Opinion ID: 562304
Heading Depth: 2
Heading Rank: 2

Heading: Misstatements

Text: 27 Plaintiff also argues that defendant Carl Sr. made a material misrepresentation which induced him to sell his stock for less than its actual value. Plaintiff contends that defendant Carl Sr. knew that plaintiff trusted him to be fair and relied on his superior financial knowledge. Plaintiff alleges that defendant took advantage of that trust and told him that he would be taking the same deal when he sold his own shares of stock to the Company when he actually had no intention of doing so. Plaintiff contends that the remark, I'm going to take the same deal, was a material misrepresentation on which plaintiff reasonably relied. Plaintiff testified that he believed the remark meant that defendant would receive the same price for his stock when he retired as that proposed to plaintiff. Plaintiff therefore assumed that the price offered was fair and failed to obtain an independent evaluation or to negotiate the price. However, when Carl Sr. sold his shares of stock five years later, he did not take the same deal. Instead, defendant obtained an independent appraisal and received a price of $338 per share rather than the $10 per share plaintiff received for his nonvoting stock and the $50 per share he received for his voting stock. 28 To establish a violation of Sec. 10(b) of the Securities Exchange Act, plaintiff has the burden of establishing that this alleged misrepresentation about taking the same deal was (1) one of material fact, (2) made with scienter, (3) on which plaintiff reasonably relied, (4) which proximately caused plaintiff's injury. Lucas v. Florida Power & Light Co., 765 F.2d 1039, 1040 (11th Cir.1985); Huddleston v. Herman & MacLean, 640 F.2d 534, 543 (5th Cir.1981), modified on other grounds, 459 U.S. 375, 103 S.Ct. 683, 74 L.Ed.2d 548 (1983). 29 This court must first determine whether plaintiff reasonably considered the remark, I'm going to take the same deal, to be an assessment of the fairness of the price offered. 6 On a summary judgment motion, the facts must be construed in favor of the nonmoving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970); Adams v. Union Carbide Corp., 737 F.2d 1453, 1455 (6th Cir.), cert. denied, 469 U.S. 1062, 105 S.Ct. 545, 83 L.Ed.2d 432 (1984). However, even if this statement is construed as plaintiff alleges he construed it, we question whether the statement constitutes a material fact indicating a fair price. With respect to the Exchange Offer for the nonvoting stock, at the time the alleged remark was made, defendant was still active in the management of the Company and not eligible to participate in the Exchange Offer, a fact of which plaintiff was aware. In regard to the voting stock, defendant in 1980 had no way of knowing the unpredictable fluctuations that the Company and the financial markets might experience during the ensuing years or what the stock would be worth at the time of his retirement. We therefore find it unlikely that a reasonable shareholder would consider this remark to be material. Information is material if it would be considered significant to the trading decision of a reasonable investor. Basic, Inc. v. Levinson, 485 U.S. 224, 108 S.Ct. 978, 986, 99 L.Ed.2d 194 (1988). Because the date of defendant's retirement had not been decided, defendant was not in a position to speculate about the value of the stock at an unknown future date. 30 Plaintiff contends that even if defendant did not know the exact price he would receive in five years, he did know that he would not be taking the same deal because the stock had a greater value than that offered to plaintiff. Although misrepresentations of future acts may be the basis of a fraud claim when there is no intent to perform these promises, Street v. J.C. Bradford & Co., 886 F.2d 1472, 1483 n. 30 (6th Cir.1989), plaintiff offers no probative evidence that defendant knew at the time of the sale that he would not be taking the same deal because the stock was worth more than the price that was being offered to plaintiff. Without probative evidence that at the time of the sale, defendant was withholding a material fact relative to the value of the stock which he had a duty to disclose, plaintiff's argument fails. Plaintiff conceded in his deposition that he knew of no such fact except that his brother did not take the same deal. However, the fact that five years later after conducting an independent appraisal, defendant received a far greater price than plaintiff did for the sale of his stock is not probative evidence of defendant's knowledge or intentions at the time of the sale of plaintiff's stock. Plaintiff's failure to establish scienter provides an independent basis for dismissing his claim of a violation of Sec. 10(b). See, e.g., Bryson v. Royal Business Group, 763 F.2d 491, 493-94 (1st Cir.1985); In re Phillips Petroleum Securities Litigation, 697 F.Supp. 1344, 1351-53 (D.Del.1988), aff'd in relevant part, 881 F.2d 1236 (3rd Cir.1989). 31 Moreover, we believe it was unreasonable for plaintiff to rely on this statement to assure himself that he was being paid a fair price for his stock, especially when he had access to all the relevant information possessed by the Company and could have investigated and judged the price for himself or requested an appraisal. See Dupuy v. Dupuy, 551 F.2d 1005, 1014 (5th Cir.) (general principles of equity suggest that only those who have pursued their own interests with care and good faith should qualify for the judicially created private 10b-5 remedies), cert. denied, 434 U.S. 911, 98 S.Ct. 312, 54 L.Ed.2d 197 (1977). 7 In the present case, it was not reasonable for plaintiff to assume that defendant's statement represented an unchangeable prediction of the value of the stock in the coming years. It would be impossible to predict years in advance the fluctuating value of the stock in a business which is subject to peaks and valleys as the showcase display industry is. Moreover, no reasonable person would rely on a person's stated intention to accept a fixed price for the value of his stock even if it were to increase in value. Reasonable reliance on an alleged misstatement is necessary in order to state a Sec. 10(b) claim. See Holdsworth v. Strong, 545 F.2d 687, 694 (10th Cir.1976), cert. denied, 430 U.S. 955, 97 S.Ct. 1600, 51 L.Ed.2d 805 (1977); Rogen v. Ilikon Corp., 361 F.2d 260, 268 (1st Cir.1966). Because plaintiff has failed to make a sufficient showing that the alleged misrepresentation about taking the same deal was a material fact, made with scienter, on which he reasonably relied, the district court was correct in granting defendants' motion for summary judgment on this issue.