STATE TCHRS. RETIREMENT BD. v. Fluor Corp.
| Decision Date | 28 March 1980 |
| Docket Number | No. 76 Civ. 2135 (RWS).,76 Civ. 2135 (RWS). |
| Citation | 500 F. Supp. 278 |
| Parties | STATE TEACHERS RETIREMENT BOARD et al., Plaintiffs, v. FLUOR CORPORATION and Manufacturers Hanover Trust Co., Defendants. |
| Court | U.S. District Court — Southern District of New York |
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Schwartz, Shapiro, Kelm & Warren, Columbus, Ohio by Russell A. Kelm and Nelson E. Genshaft, Columbus, Ohio, for plaintiffs.
Cahill, Gordon & Reindel, New York City by Raymond L. Falls, Jr., James J. Foster, John A. Shutkin, New York City, for defendant Fluor Corp.
Kelley, Drye & Warren, New York City by Richard J. Concannon, Robert E. Crotty, New York City, for defendant Manufacturers Hanover Trust Co.
This is a class action for damages brought by State Teachers Retirement Board ("State Teachers"), a public pension fund, against the Fluor Corporation ("Fluor"), for material nondisclosures about a major contract in violation of § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) and Rule 10b-5, 17 C.F.R. § 240.10b-5. Plaintiff also seeks to recover damages from Manufacturers Hanover Trust Company ("Manufacturers") for allegedly purchasing Fluor stock without disclosing that it had material inside information about this contract.
Three years after the commencement of this action and after the completion of extensive discovery, plaintiff has moved to amend its complaint for a second time. Defendants vigorously oppose this motion and have moved for summary judgment pursuant to Fed.R.Civ.P. 56. For the following reasons, plaintiff's motion to amend its complaint is granted to the extent described hereunder, and defendants' motion for summary judgment is granted.
The following facts, submitted pursuant to Local Rule 9(g), are undisputed by the parties. Fluor provides world-wide engineering, construction, procurement and management services to its clients. In September, 1974, the South African Coal, Oil and Gas Corporation Limited ("SASOL"), a quasi-governmental entity of the Republic of South Africa, formally invited Fluor and two other large industrial construction companies to submit proposals on a $1 billion construction project in Sasolburg, South Africa (SASOL II). After engaging in discussions with all three companies, SASOL informed Fluor on February 25, 1975, that Fluor would get the SASOL II contract provided Fluor and SASOL could reach agreement on the Heads of Agreement ("the Agreement"), and provided SASOL's Board confirmed the specific wording of the Agreement. Following additional negotiations, the Agreement was signed by SASOL on February 27 and by Fluor on February 28, 1975.
Paragraph 3 of the Agreement provided:
SASOL wanted the publicity embargo because of the need to inform the French government of the project and to involve them in its financing. March 10 was also the date of Fluor's annual meeting.
On Friday, February 28, news of the SASOL II contract was circulated to several officers of Fluor, and Walter Russler, Fluor's Director of Investor Relations, began preparation of a press release for the March 10 date. On Tuesday, March 4, Russler received a telephone call from Edward Bejan, a Fluor consultant for investor relations in New York. Bejan stated that he had received a call from a securities analyst reporting a rumor that Fluor had received a large project.
That same morning, Paul Etter, Fluor's Manager of Public Relations, received a call from David Geffner, a specialist in Fluor stock on the Pacific Coast Exchange, regarding rumors that Fluor had gotten or was working on a large contract. Etter then passed a note to J. Robert Fluor, who was Chairman of the Board and Chief Executive Officer, recounting the call and suggesting that a news release be issued "as soon as possible."
Geffner called again on March 5 and 6 to report other rumors concerning Fluor including a rumor that it had obtained a large contract in the Middle East and that there might be a tender offer for its stock. Etter also received a telephone call on March 5 from a securities analyst with Provident National Bank in Philadelphia reporting rumors emanating from Houston that Fluor had received a big contract in South Africa.
On that same afternoon Russler met with Alexander Blanton, an analyst from Merrill Lynch, Pierce, Fenner & Smith ("Merrill Lynch"). During that conversation, Blanton asked whether Fluor had gotten the coal gassification contract in South Africa. There is a factual dispute as to whether Russler denied that the contract had been awarded to Fluor or whether he avoided answering the question.
A Reuters reporter also spoke with Russler on March 5, and a story that went out on the Reuters financial wire at 2:02 p.m. (EST) on March 5 or 6, quoted a "spokesman" as saying that the stock rise probably reflected the anticipation of the company's first quarter earnings report and might also be attributable to the fact that the company was "being considered for some major orders."
The volume in trading in Fluor increased significantly on March 5, and the price of the common stock, which had been rising slowly throughout the week, moved upward strongly on Thursday, March 6. This stock activity caused Jonathan Veniar, an employee of the New York Stock Exchange ("the Exchange"), to call the legal department of Fluor. His call was returned late that afternoon by Richard B. Humbert, a Vice President of Fluor. Humbert told Veniar that he was uncertain of the reason for Fluor's increased volume, but indicated among other possible explanations that Fluor had been awarded the SASOL II contract that could not be announced until March 10. At that time Veniar told Humbert that the Exchange might exercise its prerogative to halt trading in the stock pending the announcement of the SASOL contract. Humbert agreed that a suspension might be beneficial.
On Friday, March 7, trading in Fluor common stock was suspended for the entire day pending "a news announcement on Monday." At 9:00 A.M. (EST) on Monday, March 10, the press release regarding SASOL II was issued by Fluor. The opening of trading in Fluor shares was delayed until 11:16 A.M. (EST).
Between the signing of the Agreement on February 27-28 and the announcement of the SASOL II contract on March 10, State Teachers sold most of its Fluor common stock. Its decision to sell Fluor stock was made in January 1975 and was based at least in part on the belief that the market price for Fluor stock would not fully reflect the earnings from projects in unstable foreign countries.
Even before the award of the SASOL II contract Manufacturers held more than 275,000 shares of Fluor stock and Lester Winterfeldt, Manufacturers' securities analyst who followed Fluor, had favorably recommended it. On February 24, 1975, Winterfeldt met with Etter in Los Angeles and spoke briefly with J. Robert Fluor and David Tappan, Jr., president of the wholly owned Fluor subsidiary that was awarded the SASOL II project. While in the Los Angeles area, Winterfeldt also met with other companies, as planned, and on February 27 and 28 he attended a seminar in Houston. During that week, certain portfolio managers at Manufacturers purchased Fluor stock for Manufacturers' account.
Winterfeldt returned to his office on Monday, March 3, 1975, and on March 4 he reported to Joel Tirschwell, a Senior Vice President at Manufacturers, about his recent trip, including his contact with Fluor. On March 4 and 5, Winterfeldt also gave reports to two regularly scheduled meetings of Manufacturers' investment officers about his trip, and afterwards, two groups of investment officers decided to buy Fluor stock.
On March 5 or 6, Daniel Marciano, a trader for Mitchell Hutchins, Inc., called Neil Martin, a trader for Manufacturers and solicited Manufacturers as a purchaser for a block of approximately 150,000 shares of Fluor stock that had been put up for sale by State Teachers. Although the phone calls were not instigated or solicited by Manufacturers, it agreed to buy the stock.
Defendants have no objection to the minor factual changes and revisions made in plaintiff's proposed second amended complaint. They vigorously oppose, however, plaintiff's attempt to alter the action in the following basic ways. First, plaintiff makes new claims against Fluor for its alleged failure to comply with its Listing Agreement with the New York Stock Exchange and for the alleged statement by Russler to Alexander Blanton of Merrill Lynch that rumors of the award of the SASOL II contract were untrue. Second, it now alleges that Manufacturers traded in Fluor stock after receiving from Fluor material inside information unrelated to the SASOL II project. Finally, it adds J. Robert Fluor as a party defendant and claims that he violated Rule 10b-5 and that he breached his fiduciary duty.
Leave to amend should be freely given when justice so requires. Fed.R. Civ.P. 15(a). While laches and unexcused delay may bar a proposed amendment, the mere fact that an amendment is offered late in the case is not enough to bar it if the other party is not prejudiced. 3 Moore's Federal Practice ¶ 15.084 at 15-102 (2d ed. 1979). Although this motion to amend was offered more than three years after the commencement of litigation, this court sees no prejudice to defendant Fluor in...
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