Court Opinion

ID: 8913470
Source: CourtListenerOpinion
Date Created: 2022-11-27 04:00:55.062066+00
Date Added: 2024-06-11T17:08:45.175002
License: Public Domain

SWYGERT, Circuit Judge,
dissenting.
I respectfully dissent from the holding of the majority and would reverse the judgment of the district court.
I
I disagree with the majority’s holding that the jury could permissibly have imposed liability against Zenith as the result of a breach of contract. In my judgment, neither an express nor an implied contract for the future employment of McGrath, with concomitant stock purchase opportunities and a possible bonus, was established by the evidence as a matter of law. McGrath testified that Fisher said that “it would have to be that there would be no contract.” Fisher’s additional statement to McGrath about the latter being the “heir apparent,” expressed at most a future event entirely speculative — a conjectural not a guaranteed reality.1
*475II
I cannot agree with the majority’s conclusion that the alleged misrepresentations to McGrath about his future employment relationship with Basford or its successor constituted fraud under section 10(b) of the Securities Exchange Act in connection with either the sale of his shares of Basford stock or the relinquishment of his conditional option to purchase additional shares. As for the sale, the alleged misrepresentations were made with respect to McGrath’s future employment, not the sale of his securities. McGrath participated in negotiating the thirty-eight dollar price per share he and the other shareholders received for their stock. That price was agreed upon before the alleged misrepresentations were made, and it was stipulated at trial that the price was fair. No present employment opportunities or promises of future employment entered into the considerations given to fixing the price per share. Moreover, if such promises had caused a lower price, McGrath would have been given an unfair preference over the other Basford shareholders. McGrath’s claim that he was misled would have resulted, if his claim of liability under Rule 10b-5 were allowed, in a serious wrongdoing at the expense of the other Basford shareholders. The sale as it stood netted him a $40,000 profit.
McGrath’s claim that the relinquishment of his option to purchase additional shares of Basford stock constituted fraud in connection with the purchase of a security giving rise to liability under Rule 10b-5 is in my judgment contrary to the majority view, controlled by Manor Drugs v. Blue Chip Stamps, 421 U.S. 723, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975). See also International Brotherhood of Teamsters v. Daniel, 439 U.S. 551, 99 S.Ct. 790, 58 L.Ed.2d 808 (1979). Manor Drugs’ decision to surrender its opportunity to buy Blue Chip shares was held to afford no basis for a Rule 10b-5 claim, even absent any preconditions to an exercise of that opportunity. Here, McGrath’s opportunity to buy additional Basford shares was not unqualified but was subject to his continued employment for at least three years. The fulfillment of that condition was conjectural to say the least. A fortiori this case has less connection with the purchase of a security than Manor Drugs.
III
I am also unable to agree with the majority ruling that the alleged misrepresentation to McGrath about his becoming president of Basford or its successor constituted common law fraud in connection with McGrath’s sale of Basford shares or the relinquishment of his conditional opportunity to buy additional shares.
The misrepresentations were made in connection with McGrath’s future employment, not the sale of his Basford stock. He had participated in setting the thirty-eight dollar figure he and the other shareholders received, and it was stipulated at trial that the price was fair. Significantly, the price per share was negotiated long before the alleged misrepresentations were made.
Plaintiff argues that had he been told of Fisher’s conversation with Forni, he might have blocked Zenith’s acquisition of Basford by refusing to sell his Basford shares or to give up his conditional opportunity to buy more. McGrath, howeyer, could not have effectively blocked the sale or kept his opportunity to buy. His right to keep his shares and the opportunity to buy more shares were contingent upon his continued employment by Basford. He could have been fired at any time. Under the terms of his contract, his right to buy more shares would have been extinguished, and he could have been forced to sell both his acquired shares to the employee stock trust at less than book value.
IV
Given my view of the case, P would not reach the question of damages. But if I *476did, I am of the opinion that the award of punitive damages in any amount was improper.
Punitive damages are not favored by the law and should be awarded only under extraordinary circumstances. Actual intent to injure a plaintiff is required. Here no such intent was demonstrated by the evidence. Rather, it shows that Fisher prevailed upon Forni to wait several months before making any decision about McGrath’s future and that he was not in fact fired until after Forni had observed McGrath’s performance for four months under the new organization.2 In addition, Fisher arranged benefits for McGrath more generous than those customarily given by Zenith or Basford. Forni furnished written reference to McGrath, and Fisher offered to serve as a reference. Finally, Zenith helped McGrath to find a comparable executive job with Fleetwood, a Canadian company. Surely these gestures of helpfulness by the defendants towards McGrath refute any malicious intent to harm him. To award him one million dollars in punitive damages in these circumstances is to work a grave injustice instead of rectifying one.

. Immediately after being told that Zenith did not offer employment contracts to their executives, McGrath signed the following waiver, which makes no mention of any additional promises, implied or otherwise:
Robert Edward McGrath (“McGrath”) and Zenith Radio Research Corporation (“Zenith”) agree as follows:
1. If Zenith acquires all of the outstanding Class B common stock of H. R. Basford & *475Company pursuant to a certain agreement by and between the shareholders of H. R. Bas-ford & Company, H. R. Basford & Company, and Zenith, then McGrath agrees to rescind that certain agreement dated August 18, 1971, between H. R. Basford & Company and Robert Edward McGrath, and Zenith agrees to cause H. R. Basford & Company to agree to such rescission.

. During that time, for example, McGrath escorted a group of Basford customers on a trip to Spain but let the customers return on their own, while he remained in Spain to extend his vacation.