Pidcock v. Sunnyland America, Inc.

• Decision Date: 17 November 1987
• Docket Number: No. CV486-352.,CV486-352.
• Citation: 682 F. Supp. 1563
• Parties: John F. PIDCOCK, Plaintiff, v. SUNNYLAND AMERICA, INC., Joseph C. Harvard individually, as officer of Sunnyland America, Inc. and as co-executor of the Estate of L.B. Harvard, Sr. and L.B. Harvard, Jr. as co-executor of the Estate of L.B. Harvard, Sr., Defendants.
• Court: U.S. District Court — Southern District of Georgia

682 F. Supp. 1563

John F. PIDCOCK, Plaintiff, v. SUNNYLAND AMERICA, INC., Joseph C. Harvard individually, as officer of Sunnyland America, Inc. and as co-executor of the Estate of L.B. Harvard, Sr. and L.B. Harvard, Jr. as co-executor of the Estate of L.B. Harvard, Sr., Defendants.

No. CV486-352.

United States District Court, S.D. Georgia, Savannah Division.

November 17, 1987.

COPYRIGHT MATERIAL OMITTED

J. Wiley Ellis, Ronald C. Berry, Savannah, Ga., for plaintiff.

William U. Norwood, Thomasville, Ga., and Malcolm R. MacLean, Savannah, Ga., for defendants.

ORDER

EDENFIELD, District Judge.

This civil action, brought pursuant to § 10(b) and § 20(a) of the Securities and Exchange Act of 1934 (15 U.S.C. §§ 78j(b) and 78t(a), respectively), SEC Rule 10(b)(5), and state law on fraud, was tried before the Court on September 15 and 16, 1987. Having heard the testimony of the witnesses and having reviewed the relevant documentary evidence, the Court makes the following findings of fact and conclusions of law. To the extent any findings of fact constitute conclusions of law, they are adopted as such. To the extent any conclusions of law constitute findings of fact, they are so adopted.

FINDINGS OF FACT

This case involves the buyout of ownership and subsequent sale of a close corporation: Sunnyland America, Inc. ("Sunnyland"). Plaintiff John F. Pidcock ("Pidcock") and L.B. Harvard, Sr. ("Dude") at one time shared equal ownership of Sunnyland; each holding 50% of the corporation's outstanding stock. Sunnyland is a holding company for the ownership and operation of various meat packing plants located in the Southeast region.

Sunnyland has been in existence, in various forms and shapes, since 1932. Pidcock's brother-in-law had originated Sunnyland and had hired Dude Harvard at an early stage in the corporation's history. Dude Harvard rose quickly to a position of second in command.

Pidcock's brother-in-law died in the early 1960's, leaving ownership of the corporation to Pidcock's sister. Ownership of Sunnyland remained in Pidcock's sister until Pidcock and Dude Harvard purchased Sunnyland in 1969.

Dude Harvard had been acting President of Sunnyland for some years prior to the purchase, and had been Sunnyland's general manager for an even longer period. Pidcock had been a director of Sunnyland since his sister had acquired ownership.

Pidcock arranged downpayment financing for the Pidcock/Harvard purchase of Sunnyland. Neither Pidcock nor Dude Harvard were forced to advance individual funds for the purchase. Once the purchase was consummated, Dude Harvard remained as president of Sunnyland, actively engaging in the daily operation of the various Sunnyland companies. Pidcock became chairman of the board; he did not participate in the day-to-day operations of the businesses, but did attend quarterly board meetings and took part in some decision making.

Dude Harvard had two sons: Joe C. Harvard and L.B. Harvard, Jr. ("Bryant"). Both Joe and Bryant began working for Sunnyland at an early age.

In 1964 Bryant Harvard secured his first position of import with Sunnyland when he became plant superintendent of Sunnyland's Alabama plant. The Alabama plant was subsequently shut down and sold. In 1972, Bryant became vice president in charge of operations for Sunnyland. In this capacity, in 1979, Bryant initiated a 7 million dollar facility improvement project of Sunnyland's Thomasville facilities.

Joe Harvard began working for Sunnyland at the age of 14. He was employed in various positions and at various Sunnyland plants. In 1970 Joe was promoted to assistant to the president. In 1976, he became vice president in charge of all sales and marketing. In 1981, Joe Harvard was promoted to president of Sunnyland.

Although Dude Harvard continued to act as chief executive officer of Sunnyland, Joe and Bryant were actively managing Sunnyland operations. As president, Joe was Sunnyland's actual and apparent figurehead. The Harvard sons' growing authority with respect to Sunnyland operations was in line with the intent of both Dude Harvard and Pidcock that Joe and Bryant would one day take over the entire business. Dude Harvard died during the pendency of this lawsuit; his estate is represented by Joe and Bryant Harvard, the executors of the estate.

In 1981, Sunnyland suffered its first net yearly loss in an amount of about 1.9 million dollars. In 1982, Sunnyland suffered a loss in the amount of about 1.1 million dollars. These losses were due in part to natural market forces, in part to additional expense occasioned by the need to borrow 8.5 million dollars to refurbish the Thomasville plant, and in part by ineffective management.

The borrowing in 1981 of 8.5 million dollars to finance the reconstruction and improvement of Sunnyland facilities gave rise to the first business disagreement between Pidcock and Dude Harvard. The reconstruction loan was to be guaranteed by the Farmers Home Administration, which lender insisted that the stockholder's agreement between Pidcock and Dude Harvard be subordinated to the loan. The agreement between Pidcock and Dude Harvard included a buy/sell arrangement wherein Pidcock's estate would, over a period of fifteen years after his death, receive deferred payment for a buyout of his ownership. Pidcock objected to the subordination of his financial rights under the buy/sell agreement to the security interest of the lending institution. The result was a delay, of some months, in obtaining the reconstruction financing, during which time interest rates climbed significantly.

Although permanent financing was obtained, Dude Harvard offered, in 1980, to purchase Pidcock's ownership interest in Sunnyland by triggering, on certain financial terms, the buy/sell agreement. A counteroffer was made by Pidcock on different financial terms. Neither offer was accepted, and the parties did not further discuss buyout until 1982.

Notwithstanding the 1980 buyout offer by Dude Harvard to Pidcock, both men had been exploring the potential sale of Sunnyland as an entity since 1978. At one point prior to Dude's offer to Pidcock, Lykes Bros. Inc. had expressed an interest of some substance in purchasing Sunnyland; however, no deal resulted.

The two shareholders jointly sought a buyer for Sunnyland up until the transaction giving rise to this lawsuit. Both men were keen to sell the company, among other reasons, because of the shrinking viability of the regional meat packing trade in response to national market forces and because of the losses sustained by Sunnyland in particular.

Various concerns showed interest in the purchase of Sunnyland; the most serious prospect occurred in 1982 when Swift Independent Packing Co. ("SIPCO") displayed a substantial interest in buying Sunnyland. Joe Harvard conducted all negotiations for the sale. Joe met with Dude Harvard and Pidcock in early October of 1982, prior to a scheduled meeting with the president of SIPCO, to determine the bottom line price for sale of Sunnyland. Thereafter, Joe Harvard met with SIPCO representatives in Chicago. SIPCO, it turned out, did not wish to purchase Sunnyland and therefore made no offer.

In addition to conducting the operations and businesses of Sunnyland, Joe Harvard had become, by the time of the SIPCO negotiations, the point man with respect to the receiving of information relating to the possible sale of Sunnyland. Joe attended American Meat Institute ("AMI") and industry related functions and maintained contacts with representatives in the industry. When Pidcock and Dude Harvard had been actively soliciting offers for the purchase of Sunnyland, each fully informed the other of all potential purchasers. Once Joe Harvard retained the position of command with respect both to running the company and to networking within the industry, he had the recognized obligation of apprising the shareholders of all material information regarding the possible sale of Sunnyland. Pidcock relied without reserve on Joe Harvard's manifestations with respect to prospects regarding the sale of Sunnyland; Joe Harvard was well aware of Pidcock's reliance on him for all material information regarding the possible sale of Sunnyland.

Following the fall-through of the SIPCO deal, Dude Harvard, and Joe and Bryant Harvard decided to seek sole ownership of Sunnyland. Their joint decision, prompted by Joe Harvard, was based both on the belief that consolidation of ownership interest in Sunnyland was necessary to initiate substantial changes in the structure and operation of the corporation and to satisfy a life-long Harvard ambition.

At Joe and Bryant Harvard's request, Pidcock met with them over lunch on October 22, 1982. There, Joe and Bryant extended an offer to buy out Pidcock's ownership of the company. The Harvards painted for Pidcock a gloomy forecast with respect to third party interests and prospects for the sale of Sunnyland. The Harvards offered Pidcock 2.2 million dollars for his stock; they acknowledged that the offering price was not book value but they said it was the best they could do. Pidcock agreed to consider the offer.

On October 26, 1982, Pidcock wrote Joe Harvard agreeing to accept 2.2 million dollars for his stock, contingent upon certain additional terms. Pidcock's decision to sell his ownership in Sunnyland was motivated by his then failing health and attendant desire to safeguard financially his wife's future, his faltering trust in Joe and Bryant's capacity adequately to manage Sunnyland, and his belief, based upon assurances by the Harvards, that sale of the company to a third party was doubtful.

A written contract for the redemption of Pidcock's stock was signed on December 21, 1982. The agreement provided for the redemption by Sunnyland of all outstanding stock owned by Pidcock. The contract included the following terms: Pidcock was to receive $2,212,690 cash at closing and a promissory note for $193,615 bearing interest at 15% per...