On appeal from the Superior Court of New Jersey, Law Division, Essex County.
Seidman, Michels and Furman. The opinion of the court was delivered by Michels, J.A.D.
Plaintiff Howard S. Levin appeals from a judgment of involuntary dismissal entered by the Law Division in favor of defendants Kuhn Loeb & Co. at the conclusion of the presentation of his evidence.
Plaintiff instituted this action to recover damages allegedly "caused by defendant's malicious interference with the pursuit of [his] career in the short term leasing of computers manufactured by International Business Machines [IBM]." In the complaint filed herein plaintiff claimed that he developed and pioneered a new business program consisting of the acquisition of computers from IBM and the short-term leasing of them in competition with IBM's leasing activities. He further claimed that he pursued the computer leasing business first as an independent proprietor and then in partnership with James E. Townsend. Finally, he and Townsend formed Levin-Townsend Computer Corporation (Levin-Townsend), a New Jersey corporation, to implement the program. Plaintiff served as president and as director of Levin-Townsend and its various subsidiaries and owned substantial stock in Levin-Townsend.
Plaintiff claimed that through his good offices and favorable recommendation defendant, a New York investment banking firm, which was interested in obtaining the position as Levin-Townsend's investment banker, received all of the investment banking business of Levin-Townsend that it sought and, for substantial compensation, participated as major underwriter and dealer-manager in numerous public offerings by Levin-Townsend. Plaintiff also claimed that defendant served as financial advisor for him personally and breached the fiduciary duty and obligation that it owed to him. Plaintiff charged that during an 18-month period in 1969 and 1970 defendant was engaged in a course of conduct that operated as a fraud upon him, was maliciously intended to interfere with his business relationships
and prospective economic advantage and caused severe economic loss to him and to his business and credit reputation. Specifically, he charged that in mid-March of 1969, after involving Levin-Townsend in extensive financial commitments, defendant withdrew its role as investment banker for and its financial support of Levin-Townsend. This caused Levin-Townsend to seek alternative financing sources to meet its financial commitments under disadvantageous circumstances, which severely damaged Levin-Townsend, created a financial and management crisis and resulted in a major irretrievable decline in the market price of Levin-Townsend securities. Plaintiff claimed that as a result of defendant's conduct he was removed by the directors of Levin-Townsend from his position as president.
Following extensive pretrial discovery proceedings, defendant moved for summary judgment on several grounds, and plaintiff filed a cross-motion for partial summary judgment on liability. The trial judge, applying the substantive law of New York, granted defendant's motion with respect to any claim based on an alleged breach of fiduciary duty. The judge held that defendant's refusal to consummate the proposed underwriting of Levin-Townsend securities did not constitute a breach of any fiduciary duty defendant may have owed to plaintiff by virtue of the fact that defendant served as financial advisor for him personally. However, the judge found that there was an issue of fact as to whether defendant's refusal to consummate the underwriting was malicious and therefore denied its motion for summary judgment with respect to the claim based on malicious interference with prospective economic advantage. The judge also held that the damages recoverable in the action were limited to the emoluments that would have flowed to plaintiff from his employment with Levin-Townsend as well as those that were reasonably foreseeable from a breach thereof, and that plaintiff was precluded from recovering damages for any loss suffered as a result of the decline of the value of his Levin-Townsend stock. Plaintiff's cross-motion for partial summary judgment was denied.
Plaintiff established at trial that he was a pioneer in the short-term computer leasing industry and that in 1963, with Townsend, he founded Levin-Townsend. He served as its president and as a director from its creation until January 16, 1970 when the board removed him as president. He continued to serve as a director until April 1971.
Sometime in mid-1967 defendant, a Wall Street banking house, became Levin-Townsend's investment banker and undertook to perform certain investment advisory and financial services for the corporation. Prior to that time Levin-Townsend had dealt with numerous underwriters in connection with its public offerings, but had not established an investment banking relationship with any of them. In February 1968 Thomas E. Dewey, Jr., a partner in the Kuhn Loeb firm, was elected a director of Levin-Townsend. Defendant also undertook to advise plaintiff with respect to his personal financial business and managed a secondary offering of Levin-Townsend stock for plaintiff and others in the amount of $8,750,000. In July 1968 defendant managed a $20,000,000 debenture offering and in August 1968 a $15,000,000 debenture offering for Levin-Townsend.
In the latter part of 1968 Levin-Townsend was approached by another investment banking house concerning possible acquisition of National Equities, Inc., a large diversified holding company, which owned extensive real properties in Las Vegas, Nevada, and Toronto, Canada. Dewey, who supported diversification of Levin-Townsend's holdings outside of the computer industry, looked favorably on this acquisition. Levin-Townsend acquired National Equities, Inc., expending $10,970,000 in cash to acquire the majority shareholders' stock, and made an exchange offer of $26,975,700 of its securities for the publicly-held National Equities stock. Levin-Townsend also guaranteed substantial amounts of short-term debt of National Equities. During this same period defendant discussed the management of a $65,000,000 debenture offering on behalf of Levin-Townsend. The purpose of this offering was to finance the continued growth of the company and enable it to diversify its activities into non-computer related businesses. This offering was later
reduced to $35,000,000 due to unfavorable market conditions, and in January 1969 a registration statement covering the prospective $35,000,000 offering was filed with the Securities and Exchange Commission. The offering was to become effective during the week of March 18, 1969.
In early 1969 plaintiff began spending more time in Las Vegas because the National Equities properties located there presented a serious cash problem to Levin-Townsend, projecting losses totalling $3,000,000 a year. While in Las Vegas plaintiff became involved in discussions with, among others, Kirk Kerkorian and Nathan S. Jacobson concerning possible acquisition of a 17-acre site of land known as The Bonanza (the site now of the MGM Grand Hotel), including a nonoperating casino and a small motel-hotel type building. The Bonanza was owned by Kerkorian's Tracey Investment Company. Jacobson was the head of Caesar's Palace, a Las Vegas gambling casino. On or about March 11, 1969, while the registration statement was still pending before the Securities and Exchange Commission, plaintiff, without approval from the Levin-Townsend board, authorized Jacobson to enter into a contract as nominee of Levin-Townsend to purchase The Bonanza for $10,603,200. According to plaintiff:
Jacobson wanted the property for us. He wanted it for himself if we didn't. We had met and talked and in order to preserve any interests of Levin-Townsend in the transaction, it was necessary to make a good faith deposit so that The Bonanza was, basically, held for a $250,000 fee, subject to a late closing if Levin-Townsend decided to go forward. If Levin-Townsend did not go forward its liability would be limited to that $250,000.
Plaintiff also paid Tracey Investment Company the $250,000 deposit without approval from the Levin-Townsend board.
On or about March 13 or 14, 1969 plaintiff discussed the acquisition of The Bonanza with Dewey, who had expressed his reservations generally about gambling in Las Vegas. Plaintiff asked Dewey to keep an open mind, meet Jacobson, go to Las Vegas to take a look at it, and then make up his own mind. Later that day plaintiff, Jacobson and Dewey met in New York and discussed the acquisition of The Bonanza. At the conclusion of the meeting Dewey agreed to go with plaintiff the following
week to investigate The Bonanza acquisition. However, on March 14, 1969 plaintiff, again without approval from the Levin-Townsend board, sent a letter to Jacobson confirming the latter's designation as nominee of Levin-Townsend to purchase The Bonanza, and authorizing Jacobson to spend up to $1,000,000 of Levin-Townsend's money in connection with the hiring of employees, architects and others to refurbish The Bonanza. Plaintiff further authorized Jacobson to file applications for liquor and gambling casino licenses for The Bonanza. On March 14, 1969 an amendment to the registration statement was filed with the Securities and Exchange Commission lowering the prospective offering to $20,000,000. The amendment made reference to Levin-Townsend's agreement to acquire The Bonanza, indicating that "The Company contemplates using funds to be obtained from sources other than the proceeds of this offering to meet its obligations under that agreement, including the obligation to pay $2,750,000 on or before March 28, 1969."
Plaintiff and some of the members of the Levin-Townsend board were fully aware that defendant was deeply concerned about underwriting a public offering for a gambling enterprise acquisition in Las Vegas, and that the proposed acquisition of The Bonanza might adversely affect its pending underwriting. Plaintiff admitted that Dewey told him that he, Dewey, and his firm "had reservations, deep reservations about gambling." Moreover, plaintiff conceded that if he could not persuade Dewey, he would have to abandon the deal, as clearly appears from the following testimony:
Q. You indicated earlier this morning you had acquired an understanding from Mr. Dewey that if you couldn't persuade Mr. Dewey you ...