438 Pa. 194 | Pa. | 1970
Opinion by
On April 6, 1965, appellant, Walter Davis, filed an action of assumpsit in the Court of Common Pleas of Allegheny County against the Pennzoil Company, appellee, on two causes of action. The first seeks recovery of $16,661,489, plus interest, for financial advice allegedly given to South Penn Oil Company (appellee’s prior name) by appellant under an agreement to pay him at the prevailing rate in the custom of the trade if the recommendations were accepted and used in whole or part. The second seeks recovery of $1,000,000, plus interest, under an oral agreement to pay appellant at the prevailing rate in the custom of the trade if he would discreetly negotiate with Tidewater Oil Company,
Taking the record in a light as favorable to appellant as possible, the factual background is as follows. James Breene, whose family had long been connected with the corporate affairs of appellee, and who was about to inherit stock in South Penn, met with appellant in Arizona in March, 1962. He explained to appellant that in his opinion South Penn “wasn’t going any place” and that appellant with his extensive experience in corporate matters could be of great use to the company. He stated that John Selden, President, Chief Executive Officer, and Chairman of the Board of Directors of appellee, should want to know about any recommendations appellant might have. Over the next few months appellant studied South Penn’s situation and formulated recommendations. He spoke with Breene several times about his ideas during this period. Towards the end of May, 1962 Breene contacted Selden and told him that Walter Davis would like to discuss with him some matters concerning South Penn. Breene told appellant that Selden had agreed to meet with him and had suggested that he have ready an outline of the plan. After an abortive attempt on June 11 in Pittsburgh, they met on June 24 in Toronto.
In the course of that meeting appellant outlined to Selden the plan he had developed.
In his deposition appellant states that at that meeting Selden promised to compensate him to the extent of “10 per cent of the difference of the market price value of the outstanding shares of the company on use, adop
After the meeting in Toronto, correspondence between Selden and appellant continued, and on September 5, 1962 Selden informed Davis by letter that the South Penn Board of Directors had rejected his plan. On September 1, 1962 J. Hugh Liedtke had become president and chief executive officer of South Penn, and Selden had resigned.
Appellant asserts that as a result of his plan, the following changes were effected: a. on July 3, 1963, the corporate name of South Penn was changed to Pennzoil Company, b. during 1963 a series of mergers with other petroleum companies were consummated, c. beginning on July 8,1963, the shares of appellee were listed on the New York Exchange, d. in January, 1964 appellee purchased Tidewater’s equity in it. e. by June 12,1964, appellee had increased its authorized shares to 10,000,000 and had declared a two for one split, f. subsequent to July 1, 1962, appellee increased its dividend. g. subsequent to July 1, 1962, appellee issued quarterly reports to its shareholders.
The procedural history is as follows. Appellant filed the complaint on April 6, 1965. On May 6, 1968, appellee served on appellant, under Pa. R.C.P. 4014, a request for admission of 544 writings. Appellant filed an answer on May 16 stating that he had not been able to read and comprehend the documents because of their volume and that the documents covered so many peo
The court below, 117 P.L.J. 343 (1969), granted a summary judgment on the first cause of action because the essence of the plan involved a violation of federal securities law, because Selden lacked authority to enter into such a contract, because the contract was made on a Sunday, because there was want of consideration in that appellant’s ideas were neither novel nor concrete and because the contract was too uncertain and indefinite to be enforced. It granted summary judgment as to the second cause of action because the contract was made on Sunday, because Selden lacked authority and because appellant did not perform his obligation under the contract. The court granted summary judgment
All these matters are before this Court, plus the arguments by appellant that a single judge does not have power to enter summary judgment without the concurrence of the court en banc and that the court below abused its discretion in sustaining the preliminary objections to the answer to the requests for admissions because they were untimely, having been filed 119 days after the filing of the answer, and because the court should have permitted the filing of an amendment to the answer.
It is well settled that summary judgment should not be entered unless the case is clear and free from doubt, that the record must be viewed in the light most favorable to the nonmoving party, and that all doubts as to the existence of a genuine issue of material fact must be resolved against the moving party. Mallesky v. Stevens, 427 Pa. 352, 235 A. 2d 154 (1967); Vrabel v. Scholler, 369 Pa. 235, 85 A. 2d 858 (1952).
The court below found that the “dominant theme” of the plan appellant relies on as the basis of the contract pleaded in Count 1 involved a violation of federal securities law. Eelevant to this issue are sections 9a (2) and 10b of the Securities Exchange Act of 1934 (Exchange Act), 15 U.S.C. §78i(a) (2), 15 U.S.C. §78j(b),
The famous rule 10b-5 promulgated under §10b states: “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, (a) to employ any device, scheme, or artifice to defraud, (b) to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or (c) to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security,”
There are two elements to the conduct proscribed by §9a(2)—“(i) effecting the requisite series of transactions and (ii) doing so for the purpose of inducing the purchase or sale of such security by others.” 3 Loss, Securities Regulation 1550 (2d ed. 1961).
Appellant acknowledges that market manipulation of the type described is unlawful but argues that the
Appellant next argues that there is no prohibition against a corporation repurchasing its own shares on the open market. That is certainly true. See Note, Corporate Stock Repurchases Under the Federal Securities Laws, 66 Colum. L. Rev. 1292, 1293-95 (1966). The only question concerns the reason for the .repurchase, and the wording of the plan plus appellant’s own testimony graphically show that purpose to be violative of federal law.
Finally, appellant argues that the cases cited by the court below involved situations in which persons created an artificially high market in order to sell securities or exercise options and thus realize a profit: Regardless whether that is true or not, §9a(2) prohibits the effecting of a series of transactions for the purpose of inducing others to buy or sell and does not inquire in any way into why the individual engaged in that conduct. Also, in its proceeding against Genesco, Inc., CCH Fed. Sec. L. Rep. para. 77354 (1966), the commission forced Genesco to admit that it may have violated §9a(2) when it exchanged over 1,000,000 shares of its common ¡stock for stock or assets of other companies at the same
As to the application of §10b and rule 10b-5, the Second Circuit Court of Appeals held in SEC v. Terns Gulf Sulphur Co., 401 F. 2d 833 (2d Cir. 1968), that an insider, which would include the corporation itself, could not purchase shares of that company without disclosing to the public material facts. The court said, 401 F. 2d at 849, “ ‘The basic test of materiality . . . is whether a reasonable man would attach importance ... in determining his choice of action in the transaction in question. . . . This, of course, encompasses any fact which in reasonable and objective contemplation might affect the value of the corporation’s stock or securities. . . .’ ” Therefore, a corporation could not begin a program of purchasing its own stock in the open market for the purpose of creating investor interest in it and thereby driving up the price without disclosing that purpose to the public for such information would be material by any definition of that word.
As the commission stated in Halsey, Stuart & Co., Inc., 30 SEC 106, 112 (1949) : “It is of utmost materiality to a buyer to know that he may not assume that the prices he pays were reached in a free market, and the manipulator cannot make sales not accompanied by disclosure of his activities without committing fraud.” See, also, Thornton, supra; Chevrier, supra; Adams & Co., supra; 3 Loss, supra at 1561. Certainly what the commission said about sales would be valid for purchases also. It is just as important that sellers be able to assume that the prices they received were reached in a free market.
In the complaint the commission filed against Georgia-Pacific Corporation, CCH Fed. Sec. L. Rep. para. 91,680 (1966), it alleged that G-P had violated
Therefore, appellant’s plan called for violations of 10b and 10b-5 as to two time periods—(1) by not disclosing its manipulative intentions during the time it was buying shares to create public interest in the stock and (2) by not disclosing to prospective merger partners and recipients of its shares in exchange for stock or assets that the value of South Penn shares they would receive were inflated because of the company’s manipulative activity.
Appellant argues that fraud cannot be presumed but must be proved by clear and precise evidence. The only way the plan would have been successful, however, would have been if the necessary disclosures had not been made. Certainly no prudent investor would deal in a stock if he knew the company was manipulating
Section 29b of the Exchange Act, 15 U.S.C. §78cc (b) clearly states: “Every contract made in violation of any provision of this title or of any rule or regulation thereunder, and every contract . . . made the performance of which involves the violation of . . . any provision of this title, or any rule or regulation thereunder, shall be void (1) as regards the rights of any person who, in violation of any such provision, rule or regulation, shall have made or engaged in the performance of any such contract. . . .” In addition, as a matter of state law, this Court will not enforce an illegal transaction, Tucker v. Binenstock, 310 Pa. 251, 165 Atl. 217 (1933), and this is particularly so when the illegality involves the violation of a federal statute. Dippel v. Brunozzi, 365 Pa. 264, 74 A. 2d 112 (1950).
Having determined that at least part of the plan pleaded as the basis of the contract in Count 1 is illegal, it is necessary to determine whether any recovery can be had on that part of the plan that does not violate federal securities law. Regardless whether the contract is seen as unilateral or bilateral, it is not of the type from which the illegal part can be excised. Restatement, Contracts, §606 states: “Except as this rule is qualified by the rules stated in sections 599-605 (not here relevant), where a single consideration for one or more promises in a unilateral bargain is illegal, the promises are unenforceable. But if legal executed consideration is apportioned to a corresponding promise
The court below held that appellant could not recover on the contract alleged in the Second Count because he had not performed his obligation under it. The record amply supports that finding.
Paragraph 28 of the complaint states in relevant part: “. . . it was further orally agreed and understood . . . that if plaintiff was successful through his efforts and negotiations in learning that Tidewater’s holdings in South Penn could be purchased at a given price, and if South Penn was able to purchase said holdings of Tidewater, plaintiff was to be compensated. . . There were three things that had to happen before appellant became entitled to compensation— he had to discover if Tidewater were willing to sell, he had to discover at what price Tidewater was willing to
It is true that appellant learned that Tidewater’s holdings could be purchased, but he did not fulfill what he pleaded in paragraph 28 because he did not learn that they could be purchased at a given price. There is absolutely no basis for saying that $55-$60 is the “substantially above present market price” amount Exhibit 7 refers to. It is impossible to know what figure Roth contemplated, and it is evident that as appellant did not perform his obligations under the contract pleaded in the Second Count, he has no basis for recovery under it.
1. Appellee’s acquisition of its stock 1001-1007
2. Appellee’s acquisition of its shares held by Tidewater 2009-2045
Appellee’s acquisition of additional property and reserves with stock 3001-3107
3401-3505
3700-3778
3801-3865
8001-8064
4. Increase authorized capital 4008-4017
5. List shares on NYSE 5012-5027
6. Change Name to Pennzoil 6011-6045
7. Strengthen Board of Directors 7001-7016
8. Extend product-distributorships, plants and marketing facilities under experienced personnel, assisted by large scale international advertising 9001-9081
10120
10140-10150
10160-10171
10174-10178
10. Issue Quarterly reports to shareholders (this was required in order that the application for listing on the NYSE be approved) 11001-11010
11. Split Stock 12001
Stipulation of Facts para. 4005
4010
These exhibits indicate quite clearly that appellee received no benefit from the ideas contained in the plan, and thus appellant has no basis for recovery under the alternative cause of action in Count 1.
As to the alternative cause of action pleaded under Count 2, appellant contends that appellee received the benefit of his expert knowledge of corporate affairs and the information he conveyed and thus was able to purchase Tidewater’s interest in it. Appellee’s requests for admissions 2054-2062 show clearly that the negotiations leading to the sale were initiated by Tidewater when it made an offer by telegram on December 24, 1963. On December 30, 1963, appellee made a counter-offer by telegram, and Tidewater accepted it on January 2,1964. In none of these communications was there any mention of appellant or anything to lead to the conclusion that his efforts helped bring about the transaction. Tidewater knew nothing about appellant or his dealings with the appellee, and it is difficult to see how appellant’s services could have been of any benefit to appellee when it was Tidewater who made the first offer. Therefore, appellant cannot recover under this alternative cause of action.
Our Pa. R.C.P. 249a provides “Except where the court is required to act en banc, a law judge may perform any function of the court. . . “Rule 249a is all inclusive in its provisions. With the exception of matters where action en banc is mandatory, there is no function of the court, in the conduct of a matter before it, which the individual law judge may not perform on behalf of the court, and which will not be presumed to be the act of the full court.” GoodrichAmram §249 (a) -1. The Act of March 28, 1835, P. L. 88, §8, 12 P.S. §680 provides for hearing by a court en banc on motions for “new trials, and in arrest of judgment, and questions on reserved points”, and the Act of March 11, 1875, P. L. 6, §1, 12 P.S. §645, states that a court en banc may set aside a judgment of non-suit.
No statute, however, requires a court en banc to rule on a motion for summary judgment. Myers, supra, was an action in equity in which no court en banc passed upon exceptions to decrees nisi, see Pa. R.G.P. 1519b, and is inapposite. In Mallesky v. Stevens, 427 Pa. 352, 235 A. 2d 154 (1967), a single judge of the Court of Common Pleas of Allegheny County entered summary judgment in favor of an additional defendant, and sub silentio we approved that action. The court’s order of December 1.6, 1968, is signed “By the Court: Olbum, J.,” and we feel the court below was acting
Lastly, appellant argues that the court below erred in granting appellee’s preliminary objections to his answer to appellee’s requests for admissions because the preliminary objections were untimely, having been filed 119 days after the answer was filed, and because the court should have given him the opportunity to amend his answer. He also asserts that the court below abused its discretion by refusing to permit argument on his motion to reconsider the prior ruling: Our rules do not explicitly provide a means by which a moving party may test the sufficiency of an answer to a request for admissions under Pa. R.C.P. 4014. It has been suggested, Goodrich-Amram, §4014(b)-8, Hill v. Mayusky (No. 3), 22 Pa. D. & C. 2d 19 (1960), that the inquirer be permitted to file preliminary objections in the nature of a demurrer to its sufficiency. This will enable the parties to know prior to trial which facts are admitted and which must be proven and will free the inquirer from the dilemma of not knowing, while preparing the case for trial, whether the facts have been admitted or whether he will have to prove them. We approve such a procedure as furthering the purpose of Rule 4014, the avoidance of unnecessary preparation or proof.
The problem before us, however, is how long the inquirer has to file such preliminary objections. Appellant argues that as preliminary objections are pleadings a twenty day limit should be imposed. The court in Hill v. Mayusky, supra at 22, however, stated “ (a) s to the time in which such a preliminary objection should be filed, we are of the opinion that it should not be filed so late as to delay the trial of the case, applying by analogy the not to delay the trial standard
We need not decide whether under Pa. E.C.P. 1028c appellant could have filed an amended answer as of right within ten days of the filing of the preliminary objections. He did not so act and objects to the lower court’s refusal to permit him to file an amended answer after it found his original one insufficient. See Pa. E.C.P. 1033. We find that the court’s action was not an abuse of discretion considering that appellant’s answer stated that he had not been able to read the documents or investigate their truthfulness because of their great length and that appellee on at least two occasions offered to give appellant additional time to study what are admittedly lengthy, but highly relevant documents. It was also not an abuse of discretion to refuse to reconsider this order.
Judgment and orders affirmed.
In Ms amended complaint appellant aUeges that the contracts upon which Ms claims are based are oral. In Ms deposition, how
Most of the opinions which have discussed §9a(2) contain merely a detailed statement of facts and a conclusion that under the circumstances contained therein §9a(2) has been violated. Thornton v. SEC, 171 F. 2d 702 (2d Cir. 1948); Wright v. SEC, 112 F. 2d 89 (2d Cir. 1940) ; R. J. Koeppe & Co. v. SEC, 95 F. 2d 550 (7th Cir. 1938) ; Archie H. Chevrier, CCH Fed. Sec. L. Rep. para. 77,231 (SEC 1965) Adams & Co., 33 SEC 444 (1952) ; Aurelius F. De Felice, 29 SEC 595 (1949) ; Kidder Peabody & Co., 18 SEC 559 (1945) ; Russell Maguire & Co., 10 SEC 332 (1941).
The essential paragraph of that letter is as follows: “Mr. George F. Getty II and I have discussed the comment in your letter as to whether or not we would be interested in the sale of Tidewater’s holdings in South Penn Oil Company. As I told you over the phone, while we have little desire to sell assets of this nature, if someone were to make an attractive offer we would certainly give it serious consideration. Such an offer would have to be substantially above present market price.”
That letter states that Exhibit No. 7 is enclosed and that if appellant were to make a good offer, “young Getty and Eoth would do their best to persuade the elder Getty to approve it.”
That letter recites that Exhibits No. 6 and 7 are enclosed and states: “This now gives you in a confidential and reliable manner the information you asked me to obtain, namely, whether Tidewater would consider the sale of its South Penn share holdings; and you can deduce from Mr. Roth’s letter that the price would be in the order of $55 to $60 per share as we discussed when we met at the Skyline Hotel last June.”