss the quality of McLaury's work on that occasion. Once in 1980 and once in 1981 Hansen again discussed with McLaury the possibility of a Duff and Phelps' purchase of McLaury's 800 shares. On each occasion that a sale was mentioned, McLaury rejected the idea.

At some point before June of 1982, Security Pacific Corporation became interested in the possibility of acquiring Duff and Phelps. See Plaintiff's Exhibit ("PX") 6. On July 12, 1982, the Vice-President of the Security Pacific Financial Services Division, Rory Wellings, wrote to Kenneth Bodenstein, Senior Vice-President and Director of Duff and Phelps, "to ascertain whether or not Duff and Phelps would be interested in Security Pacific Financial Services Division ("SPFSD") taking an equity position in Duff and Phelps." See PX 7. Wellings in that letter asked Bodenstein to put Wellings "in touch with the appropriate individual or individuals should an equity interest position be available for SPFSD in Duff and Phelps." See id. According to an SPFSD internal communication, Will Richeson, Chairman of the Board of Security Pacific Capital Markets Group, Inc., was in charge of reviewing Security Pacific's prospects of acquiring an interest in Duff and Phelps. See PX 10. Sometime after Duff and Phelps received the July 12, 1982 letter from Security Pacific, Hansen informed Richeson by phone that Duff and Phelps was not for sale. See Richeson Deposition ("Dep.") at 12. Subsequently, in October of 1982, Richeson and his associate Andy Thornburg met Hansen in San Diego at a conference they were attending. At that time Richeson again expressed his interest in Duff and Phelps. See id. at 13-16. At an unspecified time after the San Diego discussion, Hansen met again with Thornburg and others in New York. In another SPFSD internal communication dated December 6, 1982, Richeson wrote that he had met recently in Chicago with Hansen and others from Duff and Phelps. See PX 11. In that communication Richeson wrote that "Claire Hansen is willing to discuss the purchase of his company but not a minority interest in the company nor does he think an incentive agreement would work." See id.

The Board of Directors of Duff and Phelps met on November 30, 1982. The minutes of the meeting indicate that the Board discussed McLaury's continued employment and the repurchase of his stock. See PX 15. The minutes then provide as follows:

In view of the Corporation's intent to distribute in an orderly fashion the ownership of the Corporation among the new officers based on their ability to purchase those shares over a period of time, after discussion upon motion duly made, seconded and unanimously carried, the following Resolution was adopted;

RESOLVED that the Corporation shall buy all shares of common stock of the Corporation owned by Robert J. Smith (400 shares) and William W. McLaury (800 shares). The price to be paid for such shares shall be equal to the adjusted book value of the shares on December 31, 1982.

See id.; DX F. After the meeting of the Board, Hansen that same day went to McLaury's office and "advised him that it was necessary for him to sell his shares back to the corporation." Hansen Dep. (May 7, 1985) at 104. Hansen made a similar representation to McLaury in February of 1983. McLaury sold his shares to Duff and Phelps for book value on February 24, 1983. It is uncontested that at no time before the sale did anyone from Duff and Phelps tell McLaury that the corporation was up for sale or that negotiations with Security Pacific for such a sale were ongoing. McLaury worked the next ten months for Duff and Phelps. His last day was December 31, 1983.

During those ten months, acquisition discussions between Duff and Phelps and Security Pacific alternatively increased and decreased. In May of 1983, almost three months after McLaury sold his Duff and Phelps stock, Richeson contacted Hansen and mentioned the possibility of Security Pacific acquiring all of the stock of Duff and Phelps. Discussions continued in June and July of 1983, but were discontinued after August 11, 1983 at the instructions of Richeson's superior, Frank Cahouet. See Richeson Dep. at 70-71. Also on August 11, 1983, Hansen wrote Richeson a letter requesting the return of Duff and Phelps' confidential information. See DX H. Richeson wrote back on August 22, 1983 that he was "sorry that it does not appear that we can move forward as I was hopeful we could." See DX I.

Between August 11, 1983 and December 1, 1983, Duff and Phelps had no acquisition discussions with Security Pacific. On the latter date, Richeson told Hansen that Security Pacific was interested in opening discussions again. On January 6, 1984, Cahouet of Security Pacific sent Duff and Phelps a letter stating that Security Pacific intended to acquire Duff and Phelps. See DX J. After further negotiations, Duff and Phelps and Security Pacific signed an acquisition agreement dated March 23, 1984 which included a condition that the Board of Governors of the Federal Reserve approve of the agreement without conditions. See DX K. On January 9, 1985, Security Pacific announced the cancellation of the proposed acquisition because of conditions imposed on the transaction by the Federal Reserve Board.

On June 4, 1984, McLaury filed the instant five-count complaint against Duff and Phelps, Hansen and the Executive Vice-President of Duff and Phelps, Francis Jeffries. Count I alleges that the defendants violated Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder. See 17 C.F.R. § 240.10b-5. Specifically, Count I alleges that the defendants made certain false statements or omitted to state certain material facts necessary to make other statements not misleading. Those alleged false statements or material omissions include the following:

(1) In February of 1983, Hansen told McLaury that McLaury was required to sell his shares immediately because the Board of Directors had by resolution or other action required McLaury to sell his shares and that Hansen implied that this applied to all employees over 65 (Complaint ¶ 14 at 3);

(2) Hansen misrepresented the true value of the shares at the time of the sale (Complaint ¶ 29(d) at 6);

(3) The defendants failed to inform McLaury that promising negotiations of a buyout of Duff and Phelps were in progress (Complaint ¶ 29(e)(1) at 7);

(4) The defendants failed to inform McLaury that the price Security Pacific was willing to pay for each share was ten to thirty times the claimed book value (Complaint ¶ 29(e)(2) at 7);

(5) The defendants failed to inform McLaury that Duff and Phelps had terminated the employment of another employee but had permitted that employee to retain his shares (Complaint ¶ 29(e)(3) at 7).

Counts II through IV are pendent state claims alleging common-law fraud, willful and wanton fraud and breach of fiduciary duty. Count V charges that the defendants violated the Age Discrimination in Employment Act of 1967 ("ADEA"), 29 U.S.C. §§ 621-34 because the defendants fired McLaury because of his age and failed to post a notice prepared by the Equal...