The opinion of the court was delivered by: DUMBAULD
With respect to the measure of damages, however, the majority of the panel (Judges van Dusen and Adams; Judge Hastie dissenting) held that "the district court erred when it refused to compute Rochez's damages on the basis of the value Rhoades received for the MS&R stock from Esterline. The proper measure of damages is the difference between the value of 50% of MS&R stock on the basis of the Esterline purchase price and the amount Rochez received from Rhoades for his share of MS&R." (Ibid., at 412)
At the same time the majority of the panel remanded for findings of fact in accordance with Rules 41(b) and 52(a), F.R.Civ.P. to support the dismissal of the corporate defendant MS&R (Ibid., at 413).
Actually, this Court's order of dismissal with respect to MS&R was not conceived as an exercise of the function "as trier of the facts" to "determine them", as contemplated in Rule 41(b), but simply as the equivalent of a ruling in a jury case as a matter of law that there was insufficient evidence to go to the jury with respect to that defendant. See Tr. 1372-75, 1383-91, 1982-89.
Pursuant to remand, after the pleasure of further hearing the able counsel involved in the case, we proceed to consideration of the points now presented, including plaintiff's new argument under § 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78t(a), which was first presented to the Court of Appeals and is outlined in the majority opinion (491 F.2d at 413, and note 20). It was fully briefed and argued at the hearing upon remand.
The first matter for disposition is the amount of damages. Plaintiff wishes to reopen the testimony for the purpose of offering the views of an expert witness as to the proper discount factor to take account of the restrictions on marketability to which the Esterline stock received by defendant was subject. Defendant opposes reopening the record, and also stoutly reiterates that the present record contains no adequate proof permitting computation of this item of damages. Hence defendant concludes that plaintiff, having made its bed, must lie in it.
We agree that ordinarily when testimony is completed, the case must be disposed of upon the record as made, not upon a better record which might have been made. Crowded calendars make it unwise judicial economy to luxuriate in further hearings which might permit more precise and accurate determination of damages.
Defendant rightly points out that the appellate court's mode of measuring damages did not come as a surprise to plaintiff. In fact all through the trial plaintiff urged that the Esterline offer, rather than the Simmonds offer, should be taken as the yardstick for measuring the damages. Hence we must assume that in the record as already made plaintiff's counsel has presented data which in his professional judgment are adequate for determination of the damages sustained.
Under these circumstances we examine the opinion of the appellate court for guidance. We find therein no direction that additional evidence be taken. We find no criticism in that opinion of the mode of calculation (by a statistically arbitrary figure, such as the "standard deduction" in income tax practice, designed to ascertain the approximate quantification of an admittedly existing but not precisely measurable item) used by the District Court.
The defect in the District Court's determination was not in the method used, or the inadequacy of the evidence to support it, but simply that Simmonds stock instead of Esterline stock was thus evaluated.
As stated in Plaintiff's Brief (ordered to be filed of record) "the judgment against Rhoades should be in the amount of $2,125,000.00 (one-half of the $4,250,000.00 [cash paid by Esterline]), less $598,000.00 (the sale price from Rochez to Rhoades), or $1,527,000.00 plus the value of 25,000 shares of Esterline restricted stock plus interest from July 23, 1968, the date of closing . . . PX 36 shows the market value of Esterline . . . as $53 1/2 bid and $54 1/2 asked . . . . PX 22 sets forth the restrictions" affecting the 50,000 shares received by Rhoades. (Pages 2-4 of Brief). The restrictions prohibit sale for one year (and thereafter unless Esterline registers the stock or its counsel holds that registration is not required by law). After three years Rhoades could request Esterline to make efforts to effect registration, but only once and then at a time when Esterline would not have to prepare additional financial statements for that purpose. Taking the mean market value at $54 per share, and allowing an arbitrary factor for lack of ready marketability, we find that $1,000,000.00 is a proper value for the Esterline stock. Total damages are therefore $3,125,000.00 with interest at 6 per cent from July 23, 1968, and judgment is entered in that amount against defendant.
Turning to the liability vel non of MS&R, the Court remains of the view that no sufficient evidence appears in the record to establish liability of this corporate defendant. At the time of the original ruling, the only activity where corporate facilities or employees were used by Rhoades in the scope of their duties was when the computer operator or other clerical people prepared forecasts embodying various assumptions furnished by Rhoades. As counsel have pointed out, however, these forecasts were not relied upon by plaintiff in the course of business nor by the Court in determining defendant's violation of Rule 10b-5. (See 353 F. Supp. at 802). Conceding that under Nuremburg Trials principles, the orders of superior officers are not necessarily an excuse for unlawful acts, nevertheless it seems to us that the employees who performed these mechanical and ministerial functions under the instructions of Rhoades had no reason to know that they were doing anything unusual or unlawful or fraudulent.
Since they were guilty of no wrong in exercising their normal corporate functions, no wrong is attributable to MS&R under the doctrine of respondeat superior.
Considering now de novo the plaintiff's new theory of liability under Section 20(a) [ 15 U.S.C. § 78t(a)], we find no liability on ...