1,018,540 shares of ACC stock at $10 per share. The complaint alleges that, pursuant to the agreement, ACC purchased from plaintiffs 72,000 shares on June 28, 1984, and 473,270 shares on December 12, 1984. The agreement also provides for the purchase of plaintiffs' remaining 473,270 shares at $10 a share on June 26, 1985. It appears that plaintiffs have not tendered these remaining shares.
Sometime after December 12, 1984, plaintiffs allege they discovered that defendants concealed the fact that ACC had been negotiating with a third party, KISS Limited Partnership (KISS), to sell most of ACC's eleven radio stations at a substantial price. Discovery to date indicates that the KISS negotiations were serious and ongoing in May 1984, a month before the stock purchase agreement was signed. The parties hotly contest the date on which an agreement in principle was reached for the sale of the eight radio stations to KISS.
The sale of eight radio stations was publicly announced on August 3, 1984, defendants allege. The purchase price was $29.5 million in cash and notes. The market price at ACC stock rose dramatically after the sale of the stations was announced. On June 5, 1984, when plaintiffs agreed to sell their stock, the bid price was $9 a share. On the first day of trading after the sale was announced, the bid price rose to $13.37. At the time the complaint was filed, the bid price was approximately $20.50. By agreeing to sell their stock at $10 a share, plaintiffs allegedly lost nearly $18 million.
Seeking rescission of the stock purchase agreement, plus compensatory and punitive damages, plaintiffs filed a six-count complaint on February 12, 1985. Plaintiffs claim that defendants had a duty to disclose material facts relating to the negotiations for the sale of the radio stations. Plaintiffs also claim that a press release of June 5, 1984, issued by defendants, was false and misleading in that it failed to disclose that KISS had offered to buy substantially all of ACC's radio stations at a high price. In addition, plaintiffs claim the statement falsely represented that increased bank borrowings would be necessary, when in fact defendants planned to use the proceeds of the sale of the radio stations to purchase plaintiffs' stock and to pay off a large portion of ACC's outstanding loans.
Defendants have asserted counterclaims for anticipatory breach of the stock purchase agreement and for declaratory relief. Defendants, Jack and Myles Berkman, also filed a third-party complaint against Louis and Marshall Berkman for contribution.
II. Summary Judgment Motion
After extensive discovery by both parties, defendants have moved for summary judgment. In support of their motion, defendants make two arguments. First, defendants had no obligation or duty to disclose to plaintiffs that ACC was engaged in preliminary negotiations to sell eight of its radio stations before plaintiffs agreed to sell their stock. Second, plaintiffs ratified the stock purchase agreement when they accepted $4,732,700 in cash for their stock more than four months after they first learned of defendants' alleged fraud. Both arguments are directed against plaintiffs' claims under Section 10(b) of the Securities Exchange Act of 1934 and Securities Exchange Commission Rule 10b-5. Defendants also contend that, if summary judgment is granted as to the federal claims, the state law claims should be dismissed for want of subject matter jurisdiction, citing United Mine Workers v. Gibbs, 383 U.S. 715, 16 L. Ed. 2d 218, 86 S. Ct. 1130 (1966).
A motion for summary judgment may be granted only if there are no issues of material fact which, if believed by the trier of fact, would justify a finding for the party opposing the judgment. Wahl v. Rexnord, Inc., 624 F.2d 1169 (3d Cir. 1980). All evidence must be viewed in a light most favorable to the party opposing the motion, and every reasonable inference must be afforded to the opposing party. Sanford v. O'Neill, 616 F.2d 92 (3d Cir. 1980). A movant must make a "clear showing" that no genuine issue of any material fact remains for trial. Ely v. Hall's Motor Transit Co., 590 F.2d 62, 66 (3d Cir. 1978).
A. Duty To Disclose and Materiality
The issue presented by defendants' first argument is whether defendants had a duty to disclose to plaintiffs inside information pertaining to the ACC-KISS negotiations before defendants agreed to purchase plaintiffs' stock.
Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 prohibit the use, in connection with the purchase or sale of any security, of any manipulative or deceptive device with the intent to defraud or deceive. Rule 10b-5 provides:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,