Opinion ID: 599066
Heading Depth: 1
Heading Rank: 1

Heading: A) Procedural Posture

Text: 2 This dispute originated from a stock purchase agreement under which Holding agreed to purchase Medcom, a Baxter subsidiary. Holding's complaint against Baxter included claims for breach of the stock purchase agreement, common law fraud, and securities law violations. Holding's and Baxter's dispute over their agreement advanced to trial in 1990, after which the jury returned a verdict in favor of Holding on all counts and awarded compensatory and punitive damages. The jury made specific findings on numerous claims, including a finding that Baxter breached the Stock Purchase Agreement as it relates to Entertainment Partners, Inc. (R. 471 at 3.) Because the amount of damages was not rationally related to the verdict, Judge Conlon ordered a new trial on the issue of compensatory damages. (R. 492.) Judge Conlon also referred Holding's request for both an accounting of the assets and liabilities of Entertainment Partners, Inc. (EPI) and for an order of specific performance of the agreement with respect to EPI to a magistrate. (R. 491.) The magistrate recommended that the court grant Holding's request for an accounting and specific performance, and the court adopted this recommendation. (R. 592 & 593.) Baxter then filed its notice of appeal on the specific performance issue in this court. After a second trial in 1992 on compensatory damages, the jury returned a $9 million verdict on the Rule 10b-5 claim and a $4.3 million verdict on the breach of contract claim. (R. 615.) Because the court found that the jury's $9 million damage award on the securities fraud claim was not supported by the evidence, the court vacated this judgment as well, and a third trial is now pending on the issue of compensatory damages. (MEMORANDUM OPINION AND ORDER, 3/24/92, 1992 WL 67873, filed in this court 9/23/92.) 1 In an order dated September 23, 1992, we directed the district court to delay the third trial on damages until the issuance of our judgment and opinion in this appeal. B) The Stock Purchase Agreement 3 In 1986, Holding and Baxter agreed that Holding would purchase all of the stock of Medcom, Inc. (Medcom). The stock purchase agreement (JX 1) listed a $10,000 investment in EPI as one of Medcom's assets. The record reveals the following history of Medcom's relationship with EPI. Medcom originally subscribed to all 100 shares of the common stock of a company named Entertainment Two Film and Television Company, Ltd. (Entertainment Two) for a price of $10,000, making Entertainment Two a wholly-owned subsidiary of Medcom. In 1983, Medcom's directors declared a dividend of all shares in Entertainment Two to Medtrain, Inc. (Medtrain), another Baxter subsidiary. (PX 125.) Although this dividend was recorded in Medcom's corporate records, Medcom did not delete Entertainment Two from its assets. Medtrain later changed the name of Entertainment Two to Entertainment Partners, Inc. (PX 148.) This name change--which occurred after the dividend to Medtrain--was reflected on Medcom's balance sheet. (JX 2 at Ex. 3.) Although Medcom no longer owned or had any investment in EPI, it continued to carry EPI on its list of assets throughout the negotiations with Holding. 4 On the first page of the agreement, Baxter promised: 5 At the Closing ..., [Medcom] will own, directly or indirectly, all of the capital stock of each of the companies listed on Schedule 4 attached hereto (the Subsidiaries), including without limitation, the stock of Trainex Corporation, a Delaware corporation. 6 (JX 1 at 1). Among the subsidiaries listed at Schedule 4 was: 2. Investment of $10,000 in Entertainment Partners, Inc. (See Schedule 1). (JX 1 at Schedule 4.) Schedule 1, entitled Liens, Encumbrances, Etc., listed EPI and claimed that Investment in Entertainment Partners, Inc. (see Schedule 4) is not documented and no interest or dividend payments have been received. (JX 1 at Schedule 1.) The other provision of the agreement that is important in this appeal is the Assets and Title paragraph. 7 The Company or a Subsidiary has good and marketable title to, and exclusive ownership of all of the right, title and interest in and to, all of the assets of the Business, tangible and intangible (including, without limitation, trademarks, trade secrets, patents and patent applications and trade names), free and clear of any mortgage, lien, pledge, charge, claim or encumbrance, except as disclosed on Schedule 1.... 8 (JX 1 at 10.) The $10,000 investment in EPI was also separately listed as an asset on 1) the balance sheet in Baxter's offering memorandum for Medcom, Inc.; 2) the balance sheet attached to the agreement and; 3) the Closing Balance Sheet. 9 At the closing, Baxter did not convey any EPI stock to Holding. The only issue before us in this interlocutory appeal is whether the grant of specific performance by the district court is an appropriate remedy for Baxter's breach of the agreement with regard to EPI. We affirm.