The opinion of the court was delivered by: WEBER
This complex and long-running securities litigation is now before us on remand from the Court of Appeals for the selection of an appropriate remedy for the defendants' violation of the securities law. Plaintiffs have moved for leave to take additional discovery for the purpose of formulating a remedy. In the alternative, plaintiffs seek a favorable damage award based on the existing record. Defendants have responded opposing any further discovery, and advancing rescission as appropriate relief. The parties have fully briefed these matters, we have reviewed the voluminous record, and the issue of remedy is now in proper posture for disposition.
A condensed recitation of the facts is necessary here. A more detailed understanding of the factual and procedural history of this litigation may be gleaned from previous opinions.
Plaintiffs are holders of B&O Class A convertible debentures, acquired prior to December 1977, and maturing in 2010. The debentures pay 4.5% interest and are convertible to B&O common stock at any date prior to maturity. These B&O debentures are listed and traded on the New York Stock Exchange.
B&O common stock was once listed and traded on the New York Stock Exchange. By 1964 C&O had acquired 99% of B&O common, trading ceased and the stock was delisted. For 17 years no dividend was declared on B&O common stock, the last being in 1960.
In 1977, the B&O was the owner of a wide variety of properties, including both rail and non-rail assets. Because ICC regulations hampered development of the non-rail assets, a corporate reorganization plan was devised. Reduced to its simplest form, the plan essentially provided for the segregation of B&O's rail and non-rail assets, transfer of the non-rail assets to a wholly owned subsidiary titled Mid Allegheny Corporation (MAC), and distribution of the MAC common stock to B&O shareholders on a share for share basis. The scope of this reorganization was significant, involving the transfer of large amounts of potentially valuable real estate.
The properties selected for transfer to MAC were primarily non-rail assets with development potential which could not be effectively realized while the property remained under the Railroad's aegis with the attendant ICC restrictions. Most of these properties carried hopelessly outdated book values, and recent appraisals were rarely available.
In order to conserve time and money, the B&O sought to avoid registration of the MAC stock with the SEC. Registration would have required lengthy and expensive appraisals of the properties transferred to MAC, perhaps consuming up to 10 years.
To avoid registration, the B&O sought a no-action letter from the SEC. Because there were so few remaining B&O shareholders, a no-action letter was likely. However, the defendants recognized that an increase in the number of minority shareholders might force registration. To avoid this possibility, B&O called its Convertible Income Bonds for redemption to prevent their conversion to B&O common stock. A different tactic was employed to prevent conversion of the debentures.
On December 13, 1977, the reorganization plan was put into effect by the B&O Board of Directors. The selected non-rail assets were transferred to MAC. The dividend in MAC stock was then declared to all B&O shareholders as of that same date. No prior notice was given of the dividend.
The effect of this action was to prevent the debenture holders from participating in the MAC dividend by depriving them of an opportunity to convert to B&O common stock in anticipation of the dividend. With the debenture holders effectively frozen out, registration was avoided.
Shortly after the Board action of December 13, 1977, Pittsburgh Terminal filed suit seeking an injunction against payment of the dividend in MAC stock. A preliminary injunction was granted by the District Court but was dissolved on appeal when the defendants agreed to hold sufficient shares of B&O and MAC stock to satisfy the claims of the plaintiffs and those similarly situated should they be successful in this litigation. See 446 F. Supp. 656 (W.D. Pa. 1978) (Knox, D.J.); 578 F.2d 1375 (3d Cir. 1978).
After a non-jury trial, Judge Knox rejected each of plaintiffs' claims and entered judgment for the defendants. 509 F. Supp. 1002 (W.D. Pa. 1981). On appeal the Third Circuit reversed. 680 F.2d 933 (3d Cir. 1982). The Court's majority decision rested on a holding that SEC Rule 10b-17, 17 C.F.R. § 240.10b-17, imposed on the defendants a duty to provide prior notice of the MAC dividend to debenture holders. Failure to satisfy this obligation constituted a violation of Section 10(b) of the Securities Exchange Act of 1934. 15 U.S.C. § 78j(b).
II. PLAINTIFFS' MOTION TO REOPEN DISCOVERY.
Plaintiffs seek permission to engage in another round of discovery to assist them in selecting and formulating a remedy. Specifically, plaintiffs seek to inquire into MAC's transactions since the close of discovery, appraisals of MAC assets after 1979, and MAC's dealings with affiliates and subsidiaries.
Plaintiffs contend that such discovery is necessary to enable them to ascertain MAC's current value, to compute an accurate damages figure, to make an informed decision on conversion as a remedy, and to identify any improper transactions between related companies which have worked to MAC's disadvantage.
A trial court has wide discretion in discovery matters. E.g. Montecatini Edison S.p.A. v. E.I. DuPont de Nemours Co., 434 F.2d 70 (3d Cir. 1970); Swanner v. United States, 406 F.2d 716 (5th Cir. 1969). This court is expressly empowered to set necessary limitations on discovery by Fed.R.Civ.P. 26(g). Specifically, the question of whether to reopen proceedings on remand is committed to the sound discretion of the District Court. Rochez Brothers, Inc. v. Rhoades, 527 F.2d 891, 894 (3d Cir. 1975). However, remand is typically not intended to permit a party to fill in the gaps in the original record. Id., at 894; Moses Lake Homes, Inc. v. Grant County, 276 F.2d 836, 853 (9th Cir. 1960).
A number of factors militate against the re-opening of discovery. First of all, plaintiffs have already conducted 3 years of extensive discovery, almost exclusively directed to the question of damages. Plaintiffs have viewed stacks of documents and compiled voluminous deposition transcripts. Significant discovery on this issue has already been had.
Secondly, the issue of damages has already been fully tried. Plaintiffs sought bifurcation between liability and damages, but this motion was denied. Judge Knox presided over the non-jury trial in which damage evidence was presented. Plaintiffs have had full opportunity to make presentation of evidence on remedy.
Plaintiffs contend that the additional discovery would permit a more accurate computation of the value of properties transferred from B&O to MAC in 1977. Because of the difficulties presented by outdated book values and the absence of recent appraisals, such a result would be desirable. However, while some additional information may have been compiled by MAC since the close of discovery, it appears that MAC still has vast amounts of property on which neither plaintiffs nor defendants can place a fair value. Because additional discovery would not resolve this difficulty of valuation, it would appear unwise.
Plaintiffs insist that further discovery is necessary to permit them to make an informed decision on whether to pursue the MAC stock as a remedy, as opposed to damages. Certainly, such information might be helpful, but there does not appear to be sufficient need for it to justify the delay and expense attendant to re-opening discovery here. In 1977, MAC was a wild card, an unknown quantity. Today, plaintiffs have had the benefit of extensive discovery on MAC's assets, access to information released to the public by MAC and the B&O, and the opportunity to observe MAC's ...