*The HONORABLE JAMES M. ROSENBAUM, United States

District Judge for the District of Minnesota,

sitting by designation.

___________

No. 95-3328

___________

Comprehensive Care Corporation, *

 *

Appellee, *

 * Appeal from the United 

v. * States District Court for

 * the Eastern District of

RehabCare Corporation, * Missouri

 *

Appellant. *

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Submitted: June 10, 1996

Filed: October 22, 1996

___________

Before RICHARD S. ARNOLD, Chief Judge, MORRIS SHEPPARD ARNOLD, Circuit

Judge, and ROSENBAUM, District Judge. *

___________

ROSENBAUM, District Judge.

Comprehensive Care Corporation (“CompCare”) was the parent of its

wholly-owned subsidiary, RehabCare Corporation (“RehabCare”) until mid1991. Subsequent to this time, however, CompCare required additional

funding. To secure these funds, CompCare contractually allowed RehabCare

to purchase a number of RehabCare shares. RehabCare purchased the shares

from CompCare in October, 1992. Thereafter, CompCare claimed RehabCare

breached the share-purchase contract. CompCare brought claims of

securities fraud, breach of contract, and common law fraud. A jury

returned a $2,581,250.00 verdict in CompCare’s favor. In April,

1995, the district court
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entered judgment in the amount of the jury award. RehabCare

appeals the district court’s entry of judgment. We reverse.

I.

Since mid-1991, CompCare has twice sold major portions of its

RehabCare stock. CompCare sold the first portion of its RehabCare

shares in a public offering, retaining 48 percent of RehabCare’s

stock, in mid-1991. As part of this transaction, CompCare obtained

two seats on RehabCare’s board of directors. During the summer of

1992, CompCare decided to sell its remaining RehabCare stock.

CompCare approached RehabCare, and RehabCare indicated it was

willing to purchase the stock. 

In early August, 1992, the parties agreed in principle that

RehabCare would buy 1,875,000 shares of its stock for $8 per share.

Thereafter, at CompCare’s August 26, 1992, board meeting,

CompCare’s president reported that another buyer was willing to

purchase the stock at $10 per share or more. No such offer was

tendered, however, and CompCare needed to conclude the sale. At

the August 26 meeting, the CompCare board authorized the stock sale

to RehabCare.

On August 27, 1992, CompCare and RehabCare representatives met

to discuss the pending transaction. During that meeting, RehabCare

received a letter from Continental Medical Systems, Inc. (“CMS”),

offering to acquire RehabCare for $10 per share. Knowing of this

offer, CompCare agreed to sell the 1,875,000 shares to RehabCare

for $8 per share on the condition that, if RehabCare were acquired

within 12 months of the redemption, RehabCare would pay CompCare

the amount by which the sale price exceeded $8 per share. The

parties referred to these "stock appreciation rights" as “SARs”.

The parties signed a letter of intent embodying these terms, and on

September 1, 1992, the redemption agreement was executed.
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Meanwhile, during early August, 1992, RehabCare prepared a

shareholder rights plan (a “poison pill”) for consideration by its

board of directors. Under the plan, if a purchaser acquired a

certain percentage of RehabCare stock, the acquisition would confer

preferred share rights on existing shareholders. On August 19,

1992 -- 13 days before the execution of the CompCare/RehabCare

stock redemption agreement -- written materials, including a

summary of the proposed plan, were sent to RehabCare’s directors.

At that time, CompCare’s two RehabCare board representatives were

James Carmany and Harvey Felsen, each of whom received a copy of

the August 19, 1992, materials. Carmany was CompCare’s president

and chief executive officer until August 26, 1992. Felsen was a

CompCare director and one of three members of CompCare’s executive

committee. RehabCare’s board adopted the poison pill on September

21, 1992.

Also in August, 1992, when CMS first offered to acquire

RehabCare, RehabCare’s board decided the $10 per share offer was

too low. As a result, on August 28, 1992, Rehabcare told CMS it

was not interested in being acquired. On October 8, 1992, CMS

raised its RehabCare bid to $11.25 per share. On October 15, 1992,

RehabCare’s board met and decided $11.25 per share was still too

low. Although CMS and RehabCare continued to communicate, CMS did

not make another offer to acquire RehabCare. RehabCare was not

acquired within 12 months of the CompCare stock purchase.

CompCare filed this action on October 30, 1992, alleging

securities fraud under § 10(b) of the Securities Exchange Act of

1934, 15 U.S.C. § 78j(b), and Rule 10b-5, breach of contract, and

common law fraud. CompCare alleged that under the redemption

agreement, RehabCare had a duty to pursue an acquisition. CompCare

asserts that RehabCare breached this duty by adopting a poison pill

and by refusing to negotiate with CMS. After a nine-day trial, the
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jury returned a verdict in favor of CompCare on two of three

securities fraud claims and on its breach of contract claim. The
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jury found in favor of RehabCare on the common law fraud claims,

and was unable to reach a verdict on CompCare’s third securities

fraud claim. In April, 1995, the district court entered judgment,

pursuant to Rule 54(b) of the Federal Rules of Civil Procedure.

II.

A.

RehabCare first argues it did not breach its contract with

CompCare, asserting that the redemption agreement did not impose a

duty to pursue an acquisition. Whether the redemption agreement

imposed such a duty on RehabCare is a question of law, which we

review de novo.

We begin with the plain words of the parties’ September 1,

1992, redemption agreement. The agreement provides that, “[i]f

within [12 months of the closing date] there occurs a ‘Change of

Control Event’ . . . of RehabCare, then RehabCare will be required

to pay CompCare” an additional sum. As a matter of law, this is not

the language of a promise. Such language, instead, creates a

condition precedent. Absent the occurrence of the contractuallyagreed “Change of Control Event,” the clause imposes no obligation

on RehabCare.

Our decisions differentiate between a promise and a condition.

“A promise is an assurance from one party that performance will be

rendered in the future, given in a manner that the other party

could rely on it.” United States v. Gerth, 991 F.2d 1428, 1434

(8th Cir. 1993). A condition, by contrast, “creates no rights or

duties in and of itself, but only limits or modifies rights or

duties.” Id. The SAR language contained no assurance that

RehabCare would pursue an acquisition. The language was, instead,

a conditional clause. See, e.g., Standefer v. Thompson, 939 F.2d

161, 164 (4th Cir. 1991) (phrases such as “if,” “provided that,”
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“when,” “after,” “as soon as,” and “subject to” traditionally

indicate conditions, not promises).
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Further, contrary to CompCare’s assertions, the implied

covenant of good faith and fair dealing did not impose on RehabCare

the duty to pursue an acquisition. The law does not allow the

implied covenant of good faith and fair dealing to be an

everflowing cornucopia of wished-for legal duties; indeed, the

covenant cannot give rise to new obligations not otherwise

contained in a contract’s express terms. Glass v. Mancuso, 444

S.W.2d 467, 478 (Mo. 1969). The implied covenant simply prohibits

one party from “depriv[ing] the other party of its expected

benefits under the contract.” Morton v. Hearst Corp., 779 S.W.2d

268, 273 (Mo. Ct. App. 1989) (citing Martin v. Prier Brass Mfg.

Co., 710 S.W.2d 466, 473 (Mo. Ct. App. 1986)); see also American

Business Interiors, Inc. v. Haworth, Inc., 798 F.2d 1135, 1142 (8th

Cir. 1986) (“Each party must do nothing destructive of the other

party’s right to enjoy the fruits of the contract and do everything

the contract presupposes they will do to accomplish its purpose.”).

Here, RehabCare did nothing that deprived CompCare of its

expected contractual benefits. Certainly, the SARs had no value

absent RehabCare’s acquisition, but this is no more than can be

said whenever a contractual condition precedent does not occur.

CompCare gambled that RehabCare would be acquired within a year of

the execution of the redemption agreement. Its gamble did not pay

off.

We similarly reject CompCare’s assertion that the implied

covenant of good faith and fair dealing imposed a fiduciary duty on

RehabCare that barred its adoption of a poison pill. The implied

covenant of good faith and fair dealing “does not transform a

business relationship into a fiduciary relationship.” W.K.T.

Distrib. Co. v. Sharp Elecs. Corp., 746 F.2d 1333, 1337 (8th Cir.

1984) (citing Bain v. Champlin Petroleum Co., 692 F.2d 43, 47 (8th
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Cir. 1982)). CompCare’s implied covenant claims permit no recovery

against RehabCare on these facts. 
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B.

RehabCare further argues that CompCare’s securities fraud

claims must fail because, as a matter of law, CompCare knew all

facts material to the redemption transaction. We agree. CompCare

claims the securities fraud occurred when RehabCare failed to

disclose its consideration of a poison pill. But CompCare’s two

representatives on RehabCare’s board of directors knew, well before

the redemption agreement was executed, that RehabCare was

considering this plan.

Knowledge obtained by a corporation’s key employees, officers,

and directors, obtained in the course of their duties, is generally

imputed to the corporation. Acme Precision Prods., Inc. v.

American Alloys Corp., 422 F.2d 1395, 1398 (8th Cir. 1970);

Beetschen v. Shell Pipe Line Corp., 248 S.W.2d 66, 73-74 (Mo. Ct.

App.), aff’d on other grounds, 253 S.W.2d 785 (Mo. 1952). We

recognize, of course, that if the employee, officer, or director

has an interest adverse to the corporation, his knowledge is not to

be imputed. First Nat’l Bank of Sikeston v. Transamerica Ins. Co.,

514 F.2d 981, 986 (8th Cir. 1975) (citing In re Torreyson’s Estate,

442 S.W.2d 110, 117 (Mo. Ct. App. 1969)). This exception is not

available here.

CompCare’s representatives sat on RehabCare’s board through an

explicit agreement between the two corporations. Their presence

was at CompCare’s behest and was in -- and not opposed to --

CompCare’s interest. As such, the knowledge of CompCare’s

directors on RehabCare’s board must be imputed to CompCare.

CompCare’s securities fraud claims must fail.

III.

For the foregoing reasons, we reverse the judgment of the

district court.
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A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.