The opinion of the court was delivered by: TEITELBAUM
This is a multiple party, multiple count action involving claims, third-party claims, counterclaims and cross-claims. The plaintiff is Abe Levin, a former stockholder in the corporate defendants, Lotta Cola Company, Regent Bottling Company and Levmar Corporation. The individual defendants, Joseph Marder and Thelma Marder (brother and sister), are also former stockholders in the corporate defendants Lotta Cola and Regent Bottling. This fracas springs from the fact that Levin is a more former stockholder than the Marders.
The complaint alleges, in five counts, fraud and deceit by the Marders in the "redemption" by each of the corporate defendants of Levin's respective stockholdings therein. Three of the counts allege violations of Section 10(b) of the Securities Exchange Act of 1934 (15 U.S.C. § 78j(b)) and Rule 10b-5 (17 CFR 240.10b-5) promulgated thereunder.
One alleges a breach of the duty owed by majority to minority stockholders, and one alleges common law fraud and deceit.
By third-party complaints, all of the original defendants have joined Erik F. Lawson, Jr. and Robert C. Levin (Abe Levin's son) as third-party defendants, and the Marders have joined Apollo Industries, Inc. and Apollo-Regent Corporation as third-party defendants. Finally, various of the original and third-party defendants have both counterclaimed and cross-claimed against various of the other original and third-party defendants.
Presently pending are (1) the motions for summary judgment made by all of the original defendants against Levin and (2) the motions for summary judgment made by the third-party defendants, Apollo and Apollo-Regent against the Marders. All of the motions are, of course, pursuant to F.R. Civ. P. 56.
The factual setting of this action while complex, is in many particulars undisputed. In the late 1950's and early 1960's the plaintiff and the individual original defendants promoted the incorporation of Lotta Cola, Regent Bottling and Levmar. The incorporations were of businesses which those individuals, and apparently only those individuals, had for many years conducted as partnerships. Following the incorporations, the outstanding stock of each of the three corporations was owned one-third each by Levin and the two Marders. In other words, each of the three individuals owned one-third of the outstanding stock of each of the three corporations.
Through the many years in which the businesses, which were of concocting and bottling soft drinks, were conducted as partnerships, they were closely managed and operated jointly by all of the three partners. After the incorporations the three, as stockholders, continued to be as intimately and as actively involved in the management and operation of the corporations as they had of the partnerships. Basically, both before and after the incorporations, the businesses were closely controlled three-person operations.
In the late 1960's, for reasons which are both critical and contested, Levin and the Marders engaged in negotiations which contemplated the ultimate sale by Levin of all of his stockholdings in each of the corporations. Who initiated the negotiations, and why, is what is contested. Levin contends that it was the Marders who originated the negotiations, based on their knowledge of his wish to retire and their wish ostensibly to involve their respective sons-in-law in the businesses. The Marders contend that Levin, wanting with some immediacy because of his waning health to retire to Florida, approached them. In any event, the negotiations into which they all willingly entered, each represented by counsel, culminated in the "redemption"
which is by this action alleged to have been fraudulently and deceitfully induced.
The parties first had a meeting of the minds, at least in principal, in the spring of 1968. At that time it was agreed that the April 30, 1968 book values of the corporations would serve as the basis for the redemption price of Levin's stock. The rush of the 1968 summer season of the businesses intervened however, and the agreement was not reduced to writing until September 1968. That writing, after some revision, was proposed at a meeting of the parties' attorneys on October 3, 1968. At that time
it included the following clause:
"WHEREAS, Levin acknowledges that he is aware that, for a period of many months, efforts have been made to interest others into buying all, or a substantial part of, this Corporation; that the sale of the Corporation is being offered by several brokers; and that inquiries by prospective purchasers have been made thereon from time to time and that an oral offer of $1,250,000.00 for all of the shares of Regent Bottling Co., Levmar Corp. and Lotta Cola Co. was received on or about September 19, 1968 and was refused. Levin agrees that should the Corporation be sold hereafter, the entire net proceeds, of any such sale shall accrue to the benefit of the then shareholders thereof, and that the April 30, 1968 book value of the Corporation is being used as the basis for determining the selling price of Levin's interest and that such book value is a fair price for his interest at this time."
Whether or not Levin was, in fact, aware that efforts were being made to sell all or a substantial part of the businesses is in diametric dispute. Levin contends that he was not the least bit aware of such efforts; the Marders contend he was aware of such efforts.
He contends that in response to his attorney's
inquiries about the clause, as it appeared both in the first and final drafts, the Marders advised him (1) that while no negotiations were then pending, on infrequent occasions unsolicited inquiries were made of the Marders as to the availability for purchase of the three corporations, (2) that Joseph Marder was at one time interested in a law career and had instructed the inclusion of the clause as a protective measure and (3) that it was unlikely, in the opinion of the Marders' attorney, that the businesses would ever be sold to an outsider. On the other hand, the Marders contend that they
had solicited purchasers on behalf of all three of the stockholders for many years and that the clause simply represented the facts as they were, and as Levin knew them to be, with the exception of the specific reference in the final draft to the oral offer of $1,250,000.00.
The real importance of the dispute over the awareness of Levin of the endeavors of the Marders to interest outsiders in the purchase of the businesses emerges in the light of certain events of August of 1968. During that month three potential purchasers approached the Marders' attorney. One of the approaches was in terms of a "preliminary proposal" to purchase two of the three corporations for $900,000.00 and to lease from the third its property. That proposal was put forth by one David Lowenthal representing, at that time, an undisclosed principal. In response to the proposal the Marders promptly furnished Lowenthal with certain information which he requested regarding the business and finances of the corporations. Lowenthal, however, did not recontact the Marders after he received the information and by the time the agreement was prepared in September in final form, as far as they allegedly knew, his principal had lost interest.
Another of the approaches was by a group of New York investors headed by one Joseph Blau. By the time of the preparation of the first draft of the agreement, the Blau group had not made an offer. In fact, there were at that time no indications that an offer would ever be made. Between the first and the final drafts of the agreement, however, the interest of the Blau group blossomed, and on September 19, 1968, they made an offer to purchase the corporations for $1,250,000.00. Mr. Marder rejected the offer, primarily because it was conditioned on the Marders continuing in the management of the corporations for an extended period of time. (They, too, were evidently anxious to leave the businesses.) While Levin was not informed immediately of the offer and its rejection, his attorney was advised at the meeting of October 3 not only of the offer and its rejection but also of the fact that the clause in the first draft of the agreement regarding the efforts of the Marders to sell the corporations had been amended to ...