On Appeal From the United States District Court For the District of New Jersey. (D.C. Civ. No. 93-cv-01554).
Before: Becker and Lewis, Circuit Judges, and Pollak, District Judge.*fn*
This appeal requires us to construe the statute of frauds governing the sale of securities under Article 8 of the Uniform Commercial Code ("U.C.C.") as enacted by New Jersey and North Carolina, the two jurisdictions relevant to this dispute. The question presented is whether the district court, pursuant to Federal Rule of Civil Procedure 12(b)(6), properly dismissed the claim of plaintiff ALA, Inc. ("ALA") that defendant CCAIR, Inc. ("CCAIR") was in breach of an alleged agreement to sell ALA a controlling block of its common stock on the ground that the statute of frauds, § 8-319 of the U.C.C., N.J. Stat. Ann. § 12A:8-319; N.C. Gen. Stat. § 25-8-319, made the alleged agreement unenforceable.
ALA assigns two grounds of error. First it argues that the district court erred in holding that a letter outlining the terms of the proposed deal that CCAIR's CEO Kenneth Gann sent to ALA's investment banker Larry Schatz was insufficient to satisfy § 8-319(a) of the statute, which provides that the statute of frauds is satisfied if there is a "writing signed by the party against whom enforcement is sought . . . sufficient to indicate that a contract has been made for sale of a stated quantity of described securities at a defined or stated price." ALA also submits that the district court's order dismissing the action was premature because § 8-319(d), which provides that the statute of frauds is satisfied if a party against whom enforcement is sought admits in a "pleading, testimony or otherwise in court that a contract was made," entitled it to an opportunity for discovery during which such an admission might be obtained, and hence precluded the granting of a Rule 12(b)(6) motion.
Although we agree with the district court that the Gann letter does not sufficiently indicate that a contract had been made and thus that § 8-319(a) was not satisfied, we agree with ALA that § 8-319(d) of the statute prevents the district court from granting a Rule 12(b)(6) dismissal here. In order to give effect to § 8-319(d), ALA must have some opportunity to secure an admission from CCAIR. We will therefore vacate the order of dismissal and remand the case to the district court with directions to grant ALA limited discovery to determine whether CCAIR will admit that an agreement was made. We note that at the close of that limited discovery, the district court may again address the statute of frauds issue in a motion for summary judgment.
In late 1992 and early 1993, ALA, an investment firm based in New Jersey, became interested in making an investment in CCAIR, an airline based in North Carolina, which operates the commuter airline USAir Express. In early January 1993, it instructed investment banker Larry Schatz (also an appellant in this case) to approach CCAIR and explore the possibility of a major stock transaction. Schatz contacted the officers of CCAIR and told them that he had a client who was interested in purchasing a sizeable stake in the company. The CCAIR officials expressed interest and a meeting was scheduled for January 18. On that date, Schatz, acting as the agent for ALA, met with upper level management of CCAIR, including a majority of the CCAIR Board of Directors, in North Carolina.
According to ALA's complaint, the two companies struck a deal at the meeting in which ALA agreed to buy and CCAIR agreed to sell approximately 3.5 million shares of authorized but unissued CCAIR stock for $3.15 per share or some lesser figure to be agreed upon by the parties. Although the agreement reached at the meeting was oral, it was, ALA submits, memorialized by a letter Kenneth Gann, President and CEO of CCAIR, sent to Schatz on January 18, 1993 (the "Gann letter"). The Gann letter stated:
It was a pleasure meeting with you today and exploring with you the investment potential of CCAIR (the "Company").
If your clients acquire the remaining approximately 3.5 million authorized but unissued common shares of the Company on or before ninety (90) days from the date hereof for $3.15 per share or such lesser amount [as] may be agreed by your client and the Company, we agree to pay you at the time of said share acquisition, an investment banking fee of $.15 per share.
In connection therewith, we will cause the appointment of two (2) nominees of your client to serve as board members of the Company for the remaining unexpired term of this current board.
Further, we agree to provide your client with such information as may be requested by your client in connection with the customary and permissible due diligence in a private place by ...