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SCARABELLO v. REICHLE

January 28, 1994

GARRY A. SCARABELLO, individually and on behalf of all others similarly situated, Plaintiff,
v.
GREGORY C. REICHLE, RICHARD G. REICHLE, SR., RICHARD G. REICHLE, JR., REICHLE & ASSOCIATES, INC., and AMERICAN WILBERT VAULT CORP., Defendants.



The opinion of the court was delivered by: JOHN A. NORDBERG

 Before the Court is Defendants' Motion for Summary Judgment and Defendants' Motion to Strike the Class Action Allegations.

 FACTS

 The following facts are uncontested. *fn1" Between March of 1959 and September of 1991, approximately two hundred stockholders sold shares of American Wilbert Vault Corporation ("AWVC") back to the company in separate transactions, each at a price of $ 100 per share. (Plaintiff's Rule 12(n) Statement at 2 P. 2.) Since 1973, all AWVC stockholders who inquired about the possible sale of their shares dealt with Gregory C. Reichle, the president and chief executive officer of AWVC. Id. at P 3. In cases involving the sale of unrestricted shares, the stockholder usually inquired about the price at which AWVC would redeem the shares and Gregory Reichle replied that AWVC would pay one hundred dollars per share. Id. at P 4. When asked whether there was a market for AWVC shares, Gregory Reichle told the inquiring stockholder that he was unaware of any other interested buyer. Id.

 Most stockholders who inquired about selling their shares did subsequently agree to sell at the price of one hundred dollars per share. Id. at 3 P 5. AWVC acquired no shares at a price other than one hundred dollars per share prior to September 1991. Id. The book value of AWVC's shares between 1959 and September 1991 was substantially greater than one hundred dollars per share. Id. at 4 P 8.

 The parties agree that no stockholder who inquired about selling his shares to AWVC asked Gregory Reichle for any information about the financial condition of the company, including the book value per share, the fair value, the market value or for any of AWVC's financial statements, stockholder lists or other records. Id. at P 6. However, Plaintiffs assert that if any minority stockholder had requested AWVC's financial information, their requests would have been denied. Id. at 14-15 PP 16-17. The parties disagree as to whether AWVC at its annual meeting offered all attending stockholders a copy of AWVC's condensed financial statements and whether from these statements a shareholder could calculate the book value per share.

 Plaintiff Gary Scarabello ("Plaintiff") acquired twenty-six shares of AWVC along with his purchase of a Chicago area funeral home in 1986. Id. at 6 P 11. Plaintiff never attended a stockholders meeting nor did he ever request a balance sheet, profit and loss statement or a stockholders list from AWVC. Id. at 7 P 12. On July 20, 1989, the Plaintiff sent by registered mail the certificate representing his twenty-six AWVC shares with a request to be paid $ 2600. Id. at P 13. On July 21, 1989, AWVC sent Plaintiff a check for $ 2600 and transferred the twenty-six shares to the AWVC treasury. Id.

 AWVC's board of directors adopted a plan on August 9, 1989 to liquidate one of AWVC's subsidiaries. Id. at 8 P 14. The prospective buyer and AWVC began discussing the sale of the subsidiary as early as August 1988. Id. In August 1990, AWVC paid a special dividend of two hundred and twenty-five dollars per share attributable to the sale of the subsidiary. Id.

 On July 30, 1993, more than four years after the sale of his twenty-six shares of AWVC, Plaintiff filed the Complaint in this action. Four of the counts in Plaintiff's Complaint allege various violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq. According to the Plaintiff, the Defendant failed to disclose to minority stockholders that the fair value of AWVC stock was well in excess of one hundred dollars per share. Thus, Plaintiff argues that the Defendants engaged in fraudulent conduct which violated Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. 78j(b), and Rule 10b-5 of the Securities and Exchange Commission, 17 C.F.R. 240.10b-5. *fn2" Plaintiff asserts further that Defendants' "fraud in the sale of securities" is a "racketeering activity" actionable under RICO. See, 18 U.S.C. § 1961(1)(D).

 The remaining three counts of Plaintiff's Complaint state claims under the Illinois Consumer Fraud and Deceptive Practices Act (Count V), common law fraud (Count VI), and breach of fiduciary duty (Count VII).

 In support of their Motion for Summary Judgement, Defendants make two arguments. First, Defendants assert that the premise underlying the Plaintiff's action is faulty. Contrary to Plaintiff's assertions, Defendants argue that when a corporation's board of directors receives an unsolicited request to redeem corporate shares, it is under no duty to bid "fair value." Consequently, Defendants claim that they have not participated in a course of fraudulent conduct by failing to disclose to minority stockholders that the fair value of AWVC stock was well in excess of one hundred dollars per share. Second, Defendants argue that Plaintiffs RICO claims are barred by the statute of limitations.

 ANALYSIS

 Summary judgement shall be granted if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue of fact and that the moving party is entitled to judgement as a matter of law. Fed. R. Civ. P. 56(C); Hughes v. Derwinski, 967 F.2d 1168, 1171 (7th Cir. 1992). Summary judgement shall be entered against a party who "fails to make a showing sufficient to establish the existence of an element essential to the party's case, and on which the party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 321, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). The showing made by the non-moving party must be more than merely colorable. Summary judgement is appropriate "unless there is sufficient evidence favoring the non-moving party for a jury to return a verdict for that party." Anderson v. Liberty Lobby, 477 U.S. 242, 249, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986).

 Duty to Offer Fair Value

 Both parties agree that corporations do not have an affirmative duty to determine and offer fair value when purchasing stock from minority shareholders. However, Plaintiffs assert that, although a corporation's redemption of its shares at an unfair price may not be per se actionable, such a purchase is fraudulent where the ...


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