Jordan v. Duff and Phelps, Inc
815 F.2d 429


PROCEDURE: Appellant employee sought review of the judgment of the United States District Court for the Northern District of Illinois, which entered summary judgment in favor of appellee employers and dismissed appellant's complaint seeking damages for the value of stock measured by the value under the terms of the proposed acquisition.


FACTS: Jordan (P) began work for Duff and Phelps (D) in 1977. D offered P the chance to buy some stock in the firm and by 1983, P had purchased 188 out of 20,100 shares. P was making installment payments on another 62 shares. P purchased his stock at book value and was required to sign a Stock Restriction and Purchase Agreement that required upon termination that P had to sell his shares back to the corporation. Without any fanfare, that agreement was modified in 1984 that allowed any employee fired to keep their stock for five years. P eventually decided to look for greener pastures. P was offered a job in Houston for almost double what he was making at D. P then informed D that he was going to resign. P worked until the end of the year and got $23.54 per share. Before P cashed the check he got news of a merger between D and Security Pacific. Under the terms of the merger, D was valued at $50 million. This was merely ten days after P's last day. If P had been an employee he would have earned $452,000 for his shares and an opportunity to earn out another $ 92,000. P demanded his stock back. P sued D. Eventually the merger fell through but an employee buyout was accomplished and that would have netted P $497,000 if he had had 250 shares on December 1985.

ISSUE: Can information that a close corporation is seeking buyers and that a potential buyer valued the corporation at a significantly higher price than anticipated be deemed material by a reasonable jury?


RULE:If a closely-held company withholds from an employee-stockholder material information about possible increases in stock value in breach of its fiduciary duty, the employee-stockholder may be entitled to damages if he or she can show that the nondisclosure caused the employee-stockholder to act to his or her financial detriment.


HOLDING: The United States District Court , granted summary judgment for closely held corporation and appeal was taken. The Court of Appeals, held that genuine issue of material fact as to whether information withheld from shareholder on date he allegedly left employment with closely held corporation was material, whether sale of stock took place on date he told chairman of board he was going to resign or date he delivered stock certificates, and whether former shareholder in closely held corporation was damaged by corporation's failure to disclose information that it was being acquired by public corporation precluded summary judgment for closely held corporation.