Opinion ID: 571318
Heading Depth: 3
Heading Rank: 1

Heading: James Kidder

Text: 36
37
38 We first find that Kidder owed no duty of disclosure to Camp. To determine whether a duty between individuals exists, we look, as stated previously, to state law, federal law, or the nature of the relationship between the individuals. See, e.g., FDIC, 885 F.2d at 433 (federal law); Jordon, 815 F.2d at 436 (state law); Roberts, 857 F.2d at 653-54 (relationship between the parties). Since transactions in this case occurred between the directors of a closely held corporation, and this is an area still highly regulated by the states, Jordon, 815 F.2d at 436, we look first to state law. 39 CPI is a Kansas corporation with its principal place of business in that state. Therefore, we look to Kansas law to determine whether Kidder had a duty to disclose to his co-director, Camp, information concerning the sale of CPI. In the purchase or sale of corporate shares, Kansas imposes a fiduciary duty between directors the same as if a transaction occurred between a director and a stockholder. Oberhelman v. Barnes Investment Corp., 236 Kan. 335, 690 P.2d 1343, 1347 (1984). Under Kansas law a director must disclose material information to a shareholder before buying from or selling to him. Blakesley v. Johnson, 227 Kan. 495, 608 P.2d 908, 914 (1980). However, no cases extend this duty to directors not squarely involved in the stock transaction as sellers or purchasers. 40 Here, Kidder was not a party to the stock transaction among Camp, Dema, and Millwee. Additionally, Kidder was a minority shareholder and a director in name only. He had no role in corporate management or policymaking. For the most part, Kidder was kept in the dark about the negotiations with First Actuarial, and, at the time he approved of negotiations for the sale of CPI, he was under the belief that the Camp stock sale had been consummated. Accordingly, we hold that Kansas law imposed no duty of disclosure under the circumstances established in this matter. 41 Although Kansas law does not establish a duty between Kidder and Camp, our analysis does not end there. The relationship between the parties may nevertheless rise to the level of a fiduciary one. To determine this we examine the relationship in light of the Roberts test mentioned earlier. 42 First, the relationship between Camp and Kidder was that of co-directors and not one of trust and confidence. 43 Second, Kidder's access to information was no greater than Camp's. Kidder owned fifteen shares of stock, a minority status when compared to Camp's 870 shares. Although Kidder attended a meeting where the possible sale of CPI was discussed, Kidder was not privy to specific information concerning the negotiations. Kidder was told that two parties had expressed an interest in buying or merging with CPI, when in fact only one party was interested. This deception indicates a deliberate attempt to keep Kidder in the dark about the sale of CPI. Additionally, Kidder was told that Camp's sale to Dema and Millwee had been consummated, and Kidder, therefore, had no reason to suspect that Camp was either entitled to the information or had not received it. 44 Third, Kidder received no benefit from Camp's sale of his stock. Camp asserts that bonuses received by Kidder were hush money--i.e. payments for the purpose of keeping Kidder from disclosing to Camp the sale of CPI. Kidder claims that the payments were in reality bonuses for outstanding performance and for training a new employee. Camp produces no evidence to refute these claims. No attempt is made to link the amount of the bonuses to the number of shares sold by Kidder and the per share price First Actuarial was willing to pay for CPI. Further, Camp failed to show that Kidder's bonuses represented atypical business practices by CPI. 45 Fourth, Camp placed no reliance on Kidder. Although Camp informed Kidder that he had been frozen out of CPI and that Dema and Millwee had committed serious fiduciary breaches, this, without more, does not establish reliance. Camp did not discuss his sale of stock with Kidder or seek any advice from him. 46 Finally, Kidder did not initiate the Camp transaction or take any action to induce the sale. 47 Finding none of the five factors satisfied, we conclude that a fiduciary relationship requiring a duty to disclose did not exist between Camp and Kidder. Cf. Lanza, 479 F.2d at 1289 (stating that a director not participating in a transaction owes no duty to insure that all material, adverse information is conveyed to prospective purchasers of the stock of the corporation on whose board he sits.). 48
49 Because Kidder did not owe Camp a duty to disclose, the knowledge requirement may not be satisfied by recklessness. See FDIC, 885 F.2d at 432-33. To satisfy the knowledge requirement, Camp must show that Kidder had at minimum a general awareness of the primary parties' violation of the securities laws. Id. at 430-31. This he fails to do. 50 Kidder was unaware of the negotiations with First Actuarial or the amount of information received by or withheld from Camp. Kidder voted to authorize Dema and Millwee to pursue serious negotiations to sell or merge CPI, agreed to sell his stock for approximately the same price he had paid for it, and waived his preemptive rights in the sale of the Camp stock. These actions were not so atypical as to make them suspect. See Woods, 765 F.2d at 1012. All of Kidder's actions combined fail to serve as a base from which knowledge can be inferred. Accordingly, we hold that this element is not satisfied. 51
52 Having determined that Kidder had no knowledge of a securities laws violation, we discuss substantial assistance only briefly. 53 Camp contends that Kidder's sale of stock, his affirmative vote approving serious negotiations between CPI and potential purchasers, and his waiver of preemptive rights constituted affirmative acts which substantially assisted a securities laws violation. However, as we stated earlier, there must be a substantial causal connection between the culpable conduct of the alleged aider and abettor and the harm to plaintiff. Metge, 762 F.2d at 624. No such causal connection exists here. Kidder's sale of stock did not make it possible or easier for Dema and Millwee to acquire Camp's stock, nor did his vote authorizing serious negotiations with prospective purchasers of CPI. No evidence suggests that Camp's sale was in any way contingent on Kidder's sale or that Dema and Millwee would have foregone purchasing Camp's stock without Kidder's vote approving serious negotiations. 54 Camp had already filed various lawsuits against CPI, Dema and Millwee, for which they all sought settlement. As part of their efforts to compromise, Dema and Millwee agreed to purchase Camp's stock. Camp himself was anxious to sell his stock because he was under a financial squeeze. In light of this, it is difficult to believe, as Camp suggests, that Kidder's actions were somehow causally connected to Camp's sale and the securities laws violation. 55 Additionally, Kidder's waiver of preemptive rights was not unusual. Kidder was a one-percent minority shareholder and terminated his employment with CPI in 1988, after training another employee. His lack of interest in acquiring further shares is not surprising. There is not the slightest indication which suggests that, in the absence of First Actuarial's offer, Kidder would have continued holding his stock after leaving CPI. Again, we fail to see any causal connection between Kidder's actions and Camp's sale. 56 Camp has failed to demonstrated that Kidder either had the requisite knowledge of a securities laws violation or that he substantially assisted it. Therefore, we find Kidder did not aid and abet a securities laws violation.