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January 15, 1976


The opinion of the court was delivered by: HUYETT

 HUYETT, District Judge

 Before us are motions for summary judgment filed pursuant to Fed.R.Civ.P. 56, by several of the defendants in a case in which plaintiff, Albert Epprecht, accuses various defendants and the corporations with which they are associated of misrepresentations and nondisclosures in connection with the sale of securities in violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), Rule 10b-5 of the Securities Exchange Commission, and the Pennsylvania common law of fraud. Plaintiff's cause of action arises from the events of early 1972 during which time a swirl of events surrounding his financially troubled corporation, Delaware Valley Machinery, Inc., (DVM), prompted him to sell out his entire 94% interest in DVM's capital stock. He now alleges that the various defendants misrepresented or withheld from him the true extent of DVM's backlog of machine tool orders, thereby painting a deceptively gloomy financial picture and inducing him to sell out his interest. Having sifted through the extensive deposition testimony in great detail, we conclude that the motions must be denied.


 DVM was engaged in the business of selling machine tools that had been manufactured by others. It enjoyed the position of exclusive distributor in the Middle Atlantic Region for several national manufacturers, including defendants Dreis & Krump (D&K) and American Tool Works (ATW). Prior to 1972 DVM salesmen would locate customers for the machine tool manufacturers and, upon consummating a sale, the product would be shipped directly to the buyer. The buyer would make payment to DVM, who in turn made payment to the manufacturer, retaining a fixed commission. In a business such as DVM's, where sales performance is indispensable, it is quite apparent that the morale and support of the salesmen is crucial.

 Plaintiff Epprecht was at all pertinent times the president of DVM. In addition to his role at DVM, Epprecht was also involved in several other business ventures which took up a considerable amount of his time and energy. Prior to the events of 1972 plaintiff arranged substantial loans from DVM to two of these other businesses, Seaboard and Cybernetics, to the financial detriment of DVM which suffered cash flow problems. Also in early 1972 DVM owed payables in excess of $140,000 to ATW and $70,000 to D&K on machine sales.

 On February 1, 1972, a meeting of the DVM Board of Directors was held, and the subject of DVM's financial quagmire dominated the meeting. Present at the meeting was Alidor DeWolf, the president of D&K, who also served as a DVM director. DeWolf, concerned at the outset about repayment of the debt owing D&K, became quite disturbed when he learned of the much larger debt owing ATW, and the failure of Epprecht to present a certified audit of DVM. DeWolf insisted that plans be promptly formulated to restore the corporation's financial health, and that Epprecht provide some security in return for a one year extension for payment of the debt to D&K. Epprecht expressed interest in an arrangement whereby he would give as security to D&K a personal guarantee secured by a mortgage of $50,000 to $70,000 on his personal real estate. At one point during the meeting DeWolf met privately with defendant Daniel Murphy, DVM's chief salesman. According to their account, Murphy requested the meeting to inform DeWolf of (1) Murphy's belief that Epprecht was mismanaging DVM; (2) the dissatisfaction of the salesmen with Epprecht; and (3) the fact that Epprecht had arranged loans from DVM to other Epprecht-owned enterprises.

 DeWolf left the meeting with the impression that DVM was in a most precarious condition. Epprecht was advised by DeWolf to procure a certified financial statement and to keep DeWolf abreast of the situation. Following the meeting DeWolf was driven to the airport by James McCloskey, another defendant who served DVM as vice president. They insist that the subject matter of their conversation was innocent.

 On February 29 Epprecht met in Cincinnati with defendant Glen Kraus, the president of ATW to discuss repayment of DVM's $140,000 debt. Kraus suggested that the amount of the debt be reduced to $100,000 immediately and that the balance be repaid over five years. Nothing was resolved at the meeting, and both Epprecht and Kraus flew to Chicago to confer with DeWolf on March 1. DeWolf and Kraus agreed to give DVM an extension of time provided certain preconditions were satisfied. They insisted on a certified financial statement from DVM. They further demanded an opportunity to sound out the attitudes of the DVM salesmen concerning their reactions to DVM's predicament. Moreover, they suggested that plaintiff consider withdrawing from any active role in the management of DVM and that day-to-day management be entrusted to defendant McCloskey. There was no suggestion at the time that Epprecht sell any of his capital stock in DVM. DeWolf and Kraus further required that Epprecht agree to inject more capital into DVM to enhance its survival prospects. The figure discussed was $100,000, to be derived from loans secured by mortgage of his personal property and from the repayment of loans owed by other Epprecht ventures to DVM. Finally, if all of the above were suitably performed, DeWolf and Kraus promised to speak with the salesmen to reassure them of the renewed viability of DVM. The meeting ended with the understanding that Epprecht would consider the proposal and make a prompt decision. At the time plaintiff apparently deemed the proposal reasonable.

 A March 10 meeting was scheduled at which Epprecht, DeWolf, and Kraus were to reach their decision. On the morning of March 10 DeWolf and Kraus held an informal breakfast meeting with the salesmen in the absence of Epprecht. DeWolf claims that to his surprise the salesmen informed him of their uniform decision that under no circumstances would they continue to work for DVM if Epprecht were associated with it. Following the breakfast meeting DeWolf, Kraus, and Epprecht met in the law offices of DeWolf's local counsel. They abandoned their March 1 proposal and offered Epprecht three alternatives: (1) he could do nothing and have DVM thrown into bankruptcy by D&K and ATW; (2) he could relinquish his management duties to McCloskey and become a minority shareholder; or (3) he could sell out his DVM stock entirely in return for a forgiveness of the debts owed to DVM by the other Epprecht-owned enterprises. Plaintiff was given the lunch hour to reach a decision; he decided to sell out entirely.

 After the meeting DeWolf, Kraus, and Epprecht's heir apparent, McCloskey, met and discussed with the salesmen the outcome of the meeting. In the days following the meeting Epprecht began to vacillate, trying to devise ways to salvage his role in DVM. He took preliminary steps to acquire additional capital to inject into the company, and he sought to ascertain the status of recent machine tool sales, which he regarded as a barometer of DVM's short-term survival prospects. He received a commitment from a bank to loan a substantial sum of money in exchange for a mortgage on his personal real estate, though the amount promised was far less than the $100,000 that DeWolf and Kraus had mentioned at the March 1 meeting. DVM employees refused to give Epprecht any information concerning recent orders, and it appeared to him that everybody in the office was under instructions to permit him access to nothing. On March 23 plaintiff arranged a meeting with the salesmen concerning his new plans to revive the company, but they refused to discuss the matter. McCloskey, formerly a close personal friend, became distant.

 During this period Epprecht spoke frequently on the telephone with DeWolf who, according to Epprecht, encouraged his efforts to preserve his role in the company and expressed disdain for McCloskey's managerial skills. DeWolf suggested that Epprecht raise the necessary capital and that he drum up support for himself among the salesmen by attempting to arrange for financial inducements that might cause a change of heart. Epprecht and DeWolf also met at a convention in Florida in late March, and DeWolf reiterated his support for plaintiff's endeavors. But throughout this period McCloskey and the salesmen remained aloof and hostile.

 On April 5, a meeting was held in the law offices of DeWolf's Philadelphia counsel to resolve finally the fate of Epprecht and DVM. Plaintiff arrived at the meeting harboring a hope of saving his role at DVM. He was troubled by the unwillingness of the salesmen to speak with him and by his lack of access to reliable financial information. When questioned about the backlog of orders McCloskey responded that the backlog was in the area of $1 million, but Epprecht alleges that it was, in fact, in excess of $2 million. Plaintiff presented a plan closely resembling the March 1 proposal to DeWolf and Kraus. DeWolf and Kraus, through their attorney, scoffed at Epprecht's plan as too little, too late, and they refused to entertain serious discussion about it. Presented with the same alternatives as had been suggested at the March 10 meeting, Epprecht chose to sell out completely. The rest of the day was spent negotiating the details of the agreement, which included as consideration for the 94% interest in DVM capital stock a forgiveness of the debts owing DVM by Epprecht's other corporations.


 The gist of plaintiff's claim is that in violation of Rule 10b-5 the defendants failed to disclose or misrepresented the true extent of DVM's backlog of machine tool orders on and before April 5, 1972, thereby inducing plaintiff to sell his stock for less than its true value. There are for practical purposes two groups of defendants both of whom are allegedly involved in the fraud.

 The first group is the DVM defendants, comprised of the corporation and its officers, salesmen, and office personnel. The second group is the creditor defendants consisting of Alidor DeWolf and D&K on the one hand, and Glen Kraus and ATW on the other. Only the latter group has moved for summary judgment. The material facts pertaining to both DeWolf and Kraus are virtually identical and we shall dispose of these motions together. These defendants are entitled to summary judgment only if they ...

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