relevant to the 1981 joint venture agreements. In claiming that U.S. News withheld information relevant to a valuation of its real estate, plaintiffs point only to the fact that U.S. News did not furnish American Appraisal with certain studies analyzing real estate development possibilities, prepared prior to the negotiation of the joint venture agreements. Included in this category of information were a study conducted by the law firm of Arnold & Porter dated January 28, 1981, analyzing real estate development and sale possibilities; discussions in April 1980 with the Oliver T. Carr Company concerning development of a portion of the magazine's excess real estate, and a report dated December 8, 1980, prepared by Julien Studley, Inc., again concerning possible development plans.
Plaintiffs have made absolutely no showing of any relevance that the above information would have had for an appraisal of U.S. News' interests in the joint ventures as they were actually formalized. Nor have they adduced any evidence indicating that the earlier reports were intentionally withheld, nor any motive on U.S. News' part for so withholding them.
In short, while plaintiffs have come up with a "fact," they have not demonstrated its materiality to the subject matter of this litigation. Accordingly, judgment for defendants will be entered as to this issue.
2. Harboring an intent to sell the company
Plaintiffs' claim that U.S. News and its directors harbored a "secret" intent to sell the Company, which was not revealed to American Appraisal, is supported -- if at all -- by an inference that awards of deferred compensation rights or "phantom stock" to certain of the directors were accelerated in anticipation of an imminent sale. While it is indisputably true that such acceleration did take place in March of 1982, it is not clear what can be made of it.
Defendants point out, first, that there are entirely innocent explanations for the acceleration of the awards. One such explanation is that, as indicated in the minutes of the Board meeting of March 9, 1982, there was concern that several "classes" of directors would be created by a maintenance of the then status quo, whereby awards were made in installments, requiring that newer directors "catch up" to their more senior colleagues. PX 320 at 12-14.
The other explanation is that, because the Plan was facing liquidity problems due to the sudden surge in the price of the magazine's stock, it was decided that all the directors should bear the same financial exposure in the face of uncertainty as to the future course to be taken by the company. Deposition of James H. McIlhenny (Aug. 1, 1984) at 10-11.
Defendants further maintain that the existence of any "secret" intent to sell U.S. News is rendered impossible by the presence in the record of certain objective evidence indicating that the Company would not be sold. First, the Company's long-standing policy of remaining employee-owned retained its vitality even in the face of the Plan's liquidity problems. While one solution proposed to alleviate the liquidity crisis was to sell the Company, management regarded this as an undesirable option. See Plan App. 5 at 1, 33 (March 23, 1982 Profit-Sharing Seminar). Instead, management sought to ameliorate the liquidity problem by amending the Plan to provide for the issuance of 15 year notes to retiring employees in lieu of lump-sum settlements. Id. at 3-8. The proposed amendment was filed with the Department of Labor for approval. To be sure, that filing might have been part of an elaborate hoax on the part of U.S. News management designed to cover up some secret plan to sell the Company while taking as much "cream" off the top as possible. Yet in the absence of any record evidence to support such a theory, no jury would be entitled to infer that any secret intent to sell existed at the time.
The doubtfulness of plaintiffs' claim that such an intent to sell existed is further underscored by additional objective evidence that the Company was not for sale. Its ultimate purchaser, Mortimer Zuckerman, testified that he was consistently rebuffed during the course of offers to buy that he made between 1981 and 1983. Deposition (Oct. 31, 1984) at 25, 27-29. Although it is possible that he was turned down because his offers were not sufficiently enticing, he testified rather that "they did not choose to sell the company." Id. at 28.
Finally, one should note that the Company was not, in fact, sold until 1984. Consequently, even if an "intent" to sell existed, it was never brought to fruition and consequently could not have been relevant to an appraisal of the Company as of December 1981. Indeed, the American Appraisal representative who supervised the appraisal testified that only a firm plan to sell the Company in the immediately following year would have prompted any discussion concerning whether such a plan should be reflected in the appraisal. Deposition of John G. Russell (Aug. 21, 1984) at 276-77. The alleged withholding from American Appraisal of a vague and never-realized intent to sell certainly cannot form the basis of a fraud claim, especially when the Company was not sold at or subsequent to the time when the intent was said to have been harbored.
In sum, the only evidence available to counter the objective evidence that U.S. News was not for sale is subjective evidence based upon an inference that the phantom stock awards were accelerated in anticipation of a sale. Yet while all inferences must be drawn in favor of the non-moving party -- here, the plaintiffs -- in light of the objective record evidence, the acceleration of the phantom stock awards at most points towards avarice on the part of the U.S. News Board, not any intent to sell the company. In the absence of "persuasive evidence" tending to overcome the implausibility of plaintiffs' claim and the objective evidence to the contrary, Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, slip op. at 11-12 (1986), summary judgment is appropriate on this issue.
Accordingly, defendants' motions for summary judgment are granted as to plaintiffs' claim that U.S. News and its directors were possessed of an intent to sell the company, which they withheld from American Appraisal and their employees.
3. Negotiation of a final per share value
Likewise, plaintiffs' claim that U.S. News and American Appraisal conspired to "negotiate" a final per share value for the Company's stock does not withstand scrutiny. While plaintiffs cite numerous portions of the record to support their claim, careful study of the relevant documents and testimony reveals no facts from which a jury could rationally infer that defendants engaged in conduct that was in any way fraudulent. Accordingly, defendants are granted summary judgment on this aspect of plaintiffs' securities and common-law fraud claims.
Under plaintiffs' theory, the "negotiation" involved three steps. First, U.S. News apprised American Appraisal of the liquidity problems faced by the Plan, see PX 108, 175 (notes of January 27, 1982 meeting); Deposition of David T. Marshall
(Aug. 9, 1984) at 695, and also provided American Appraisal with a range of possible values of $400 - $450, calculated by chief financial officer Ray Naimoli. PX 107 at 2 (notes of John G. Russell re : February 26, 1982 review with David T. Marshall); Deposition of John G. Russell (Aug. 21, 1984) at 364. Next, Mr. Russell and Mr. Marshall made some preliminary calculations, which they then conveyed to U.S. News. Finally, those preliminary calculations were adjusted downward in a series of steps, allegedly as a result of U.S. News pressure.
The first issue that must be addressed is the nature of the "preliminary" figures that American Appraisal gave to U.S. News. Plaintiffs contend that they were suggested final values, while defendants maintain that they were only partial totals that did not reflect the application of a minority discount. A review of the record bears out defendants' understanding of the figures arrived at separately by Mr. Marshall and Mr. Russell, from which a range was developed and conveyed to U.S. News. Mr. Marshall calculated that the stock was worth $620 per share, PX 107, but that figure did not include a minority discount. Deposition (Aug. 9, 1984) at 655-56, 658, 660; Deposition (Sept. 12, 1984) at 848-49;
see also Russell Deposition at 363. Mr. Russell arrived at a range of $545 to $580 per share, after discounting the value of the real estate at 20 percent to reflect a minority interest. PX 107; Deposition at 362-63. Mr. Russell then phoned a range of $550 to $625 in to Mr. Naimoli as preliminary estimates. Id. at 366-67. The figure representing the upper end of the range, taken from Mr. Marshall's calculations, did not reflect the application of a minority discount. Id. at 363. In short, at least a portion of the downward adjustment to these preliminary figures was the result of a subsequent application of a minority discount, rather than of pressure from U.S. News.
It appears to be true, however, that the figure at the lower end of the range communicated by Mr. Russell, $550, was already discounted. Plaintiffs contend that this figure was then improperly cut back, until the final value of $470 per share was arrived at. Yet, as a matter of law, none of the adjustments to the preliminary figure amount to fraudulent conduct.
First, plaintiffs challenge the way in which American Appraisal treated rent that U.S. News would have to pay for its headquarters. Instead of netting out these future rental payments against the income that U.S. News was to receive from the joint ventures, and then applying a minority discount to the result, as he had done previously, the appraiser discounted the income alone and then subtracted the full present value of the rent. Marshall Deposition (Aug. 9, 1984) at 656-57. Yet while this may not have been the best of appraisal procedures, there is absolutely nothing in the record to suggest that it was part of a scheme to deliberately defraud plaintiffs. The uncontroverted testimony of Mr. Marshall is that he believed that he was following correct appraisal methodology. Deposition at 659, 664-66. The fact that use of another procedure would have resulted in a higher value, standing alone, will not support a claim for securities fraud. To cross the threshold on such a claim, plaintiffs would have to make some showing that the conduct complained of was in some way "manipulative or deceptive" within the meaning of the securities laws. Santa Fe Indus., Inc. v. Green, 430 U.S. 462, 474, 97 S. Ct. 1292, 51 L. Ed. 2d 480 (1977). To the extent that the final treatment of the rental payments was disclosed in the appraisal report -- which it was, see PX 21 at 25 -- the actions alleged as to U.S. News and American Appraisal could not be deemed deceptive. Nor can those actions be deemed "manipulative." "Manipulation" as a "term of art," Santa Fe, 430 U.S. at 476 (quoting Ernst & Ernst v. Hochfelder, 425 U.S. 185, 199, 47 L. Ed. 2d 668, 96 S. Ct. 1375 (1976)), "refers generally to practices . . . that are intended to mislead investors by artificially affecting market activity." Id. Even if the way in which the rental payments were ultimately treated was arrived at through some undisclosed process of negotiation, the end result -- which was disclosed -- could not have had the type of misleading or manipulative effect to which the securities laws are directed.
The second and third instances of misconduct alleged by plaintiffs offer even less support to their securities claim. They point to two adjustments to its methodology made by American Appraisal in order to maintain the per share value of $470, previously released in a draft report, in the face of a change proposed by Mr. Naimoli that would have increased the per share figure.
Yet because U.S. News suggested a change that would have increased the per share value, and because American Appraisal had no independent motive to depress the value of the U.S. News stock, it strains credulity to think that the adjustments made by American Appraisal give rise to any inference of fraud or collusion between that defendant and U.S. News.
While the Court is mindful that summary adjudication must not be used to resolve disputed issues of fact, it is also cognizant of the "integral" role of summary judgment in the Federal Rules in "secur[ing] the just, speedy and inexpensive determination of every action." Celotex Corp. v. Catrett, 477 U.S. 317, 54 U.S.L.W. 4775, 4778, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986) (quoting Fed. R. Civ. P. 1). In order to survive a motion for summary judgment, the nonmoving party must produce "sufficient evidence . . . for a jury to return a verdict for that party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 54 U.S.L.W. 4755, 4758, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986); see also Celotex, 54 U.S.L.W. at 4777. If the evidence proffered by the nonmoving party is "merely colorable," or "not significantly probative," summary judgment may be granted. Liberty Lobby, 54 U.S.L.W. at 4758. In this proceeding, plaintiffs have suggested at best implausible bases to support their claim that U.S. News and American Appraisal conspired to deliberately suppress their retirement benefits by manipulation of the appraisal process. Accordingly, summary judgment is appropriate on this issue. See Matsushita, slip op. at 11-12.
To the extent that summary judgment is properly entered for defendants on plaintiffs' securities fraud claims, it is even more appropriate with respect to their claims for common-law fraud. In the District of Columbia, fraud must be proved by "clear and convincing evidence." Blake Construction Co., Inc. v. C.J. Coakley, Co., Inc., 431 A.2d 569, 577 (D.C. 1981). In the face of such a heightened evidentiary standard, the nonmoving party must, as the bearer of that burden of proof, demonstrate the existence of facts such as would enable a rational jury to conclude that that party had met its burden at trial. Liberty Lobby, 54 U.S.L.W. at 4759. In short, to survive defendants' motions, plaintiffs would have to come forward with sufficient material facts to warrant a finding by the Court that a rational jury could conclude that they had proved fraud by "clear and convincing evidence." Id. Yet as discussed supra, plaintiffs have utterly failed in this regard. Accordingly, summary judgment is granted defendants on plaintiffs claims for common-law fraud, as well as their claims for securities fraud.
CLAIMS FOR VIOLATIONS OF ERISA
Plaintiffs' ERISA claims straddle the dividing line between those of their claims premised upon fraudulent conduct and those premised upon merely negligent, imprudent, or arbitrary conduct. Clearly, a claim under ERISA § 502(a)(1)(B) falls into the latter category.
Plaintiffs' claim under section 502(a)(3), as noted, appears to be bifurcated into a claim sharing the same factual predicates as their claims for securities and common-law fraud, on the one hand, and their claim under section 502(a)(1)(B) and for negligence, on the other.
1. Section 502(a)(1)(B) claims
The Plan has not moved for summary judgment on the merits as to the sole claim against it. Moreover, counsel for the Plan has consistently conceded in oral argument that the propriety of the appraisal methodology employed is not an issue that may properly be resolved on summary judgment. See, e.g., Transcript of Proceedings (May 13, 1986) at 56-59. Accordingly, a determination of whether the 1981 year-end appraisal was so erroneous as to support a claim for benefits due under ERISA § 502(a)(1)(B) must await trial.
2. Section 502(a)(3) claims
Insofar as plaintiffs rely upon allegations of intentional wrongdoing, as pressed in connection with their claims for securities and common-law fraud, to support a claim for breach of fiduciary duty under ERISA § 502(a)(3), they have tied the success of the latter claim to proof of fraudulent conduct. Hence, their claim under section 502(a)(3) is no stronger than their claims for securities or common-law fraud and must necessarily suffer the same fate.
Accordingly, to the extent that plaintiffs seek to support their claim under ERISA § 502(a)(3) by proof of the same facts adduced to support their claims for securities and common-law fraud, summary judgment is granted defendants.
However, while plaintiffs have apparently not sought to predicate liability for breach of fiduciary duty under section 502(a)(3) on the failure of U.S. News and the directors to adequately scrutinize the appraisal, see Second Amended Complaint para. 56-59, Memorandum of Points and Authorities in Opposition to the Motions for Summary Judgment of Defendants . . ., at 39-40, such a theory would be supported by case law, see Fink v. Nat'l Savings & Trust Co., 249 U.S. App. D.C. 33, 772 F.2d 951, 955-56 (D.C. Cir. 1985); Donovan v. Cunningham, 716 F.2d 1455, 1467-74 (5th Cir. 1983), cert. denied, 467 U.S. 1251, 104 S. Ct. 3533, 82 L. Ed. 2d 839 (1984), and may not be unreasonable as applied to the record in this case. Accordingly, should the evidence developed at trial warrant it, plaintiffs may be granted leave to amend their complaint in conformity to that evidence, pursuant to Fed. R. Civ. P. 15(b).
1. Breach of fiduciary duty
Plaintiffs' claim that U.S. News and its directors breached common-law fiduciary duties owed them seems to be predicated upon an allegation that they wrongfully concealed and used "inside" information as to the value of the Company's assets, to the detriment of the U.S. News employees. See Second Amended Complaint paras. 70, 73. As discussed earlier
there is no record evidence that defendants concealed relevant information as to the value of U.S. News' assets, which presumably means its real estate holdings. Moreover, it is unclear how defendants could have used that information to the detriment of plaintiffs, unless reference is being made to plaintiffs' theory that the directors "secretly" intended to sell the Company. But again, as discussed previously,
the record simply does not support such a theory.
Accordingly, summary judgment will be granted defendants as to plaintiffs' claim for common-law breach of fiduciary duty.
2. Unjust enrichment
Plaintiffs' claim that U.S. News and the directors were unjustly enriched through their "willful fail[ure] to appraise annually the true value of the assets of U.S. News and its subsidiaries," Second Amended Complaint para. 77, seems to be no more than a restatement of their claims for securities and common-law fraud. Accordingly, consistent with the disposition of those claims, supra, defendants will be granted summary judgment as to plaintiffs' claim for unjust enrichment.
Plaintiffs' negligence claim is premised upon two breaches of duty.
First, U.S. News and the directors are said to have failed to apprise American Appraisal of information relating to the proper valuation of the Company's assets, presumably meaning its real estate. Second Amended Complaint para. 82. Yet as discussed,
there is absolutely no record evidence to support a claim that those defendants failed to provide American Appraisal with all relevant information. Second, U.S. News and the directors are said to have failed to scrutinize adequately the appraisal process. Second Amended Complaint para. 81. That claim may have some merit and would be analogous to a claim that those defendants breached their fiduciary duty of care under ERISA § 404(a).
Accordingly, defendants will be granted summary judgment as to plaintiffs' negligence claim, but only insofar as that claim is premised upon defendants' failure to furnish American Appraisal with information relevant to a valuation of the U.S. News real estate holdings.
For the reasons set forth above, defendants' motions are granted in part, but only as to the following plaintiffs, claims, or factual issues, as specified herein:
A. Statute of Limitations
The claims of plaintiffs Haller, LeCompte, Stifel, Strube and Truitt for benefits due under ERISA § 502(a)(1)(B), for breach of the fiduciary duty of care under ERISA § 502(a)(3), and for negligence are time-barred.
B. Securities and Common-law Fraud
Defendants' motions are granted as to all plaintiffs' claims for securities and common-law fraud.
Plaintiffs' claims under ERISA § 502(a)(1)(B), to the extent that they are not time-barred, may proceed to trial. Summary judgment is granted defendants as to all plaintiffs' claims under ERISA § 502(a)(3), except insofar as those claims are premised upon a breach by U.S. News and the director-defendants of their duty to scrutinize adequately the appraisal.
D. Common-law Claims
1. Breach of fiduciary duty
Summary judgment is granted defendants on all plaintiffs' claims for common-law breach of fiduciary duty.
2. Unjust enrichment
Summary judgment is granted defendants as to all plaintiffs' claims for unjust enrichment.
Summary judgment is granted defendants on all plaintiffs' negligence claims, except insofar as they are premised upon the failure of U.S. News and the director-defendants to scrutinize adequately the appraisal.
An appropriate Order will be entered.
[EDITOR'S NOTE: The following Court provided text does no appear at this cite in 639 F. Supp.]
(Granting in Part and Denying in Part Defendants Motions for Summary Judgment)
In accordance with the Memorandum Opinion issued herewith, it is this 7th day of July, 1986,
That defendants' motions for summary judgment are granted in part and denied in part as set forth below:
1. As to the statute of limitations:
Defendants' motions are granted as to the claims of plaintiffs Haller, LeCompte, Stifel, Strube and Truitt for benefits due under section 502(a)(1) (B) of the Employee Retirement Income Security Act of 1974 ("ERISA"), for breach of the fiduciary duty of care under section 502(a)(3) of ERISA, and for negligence.
2. As to plaintiff's claims for securities and common-law fraud
Defendants' motions are granted as to all plaintiffs' claims for violation of the section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 of the Securities and Exchange Commission and for common-law fraud.
3. As to plaintiffs' claims under ERISA
Defendants' motions are granted as to all plaintiffs' claims under ERISA § 502(a)(3) to the extent that they are premised upon intentional or fraudulent conduct. Defendants' motions are denied as to those claims to the extent that they are premised upon a breach by U.S. News and the director-defendants of their fiduciary duty of care in not adequately scrutinizing the appraisal. Claims brought under ERlSA § 502(a)(1)(B), to the extent that they are not time-barred, may proceed to trial.
4. As to plaintiffs' common-law claims
(i) Common-law breach of fiduciary duty
Defendants' motions are granted as to all plaintiffs' claims for common-law breach of fiduciary duty.
(ii) Unjust enrichment
Defendants' motions are granted as to all plaintiffs' claims for unjust enrichment.
Defendants; motions are granted as to all plaintiffs' claims for negligence to the extent that they are based upon the failure of U.S. News and the director-defendants to convey adequate information to American Appraisal Associates, Inc. Defendants' motions are denied as to those claims to the extent that they are based upon the failure of U.S. News and the director-defendants to scrutinize adequately the appraisal.