Werner v. Werner

viability preceding of the whatever WERNER; Jeffrey R. Elizabeth Acker only arbi-

proposition, this case involves man; Weiss, minor, by CBA, and in Matthew W. trating applicability parent, Werner; thirty-seven years Wiley, since one his Elizabeth Timo grown thy Burke, Jr., stronger capacities area of doctrine that has F. his as Supreme rec- period is the Court’s executor of the Estate of Anne L. ognition importance of arbitration in Werner and as trustee of trusts creat fields, including a number of labor. under ed the last will and testament Werner, deceased; Jeffrey

of Anne L. Ackerman, capacity R. in his as trust IV. Agreement ee under Trust for my dispute with the It is manifest from Werner, benefit of Elizabeth dated state, majority in its current the fed- 18, 1967; December Edward A. Pol particu- eral common law on this issue—in lack, plain all of the aforementioned Wiley-Bums-Howard lar Johnson individually derivatively tiffs a clear answer in trilogy provide —does Holding (PA), behalf of Werner Co. Wiley implicitly If certain cases. has been Inc., and, individually but not deriva cases, Supreme overturned later Court tively; Werner, Estate of Leo L. de so; if, say I the Court should but as be- ceased, and trusts created under the lieve, plays protect- it a viable role in still last will and testament of Leo L. Wer ing rights employees of “those who are through ner individual in ‘[t]he fact retained transition from beneficiaries, Werner, Elizabeth Jef corporate organization one to another’ frey Weiss, Ackerman and Matthew changes sudden in the terms and Appellants, of their Howard employment,” conditions Johnson, at U.S. S.Ct. (quoting Wiley, at 376 U.S. 84 S.Ct. WERNER; Werner; Eric J. Richard L.

909), the should reaffirm that Court fact. Werner; Werner; Robert I. Donald M. I hope Supreme clarify Court will Solot; Craig Werner; Howard L. R. meantime, the law in this area. I Werner; Solot; Marc L. Michael J. believe that interpretation better Werner; Werner; Bruce D. Michael E. Supreme precedent is that the rule Schwartz; Karp; Barbara Marsha Wiley is still in and that force rule Shirley Rauch; W. Gail Rauch Black applied should be to the case at bar man; Blackman, Gail Rauch as custo provision enforce the arbitration Blackman; Indeed, dian for Heather against CBA if Heather Wiley AmeriSteel. Blackman; Krane; Marlene T. continuing viability, has rule Mar ap- its would Krane, if lene T. ply applied anywhere. here it I would custodian for Jason Krane; Krane; judgment reverse the S. Jason S. A. of the District Court Debra Rothman; Rothman, and remand Debra A. with directions to order this as cus proceed Rothman, matter to todian Kevin to arbitration. For the Matthew reasons, Jay foregoing respectfully I dissent. for Joshua Rothman and for Jor Rothman;

dana Kevin Matthew Roth man; Jay Rothman; Joshua Jordana Rothman; Berk-Rauch; Noel Noel Berk-Rauch, as custodian for Hannah Berk-Rauch; Berk-Rauch and for Eli Berk-Rauch; Eli Berk- Hannah Mindy Alter, Mindy Alter; as

Rauch; Alter; Ra Razie Devora for

custodian Frost; Alter; El Elise W.

zie Devora Frost, for Marc as custodian

ise W. Frost, Herbert for Joshua

William Frost; Anne and for Rachel

Frost Frost; Herbert

Marc Joshua William Frost;

Frost; Ronald E. Rachel Anne Werner,

Werner; custodi Marc L. as Ashley Elizabeth Werner

an for Werner; Ashley Jeffrey Eliza A.

for Werner; Werner; Jeffrey Bev A.

beth Beverly

erly Ryan; Werner Werner

Ryan, Rose custodian for Shannon as Joy Ryan;

Ryan Erin Shan- and for Joy Ryan; Ryan; Roni Erin

non Rose Rosati, Rosati; as custodi- Roni S.

S. Rich- Ryan and for

an for G. Rosati Rosati; Ryan Rosati; G.

mond J. Craig Werner, Rosati; R.

Richmond J. Kurt Werner and custodian for J. Werner; Kyle Werner; Kurt J. Werner,

Kyle Werner, How- Bruce D. Werner, and Eric J. L.

ard Solot capacity as Trustees for Werner Holding

Family Trust; Co.

(PA), Inc., Pennsylvania corpora-

tion, Appellees.

No. 99-3715. Appeals, Court of

United States

Third Circuit. 1,May 2001.

Argued 27, 2001. Sept.

Filed MANSMANN, NYGAARD

Before ROSENN, Judges. Circuit THE COURT OPINION OF ROSENN, Judge. Circuit appeal in this raises primary issue to the fail- important questions pertaining corporate material informa- ure to disclose law by federal securities required tion as repurchase capital of its corporation’s in a (“the Company The Com- stock. Werner brothers, by three was the pany”), founded marketer of lad- largest manufacturer and products in the climbing and other ders Anne plaintiffs The are the States. United Estate, the Elizabeth Werner Werner Trust, of the and other members who, all at family representatives and their times, minority shareholders were relevant ten individual de- Company. The Defendants”) (“the Management fendants family of the Werner are also members Company of the Werner and were officers this action.1 all times relevant to at redeemed shares Company Anne plaintiffs, two of the held and the Elizabeth Werner Werner Estate Gladstone, (Argued), II Jill Richard W. Trust, plaintiffs The claim by purchase. Lindh, Szafranski, E. Eckert Lauren M. redemptions, at the time of those Mellott, LLC, Pitts- & Cherin Seamans fraudulently con- Management Defendants PA, Appellants. for burgh, Counsel information from them material cealed Larrimer, Shapira, Marcus & S. James at a to sell their shares caused them PA, (Argued), E. Zimet Pittsburgh, Robert would have than much price lower Meagher & Flom Arps Slate Skadden fully informed. they been accepted had Gibson, Karlan, Dunn LLP, A. & Mitchell in filed suit the United York, NY, plaintiffs LLP, J. New James Crutcher Dis- for the District Court McClay States Restivo, Shaw & Reed Smith Western Elliot, Pennsylvania, alleging violations trict of LLP, PA, Larry K. Co- Pittsburgh, Exchange PA, the Securities P.C., Pittsburgh, Section Grigsby, hen & 10b-5,3 1934,2 promulgated Rule Act of Appellees. Counsel Werner, Werner, been, Michael E. L. J. Marc at Eric Management Defendants have 1. The Solot, action, Werner, D. Wer- and Bruce Michael J. shareholders relevant to this all times They Company. are Rich- of the ner. and officers Werner, Werner, Donald M. Robert I. ard L. Werner, Solot, 78j(b). § Werner, Craig 2. 15 U.S.C. R. L. Howard thereunder, and numerous state laws. vided Company with a right of first twenty The District Court acquire dismissed refusal to any awarded shares an amended, complaint, count entire- its employee wished to sell. Pursuant to that ty for failure to state a claim on which right, the Company acquire could granted. relief could be It also dismissed shares an employee wished to sell for an pendent law state claims for lack of equal amount to the fair market value of jurisdiction. matter plaintiffs the shares at the time of the sale minus timely appealed only on Counts One and the fair market value of the shares Two. will affirm part We vacate date of their award. The Plan was first part. disclosed to the shareholders the 1991 Report.

Annual A letter accompanying I. that report also alerted the shareholders to the existence plan, explaining its To understand the issues on appeal, purpose and stating that it was “more background some information on the Wer- restrictive and generous” “many less than ner necessary. In 1945 three plans.” time, such As of that no shares brothers, Werner, Werner, R.D. Leo yet had been under the issued Plan. Herbert into Werner went the ladder busi- ness and gave company family the In Count One of their amended com- years, name. Over the the Company be- plaint, plaintiffs the assert that the exis- came extremely successful. Until Novem- tence and details of the Restricted Stock of ber when of Company most the Plan were not adequately disclosed to investors, was sold to a group of outside all them. The District dismissed this the Company’s of stock by was owned claim, holding that the 1991 report annual members of the family. Werner it, and the letter accompanying as well as the annual reports 1992-1994, provided

A. The Restricted Stock Plan adequate plan. disclosure the the Company adopted a “Re- B. The stricted Stock Plan.” The proclaimed Redemptions the Sale pur- the pose plan Company the was in 1997 give to senior man- agement officials an stay incentive to with In 1996 the Anne Werner Estate and Company. the It allowed the Board of the Elizabeth Trust sought each to Directors to award Restricted B Class have the Company redeem some of its Shares to certain individuals who were shares. Burke, Plaintiff Timothy in his identified the disclosure documents as capacity as executor of the Anne Werner “key employees” and “key executives.” Estate, communicated with the Company The disclosure documents did not reveal about the possibility of redeeming some of only management that the ten defendants By estate’s stock. a letter by written benefit would from Plan. (“the Eric Werner on December

Under Plan, the Restricted Stock Letter”), the Redemption Company agreed recipients of the shares permit- were not repurchase to the stock at approximately 1) ted to sell them until the earliest share, of: per price $1000 a determined years 2) award; seven from the date Management (“MPI”), Planning Inc. an in- 3) 65; age death; 4) attainment of or dependent firm, in valuation its most re- permanent disability. The plan pro- also appraisal cent of the Company’s stock § 3. C.F.R. 240.1 Ob-5. to their shares at a caused them sell

(“the appraisal MPI sion appraisal”). MPI they what would price mi- much lower than plaintiffs’ value of the discounted accepted had been informed of on have Company based nority interests contemplated sale. Company would the that the assumption family. in Werner remain continue to alle- The District Court held these Letter disclosed Redemption in the amended com- gations, as stated investigate to continuing “was Company state a claim on which plaint, failed to it ... or someone else possibility granted. The crux of its relief could be from one or purchase shares may offer failed to holding plaintiffs was that ... in the future at more shareholders allege pursue that the decision sale at this which cannot be determined prices made December company had been or in time, may less than but which be Rather, complaint alleges of 1996. ac- you may offer or any price excess of the Board of Directors had cept.” “strategic various alter- begun to consider natives,” 30, 1996, included: the Anne Wer- On December its shares under the condi- Estate sold offering private ner public an initial or Redemption Letter. forth in the tions set of Werner Co.’s placement of shares Trust sold its The Elizabeth Werner stock, capital the incurrence of addition- January under the same debt, employ- shares an al the establishment of conditions. leveraged ownership plan, stock ee repurchase, or share recapitalization 8, 1997, signed October On strategic with or financial joint ventures group with a Recapitalization Agreement oper- various partners partially divest collectively as of outside investors known and the sale of Werner Co. ations was Investeorp. agreement, This which thereof. parts Company by 96% of the Werner approved ¶ 133). District held shareholders, (Compl. at Court to a sale of most amounted of these stra- that the initial consideration Agreement, the Company. the Under of 1) as a mat- alternatives was immaterial ap- tegic redeem Company agreed to: the It stated outstanding stock ter of law. of the proximately 86% and non-management has, shareholders held ... to the court’s knowl- No case by management the stock held 81% of material to a potential a sale edge, found 2) shareholders; reclassify remaining here, where, its as transaction securities 3) stock; (1) issue additional outstanding considering offer- company: the was (2) in mil- Investeorp sale; return for considering $123 stock to was ing itself following (3) the redemptions sale; In the lion. not to a had other alternatives (4) Agreement, each share- Recapitalization had not specific buyer; identified a nearly per share holder received pur- $2500 for the retained a financial advisor (5) sale; redeemed. had exploring of a poses discussions, any prelimi- conducted not amended plaintiffs’ of the Count One otherwise, potential buyer a or with nary time of the alleges at the complaint buyers. the Anne Werner Estate acquisitions from 11). allega- the Trust, at Because it believed (Op. the Man- Elizabeth Werner and the complaint in to be insufficient seriously tions the were con- agement Defendants misrep- alleged finding support and fraud- sidering sale were material and omissions from resentations that information ulently concealed them to sell plaintiffs’ the decisions that this omis- They claim plaintiffs. shares, the District any Court dismissed the make statement of a untrue material for failure to state a claim case on which fact or omit to state a material fact necessary could granted. relief be order to make the state- made, ments light of the circum- Proxy C. The Statement made, stances under were In October of Compa- Werner misleading ... connection with ny sent a proxy statement to each share- purchase any security. or sale of explaining holder pro- details of the 240.10b-5(b). § 17 C.F.R. posed recapitalization. The statement The District Court dismissed Count inI clearly informed that shareholders man- entirety, its holding plaintiffs’ that agement going was to amend the Restrict- amended complaint failed to allege mate- prior Stock Plan Recapitalization ed to the rial misrepresentation. appeal, On in their delete right of first refusal con- brief, reply appellants alleged have tained therein. quantify It did not discovery recent of evidence consisting benefit that right deletion Werner Company meeting minutes found upon first refusal would confer the man- in a related action the New York Su- agement plaintiffs defendants. The as- preme Court captioned Pollack v. Bonte serted this omission constituted a vio- (New Supreme York Index No. lation of Section of the Securities 98/13606). Appellants assei*tthat the min- Exchange Act of 1934 and Rule 10b-5. utes reveal plan by the Board of Di- claim, The District Court dismissed this rectors of the Werner Company early holding the omission was immaterial as a as February 1996 to sell the corporation. matter law. Appellants also assei't the minutes show that the Company retained Goldman

II. Sachs to advise the Board as to the feasi- begin bility We with the portion pursuing of Count financing One various trans- actions, dealing with redemptions by and that Goldman greatly Com- Sachs pany of the shares held assisted the the Anne Wer- Board of in deciding Directors Estate that a ner and the sale Elizabeth transaction was in the best plaintiffs Trust. The allege that interests of the Company. Appellants the Man- al- 10(b) agement lege that corporate Defendants violated those Section provide minutes and Rule 10b-5 failing them, sufficient evidence inform of material misrepre- prior redemptions, to the that sentation to Compa- survive motion to dismiss. ny was considering Appellants offering itself ask judicially for sale. this court to no- 10(b) Section of the tice the Exchange newly Securities contents discovered Act illegal makes it evidence and to vacate the District Court’s alternative, dismissal. In the they move

use employ, or in connection with the reply their brief for leave to amend their purchase any or sale of security any ... complaint to enable present them to manipulative deceptive or device or con- newly discovered evidence before the Dis- trivance in contravention of such rules trict Court. regulations and as the may Commission prescribe necessary appropriate or appellees correctly assert pi'otection for the of investors. cases, in most appeals may not, “court § 78j(b). 10b-5, 15 U.S.C. promul- Rule consider material or purported evidence gated 10(b), under Section makes it unlaw- which brought was not upon the record in ful to: the trial court.” United States ex rel.

295 1248, essentially direct a verdict Alldredge, 432 F.2d dence v. Bradshaw fact). Cir.1970). However, (3d appeals him against as to the noticed See 1250 filings may judicial also, take notice Liberty courts Mutual Insurance Co. which proceedings Inc., 1384, in related developments 969 F.2d Rotches Pork Packers judgment appealed (2d Cir.1992). place take after 1388 We will neither notice Co. v. Rich Federal Insurance from. See nor consider the substance of the Board (3d 1270, Co., 1284 & ard I. Rubin adjudicating appeal. minutes in this Cir.1993); In Landy Deposit v. Federal Judicially noticing the existence 139, F.2d Cir. Corp., surance filing corporate and the minutes is a 1973). rep counsel Appellants’ different matter. judicial notice may A court take subsequent filing resent to us is not fact if that fact adjudicative of an brief, opening they “discovered two docu Fed. dispute. to reasonable See produced by Company ments the Werner judicially .4 A noticed fact R.Evid. pending in a action” in the New related known within the generally must either be Pollack, an Supreme York Court between court, capable jurisdiction of the trial or be herein, Bontes, other appellant and the ready determination of accurate minority They as Company shareholders. accuracy whose cannot to sources resort consist of sert that the documents June id.; See see reasonably questioned. be meeting Board 1997 Werner Li Sodium Antitrust also re Warfarin February referring minutes to the Board’s (3d Cir.2000); tig., 27, 1996, “to consummate a sale decision Warner, Inc., 937 F.2d Kramer v. Time transaction” and a Goldman Sachs 1996 list (2nd cir.1991); Fed. Weinstein’s Buyers Financial for the Wer- of Potential 2001)(“While 201.12[l](2nd ju § ed. Evid. Company. Appellants allege ner knowledge general notice based on dicial docu have been denied access to these ... notice approach traditional reflects the also in related ments this action and devel facts is a more modern verifiable that the They state actions. further assert ... the approach consistent with opment will confirm that 1997 Board minutes June Evidence”.) of the Uniform Rules had performed Sachs since Goldman judicially notice the will not We Compa various valuations of the meeting min truth of the contents of stock, conclusively prove will ny’s in a separate The minutes were filed utes. “intentionally misrepre Appellees in a dif involving separate parties, action shares Appellants’ the value of the sented court, Taking in a different state. ferent redemp stock Appellants’ at the time of of the contents judicial notice of the truth tion.” a related action could filing of a of whether the The determination breach, reach, the boundaries perhaps and meeting Company produced Werner judicial notice. See United proper York (11th during discovery the New 1549, minutes Jones, 1553 v. 29 F.3d States ready capable of accurate and action is judicial Cir.1994)(stating that the effect by to sources whose determination resort preclude oppos ly noticing a fact is to reasonably questioned be contrary accuracy cannot introducing evi- ing party (2) capa- jurisdiction of the trial court or rial 4. states: Fed.R.Evid. by ready determination accurate ble of judicially fact must be one A noticed accuracy cannot rea- to sources whose dispute resort in that it to reasonable is (1) sonably questioned. be generally the territo- known within either 296

by itself, See, by any pleading. e.g., Agency Moore v. for short, Dev., (D.C.Cir.1993). In management defendants. Intern. 994 F.2d 874 exist, meeting the Board minutes certainly Moore, In the Court remanded a pro se produced by Company in were plaintiffs action back to the District Court Court, jus York Supreme amply New with instructions to allow plaintiff to tify by appellants the late effort to amend plead sufficient to height- facts meet the complaint. judicially their We can and will pleading ened standard for Bivens actions. filing notice existence and of these Moore, See 994 F.2d at 877. Pross v. 201(b).5 minutes under Fed.R.Evid. Katz, (2d 455, Cir.1986), 784 F.2d 459-60 the Court remanded an action so that the Federal Rule of Civil Procedure plaintiff amend his complaint could sat- 15(a) states that: isfy heightened pleading requirement party may party’s A amend the pleading for fraud. The Court’s decision to remand once as a matter of any course at time large was based in part on new informa- responsive before pleading tion provided to the Court for first party served.... Otherwise a may time at argument oral of the appeal. party’s pleading only amend the The liberal standard announced in Fed. of court or leave consent of written 15(a) R. Civ. Proc. becomes less flexible party; the adverse and leave shall be after a judgment final is entered. See freely given justice when requires. so Auburn, City Harris v. 27 F.3d added). (emphasis provides Rule 15 (7th Cir.1994) (“[Ajfter 1287 judgment has policy flexible “basic allowing statement” been ... party entered making [mo- freely courts to allow parties to amend tion to a pleading] amend ... had better pleadings. their 6 Wright, Charles Alan provide the good with a [court] reason to Miller, Mary Kane, Arthur R. & Kay Fed- grant motion.”); his First Nat. v. Bank § eral Practice & Procedure ed. Bank, Illinois Continental Nat. 1990). appeals Courts of may grant a (7th Cir.1991) (“[T]he presump- party See, leave to amend its compliant. tion favor of liberality in granting mo- e.g., Airlines, Dunn v. Inc., Trans World tions to amend ... is reversed judg- after (9th Cir.1978) (concern- 589 F.2d entered.”); ment has been Dartmouth ing amendment to pleadings allow to con- Review v. College, Dartmouth form evidence adduced trial at under (1st Cir.1989) (“[A]s the ease passes 15(b)); R. Fed. Civ. Proc. 3 Moore’s Fed- through litigatory stages, various ¶ (1999) Practice, (“After eral 15.14[4] final pleader’s burden [to obtain leave and on judgment appeal, may amendments grows amend] progressively heavier.... be possible, pleader’s but the burden in- allowed, [AJmendments will sometimes be Subsequent creases. leave to amend will but such comprise instances the long-odds be granted “sparingly” and if only justice rule.”). exception, not the However, in requires.”). alternative, In the a court of Review, The Dartmouth the Court implied appeals may remand an action with in- that the surfacing of “some concept” new structions to party allow a to amend a making an “workable action previously in appellants 5. attached a appeal number of non- improper augmentation rec- briefs, ord, record documents to appellate Inc., Sprout-Bauer, see O’Keefe causing appellees Cir.1992), to move to dismiss the we decline to or, alternative, appeal in the impose to strike the such an extreme in sanction this case appended Although material. there is some because we confine the documents to mo- authority that allows a court to dismiss an tion to amend. III. granting ground doldrums” was of an during pendency to amend leave allegations We now turn to the Count Review, 889 The Dartmouth appeal. See dealing with the Restricted Stock One Pross, at 459- (citing F.2d at 23 Plan. assert that were not Appellants 60). adequately put on notice of the Plan’s to allow Although we are reluctant regard- the information adoption because stage at this pleading of a amendment in the ing the Plan was “buried” various pre plaintiffs were proceedings, The District Court disclosure documents. discovery in the engaging in cluded from claim, holding that the Com- dismissed this discovery, plain Without District Court. the Plan in the pany adequately described meeting obtain the way had no to tiffs letter report accompa- 1991 annual and the by happenstance. We minutes other than nying agree. it. We discovery to the strict restric will not add Litigation tions in the Private Securities the “buried facts” doc Under (“PSLRA”) by narrowly con Act Reform trine, if inadequate a disclosure is deemed case, at this Rule in this even struing way in a presented it is conceals litigation. high in the Given the stage late sought to be dis obscures the information placed plaintiffs, the PSLRA burdens when the fact applies closed. The doctrine require plain justice and fairness question is hidden in a voluminous docu to opportunity us be allowed an tiffs before in piecemeal ment or disclosed fashion allega complaint to include amend their reasonable shareholder prevents newly discovered relating tions “correlation and overall realizing Allowing minutes. meeting Board interspersed import of the various facts to be intro minutes and related evidence throughout” the document. Kas v. Finan unduly in the District will not duced Bankshares, Inc., 796 F.2d cial General defendants; they access have prejudice (D.C.Cir.1986). Having reviewed know they presumably and to the minutes documents, the relevant we believe they pro documents because about the the details of the Re adoption and place. in the first The Com duced them adequately dis stricted Stock Plan were supports the minutes’ pany’s production closed. authenticity. evidentiary all other Like first re- of the Plan was adoption facts, any allegations the amendment 28, 1992, April in a letter dated vealed authentication, cross- will be along all which was sent to shareholders examination, fact-finding in the Dis letter report. annual with the 1991 trict Court. stated: request Construing plaintiffs’ alternative program to insure the appropriate An

in their brief as a motion for leave reply retention, long-term financial reward Complaint to aver their Amended amend key executives is an and motivation of recently with discovered facts consistent any element in business but evidence, important we will vacate the order family business. even more critical dismissing the action as to District Court years this concern has been For several redemption I and remand the Count stock many expressed by shareholders with di- action to the District Court of Directors. the Board to file a discussed plaintiff rections to allow the ad- consultants have outside complaint upon based Several second amended Directors matter and the dressed this of the aforesaid minutes. existence pro- authorized the establishment of a applied cases that have the buried gram in March 1990. The facts Restricted doctrine have addressed situations designed “Pay Plan is where the manner disguised Stock of disclosure seriously or program keyed important Performance” which is distorted informa See, e.g., to future tion. increases the value of the Blanchette Providence & Co., 347, Company’s F.Supp. common stock values. The Worcester quite many plans Plan is similar to such (D.Del.1977)(prospectus stated at the out companies acceptance used listed it set that proposed but is more of the tender generous. restrictive and less offer would leave with shareholders “simi voting rights, lar” but information on the A description more detailed of the Plan penultimate page indicated that acceptance was set forth in the 1991 annual report at of the offer would substantially dilute “subsequent Note entitled events.” The rights); Products, those National Home relevant section of the report, which ac- Gray, Inc. v. F.Supp. 1315-16 letter, companied above-quoted stated: (D.Del.1976)(information regarding litiga In March a Restricted Stock Plan tion between company and its former pres whereby was established the Board of inadequately ident disclosed because it was may grant Directors awards of Restrict- “segmented into three parts different each ed B key Class Shares to certain em- presented in a place different in the docu ployees Company. The Plan re- shareholders”); provided ments Kohn v. stricts the sale of these shares Climax, Inc., American Metal F.Supp. employee until the earlier of years seven (E.D.Pa.1971)(200 1362-63 page award, of service from the date of the statement explaining proposed merger 65, death, attainment age perma- buried crucial information regarding the disability. nent If the employee termi- Directors’ conflicts of interests and the employment nates prior to comple- investment advisors’ lack of independence years service, tion of the seven then in appendices near the end of the docu such shares are forfeited. ment, placed but opinion advisor’s transaction was fair page 2 in bold-face The Plan provides the Company per- Here, type). hand, on the other the Re manent right of first acquire refusal to stricted Stock Plan prominently was ad any awarded shares an employee wishes contiguous dressed section of the let to sell. The acquire would ter accompanying the 1991 report, annual employee shares from the for an amount as well as in the report itself and in subse equal to fair market value of the quent annual reports. Accordingly, we shares at the time of sale less the fair hold that the buried facts doctrine does not market value of the shares at the date of apply. their award. To date no awards have granted.

been Appellants assert, also for the addition, each report annual from 1992 appeal, first time on that the descriptions through published concerning details of the Restricted Stock Plan were mislead Plan, the Restricted Stock including the ing they because describe the Plan’s bene number of shares issued during the rele- “key ficiaries as “key executives” and em period. vant time This ployees” information was rather disclosing than printed in single section entitled “NOTE Plan only would benefit manage the ten D—CAPITAL STOCK AND PER ment Appellants defendants. claim SHARE DATA.” had known that the Plan was limited defendants, they buy-out by Investcorp. proxy would The state- management to the that, issued there- explained prior redemp- have realized that the shares ment to the Stock, for than fair management’s had been issued less of under tion Restricted the consideration, to a cause of giving rise Plan Restricted Stock would be amended wrongful dilution of their action for the Company’s right to delete the of re- first allegations do not state a shares. These proxy quan- fusal. The statement failed to under the federal securities laws. claim tify the that the of benefit deletion right upon of first refusal would confer grounded in breach of Claims management defendants. management fiduciary duty improper or not under Section are actionable Appellants argue that the man In re Securi Rule 10b-5. See Craftmatic agement defendants violated Rule 10b-5 Litigation, ties 638-39 by failing proxy to disclose in the state .1990) (citations omitted). Moreover, Cir money ment the amount of that would claim plaintiff may ‘bootstrap’ “a of inure to them as a result of the of deletion fiduciary duty breach of into a federal right of first refusal. The District alleging that directors securities claim claim, holding Court dismissed this that fiduciary failed to disclose the breach of the omission was of immaterial as matter Kas, Accord, duty.” 796 F.2d at 513. law. We affirm the this dismissal of Count F.2d Chrysler Corp., Lewis v. because the shareholders had access to the (3d Cir.1991). necessary information to calculate the ex description claim that the Appellants management tent to which benefitted in appeared the Plan’s beneficiaries that deleting right of first refusal. materially the disclosure documents was right of first refusal was described expose to misleading because it failed 1991 annual report. detail management defendants’ of state breach explained beneficiary if a report incremental value law duties. “When the Plan to the Restricted Stock wished sell solely place potential is of disclosure shares, or her had the his management that investors on notice repurchase the shares for an right of a breach of faith or incom culpable to the fair market value of equal amount petence, the failure to disclose does not the shares at the time of sale minus the Craftmatic, violate the securities laws.” value on the date of their fair market Accord, Lewis, 890 F.2d at 640. right of re- By deleting award. first (management’s at failure to disclose fusal, management was able to redeem self-serving resisting corporate motive for Thus, full value. their shares their takeover was not actionable under federal should have real- reasonable shareholder laws). Accordingly, securities we dismiss get higher management ized that would prejudice Appellants’ this claim without by deleting right price for their shares court. right to file an action the state of first refusal. IV. Moreover, the shareholders had access necessary information to calcu- Finally, allegations Ap- consider the to all we man- late the exact amount of the benefit pellants put forth Count Two by deleting right agement concerns incurred complaint. amended This Count in- A who was management defen- first refusal. shareholder information only had to terested in such information allegedly dants omitted the 1997 reports to to the 1993 and 1994 annual proxy describing proposed statement look many (S.D.N.Y.1979)(holding proxy how shares were issued state- determine year pursuant to the Restricted Stock each failure of proposed ment’s to disclose cost Using reports, Plan.6 those same share- modification to stock employee incentive approximate the holders could determine plan was immaterial because shareholders (“FMV”) fair of Restricted market value computed could have an such estimate shares at the date of issuance.7 Share- provided). from the information Accord- employ following equa- holders could ingly, we will affirm dismissal of Count compute money tion to the amount of the Two of complaint. the amended management got- defendants would have right

ten for their shares had the of first V. refusal been exercised: conclusion, Court’s dis- District - (FMV 1993) x in [ 1997 FMV number portion missal of Count Two and that of (FMV + 1993] shares issued [ dealing Count One with the Restricted - 1994) x 1997 FMV number of shares Stock Plan will be affirmed. The District in 1994] issued dismissing portion Court’s order Interested shareholders could then com- dealing redemptions Count One with the pare yielded by the amount the above will be vacated and we will remand that equation to the manage- million the $66 portion of complaint to the District actually ment defendants would receive with plain- instructions to allow the Recapitalization as proposed. tiffs to amend complaint light ability shareholders’ to compute the 13, minutes, 1997 June Board and for management extent to which benefitted such further proceedings as are consistent deleting the right of first refusal opinion. with this demonstrates that the omission of this in- against Costs will be taxed the appel- proxy formation from the statemént was lees. Ash, not material. See 525 F.2d at 219 (omission of exact difference between old NYGAARD, Judge, Circuit Dissenting pension proxy and new levels in was not part. proxy supplied material when shareholders I join Majority those sections of the with necessary perform information opinion that affirm the District Court’s themselves); Wien, calculation Kahn v. Appellant’s complaint. dismissal I (E.D.N.Y.1994)(find- 842 F.Supp. 675 disagree Majority’s with the vacating and ing no material omission in letter to share- remanding redemption claim. holders when attached financial statements contained information “from which the rea- I. Judicial Notice1 perform sonable investor could simple mathematical For necessary calculations the first time in litigation, to de- this termine present Appellant’s and future values reply brief asserts the proposed transaction to parties”); Company exist, both corporate which, minutes Bennett, F.Supp. Mesh v. 481 allege, were uncovered during discov- Proxy cost, 6. "duplicate statements need not allowing and at what shareholders to financial data furnished to per shareholders in the calculate the cost share. corporation’s reports.” annual v. Ash LF E (3d Cir.1975). 1. Corp., Judicial notice is one of the F.2d oldest doctrines law, of the common traceable to the ancient reports maxim, 7. many The annual state how shares indigent probatione." non “manifesta ("That repurchased by were year each proved.”) which is known need not be York, and, adjudicative An fact “not action in New is one ery in another (1) after the District Court obviously, long dispute reasonable in that it is either 12(b)(6) (2) motion. this cause on generally capable dismissed ... or of accu known I not reverse the District Court would ready through rate and determination un this basis. questionably reliable sources.” See Fed. 201(b); R. Evid. In re Sodium First, noticing corporate Warfarin judicially these Litigation, 214 Antitrust F.3d change the stan- nothing minutes does Cir.2000); Carr, United States analysis the District Court used dards (3d Cir.1994). 1194, view, In my 1202 n. 3 complaint pursuant to reviewing the (and corporate these minutes whatever 12(b)(6). majority All fed. R. Civ. P. the mean) by Majority relied the on do by allegation device is the has this 201(b). not fit within the criteria of Rule corporate some minutes were transcribed by Company after a and filed the Werner Third, any judicial before court takes I meeting. of Director’s can well Board fact, permit notice a we should both suppose that this was done numerous parties opportunity an to be heard the on indeed, probably every after Board times— question judicial prop- of whether notice is This act is irrele- meeting. of Director’s 201(e). er. fed. R. Evid. Fundamental vant to the determination of whether the judi- requires taking fairness that before properly dismissed this District Court minutes, cial notice of these we should solely upon pleadings.2 the claim based given Appellee opportunity have the an to Second, judicial premised notice is on challenge doing so. An propriety that a concept that certain facts exist reply argu- issue raised in a brief and oral may accept requiring court as true without eg. ment do not suffice. v. See USA opposing parties. from the proof additional (5th Damato, 1371, 9, 10 554 1374 nn. Capital Corp. v. See General Electric Cir.1977). appellate an court de- When 1074, Corp., Lease Resolution 128 F.3d augment by sires to the record evi- new Cir.1997). (7th way, ju- Put another dence, court, trial not offered adjudicative an device dicial notice is parties hearing court should afford the a may accep- use to courts substitute taken, judicial on should be whether notice truth for tance of a universal the conven- opportunity an to examine the new evi- introducing tional method of evidence. Id. thereon, op- dence and comment and the device, therefore, employment of this any to portunity to offer new evidence caution, demands and courts should strict- Doss, rebut the same. USA v. 563 F.2d ly adhere to the criteria established (6th Cir.1977). 265, 285 n. 5 taking Federal Rules of Evidence before pertinent notice of facts. II. New Evidence Presented empowers Federal Rule of Evidence 201 Reply in a Brief judicial adjudi- to take notice of an court Major- Equally troubling to me as the cative if that fact is “not fact added). ity’s judicially noticing discovered evidence dispute.” (emphasis reasonable during appellate process to reverse the corporate minutes discovered after Court, fact that the issues case had been dismissed District is the Dis- “adjudicative emanating corporate are from these minutes trict Court facts.” summary Majority plaintiffs judgement. It is a 2. The asserts that al. This is not dismissal, (b)(6) precluded engaging discovery R. Civ. P. 12 and must be "were Fed. pleadings. Discovery solely on in the District Court.” is immateri- decided added); (Emphasis the trial see Appel for the first time court.” were raised (3d INS, 667, Appellate The Rules of also Sewak v. 900 F.2d reply lant’s brief. Cir.1990) (“As provision allowing appellate no an court we do not Procedure contain presented appeal, testimony, take hear evidence or deter for new issues to be ”). Circuit, A reply reply disputed alone in a brief. brief is mine facts.... In this let ap improper augmentation for the of the record opportunity like rebuttal —an “is condoned, arguments ap- not to be and can constitute an pellant “reply” adequate at a time an entire pellee, dismissing not to raise a new issue basis Inc., appellee respond. appeal.” Sprout-Bauer, when the cannot That O’Keefe (3d Cir.1980). Procedure, is unfair. The Rules of Civil 970 F.2d As we however, remedy specifically Kappa Epsilon, do said in v. Delta provide Fassett Cir.1986), If eventuality. party for this cert. written denied, judgment discovers new evidence after 481 U.S. 107 S.Ct. entered, 872, (1987), appropriate procedure only proper for L.Ed.2d “[T]he us, stay party request appeals is to from and function of a court of is to review move the District Court for relief from the decision below on the basis 60(b). judgment its under fed. R. P. that ivas record the District Court.” Civ. before added.) present permits party (emphasis This new evi maintaining integrity dence while processes

the trial and review of our re III. Conclusion courts, spective places the initial anal I summary, dissent for three reasons. evidence, ysis admissibility, its First, judi- I Majority’s believe the use of significance, jurisdiction its within the Second, improper. cial notice is because belongs. the District where it Court Cf. this issue was raised for the first time in States, Standard Oil Co. v. United brief, Appellant’s reply I would not 17, 19, 31, 32, U.S. 97 S.Ct. 50 L.Ed.2d 21 Third, consider it. the Rules of Civil Pro- (1976) (appellate required leave not specifically provide appropriate cedure 60(b) District to rule on Rule mot procedural pathway, evidently ap- which ion).3 60(b) Rule method is the for ac pellant’s counsel failed to follow. I would commodating new concerns created affirm the respects. District Court all new process, evidence. This and not an expansion appellate powers, court’s

should be used when new evidence is dis judgnent

covered following a district

court. jurisprudence

Our is likewise clear. We

stated in rel. United States ex Bradshaw v. (3rd

Alldredge, 432 F.2d Cir.

1970), is, course, “It black law letter Appeals may

United States Court of material purported

consider evidence brought upon was not the record in application 3. Even where the of Rule extraordinary is new evidence absent circum limitations, one-year CIA, barred its statute of it stances. See Goland v. inappropriate appellate for an court re (D.C.Cir. 1978). 370-71 mand the case to the district court to consider

Case Details

Case Name: Werner v. Werner

Court Name: Court of Appeals for the Third Circuit

Date Published: Sep 27, 2001

Citation: 267 F.3d 288

Docket Number: 99-3715

Court Abbreviation: 3rd Cir.