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PPI ENTERPRISES (U.S.), INC. v. DEL MONTE FOODS

United States District Court, S.D. New York
Sep 11, 2003
99 Civ. 3794 (BSJ) (S.D.N.Y. Sep. 11, 2003)

Summary

dismissing negligent misrepresentation claim where plaintiff alleged only economic loss

Summary of this case from Manhattan Motorcars, Inc. v. Automobili Lamborghini, S.p.A.

Opinion

99 Civ. 3794 (BSJ)

September 11, 2003


Opinion


Plaintiff PPI Enterprises (U.S.), Inc. ("PPIE") filed this action in May of 1999 against Defendant Del Monte Foods Company ("Del Monte") and Defendant Morgan Stanley Co., Inc. ("Morgan Stanley") alleging fraud, breach of contract, negligent misrepresentation, breach of fiduciary duty, and aiding and abetting breach of fiduciary duty. Del Monte and Morgan Stanley moved to dismiss PPIE's claims pursuant to Fed.R.Civ.P. 12(c), and this Court issued an opinion on their motions in September 2000. In the 2000 opinion, the Court granted Del Monte's motion to dismiss the breach of fiduciary duty claim, but denied its motion to dismiss the breach of contract, fraud, and negligent misrepresentation claims. With respect to Morgan Stanley's motion, the Court dismissed PPIE's claims of negligent misrepresentation and aiding and abetting a breach of fiduciary duty. It denied, though, Morgan Stanley's motion to dismiss the fraud claim. After this opinion issued, Del Monte and Morgan Stanley filed motions for summary judgment on the remaining claims. These motions are now before the Court.

The September 2000 opinion amended an earlier decision issued on August 18, 2000.

Also before the Court are motions by the Third-Party Defendants in this case, W.R. Huff Asset Management, Co., L.P., W.R. Huff Asset Management, Co., L.L.C. (collectively "Huff Asset Management"), and Charterhouse Equity Partners, L.P. ("Charterhouse"). Del Monte impleaded these Third-Party Defendants, asserting claims of contribution and indemnification. The Third-Party Defendants have moved for summary judgment as to these claims.

I. FACTUAL BACKGROUND

The following chronology of events is based on the Court's review of the extensive record in this matter. Unless otherwise indicated, all facts are undisputed.

A. Preliminary Background

PPIE was formed in May 1988 by its corporate parent, Polly Peck International PLC ("Polly Peck")/ to expand Polly Peck's global presence in the produce industry. (Compl. ¶ 11). In January 1990, PPIE acquired for $12.6 million all of the outstanding shares of Series D Preferred Stock and 10,000 shares of Class A Common Stock of Del Monte Foods Company ("Del Monte")/ a Maryland corporation previously known as DMPF Holdings Corp. (Compl. ¶ 13). PPIE's stake in Del Monte represented approximately 2.6% of Del Monte's total common stock and 5.9% of the liquidation value of Del Monte's preferred stock, which had been issued in a number of series. Dividends on the Series D Preferred Stock (as well as the other series) were payable in-kind, and Series D Preferred Stock was, by its terms, junior in liquidation preference to the Series A and B Preferred Stock, which had been issued to other stockholders. The other major stockholders of Del Monte included Huff Asset Management Co. (which held approximately 37.7% of the liquidation value of Del Monte's total preferred stock outstanding and 24.7% of its total common stock outstanding), Charterhouse (which held approximately 18.4% of the liquidation value of Del Monte's total preferred stock outstanding and 8.2% of its total common stock outstanding), Merrill Lynch, Kikkoman Corporation and members of Del Monte management.

In connection with the acquisition of the Del Monte stock, PPIE, the other stockholders and Del Monte entered into a Stockholders Agreement dated January 9, 1990 (the "Stockholders Agreement"). (Compl. ¶ 14). The Stockholders Agreement placed restrictions on the transferability of the preferred stock and provided the holders of the preferred stock with veto rights with respect to certain change of control transactions. (DM Ex. 2, §§ 3, 4). In addition, the Stockholders Agreement provided in § 2.12 that:

[Del Monte] shall, at its expense, provide to each Stockholder . . . (b), as promptly as practicable, such financial statements and other information, including, without limitation, monthly management reports as such Stockholder may reasonably request.

(Compl. ¶ 14.).

In October 1990, Polly Peck was placed in insolvency administration, the U.K. equivalent of a bankruptcy proceeding. (Compl. ¶ 20). The administrators of Polly Peck were employees of the accounting firm Coopers Lybrand, now known as PriceWaterhouseCoopers. (Kett Dep. at 16-18). Thereafter, PPIE's primary focus was to liquidate its assets and reduce its expenses. (Compl. ¶ 20). These efforts were led by Michael ("Herz"), PPIE's sole employee, who was at the time based in Connecticut. (Herz Dep. at 13, 459). In carrying out his activities, Herz apparently conferred regularly with Polly Peck's London-based administrators, primarily Anthony Kett ("Kett"). (Herz Dep. at 13-14; 33).

In November 1996, Herz moved from Connecticut to New York.

In September 1991, PPIE vacated its office space in Manhattan, despite the fact that its lease had seven years remaining. (Compl. ¶ 20). The landlord, Solow Building Company, which was controlled by Shelden Solow (together "Solow"), commenced litigation against PPIE in the United States District Court for the Southern District of New York in November 1991. (Compl. ¶ 20). In October 1992, Solow won a judgment against PPIE, but an assessment of damages was deferred pending a separate trial. (Compl. ¶ 20).

In September 1992, PPIE asked whether Merrill Lynch, another stockholder of Del Monte, would be interested in acquiring its Del Monte stock. (Compl. ¶ 16). In response to Merrill Lynch's indication that it might be interested in acquiring PPIE's Del, Monte stock for approximately $2 million and to the fact that Del Monte itself might be interested in acquiring PPIE's Del Monte stock for $2.5 million, PPIE requested from Del Monte the opportunity to review information that would assist it in evaluating a potential sale of the Del Monte stock at these values. (Compl. ¶ 17). After executing a confidentiality agreement prepared by Del Monte, PPIE was given the opportunity to review all relevant non-public financial information in Del Monte's possession. (Compl. ¶ 17). PPIE subsequently decided not to sell its Del Monte stock at that time. (Compl. ¶ 17).

In July 1993, an investor group led by Mexican financier Carlos Cabal offered to purchase Del Monte for an equity value of $325 million, an offer that was subsequently reduced to $276 million. (DM Exs. 6, 7). In October 1993, Del Monte's investment banker notified Del Monte's stockholders, including PPIE, of the proposed transaction with Cabal. (Compl. ¶ 18). During the course of the negotiations that took place after the offer was made, PPIE was provided with detailed information about the proposed transaction and, subject to the confidentiality agreement, was invited to participate in negotiating sessions with Cabal and in meetings of Del Monte's Board of Directors. (Compl. ¶ 18). Thereafter, the stockholders, relying upon information provided by Del Monte, agreed among themselves about the allocation of the proposed purchase price, with PPIE to receive approximately $10 million for its Del Monte stock. (Compl. ¶ 19). In June 1994, Del Monte entered into a merger agreement with Cabal. (DM Ex. 1). However, the transaction failed to close for reasons unrelated to this matter. (Compl. ¶ 19).

B. 1995; PPIE's Seeks to Sell Its Del Monte Stock

In June 1995, Herz (PPIE's sole employee) and Kett, as representative of Polly Peck's London-based administrators, Coopers Lybrand, met with Del Monte in an attempt to convince Del Monte and/or its other stockholders to allow PPIE to sell or transfer its Del Monte stock to Solow. (Compl. ¶ 21). Alternatively, they asked whether Del Monte or any of the other stockholders would be interested in acquiring its Del Monte stock for a "fair price." (Compl. ¶ 21). At that meeting, Del Monte resisted any sale or transfer to Solow, and indicated that it was unlikely to be interested in acquiring PPIE's Del Monte stock for a price in excess of $500,000, since the total equity value of the company had declined to less than $100 million. (Compl. ¶ 12; DM Exs. 8, 9; Kett Dep. at 46; see DM Mem. at 6, DM Ex. 8 at 6414). Del Monte discussed some of the operational and financial challenges that it was currently facing and told Herz and Kett that it expected to hire Morgan Stanley as its new investment banker to advise Del Monte on its alternatives, including an operational restructuring, a potential sale of non-U.S. assets and/or a financial restructuring, with the potential for an initial public offering within two years time. (DM Ex. 8 at 6413-14).

Shortly after-this meeting, Del Monte sent Kett detailed financial information, including its internal financial projections for the fiscal year ending June 30, 1996, upon condition that this information be kept confidential. (DM Ex. 13 at 6388). In late June or early July 1995, PPIE asked Prudential Securities Incorporated ("Prudential") to provide it with a "desk assessment" of the value of PPIE's Del Monte stock and to act as "financial advisor" to PPIE. (DM Ex. 14 at 6903-04). On July 7, 1995, Kett sent financial information on Del Monte, including financial projections, to Prudential. (See DM Ex. 14). On August 1, 1995, Prudential sent a letter to Kett stating its view that the value of PPIE's stock was $3-$5 million to a financial buyer, but perhaps up to $12 million if the shares could be converted into common stock and traded publicly. (DM Ex. 15 at 6963-64).

The cover letter from Kett to Prudential indicates that Del Monte's "forecast income statements for the years 1994 to 2001 as submitted to the banks" were enclosed. These forecasts are not themselves part of the record of this case. It is unclear from the record which projections were actually sent to Prudential.

In August 1995, Morgan Stanley was formally retained as Del Monte's financial advisor. (DM Ex. 10). In October 1995, Morgan Stanley provided Del Monte's Board of Directors with a preliminary analysis of the company's restructuring alternatives, and advised that the company pare back its non-core, non-U.S. businesses. (MS Exs. 15 at 6-7; 20 at 13). Morgan Stanley suggested that, once such restructuring steps were taken, Del Monte would be better situated for a potential sale, merger or initial public offering. (MS Ex. 15). Del Monte's Board instructed Morgan Stanley to convey to the market that Del Monte was not for sale, but would be willing to listen to unsolicited proposals. (MS Ex. 16 at 81). From November 1995 through August 1996, Del Monte streamlined its business by selling a number of non-core businesses and changed its pricing strategy, which enabled it to improve financial performance and better position itself for a potential sale, merger or initial public offering. (MS Exs. 15 at 6-7, 20 at 13).

PPIE was aware that Morgan Stanley was (or was about to be) Del Monte's investment banker as early as July 14, 1995. (See DM Ex. 11 at 6364).

C. 1996: PPIE's Continued Efforts to Sell Its Del Monte Stock

On January 31, 1996, a representative of Coopers Lybrand, acting on behalf of PPIE, offered to sell its Del Monte stock to Del Monte for $4 million, the midpoint of the valuation range that had been suggested by Prudential. (MS Ex. 7). On March 6, 1996, Del Monte's Board of Directors authorized the company to pay up to $2 million for PPIE's Del Monte stock, and instructed Morgan Stanley to approach PPIE with an initial offer of $1 million. (Herz Dep. at 5). At about the same time, representatives of Texas Pacific Group ("TPG"), a financial buyer of operating businesses, expressed to Morgan Stanley and to Huff Asset Management (Del Monte's largest shareholder) its strong interest in exploring the acquisition of Del Monte. (PPIE Ex. 50 at 962). At that time, TPG was told that Del Monte was in the midst of restructuring its operations and would not consider offers for the company until that process was complete. (PPIE Ex. 50).

The March 1996 expression of interest by TPG is referred to only in a September 1996 letter from TPG to Morgan Stanley discussedinfra. No other details are part of the record in this case.

On April 4, 1996, in response to Solow's motion to set a trial date for the damages phase of its action against PPIE for breach of the lease, PPIE filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware, the state of its incorporation. Despite PPIE's bankruptcy filing, negotiations among the parties regarding the possible sale of PPIE's stock to Del Monte continued.

On April 30, 1996, Kett met with Morgan Stanley and requested Del Monte's latest interim financial results. (Kett Dep. at 171-173). On May 2, 1996, Del Monte provided Kett with its interim financial results for the quarters ending September 30 and December 31, 1995 and its internal financial model dated April 30, 1996, which contained projections for the remaining two months in its fiscal year ending June 30, 1996. (DM Ex. 19 at 18669). This financial model showed projected earnings before interest, taxes, depreciation and amortization ("EBITDA") of $85 million for the fiscal year ending June 30, 1996. (DM Ex. 19).

The aggregate value of the company was then estimated by multiplying the projected EBITDA by a multiple, which was based on an analysis of comparable companies and transactions. The company's debt was then subtracted from the aggregate value to arrive at an estimate of the equity value of the company. (DM Ex. 19). Based on an EBITDA multiple of 6.25x and approximately $420 million of projected debt, these materials showed a total equity value of Del Monte of $102.5 million. (DM Ex. 19). This estimate stood in contrast to the accreted value of the four series of preferred stock senior to the Series D Preferred Stock held by PPIE (designated Series Al, Series A2, Series B and Series C), which as of June 30, 1996, was projected to be approximately $384 million. (DM Ex. 19). As a result, in a liquidation scenario that generated $102.5 million of equity value, PPIE's Series D Preferred Stock would have no "economic value." In a sale or liquidation, the Series D Preferred Stock would, however, have some "holdup" value, given its veto rights with respect to certain types of transactions.

This method of valuation, known as the EBITDA multiple method, is a widely used method of valuation. PPIE has not contested the appropriateness of this methodology.

The preferred stock paid dividends "in-kind," meaning that rather than a cash payment the holders received additional face value of preferred stock on every dividend date. As a result, the face value of the preferred stock "accreted," or increased in value, periodically.

PPIE makes reference to an April 30, 1996 analysis prepared by Morgan Stanley, which they argue shows that, in fact, PPIE's Del Monte stock could have been worth up to $5.6 million at that time. (PPIE Mem. at 29-30). The meaning of the Morgan Stanley analysis referred to and included in the record, however, is not self-evident and there is no explanation of it, in testimony or otherwise. (See PPIE Ex. 15). The Court, therefore, places little weight on the significance of this analysis.

In the May 2, 1996 cover letter to Kett that accompanied these financial materials, Del Monte's Chief Financial Officer wrote that Del Monte was projecting "a very strong performance" for its fiscal fourth quarter ending June 30, 1996, and invited Kett to call with any questions. (DM Ex. 19). Kett does not recall asking any follow-up questions or forwarding any of this material to Herz. (DM Mem. at 9). On May 7, 1996, though, Kett informed Del Monte that he intended to provide the financial information to Prudential. Kett also requested that Del Monte send him interim financial statements for its fiscal third quarter ending March 30, 1996 when available. (Kett Dep. at 174-75). On May 22, 1996, Del Monte complied with this request by sending Kett the company's interim results for the quarter ending March 31, 1996. (DM Ex. 20).

Although Kett also indicated that he would be authorizing Prudential to speak directly on PPIE's behalf, there is no evidence that Prudential ever actually did so.

Shortly thereafter, on June 4, 1996, Kett spoke with Robert Berner ("Berner") of Morgan Stanley to continue the negotiations regarding Del Monte's willingness to buy back PPIE's Del Monte stock. (PPIE Ex. 7, pp. 82-84). Berner told him that he believed the total equity value of Del Monte to be between $90-$175 million as of June 30, 1996, based on a multiple of 6-7x projected EBITDA of $85 million and $420 million of projected debt. (MS Ex. 29). Berner also told him that PPIE's Del Monte stock thus had "zero economic value" because the senior series of preferred stock had an aggregate accreted value of $384 million. (MS Ex. 29). Berner further stated that the value of the senior series of preferred stock had been increasing at a greater rate than the rate at which Del Monte's earnings were growing, thus suggesting that time was working against PPIE in the negotiations. (MS Ex. 29; Tr. 185-87).

Berner was a Principal in Morgan Stanley's Investment Banking Department, and apparently had primary senior-level responsibility for Morgan Stanley's assignments on behalf of Del Monte, which included making presentations to Del Monte's Board of Directors.

In that same conversation, Kett asked Berner whether there was "any prospect on the horizon" for a sale of Del Monte. (MS Ex. 29). Berner replied "no" and added that the company had been up for sale for a time but that there had been no buyers, particularly none in the food industry. (MS Ex. 29). However, Kett's notes of the conversation, which he adopted at his deposition, indicate that Berner went on to say that there was "likely to be a financial buyer in a year's time." (Kett Dep. at. 212-213; MS Ex. 29). Notably, Kett did not inform either Prudential or Herz of Berner's statement about the likelihood of a financial buyer. (Kett Dep. at 212-213; MS Ex. 29).

Kett explains that he did not inform Prudential or Herz of Berner's statement because he did not take Berner's comment literally, believing instead that there was "no real prospect for a sale." (Kett Dep. at 213-215). Nonetheless, it is undisputed that Berner did tell Kett there would be a financial buyer in a year's time.

D. June — September 1996: PPIE Negotiates with Del Monte Regarding a Sale of Its Del Monte Stock and Makes Requests for Information

On June 24, 1996, Berner wrote to Kett and indicated that Del Monte was prepared to pay $1 million for PPIE's Del Monte stock, and that this offer would remain open until July 15, 1996. (MS Ex. 9 at 6780-81). As justification for this offer, the letter stated that, using an EBITDA valuation methodology and a range of multiples of 6-7x, the total equity value of Del Monte would be in the range of $105-$190 million. (MS Ex. 9). The letter further stated that, at this range of equity values, PPIE's Del Monte stock had "no economic value" since the accreted value of the senior series of preferred stock was $384 million. (MS Ex. 9)., Kett forwarded this letter to Herz shortly after he received it. (Herz Dep. at 143).

Herz then spoke with Philip Shantz, a Senior Vice-President at Prudential, in an apparent attempt to reconcile the $1 million offer from Del Monte with Prudential's previous view that PPIE's Del Monte stock was worth $3-$5 million. (DM Ex. 26 at 2994; Herz Dep. at 254). Prudential orally replied that it was their current belief that Prudential could not sell PPIE's Del Monte stock for much more than $1 million, and that the earlier $3-$5 million valuation was based on factors that were no longer present. (DM Ex. 26 at 2995). As a result, Prudential "strongly recommended" that PPIE accept the $1 million offer. (DM Ex. 26 at 2295). Herz did not share with Del Monte the fact that Prudential had revised its valuation downward, as Herz understood that he and Del Monte were engaged in "arm's length" negotiations regarding the sale of the Del Monte stock. (Herz Dep. at 274; 255-257).

In particular, Prudential based its conclusions on a belief that Del Monte had not achieved its targeted results for the nine months ending March 31, 1996, "[would] most likely not achieve their targeted results for the year," and that Del Monte's business volume appeared to be declining rather than growing. The record is not clear regarding what information Prudential relied upon in making these assessments.

During the summer of 1996, Herz spoke to Berner a number of times about Del Monte's $1 million offer. (See Herz Dep. at 231). In one of their July 1996 conversations, Herz asked Del Monte for "any and all information regarding Del Monte, its affairs, in order to assist [PPIE] in determining whether or not a million dollars was a fair price and the highest and best price that [PPIE] could achieve." (Herz Dep. at 182). Herz acknowledged that he did not specify what information he wanted and that he left it to Del Monte to determine what information to send to PPIE. (Herz Dep. at 185-86). Del Monte replied that the company year-end financial statements (for the fiscal year ending June 30, 1996) would be published shortly and would be delivered to Herz at that time. (Herz Dep. at 184). On August 23, 1996, Herz again spoke to Del Monte and asked specifically for the June 30, 1996 audited financial statements. (Herz Dep. at 194). Although the final audited financial statements had not yet been completed, on August 28, 1996, Del Monte sent Herz detailed drafts of its June 30, 1996 financial statements. (DM Ex. 27). Subsequently, Herz was provided with the final audited financial statements. (MS Ex. 32).

Additionally, during their conversations that summer, Berner told Herz that PPIE's Del Monte stock had no inherent value but only had blocking or veto power. (Herz Dep. at 2993). He also told Herz several times during those months that Del Monte was regularly receiving unsolicited, general expressions of interest from potential buyers, but that there was nothing "specific." (Herz Dep. at 2993; see also Herz Dep. at 230-31). Finally, Berner informed Herz that no due diligence concerning a potential acquisition of Del Monte was occurring. (Herz Dep. at 231).

On September 4, 1996, Herz asked Berner for any other information, in addition to the June 30 financial statements which he had already received, that Morgan Stanley could provide that would help him evaluate the $1 million offer. (MS Ex. At 10). In response, Berner referred to the existence of an offering memorandum related to an exchange offer and agreed to send it to Herz. (Herz Dep. at 287). Also during this September 4, 1996 conversation, Berner told Herz that Del Monte "had been in play and was on a regular basis receiving inquiries from potential interested parties." (Herz Dep. at 287, 299). Herz made no further inquiries about the identities of these interested parties, nor did he convey the fact that Del Monte had received such inquiries to Prudential, though he did convey it: to Kett. (Herz Dep. at 301).

It is unclear whether Herz had received the final audited statements at this time or only the draft financial statements.

This document was provided to PPIE in November 1997 and is discussed infra.

In response to PPIE's request for an extension of the deadline on Del Monte's $1 million offer for the Del Monte stock (apparently made by Herz during this same September 4, 1996 conversation), by letter dated September 4, 1996 Berner confirmed to Herz that the deadline had been extended through September 30, 1996. (DM Ex. 28 at 2344-45). Using identical language to the language used in Berner's June 24, 1996 letter to Kett (which Herz had previously seen), this letter to Herz again estimated the equity valuation of Del Monte at $105-$190 million. (DM Ex. 28 at 2344-45). Herz understood that the valuation contained in the September 4 letter was based on Del Monte's EBITDA as of June 30, 1996, and therefore that the September 4 letter did not contain an updated valuation of Del Monte. (Herz Dep. at 208-09).

Then, on September 23, 1996, TPG wrote a letter to Berner of Morgan Stanley in which it reiterated its "strong interest in exploring the acquisition of Del Monte" and stated that it understood that "the Company's board is now considering the sale of Del Monte itself." (PPIE Ex. 50 at 962). This document was not provided to PPIE.

Later that month, on September 30, 1996, Del Monte provided Huff Asset Management (its largest shareholder) with its internal financial projection model dated as of September 26, 1996. (PPIE Ex. 51 at 144-151). This model showed that Del Monte's actual EBITDA for the fiscal year ending June 30, 1996 (after adjusting for a number of non-recurring items) was $92 million, or $7 million higher than the $85 million that the model provided to PPIE on June 2, 1996 had shown. (PPIE Ex. 51 at 144-151). It also showed a projected EBITDA of $103 million for thetwelve months ending December 31, 1996 (i.e. a different time period than that used in the projections previously provided to PPIE). (PPIE Ex. 51 at 144-51) (emphasis added). Using a multiple range of 6-7x and a projected debt balance as of December 31, 1996 of $357 million (compared to $420 million as of June 30, 1996), Del Monte indicated that its projected total equity value as of December 31, 1996 was $262-$365 million. (PPIE Ex. 5 at 144-151) (emphasis added). The foregoing analysis was also not provided to PPIE.

In calculating the $92 million figure, Del Monte made a number of pro forma adjustments to reflect the sale of certain non-core assets that it had completed during fiscal 1996. Although PPIE had received the detailed draft of the June 30, 1996 financial statements as well as the actual audited financial statements, it is unlikely that it would have been able to arrive at the $92 million figure on its own from these documents. However, as mentioned before, the September 4, 1996 supplement to the July 15, 1996 offering memorandum, which was provided to PPIE, stated that the company's actual operating performance in fiscal 1996 was $6-11 million higher than earlier projected. PPIE would have been able to calculate the EBITDA at $91 to $97 million had they used this information.

The Court notes, however, that even at the top end of the range of values included in the analysis given to Huff Asset Management, PPIE's Del Monte stock would still have had no "economic value."

E. October — December 1996; Del Monte Exchanges Confidential Information with Potential Acquirers and Provides Disclosure Updates to PPIE

Meanwhile, Del Monte had begun to position itself for a major structural transition: either an "equity restructuring" or a "sale/merger." (PPIE Ex. 49 at 19469). In September or October 1996, Morgan Stanley created a new project name for its work in this regard with Del Monte, which it called "Project Lodge." (Weinberg Tr. at 15-16). The existence of this new "Project Lodge" was not divulged to PPIE. (PPIE Mem. at 14). Specifically, on October 7, 1996, Del Monte executed an engagement letter with Morgan Stanley, pursuant to which Morgan Stanley was retained to work with Del Monte "in connection with the exploration of certain strategic alternatives, including the sale, recapitalization or initial public offering" of the company. (PPIE Ex. 52 at 10736).

Morgan Stanley's previous work for Del Monte, which involved advising on the sale of certain assets and a possible refinancing of certain of its indebtedness, had been called "Project Kilimanjaro." (Weinberg Tr. at 15-16; Halpern Ex. 19, 22).

At an October 22, 1996 special meeting of Del Monte's Board of Directors, Morgan Stanley informed the Board that "certain informal inquiries had been received from certain potential buyers interested in obtaining information with respect to [Del Monte's] U.S. business." (MS Ex. 33 at 2). After discussion, the Board formally authorized Del Monte's management and Morgan Stanley to respond to these inquiries, execute confidentiality agreements and provide preliminary financial and business information to interested parties. (MS Ex. 33 at 2).

On October 28, 1996, apparently in connection with its preparation of a financial information package for distribution to potential buyers, Del Monte provided to Morgan Stanley an updated internal financial model, showing projected pro forma EBITDA for calendar 1996 of $115 million. (PPIE Ex. 56 at 153). This model also showed projected pro forma EBITDA of $120 million for the fiscal year ending June 30, 1997. (PPIE Ex. 56 at 153). On this same date in October, Herz spoke to Del Monte's Chief Financial Officer by phone, and again inquired whether Del Monte had any additional information that could assist PPIE in evaluating the $1 million offer for the Del Monte stock. (Compl. ¶ 33). Herz was told that no further information existed. (Compl. ¶ 33). Moreover, Del Monte made no reference to Project Lodge, to the Board's recent decision to enter into confidentiality agreements with potential buyers or to the projection model that had been provided on that date to Morgan Stanley.

The significant difference between this figure and the $103 million figure that had been provided to Huff on September 30, 1996 is not accounted for in the record. The Court assumes that it relates to additional or different pro forma adjustments that the company was making in order to present its best face to the market in the upcoming sale process.

This is the first reference to projections for the full fiscal year ending June 30, 1997.

As discussed infra, a more complete disclosure of the status of the potential sale process was provided to Herz approximately two weeks later.

Between October 28, 1996 and November 5, 1996, TPG and Hicks Muse (another financial buyer of operating assets) entered into confidentiality agreements with Del Monte and were provided with certain business and financial information about Del Monte. (DM Exs. 29 at 21413, 30). On November 7, 1996, TPG held business and financial due diligence meetings with Del Monte's management. (PPIE Ex. 72 at 2805).

Hicks Muse held a similar meeting with Del Monte on November 19, 1997. (PPIE Ex. 72 at 2802).

On November 8, 1996, Morgan Stanley made a presentation to Del Monte's Board of Directors. (PPIE Ex. 60). Morgan Stanley reported to the Board that Del Monte's equity value had been enhanced by the restructuring of its operations and favorable business conditions, and that the timing might be right to pursue a sale of the company. (PPIE Ex. 60 at 369). Morgan Stanley's preliminary valuation analysis as of that date suggested that the equity value of Del Monte could be in the range of $270-$375 million. (PPIE Ex. 60 at 377). Morgan Stanley recommended that Del Monte formally respond to the expressions of interest that had been received, and proceed to more detailed discussions and information sharing only if acceptable valuation ranges were provided. (PPIE Ex. 60 at 408).

This analysis was based on Del Monte's average pro forma EBITDA for the three years ending June 30, 1996 through June 30, 1998 of $113 million and an estimated debt balance of $420 million. (PPIE Ex. 60 at 378). The upper end of the valuation range was based on a discounted cash flow analysis. (PPIE Ex. 60 at 378). The Court again notes that, even at the upper end of this valuation range, PPIE's Del Monte stock would have had no economic value due to the liquidation value of the senior series of preferred stock, although, presumably, the "hold-up" value would increase with an increasing valuation range.

PPIE was not made aware of or given access to the materials presented by Morgan Stanley at this Board meeting. However, Del Monte's outside counsel and Del Monte's Chief Financial Officer called Herz immediately after the November 8 Board meeting and told Herz that potential buyers had approached Del Monte, that Del Monte's Board of Directors had authorized management to go forward with the sale process, that confidentiality agreements had been signed and that prospective purchasers were to begin due diligence. (Samuels Dep. at 181-82). Herz asked for no additional information.

PPIE does not offer evidence to dispute that this disclosure was made and the record does contain a letter from Meyers to Herz that refers to a November 8 phone call between them. (PPIE Ex. 30 at 5465)

Rather, between November 5, 1996 and November 11, 1996, Herz and Berner continued, by phone, to negotiate the price that Del Monte was willing to pay for the stock. By November 11, 1996, the parties had agreed to a price of $1.6 million, plus an additional $400,000 payment if Del Monte were sold within two years. (PPIE Ex. 33; Herz Tr. at 322, 324, 329-32, 355-60).

Although PPIE alleges in its Memorandum of Law that during these negotiations it relied on "the defendants' persistent and repeated representations that the stock had nothing more than nuisance value and that no sale of the company was in process" (PPIE Ex. 60 at 378), this claim is unsupported. The record does not contain any evidence that Morgan Stanley made any representation that PPIE's Del Monte stock had "nothing more than nuisance value" during any of these November phone calls and it reflects that Herz knew that a sale of Del Monte might be in progress.

On November 14, 1996, Del Monte's Chief Financial Officer sent Herz a draft stock purchase agreement for PPIE's Del Monte stock, which reflected the $1.6 million agreement, along with certain "disclosure updates which I described in our telephone conversation of Friday [November 8]." (PPIE Ex. 30 at 5465). The "disclosure updates" included (1) an Offering Memorandum to the holders of certain of Del Monte's subordinated debt securities (the "Offering Memorandum"), dated July 15, 1996 with supplements dated August 22, 1996 and September 4, 1996; (2) a draft notice of redemption to be sent to the holders of certain of Del Monte's subordinated debt securities, dated November 18, 1996 (the "Draft Notice of Redemption"); (3) a copy of the audited financial statements for the fiscal year ending June 30, 1996; and (4) Del Monte's unaudited interim financial statements for the quarter ending September 30, 1996. (DM Exs. 1, 35).

These documents contained information previously disclosed to PPIE only orally. For example, Page 7 of the Offering Memorandum stated:

The Company believes that the completion of a financial restructuring . . . coupled with the focus by the Company on its core . . . operations [and] divestiture of non-core operations . . . will increase the Board of Directors' flexibility in reviewing its options to maximize shareholder value through a sale of the Company or an initial public offering. . . . The Board of Directors intends after the completion of the Exchange Offer . . . to monitor the success of the Company's recently implemented business strategy . . . and the efforts to sell Del Monte Latin America and to restructure the Company's equity, and to consider all relevant factors to determine what additional measures could be implemented to maximize shareholder value, including a sale or initial public offering, which could occur at any time.

(DM Ex. 1 at 5188) (emphasis added). Page 2 of the Draft Notice of Redemption (which contains only two pages in total) stated in a section entitled "Inquiries from Interested Parties":

The Company has recently received unsolicited inquiries from certain parties which have requested information to determine if they may be interested in pursuing an acquisition of [Del Monte]. The Company has executed confidentiality agreements with such parties and has made certain financial and business information available to them. The Board of Directors of the Company has not solicited offers and has made no determination to sell the Company.

(DM Ex. 35 at 5510) (emphasis added). The September 4, 1996 supplement to the Offering Memorandum also informed the reader that the company's actual operating performance in fiscal 1996 was $6-$11 million higher than previously projected. (MS Ex. 32 at 5153). The September 1997 interim financial statement, for its part, showed that Del Monte's earnings were significantly higher in the three months ending September 30, 1996 than in the comparable year-earlier period, with operating income having increased by $16 million and gross margin increasing from 13.9% to 21.5%. (DM Ex. 35 at 5514, 5518). Although the cover letter accompanying these financial statements invited Herz to call either Del Monte or Morgan Stanley with any questions, Herz did not do so. (Herz Dep. at 348).

In fact, Herz reviewed these disclosure documents only "briefly" and then filed them. He did not send these documents to Prudential and does not recall whether he had sent them to Kett or to anyone at Coopers Lybrand. (DM Ex. Herz Dep. at 337-38). Nor does he recall reading the disclosure regarding the execution of confidentiality agreements and the commencement of due diligence. (Herz Dep. at 334-337).

Herz conceded that, had he been aware that confidentiality agreements were executed and certain parties were conducting due diligence — the very information contained in the Offering Memorandum and Draft Notice of Redemption — he would have considered it important and would have asked follow up questions of Del Monte. (Herz Dep. at 330-31). Kett testified to the same effect, i.e. that, had he seen the disclosure contained in the Offering Memorandum and Draft Notice of Redemption, he would have asked Del Monte to disclose the identities of the interested parties and to provide copies of any information provided to these parties. (Kett Dep. at 227; 502-504).

Nevertheless, on or about November 21, 1996, PPIE's bankruptcy counsel filed a motion with the Bankruptcy Court specifically asking it to approve the sale of PPIE's Del Monte stock to Del Monte on the terms contained in the draft stock purchase agreement. (Compl. ¶ 35). The draft stock purchase agreement included an express disclaimer by PPIE of reliance on any representations by Del Monte not contained in the agreement, including representations regarding the "operations, financial condition, plans, [or] prospects" of Del Monte. (PPIE Ex. 30 at 5475). In addition, the draft stock purchase agreement contained a representation by PPIE that, among other things, it was a sophisticated investor and was satisfied that all its questions had been answered. (PPIE Ex. 30 at 5475-76).

Because PPIE had filed a bankruptcy petition, it required the approval of the Bankruptcy Court before it could enter into a binding agreement to sell its Del Monte stock.

The stock purchase agreement that PPIE executed with Solow on January 23, 1997 (discussed infra) contained a similar representation by PPIE.

F. December 1996 — January 14, 1997: The Parties' Dealings with the Bankruptcy Court

On December 3, 1996, TPG indicated to Morgan Stanley that it did not think the total equity value of Del Monte was greater than $100-$150 million. (MS Ex. 6 at 43). This amount was much lower than the values projected by Morgan Stanley in its November 8, 1996 presentation to Del Monte's Board of Directors, and was considered an "insult" by Del Monte management. (MS Ex. 6 at 44, 46). Because Del Monte's Board of Directors had informed Morgan Stanley that it was unlikely to entertain offers below a $200 million total equity value, Morgan Stanley did not regard this valuation range as potentially leading to the sale of Del Monte. (MS Ex. 44, 46). PPIE was not informed of this offer.

The following day, December 4, 1996, the Bankruptcy Court held a hearing on PPIE's proposed sale of its stock to Del Monte. PPIE told the court that it had concluded "based on valuations that had been provided [by] Del Monte . . . [that] the equity [of its Del Monte stock] [wa]s worth little or nothing." (Compl. ¶ 39). Solow, PPIE's largest unaffiliated creditor, objected to PPIE's agreement to sell its Del Monte stock to Del Monte for $1.6 million. (Peress Dep. 3/29/01 at 13-14). Consequently, at a December 19, 1996 hearing, the Bankruptcy Court ordered that PPIE's Del Monte stock be auctioned. (DM Ex. 38 at 1289). At that hearing, Del Monte's outside counsel pressed the Bankruptcy Court to require that the auction be concluded by January 15, 1997. When asked by the Bankruptcy Court for its rationale for this date, Del Monte's counsel referred to an ongoing financial restructuring of Del Monte in an attempt to ward off a potential bankruptcy filing by Del Monte itself as well as to "other dynamics that will come into play [after January 15] which I'm not at liberty to discuss." (PPIE Ex. 85 at 559). PPIE claims that Del Monte's representations were not true, arguing that there is circumstantial evidence — namely that Del Monte was acquired in April 1997 — that Del Monte wanted this January 15 date so that it could more easily proceed with that sale. Regardless, the Bankruptcy Court ordered that the auction be concluded by January 10, 1997. (DM Ex. 38 at 1287).

In preparation for a Bankruptcy Court hearing scheduled for January 8, 1997 to address a motion by Solow to dismiss the bankruptcy proceeding, PPIE's bankruptcy counsel, David Peress ("Peress"), and Herz held a conference call with Del Monte's Chief Financial Officer and Berner of Morgan Stanley on January 7, 1997. (Herz Dep. at 410; Peress Dep. 3/8/01 at 44). During that call, Berner told him that Del Monte was "exploring all avenues of investment or potential investment" and that it was still "in play" but that there was "nothing in the offing or nothing that they felt [he] should be aware of." (Peress Dep. 3/8/01 at 46).

Peress took this to mean that there were "no imminent transactions . . . nothing that could be identified." (Peress Dep. 3/8/03 at 46-47). Peress explained that, in his mind, the terms "offers" and "expressions of interest" were synonymous, so he was left with the impression that there had also not been any expressions of interest by potential buyers. (Peress Dep. 3/8/03 at 47). Peress did assume, however, that it was likely that interested parties had entered into confidentiality agreements and were conducting due diligence (MS Ex. 3 at 54-55). Indeed, at the time of this conversation, Peress had read in certain publicly available documents that Morgan Stanley had been retained by Del Monte "for the purposes of pursuing additional investment or transactions, such as the sale of all or part of the company." (Peress Dep. 3/8/01 at 45) (emphasis added).

On January 9, 1997, Del Monte's Board of Directors met telephonically to discuss the potential purchase of PPIE's Del Monte stock at the upcoming auction, which had been mandated by the Bankruptcy Court. (PPIE Exs. 62, 63). At that meeting, the Board of Directors authorized Del Monte to spend up to $15 million to purchase the Del Monte stock from PPIE. (PPIE Exs. 62, 63). A spreadsheet prepared by Morgan Stanley on that same date analyzed the allocation of Del Monte's total equity value, assuming that PPIE's Del Monte stock had been repurchased by Del Monte from PPIE, at a total equity valuation range of $350-$450 million. (PPIE Ex. 70 at 2720). The Court notes that this analysis appears to contemplate scenarios in which the junior series of preferred stock would receive a partial payout before the senior series of preferred stock received a 100% payout. There is no assertion that anyone outside Morgan Stanley was sent this document, nor is there anything on the record as to what prompted its creation.

As discussed supra, on November 8, 1996 (about two months earlier) Morgan Stanley had advised Huff Asset Management that the total equity value was in the range of $270-375 million.

By the close of business on January 10, 1997, Del Monte's $1.6 million bid for PPIE's Del Monte stock was the only offer that had been received. (Peress Dep. 3/8/01 at 202). On that date, therefore, both Peress and Herz sought information from Del Monte and Morgan Stanley to assist PPIE in convincing the Bankruptcy Court to approve the sale at a hearing scheduled for the following Monday, January 13, 1997. (Peress Dep. 3/8/01 at 198; Peress Dep. 2/29/01 at 130-31). PPIE required this information because neither Del Monte nor Morgan Stanley was willing to make a representative available to testify at the January 13 hearing. (Peress Dep. 3/8/01 at 202).

Peress asked Morgan Stanley whether it had prepared any "analyses in connection with the efforts to seek investment or possible acquisition." (Peress Dep. 3/8/01 at 203). Morgan Stanley responded that it was "in the process of working with the company to provide and prepare analyses of value, but that there was nothing available" for PPIE to review. (MS Ex. 4 at 2-162). Peress was "suspicious" about whether or not that was true. (MS Ex. 4 at 2-162).

Herz contacted Del Monte and "requested a schedule prepared by [Del Monte's Chief Financial Officer] or somebody under his control to support the notion [before the Bankruptcy Court] that there was little or no economic value to the [PPIE's Del Monte stock]" and "to convey to the court that [PPIE was] getting the highest and best offer" for the stock. (Herz Dep. at 392, 394). Herz told Del Monte that he wanted the most current information possible in the analysis. (Herz Dep. at 392). Later that day, Del Monte's Chief Financial Officer faxed to Herz a one-page chart showing that the total equity value for all of Del Monte was $35 million. (DM Ex. 39 at 6078-79). This chart was clearly labeled that it was based on the audited financial statements for the fiscal year 1996, which ended on June 30, 1996. (DM Ex. 39 at 6079). The chart stated that Del Monte's EBITDA for that period was $82 million, to which was applied a multiple of 6.Ox. From an aggregate enterprise value of $492 million, debt of $457 million was subtracted, yielding an equity value of $35 million. (DM Ex. 39 at 6079).

The "as of June 30, 1996" $35 million valuation analysis differs significantly from the valuation analysis provided to Kett by Morgan Stanley on June 24, 1996 (which showed a valuation range of $105-190 million). The June 24, 1996 analysis used an (a) EBITDA of $85 million, (b) a range of multiples of 6-7x, and (c) an estimated debt of $420 million.

What if any impact the receipt of this valuation had upon PPIE is unclear for two reasons. First, Herz testified that he did not consider the valuation further due diligence to use in analyzing the value of Del Monte. (Herz Dep. at 391). Second, given the large differential between the $35 million valuation provided on January 10, 1997 and the $105-$190 million valuation previously provided to PPIE on June 24, 1996, it is unlikely that PPIE actually believed that, as of January 10, 1997, the total equity value of all of Del Monte was only $35 million.

On January 12, 1997, Herz again spoke with Del Monte's Chief Financial Officer, (Herz Dep. at 411), who told him that PPIE's Del Monte stock had no economic, veto or blocking value, and that it had only "nuisance value." (Herz Dep. at 412). Herz was left with the "general understanding" from that conversation that Del Monte was not being sold, though he does not recall specifically what words were used. (Herz Dep. at 412-13). Herz also noted that his conversations with Morgan Stanley during this time period similarly left him with the "understanding" that there "was no definitive sale of Del Monte, proposed or contemplated" and that no definitive offers had been made. (Herz Dep. at 417-421).

On or around January 12, 1997, the Bankruptcy Court received a bid from Solow of $1.65 million for the Del Monte stock, and ordered PPIE's bankruptcy counsel to proceed with an auction between Solow and Del Monte. (Compl. ¶ 45; DM Ex. 40). The bidding continued until Del Monte bid $10.15 million. (Compl. ¶ 48). Solow then increased his bid to $10.6 million plus $400,000 if Del Monte were sold within two years. At this point, the auction was adjourned for the day. (Compl. ¶ 48).

On the morning of January 14, 1997, Del Monte withdrew from the bidding. (Compl. ¶ 50). Later that afternoon, the Bankruptcy Court held an in-chambers conference during which it asked Del Monte's counsel why Del Monte had been willing to pay so much more than its previous $1.6 million offer, and whether there was a transaction or event that provided the impetus for Del Monte's bid. (Herz. Dep. at 541-42; see also Peress Dep. 3/29/01 at 47-48). Del Monte's counsel was specifically asked by Solow's attorney whether any transaction was "in prospect", to which Del Monte's counsel responded "no." (Peress Dep., 3/29/01 at 60). Del Monte's counsel further stated that there was "nothing more than that which had already been disclosed to the court and the parties" and that Del Monte'a bidding was motivated by a desire to "simplify its capital structure." (MS Ex. 4 at 2; Peress Dep. 3/29/01 at 48). Del Monte's counsel also told the court that Del Monte was undergoing a financial restructuring and that part of the financial restructuring was "seeking interest by investors or potential acquirers." (Peress Dep. 3/29/01 at 59).

At a hearing later in the afternoon of January 14, 1997, Peress told the Bankruptcy Court that:

If asked whether [PPIE] would consider holding the stock at this point, . . . Mr. Herz's answer would be no; that Del Monte's fortunes have declined . . . with the income trend being a downward one as profitable operations have been sold in order to raise funds . . . leaving Del Monte with the . . . relatively unprofitable . . . canning business; that [its Del Monte Stock is subject to] the risk that Del Monte might one day have to engage in a restructuring transaction which could have the effect of further diluting . . . or eliminating [PPIE's] interests.

The Court notes that Peress's assessment is inconsistent with the interim financial statements for the quarter ending September 30, 1996 which had been provided to PPIE.

(DM Ex. 4 at 35-36). The Bankruptcy Court, therefore, orally approved the sale to Solow on the afternoon of January 14, 1997. However, because Solow had not decided whether he was willing to purchase the Del Monte stock subject to the Stockholders Agreement, a written order approving the sale was not entered on that date. (DM Ex. 4 at-44-46). Thus, as of January 14, 1997, there was no final sale of the stock.

G. January 15-21, 1997: Morgan Stanley Provides Del Monte with an Updated Valuation and Solicits Firm Bids for the Company

In response to an early January 1997 request from Charterhouse (another of Del Monte's stockholders) for a valuation of its stake in Del Monte for purposes of its own efforts to raise capital, on January 15, 1997, Morgan Stanley provided Charterhouse with a written valuation stating that the total equity value of Del Monte was $350-$450 million. (MS Ex. 23, 24). This valuation was based on projected average EBITDA for the two fiscal years ending June 30, 1997 of $113 million arid a range of multiples of 6.5-7.5, and incorporated "values implicit in recent unsolicited indications of interest." (MS Ex. 23 at 190, 196). The letter to Charterhouse describing this valuation referred to a "possible sale of Del Monte." (MS Ex. 23 at 190). A spreadsheet attached to this valuation shows an allocation to PPIE's Del Monte stock of $13.3-$23.7 million, based on a range of values of $350-$450 million. (MS Ex. 23 at 197). On January 21, 1997, Morgan Stanley sent an almost-identical letter to Del Monte, including a valuation of $350— $450 million, to be used by Del Monte for "income tax purposes." (DM Ex. 42 at 4017, 4109).

This apparently refers to TPG's early December 1996 assessment that Del Monte's equity was worth $100-150 million. Morgan Stanley testified that this indication caused it to reduce, rather than increase, the valuation range that it provided to Charterhouse. (See MS Ex. 6 at 119).

On January 21, 1997, Morgan Stanley circulated to Del Monte a draft of a letter dated January 27, 1997 to be sent to interested parties. (MS Ex. 25). This letter instructed the interested parties to submit firm offers for Del Monte by February 12, 1997. (MS Ex. 25). Later on January 21, Del Monte's Board of Directors authorized Morgan Stanley to send out the letter and solicit firm bids. (MS Ex. 6 at 113).

The bid solicitation letters, along with a draft Merger Agreement, were sent to TPG and Hicks Muse on January 29, 1997. (MS Mem. at 19). These letters asked for firm bids by February 12, 1997.

H. January 23, 1997: Del Monte Provides Further Disclosure to the Bankruptcy Court and the Sale to Solow is Approved

On January 23, 1997, Del Monte's counsel submitted a letter to the Bankruptcy Court and to PPIE's counsel to "supplement the information provided to the [Bankruptcy] Court on January 14, 1997 respecting Del Monte's equity restructuring and sale process." (DM Ex. 43). The letter explained that, since that date, Del Monte had received an analysis from Morgan Stanley suggesting that the fair market value of all of Del Monte's equity was in the range of $350-$450 million, and that the range of values for PPIE's Del Monte Stock was $13.3-$23.7 million. (DM Ex. 43). The letter acknowledged that Morgan Stanley had reviewed "the values implicit in certain non-binding, unsolicited indications of interest expressed by certain potential purchasers of Del Monte." (DM Ex. 43). The letter emphasized that the values set forth were based on a possible sale of Del Monte, that such a sale may not be consummated at all or at the valuation indicated, and that the value stated was "subject to significant uncertainties." (DM Ex. 43). At the time this letter was received by the Bankruptcy Court, it had yet to enter a written order approving the sale of PPIE's Del Monte stock to Solow.

Peress discussed the letter with both Del Monte's counsel as well as with Herz immediately after it was received. (Peress Dep. 2/29/01 at 65-66). There is no evidence that either Herz nor Peress sought any clarification of the letter from Del Monte or its counsel. At the following Bankruptcy Court hearing on January 23, 1997, Peress explained that he still wanted to go through with the sale to Solow, because "it isn't like [Del Monte or its counsel] are saying we have a deal in hand that is going to return 13 million dollars." (MS Ex. 42 at 6). Peress told the court that, despite being aware that Morgan Stanley was having discussions with potential acquirers, "the record shouldn't really change in the sense that [PPIE] has gotten the highest and best offer for the [Del Monte S]tock," and he indicated his belief that there was no benefit to remarketing PPIE's Del Monte stock. (PPIE Ex. 73 at 1073). Likewise, Herz believed that "a bird in hand is always worth more than two in the bush." (Herz Dep. at 103). In addition, Del Monte's counsel explained to the Bankruptcy Court that "it [was] not Del Monte's position that the letter should alter what the Court would otherwise do." (PPIE Ex. 73 at 1075). Thus, late in the afternoon of January 23, 1997, the Bankruptcy Court entered a written order approving the sale of the Del Monte stock to Solow for $10.6 million, plus $400,000 in the event that Del Monte was sold within two years. (DM Ex. 45 at 4). As part of the Stock Purchase Agreement between PPIE and Solow, PPIE signed a disclaimer similar to the one it had proposed to the Bankruptcy Court.

I. February — April 1997: Del Monte is Sold to TPG

On February 12, 1997, in response to the bid solicitation letter which it had sent out, Morgan Stanley received bids for Del Monte from TPG, Hicks Muse, Dole Foods and Tri-Valley Growers, though the only bids that were not subject to further due diligence were from TPG and Hicks Muse. (DM Ex. 47-50). TPG bid for an aggregate enterprise value of $890 million which equated to total equity value of $436 million), while Hicks Muse bid $220 million total equity value. (DM Ex. 49 at 830; Ex. 48 at 1290). Morgan Stanley was "stunned" by the amount of TPG's bid, particularly given the great value differential between the TPG and Hicks Muse bids. (Berner Dep. at 290-291; see also Meyers Dep. at 405).

Aggregate enterprise value refers to the total value to be paid for the company's business, before subtracting amounts necessary to pay off all of the company's existing indebtedness. For example, if Del Monte had $400 million of debt and received a bid for an aggregate enterprise value of $800 million, the total equity value would be $400 million ($800 million minus $40.0 million).

PPIE argues that Del Monte was actually aware that TPG would bid an aggregate enterprise value of approximately $800 million as early as January 8, 1996. It points to a January 8, 1997 presentation that TPG made to potential financing sources related to a potential bid for Del Monte for that amount. (PPIE Ex. 64; Meyers Dep. at 281-82). A copy of this presentation, prepared by TPG in connection with this meeting, was discovered in the files of Del Monte's Treasurer. (PPIE Ex. 64 at 11519). PPIE argues that because this document was found in Del Monte's files, it must have had access to this document prior to the sale of the stock. However, Del Monte's General Counsel knew of no Del Monte employees who had attended the January 8 meeting nor any Del Monte employees who were aware of the amount that TPG would bid for the company before bids were actually received on February 12, 1997. (Sawyers Dep. at 137). Further, Thomas Gibbons, Del Monte's Treasurer since 1995, has submitted a declaration stating that "I did not receive, see or learn of this document . . . until mid-April 1997, nor did I have any knowledge of the contents of that document until after February 12, 1997." (DM Gibbons Decl. ¶¶ 2-4). Morgan Stanley also denies having had knowledge of what TPG was going to bid for the company prior to February 12, 1997.

A notation in a Morgan Stanley contact sheet indicates that Del Monte's Controller participated in a conference call with TPG on January 8, 1997. (MS Ex. 34 at 2805). However, Del Monte's Controller has submitted a declaration that, while it is possible that he participated in such a conversation, he is certain that TPG did not indicate to him prior to February 12, 1997 what it intended to bid for Del Monte. (DM French Decl. ¶ 3).

On February 14, 1997, Del Monte's stockholders (including Solow) met to discuss a possible allocation of the $436 million of proceeds that they were to receive in the TPG transaction. (Banks Dep. at 262-63). Solow took an aggressive negotiating posture, threatening to veto the transaction if he did not receive a very favorable allocation of the proceeds. (Banks Dep. at 131-32; 263-65). The other stockholders eventually acceded to Solow's demands, and he received a $31 million allocation, which was a higher percentage of the accreted value of his stock than was received by at least one class of preferred stock higher in seniority to the stock held by Solow. (Banks Dep. at 132, 264; DM Ex. 52-53). In mid-April 1997, TPG acquired Del Monte, with Solow receiving $31 million for his Del Monte stock. (Compl. at ¶ 54; DM Ex. 53 at 3243).

II. SUMMARY JUDGMENT STANDARD

Federal Rule of Civil Procedure 56(c) provides that summary judgment is proper "if the pleadings, depositions, answers to the interrogatories and admissions on file, together With the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Mere "conclusory statements, conjecture or speculation by the party resisting the motion will not defeat summary judgment." Kulak v. City of New York, 88 F.3d 63, 71 (2d Cir. 1996). If the moving party meets its burden of identifying those portions of the record that it believes demonstrate the absence of genuine issues of material fact, "the burden then shifts to the non-moving party to demonstrate to the court the existence of a genuine issue of material fact." Lendino v. Trans Union Credit Info. Co., 970 F.2d 1110, 1112 (2d Cir. 1992). To meet this burden, the non-moving party "must come forward with affirmative evidence showing a genuine issue of material fact exists for trial."Chandra Corp. v. Val-Ex, Inc., Civ.A. No. 99-9061, 2001 WL 669252, at *2 (S.D.N.Y. Jun. 14, 2002) (citing Celotex, 477 U.S. at 324)).

Summary judgment is improper if "there is any evidence in the record from any source from which a reasonable inference could be drawn in favor of the nonmoving party." Chambers v. TRM Copy Ctrs. Corp., 43 F.3d 29, 37 (2d Cir. 1994). Nonetheless, "the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986).

In this case, PPIE claims the evidence demonstrates disputed facts as to whether Del Monte and Morgan Stanley lied and omitted material facts when negotiating to purchase PPIE's holdings of Del Monte stock. PPIE claims, inter alia, that Del Monte failed to inform PPIE, before it sold its stock to Solow, that: (1) Del Monte had retained Morgan Stanley to explore strategic alternatives, including the sale of Del Monte; (2) third parties had expressed an interest in purchasing Del Monte; (3) prospective purchasers were conducting due diligence of Del Monte; and (4) Del Monte's financial condition was improving. With respect to its fraud claim against Morgan Stanley, PPIE claims that Morgan Stanley (1) misrepresented that there were no prospective buyers for Del Monte at the time that Morgan Stanley was engaged in serious negotiations with several potential buyers; (2) made false representations about the value of the Series D Shares and told PPIE that the Series D shares had "no economic value" and were "worthless"; and (3) "knew to a near certainty by no later than December 1996 that Del Monte would receive offers from one or more interested purchasers that would value the equity in excess of $350 million." (MS Ex. 43 at ¶ 68). PPIE alleges that due to these misrepresentations and omissions, it suffered approximately $20 million in losses: the difference between the auction price of its Del Monte Stock and the price that Solow later received for the stock when TPG acquired Del Monte.

Del Monte and Morgan Stanley for their parts deny making affirmative misstatements and assert that they made appropriate disclosures to PPIE. They assert that PPIE's claims must be dismissed because the record demonstrates sufficient disclosures so as to negate the notion of misstatements or omissions. Additionally, they argue that because of their disclosures, PPIE could not justifiably rely on any purported misstatements or omissions, and to the extent that PPIE lacked information it was due to its own indifference to the information that Del Monte had provided.

III. CHOICE OF LAW

Before turning to the substantive law to decide whether there are disputes as to material issues of fact in this case, this Court must determine which state law applies to the tort and contract claims. While the parties agree that Maryland law governs PPIE's contract claim against Del Monte due to a choice of law provision in the contract at issue, they dispute which state law should govern the tort claims. See Lazard Freres Co. v. Protective Life Ins. Co., 108 F.3d 1531, 1540 (2d Cir. 1997) ("It is possible that, under New York's choice of law rules, the law of different jurisdictions can apply to the tort and contract claims in a given suit."). This case involves three sets of tort claims: a claim for fraud and a claim for negligent misrepresentation against Del Monte and a claim for fraud against Morgan Stanley. PPIE argues that either Delaware or Maryland should apply to these tort claims. Del Monte and Morgan Stanley each seek application of New York law.

It is worth noting that the contract between Del Monte and PPIE does not influence the choice of law as to the tort claims in this case. The pertinent contract provision provides that "this Agreement shall be construed and enforced in accordance with and governed by the law of the State of Maryland." Such language is too narrow to apply to the tort claims asserted by PPIE in this case. See Krock v. Lipsay, 97 F.3d 640, 645 (2d Cir. 1996) (finding that a choice of law provision stating that the contract "shall be governed by and construed with the laws of [Massachusetts] " did not apply to the tort claims asserted by the plaintiff).

"It is well-settled that, in diversity cases, federal courts must look to the laws of the forum state to resolve issues regarding conflicts of law." Krock v. Lipsay, 97 F.3d 640, 645 (2d Cir. 1996) (citingKlaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941)). Since this suit was brought in the Southern District of New York, the Court must look to New York law to determine which state's law should apply. Generally, "New York law employs an 'interest analysis' in choice of law analysis of tort claims, under which courts apply 'the law of the jurisdiction having the greatest interest in the litigation.'" Cromer Finance Ltd. v. Berger, 158 F. Supp.2d 347, 357 (S.D.N.Y. 2001) (quotingCurley v. AMR Corp., 153 F.3d 5, 12 (2d Cir. 1998)).

According to this principle, "fraud claims are governed by the laws of the jurisdiction where the injury is deemed to have occurred — which usually is where the plaintiff is located." Pinnacle Oil Co. v. Triumph Oklahoma, L.P., Civ.A. No. 93-3434, 1997 WL 362224, at *1 (S.D.N.Y. Jun. 27, 1997) (citing Sack v. Low, 478 F.2d 360, 366 (2d Cir. 1973) (Friendly, J.)); Cooney v. Osgood March., Inc., 81 N.Y.2d 66, 72 (1993) ("If conflict-regulating laws are at issue, the law of the jurisdiction where the tort occurred will generally apply because that jurisdiction has the greatest interest in regulating behavior within its borders."). Indeed, "[t]he traditional view has been that . . . when a person sustains loss by fraud, the place of wrong is where the loss is sustained, not where fraudulent misrepresentations are made." Sack, 478 F.2d at 366 (citations omitted). "For business entities such as corporations, the place of injury is the principal place of business or location of the business, as opposed to the place of incorporation or organization." Pinnacle, 1997 WL 362224, at * 1.

Under this traditional interest analysis, PPIE and Del Monte disagree as to whether New York or Delaware has a greater interest. Upon review of the record, it is clear that New York law should apply. The fraud alleged in this case was committed in pertinent part from June 1995 through January 1997. During this period, PPIE has alleged that Del Monte made false statements to Herz and Kett. During those periods, Herz, PPIE's sole representative in the United States, was first based in Connecticut and, as of mid to late 1996, he relocated to New York. As he conducted business from his residence, the Court views his home as PPIE's principal place of business. Kett was either in New York or London. In addition, New York was not only PPIE's principal place of business, but it was also the place of the great majority of communications at issue in this case, which were transmitted from California, where Del Monte's Chief Financial Officer David Meyers worked, to Herz in New York. Such communications included the myriad phone calls, faxes, and mailings described earlier.

PPIE does not argue that Maryland law should apply based on this analysis, but relies instead on the internal affairs doctrine discussed infra.

Neither party argues that Connecticut or British law should apply in this case. In any event, the Court would find that New York still has the greatest interest because the majority of the alleged fraud was completed in New York.

Far less conununication between Del Monte and PPIE occurred in Delaware, and these communications were limited to the month of January 1997, when PPIE auctioned its stock under the auspices of the Delaware Bankruptcy Court. During this month, Del Monte made specific representations to PPIE that it had no information to turn over to it that it had not already disclosed. These representations replicated earlier representations made to PPIE in New York. The other set of representations made by Del Monte in Delaware involve the January 23, 1997 letter in which Del Monte reassessed the value of PPIE's Del Monte Stock. While perhaps significant, this one letter communication does not trump the series of communications that allegedly occurred in New York. Therefore, the Court concludes that New York has the greater interest in this lawsuit.

Nevertheless, PPIE argues that Maryland law should apply due to a specialized application of the interest analysis rule: the internal affairs doctrine. See BBS Norwalk One, Inc. v. Raccolta, Inc., 60 F. Supp.2d 123, 129 (S.D.N.Y. 1999). The internal affairs doctrine "recognizes that only one State should have the authority to regulate a corporation's internal affairs — matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders — because otherwise a corporation could be faced with conflicting demands." Edgar v. MITE Corp., 457 U.S. 624, 645-46 (1982). Accordingly, PPIE maintains that since Del Monte is a Maryland corporation, Maryland laws should control the relationship between Del Monte and PPIE, one of its shareholders. However, this doctrine appears to apply only in those cases where a corporation owed a fiduciary duty to shareholders. See, e.g., Walten v. Morgan Stanley Co., 623 F.2d 796, 798 (2d Cir. 1980);BBS Norwalk One, 60 F. Supp.2d at 129; Hart v. General Motors Corp., 129 A.D.2d 179, 185 (1st Dep't 1987). In this case, though, the remaining tort claims do not involve a claim for a breach of fiduciary duty. Moreover, the allegations in this case are not peculiar to the corporate setting and could have arisen between two parties with no corporate relationship. Therefore, the internal affairs doctrine is inapplicable, and the Court will apply New York law to PPIE's claims against Del Monte.

Likewise, the Court applies New York law to PPIE's fraud claim against Morgan Stanley. As with its claims against Del Monte, PPIE argues under the interest analysis doctrine, that Delaware law should apply. However, New York has a greater interest in PPIE's claims against Morgan Stanley than Delaware. With regard to the domicile of the parties, Morgan Stanley's principal place of business was in New York at all times relevant to this action. PPIE, operating out of Herz's office in New York during the times relevant, to this claim, was also domiciled in New York. The locus of the alleged tort also requires the application of New York law. Berner, the only Morgan Stanley representative to communicate with PPIE, worked out of Morgan Stanley's New York office. In November 1996, when Berner was discussing the sale of PPIE's Del Monte stock with Herz, PPIE was also domiciled in New York. (Second Herz Dep. at 480). Thus, any alleged misrepresentations made by Berner were sent from Morgan Stanley and received by PPIE in New York. By contrast, Delaware has no relationship whatsoever to PPIE's fraud claims against Morgan Stanley; Morgan Stanley did not participate in any of the Delaware Bankruptcy Court proceedings, nor did it attend the auction of PPIE's Del Monte stock. Under the circumstances, New York has the greater interest in this case, and, therefore, New York law applies.

The Court also rejects the suggestion that the internal affairs doctrine dictates the application of Maryland law to PPIE's claims against Morgan Stanley. Morgan Stanley has no corporate, contractual or statutory relationship whatsoever with PPIE. PPIE's fraud claims against Morgan Stanley are separate and distinct from PPIE's relationship with Del Monte. Accordingly, the Court is not dissuaded from its conclusion that New York law should apply.

Alternatively, the Court would apply New York law in this case because PPIE has not demonstrated that New York law differs significantly from either Maryland or Delaware law. The proponent of foreign law must show that it differs materially from New York law. Dornberger v. Metropolitan Life Ins. Co., 961 F. Supp. 506, 530-31 (S.D.N.Y. 1997) (the law of the forum state applies where there is a false conflict). The only difference that PPIE claims between New York's and Delaware and Maryland's laws focuses on the reasonable reliance element of a fraud claim, which all three states share. PPIE claims that, unlike New York, neither Delaware nor Maryland take a plaintiff's sophistication into account in deciding whether reliance is justifiable. (PPIE brief at 26-27). This, however, is not accurate.

Courts in both Delaware and Maryland do consider the sophistication of a plaintiff when considering whether reliance is justifiable. See, e.g., Steigerwald v. Bradley, 136 F. Supp.2d 460, 470 (D.Md. 2001) ("As an experienced businessman," plaintiff could not justifiably rely);J.A. Moore Constr. Co. v. Sussex Assocs., L.P., 688 F. Supp. 982, 990-91 (D.Del. 1998); Gaffin v. Teledyne, Inc., 611 A.2d 467, 475 (Del. 1992); Maryland Nat'l Bank v. Traenkle, 933 F. Supp. 1280, 1285 (D.Md. 1996); Mater City Bagels, L.L.C. v. Am. Bagel Co., 50 F. Supp.2d 460 (D.Md. 1999). Based on the similarity of the law in all three states, this. Court is required to apply the tort law of New York state with respect to PPIE's claims against Del Monte.

IV. PPIE'S FRAUD CLAIMS AGAINST DEL MONTE AND MORGAN STANLEY ARE DISMISSED

To prove common law fraud under New York law, a plaintiff must show that: (1) the defendant made a material false statement or omission; (2) the defendant intended to defraud the plaintiff; (3) the plaintiff reasonably relied upon the representation or omission; and (4) the plaintiff suffered damage as a result of such reliance.Banque Arabe de Internationale D'Investissement v. Maryland Nat'l Bank, 57 F.3d 146, 153 (2d Cir. 1995). Also, under New York law, the plaintiff bears the burden of proving each element of a fraud claim by clear and convincing evidence, and not a mere preponderance. See Computerized Radiological Servs. v. Syntex Corp., 786 F.2d 72, 76 (2d Cir. 1996) (citing Accusystems, Inc. v. Honeywell Info. Sys. Inc., 580 F. Supp. 474, 482 (S.D.N.Y. 1984) (citing cases)). "This evidentiary standard demands a high order of proof . . . and forbids the awarding of relief whenever the evidence is loose, equivocal or contradictory." Abrahami v. UPC Constr. Co., 638 N.Y.S.2d 11, 13 (1st Dep't 1996) (internal citation omitted).

To prove concealment, a plaintiff must also establish that the defendant had a duty to disclose information to the plaintiff. See Brass v. Am. Film Tech., Inc., 987 F.2d 142, 152 (2d Cir. 1992).

In this case, the question of whether Del Monte and Morgan Stanley made material misrepresentations or omissions with respect to their knowledge of a pending sale of Del Monte or their valuations of PPIE's Del Monte stock is a close one. As the factual record recounted earlier shows, there is no direct evidence, although there is some circumstantial evidence, that the companies knew that a sale of Del Monte to TPG was in the making at the time of PPIE's stock sale. More significantly, there is evidence that the two companies had increased their valuations of Del Monte, and, therefore, PPIE's Del Monte Stock. Of course, valuations of companies, by their nature, are not facts but rather are estimates of a range of values based upon assumptions. That said, the companies chose to turn over only selected portions of these valuations to PPIE. This Court, accordingly, cannot determine as a matter of law that a reasonable juror could not find that Del Monte and Morgan Stanley made material misstatements or omissions. This is so even under New York's heightened pleading standard. Nevertheless, PPIE cannot demonstrate that it has met its burden under the third element of New York's fraud standard: reasonable reliance. The Court, therefore, turns to an analysis of this element. A. New York's Reasonable Reliance Standard

In New York, it is well settled that a plaintiff cannot establish justifiable reliance when "by the exercise of ordinary intelligence" it could have learned of the information it asserts was withheld.Abrahami, 638 N.Y.S.2d at 14 (quoting Schumaker v. Mather, 133 N.Y. 590, 596 (1982)). It is equally well settled that the level of scrutiny applied to a plaintiff in fraud cases is heightened in transactions between sophisticated business entities. When sophisticated parties fail to exercise care in their affairs, they "will not be heard to complain that [they were] induced to enter into the transaction by misrepresentations." Abrahami, 638 N.Y.S. at 471 (quoting Schumaker, 133 N.Y. at 596); see also Grumman Allied Indus. Inc. v. Rohr Indus., Inc., 748 F.2d 729, 737 (2d Cir. 1984) ("Where sophisticated businessmen engaged in major transactions enjoy access to critical information but fail to take advantage of that access, New York courts are particularly disinclined to entertain claims of justified reliance."); Lazard Freres Co. v. Protective Life Ins. Co., 108 F.3d 1531, 1543 (2d Cir. 1997) ("[A] party will not be heard to complain that he had been defrauded when it is his own evident lack of due care which is responsible for his predicament.");Siemens Solar Indus, v. Atlantic Richfield Co., 251 673 N.Y.S.2d 674, 674 (1st Dep't 1998) ("[S]ophisticated entity's opportunities to obtain knowledge of the matters that are subjects of the alleged misrepresentations preclude its claims of reasonable reliance.").

Accordingly, even if a defendant made a misrepresentation or material omission, this is "not enough to eliminate the [plaintiff's] duty to examine current financial statements and other information about the [defendant's] business." Giannacopoulos v. Credit Suisse, 37 F. Supp.2d 626, 632 (S.D.N.Y. 1999). This is particularly true when a party possesses, but fails to read the very disclosures it claims were withheld from it. See Treacy v. Simmons, Civ.A. No. 89-7052, 1991 WL 67474, at *4-*5 (S.D.N.Y. Apr. 23, 1991) (plaintiff's reliance on a broker's alleged misrepresentations was unjustifiable because the plaintiff failed to read the investments' prospectuses); Brown v. E.F. Hutton Group, 735 F. Supp. 1196 (S.D.N.Y. 1990) (same),aff'd, 991 F.2d 1020 (2d Cir. 1993). In short, "The 'justifiable reliance' requirement ensures that a causal connection exists between the misrepresentation and the plaintiff's injury. . . . Reckless conduct by the plaintiff that rises to a level of culpability comparable to the defendant's breaks this chain of causation and renders the plaintiff's reliance unjustifiable. . . ." Treacy, 1991 WL 67474, at 5 (quoting Grubb v. Fed. Deposit Ins. Co., 868 F.2d 1151, 1163 (10th Cir. 1989)). B. PPIE is a Sophisticated Business Entity Subject to Higher Level of Scrutiny

It is clear that PPIE qualifies under New York law as a sophisticated entity with a heightened duty to investigate and protect itself in business transactions. PPIE, incorporated in the United States, was formed in 1988 (almost ten years prior to the stock sale at issue in this case) to acquire companies in both North and South America in order to expand the global presence of its corporate parent, Polly Peck International PLC. (MS Ex. 43 at ¶ 11). Herz, PPIE's sole employee at the time of the stock sale, was a certified public accountant who had been in charge of PPIE's affairs since 1991. Additionally, during the stock negotiations, PPIE was advised by its administrators in London, Coopers Lybrand, one of the largest accounting firms in the world. It had the further advice of Prudential, the investment bank it had hired specifically to assist it in valuing the worth of its Del Monte stock.

Notably, during its interactions with Del Monte throughout 1996 and 1997, PPIE viewed itself as a sophisticated business entity involved in an arms-length transaction with Del Monte, the initial intended buyer of PPIE's Del Monte stock. Indeed, Herz noted that he felt he was under no obligation to reveal the information that Prudential gave to him with regard to the price of PPIE's Del Monte stock because PPIE and Del Monte were involved in an "arms-length" transaction. (Herz Dep. at 274). In fact, when PPIE submitted to the Bankruptcy Court for its approval the draft stock purchase agreement between itself and Del Monte in which it would sell its Del Monte stock for $1.6 million, it included a section in that agreement that contained a representation by PPIE that it was a "sophisticated investor with a long-time equity interest in [Del Monte] and its business . . . that it ha[d] engaged and received the advice of an investment banking firm with respect to the value of the Shares, and that [PPIE was] fully able to evaluate the merits of the transaction contemplated by this Agreement." (DM Ex. 3 at 5475-76). PPIE made a similar representation again in its stock purchase agreement with Solow. (DM Ex. 3). This record, therefore, clearly establishes that PPIE was not only a sophisticated business entity but that it viewed itself as such and professed to function in such a manner.

C. PPIE Failed to Heed Critical Information Disclosed by Del Monte and Morgan Stanley

Despite its sophistication, the record demonstrates that PPIE either failed to pursue or failed to reasonably incorporate into its own analysis of its Del Monte stock's value a series of disclosures made by Del Monte and Morgan Stanley. For example, by letter dated May 2, 1996, Meyers, Del Monte's Chief Financial Officer, sent Kett a Del Monte internal Financial Model and the Del Monte quarterly financial statements for the quarters ending September 30, 1995 and December 31, 1995. The cover letter to this package indicated Del Monte was "expecting a very strong performance in the fourth quarter, which ends June 30, 1996." By letter dated May 22, 1996, Meyers sent Kett the Del Monte third quarter financial statements ending March 31, 1996, which showed a continuing improvement in financial performance. This improved performance was confirmed by the September 30, 1996 quarterly financial statements, which were higher in the three months ending September 30, 1996 than in the comparable year-earlier period, with operating income having increased by $16 million. This statement also showed earnings of $6-$11 million higher than Del Monte's previous projections, which Del Monte had disclosed to PPIE.

With this and other information, PPIE easily could have performed its own analysis of Del Monte's value to discover that the projections it had earlier received from Del Monte were no longer relevant. In fact, based upon this information, William Purcell, Del Monte's uncontroverted expert whom the Court credits, explained that a reasonable investor "would have arrived at an independent valuation of $350 million to $450 million or higher for the equity value of the Company." (DM Ex. 36, p. 17). Notably, this is the same estimate as that offered to PPIE in the January 23, 1997 letter. To reach this conclusion, Purcell used a similar analysis to that used by Prudential in August 1995 and July 1996, when PPIE had asked Prudential to conduct an independent valuation of its Del Monte stock.

Purcell has been an investment banker for over 30 years, and was elected Managing Director at Dillon, Read Co. Inc ("Dillon Read") in 1982. He specializes in all areas of corporate finance, especially mergers and acquisitions. Currently, he is the Managing Director of investment banking firms in Washington, D.C. Purcell has a B.A. in economics from Princeton University and an MBA from New York University.

Purcell explained that had PPIE compared the September 30, 1995 quarterly statement with the September 30, 1996 quarterly statement, PPIE would have concluded that the rolling EBITDA for Del Monte was between $107 million and $115 million, and with an assumption of reasonable growth of 5%-15%, could have projected a June 30, 1997 fiscal year end EBITDA of $120 million. (DM Ex. 36 at 17). Using the same EBITDA multiple valuation method described in Berner's June 24, 1996 letter, PPIE on its own could have easily arrived at an estimated equity of $350 million to $450 million.

The Court also notes, as Purcell commented in his report, that "experienced financial people clearly know that an equity valuation is not a guarantee that one can 'take to the bank,' but that it is a best estimate range based on various assumptions some of which might be inaccurate, subject to valid differences of opinion, or speculative." (DM Ex. 36, p. 6).

In fact, in September 1996, Herz "thought it important to have some third party make a determination as to the value of the [Series D Shares]." (Herz Dep. at 134). He sent the financial information he had received from Del Monte to Prudential and requested that Prudential update the valuations it: had previously performed. (Herz Dep. at 129-30). However, while Prudential had agreed to perform the previous valuation at no charge, it refused to conduct another valuation without a fee. (Herz Dep. at 130). Because PPIE did not have the funds available to pay for this valuation, Herz asked the Administrators for financial assistance, but Kett and the Administrators refused his request. (Herz Dep. at 132). Thus, despite the fact that in 1996 the Administrators thought it prudent to obtain an independent valuation before responding to Del Monte's offer to purchase PPIE's Del Monte stock (MS Ex. 17), and the fact that the Administrators received approximately $1.5 million to $3 million for their services to Polly Peck in 1996, (MS Ex. 5 at 324), they nonetheless refused to pay for a valuation of the Series D Shares. Therefore, before the sale of its stock to Solow, PPIE did not obtain an independent evaluation from Prudential or conduct its own valuation to update the valuations Prudential had performed in August of 1995 and July of 1996. Such neglect does not comport with the duty imposed by New York law to investigate.

Herz did not specify which information he gave Prudential, remembering only that he sent the most recent information that the had. (Herz Dep. at 129).

Herz's inattention is perhaps explained by the fact that the Administrators for Polly Peck had, by the fall of 1996, stopped paying Herz for his services, and by the end of 1996, were in arrears to Herz for approximately $10,000. (Herz Dep. 315-317; 339).

Another prime example of inattention occurred on January 14, 1997, when PPIE represented to the Bankruptcy Court that Del Monte's "fortunes [had] declined . . . with the income trend being a downward one. . . ." (DM Ex. 4 at 35). This assessment was clearly wrong in light of Del Monte's September 1996 financial statements, which were in PPIE's possession as early as November 1996. The record is clear that while there may have been information upon which PPIE relied to its detriment, it did so in the face of disclosures that clearly indicated an increase in the value of Del Monte and, hence, its Del Monte stock.

Likewise, despite PPIE's claims that Del Monte and Morgan Stanley withheld information from it with regard to Del Monte's potential sale, the record demonstrates that PPIE was given numerous indications that a sale of the company was likely. The record also shows, that as with the financial projections, PPIE failed to use the information that it was given to assess the value of its Del Monte stock. For example, Kett testified that as early as June of 1996, Berner of Morgan Stanley told him that while there were no prospects on the horizon for a sale of Del Monte in the food industry, there would "likely . . . be a financial buyer in a year's time." (Kett Dep. at 212-213; MS Ex. 29). Kett did not believe this information to be of significance and did not report it to Herz. Herz, for his part, testified that from his few conversations with Berner, he was aware that Morgan Stanley has been retained by Del Monte to explore strategic alternatives, including a potential sale. (Herz Dep. at 225, 226). Herz acknowledged that a sale of Del Monte "had always been a possibility" and that Berner had informed him that Del Monte was receiving unsolicited expressions of interest. (Herz Dep. at 225-226, 228-30).

Herz also admitted that later, in September 1996, Berner told him that Del Monte was "in play" and was receiving inquiries from potentially interested parties on a regular basis. (Herz Dep. at 299). Despite this disclosure, Herz neither shared this information with Kett nor did he make an effort to ascertain the identity of the potential purchasers or the status of their inquiries. (Herz Dep. at 299-300). Such conduct fails to demonstrate the level of care expected of a sophisticated party in carrying out its duty to investigate.

A series of significant disclosures were also made in November 1996. On or about November 8, Del Monte's outside counsel and Del Monte's CFO Meyers orally informed Herz that Del Monte's Board of Directors had authorized management to proceed with the sale process and that Del Monte had executed confidentiality agreements with prospective purchasers, who had already begun due diligence. (Samuels Dep. at 181-82). Also in November 1996, Del Monte provided Herz with the Offering Memorandum containing detailed financial information about Del Monte. (See DM Ex. 1). Although Herz admits Meyers sent this to him in response to Herz's request for information that could assist PPIE in deciding whether to sell the Del Monte stock, Herz only "spent a few minutes looking" at the Offering Memorandum and failed to provide it to Coopers Lybrand, Prudential or anyone else. (Herz Dep. at 345-46). Herz's inattention caused him not to notice the pointed disclosure on page 7 that, "a sale of the Company . . . could occur at any time." (DM 1 at 7; Herz Dep. at 347).

He also apparently did not read the two-page November 18, 1996 draft notice of mandatory redemption that Meyers sent him in November. (Herz Dep. at 594-5). Thus, Herz did not read the paragraph — under the clear heading "'Inquiries From Interested Parties" — disclosing that prospective purchasers had signed confidentiality agreements with Del Monte and were conducting due diligence. As a result, Herz was unaware of these executed agreements. Significantly, Herz admits that had he been aware, he would have investigated further, asked who the prospective purchasers were and sought to see the due diligence material. (Herz Dep. at 330-31). Herz did none of these things, nor did he even contact Meyers or Berner of Morgan Stanley with any follow-up questions after receipt of these documents, despite Meyers' express written invitation to do so. (DM Ex. 33 at 5465; Herz Dep. at 348).

Kett acknowledged that Herz's failure to forward these documents to Coopers Lybrand or to tell them about Del Monte's sale process might have been a mistake. (Kett Dep. at 387). Had Herz told him of these disclosures, he "would have asked questions to understand more fully what was meant by these statements" and sought the "identity of these potential third party purchasers" and "copies of information or documents that were provided to third parties pursuant to the confidentiality agreements." (Kett Dep. at 460, 504). Kett testified that had he known of these disclosures beforehand, he would not have approved the initial agreement to sell the Del Monte stock to Del Monte and would have conducted a further investigation before approving the later agreement to sell the Del Monte stock to Solow. (Kett Dep. at 461).

Thus, before PPIE auctioned its stock on January 12, 1997, it had been provided with ample financial information to perform updated valuations of Del Monte and its Del Monte stock, (DM Ex. 36 at ¶¶ 30-38), but had chosen not to do so. It had also been informed about the progress of Del Monte's sale process, but had failed to read Del Monte's disclosures. Clearly, PPIE acted indifferently toward its own business (indeed, its only asset) and ignored the critical information it was given. Under these circumstances, it cannot now complain that it reasonably relied on selected segments of Del Monte's and Morgan Stanley's representations, ignoring those disclosures that contained red flags that its Del Monte stock was more valuable than previously thought.

Moreover, after PPIE had agreed to the sale of its stock to Solow, but before finalization of that sale by the Bankruptcy Court, Del Monte made yet another disclosure to PPIE. On January 23, 1997, Samuels, Del Monte's lawyer, informed PPIE that Morgan Stanley had provided it with valuations estimating that the Del Monte stock could be worth more than double what Solow had bid. Nevertheless, Herz instructed his attorney to inform the court that PPIE still wanted to complete the sale. Herz explained at deposition his belief that it was worth seizing the "bird in the hand." (Herz Dep. at 103, 444). This is further evidence of the lack of causation between Del Monte's disclosures and PPIE's decision to sell its stock.

Recognizing the implication of their decision to complete the sale to Solow in the face of the January 23, 1997 letter disclosure, PPIE claims that it did so for the additional reason that it feared that Solow would sue if it backed out. Significantly, PPIE does not support this claim with any evidence that it actually spent any time considering holding on to its stock, that it discussed this option and its consequences with its counsel, or even thought to raise the subject with the Bankruptcy Court. PPIE's utter failure to weigh the advantages — the potential for a higher sale price against the unsupported fear of litigation make this claim nothing more than speculation. Of course, even assuming it was PPIE's fear of litigation that motivated its decision to go through with the sale, the Court's conclusion that PPIE's reliance was unreasonable before the January 1997 letter remains unchanged.

PPIE has pointed to several cases in which courts refused to grant summary judgment against a plaintiff because they found the defendant had withheld information that was "peculiarly within defendant's knowledge."See Mallis v. Bankers Trust Co., 615 F.2d 68, 80 (2d Cir. 1980). It is true that under New York law, "[w]hen matters are held to be peculiarly within defendant's knowledge, it is said that plaintiff may rely without prosecuting an investigation, as he was no independent means of ascertaining the truth." Mallis, 615 F.2d at 80; Lazard Freres Co. v. Protective Life Ins. Co., 108 F.3d 1531, 1542 (2d Cir. 1997). However, the Second Circuit has noted that the fact that information may be peculiarly known to one entity does not end the analysis in the case of sophisticated players. Lazard Freres, 108 F.3d at 1543. As the Second Circuit has noted, sophisticated players must protect themselves from misrepresentations and can do so by including protective language to that effect.

In fact, PPIE did calculate for the risk that Del Monte could be sold shortly after it sold its stock. It negotiated with Del Monte and then with Solow for an equity kicker, which provided that if Del Monte were to be sold within two years of the date of the Stock Sale Agreement, the buyer would pay PPIE an additional amount over the purchase price not to exceed $400,000. (DM Ex. 3 at 2 ¶ 4).

In DynCorp v. GTE Corp., 215 F. Supp.2d 308, 321 (S.D.N.Y. 2002), the district court encountered a situation similar to the one in this case where a sophisticated plaintiff argued that the peculiar information exception should apply. In that case, the court concluded that where the plaintiff had signed a waiver of representations and knew that it was in possession of only selected information, it could not demonstrate reasonable reliance. See DynCorp., 215 F. Supp.2d at 321-22.

Likewise, here, PPIE was on notice that it was in possession of only selected information. For example, the Offering Memorandum indicated that Del Monte had entered confidentiality agreements with potential buyers, but Del Monte did not specify to PPIE who those potential buyers were. Despite being on notice that it had received partial and not full information, however, it signed a contract with Solow in which it stated that "it [was] knowledgeable about Del Monte and its business and the industry in which Del Monte operates, that it ha[d] engaged and received the advice of an investment banking firm with respect to the value of the Shares, and that [it was] fully able to evaluate the merits on the transaction contemplated by [the Stock Sale] Agreement." (DM Ex. 3 at 5-6 at ¶ 9). Under such circumstances, PPIE cannot now complain that it was harmed by information that Del Monte did not turn over when it was the party that failed to pursue clear disclosures.

PPIE had also been willing to sign an agreement with Del Monte when it believed that Del Monte would be the purchaser of its stock, and it had submitted this agreement to the Bankruptcy Court for approval. If signed, PPIE would have disclaimed any reliance on Del Monte's express or implied representations. It also would have acknowledged that it had "the full opportunity to ask questions of and obtain information from the Company with respect to all matters relating to the transaction contemplated by this Agreement." (PPIE Ex. 30).

Indeed, even if certain misrepresentations or omissions had been made by Del Monte, "[p]arties cannot demand judicial protection when they could have protected themselves with a reasonable inquiry into any misrepresented facts." Giannacopoulos, 37 F. Supp.2d at 632. PPIE cannot now, in hindsight, make out a claim for fraud because it regrets its decision to sell to Solow and wishes to hold Del Monte responsible for its own lack of attention and care to its business affairs. For these reasons, this Court finds that PPIE (1) was a sophisticated business entity, (2) did not heed the significant disclosures by Del Monte that indicated its stock's value was in excess of $1.6 million and (3) did not justifiably rely on alleged misrepresentations and omissions by either Del Monte or Morgan Stanley. Indeed, "[w]here, as here, a party has been put on notice of the existence of material facts which have not been documented and [it] nevertheless proceeds with a transaction without securing the available documentation or inserting appropriate language in the agreement for his protection, [it] may truly be said to have willingly assumed the business risk that the facts may not be as represented." Lazard Freres, 108 F.3d at 1543 (2d Cir. 1997) (quoting Rodas v. Manitaras, 552 N.Y.S.2d 618, 620 (1st Dep't 1990)). Accordingly, PPIE's fraud claims are dismissed.

V. PPIE'S NEGLIGENT MISREPRESENTATION CLAIM AGAINST DEL MONTE IS DISMISSED

PPIE has brought a claim against Del Monte for negligent misrepresentation based on an alleged breach of a duty of care stemming from the contractual relationship between the parties. PPIE claims that based on the contractual relationship, namely the Stockholders Agreement, Del Monte had a duty to disclose information to PPIE, which Del Monte violated by allegedly withholding information as well as disclosing misinformation.

In order to recover on a theory of negligent misrepresentation, a plaintiff must establish that because of some special relationship with the defendant which generally implies a closer degree of trust than the ordinary buyer-seller relationship, the law imposes on that defendant a duty to use reasonable care to impart correct information, that the information is false or incorrect, and that the plaintiff reasonably relied upon the information given.
Pappas v. Harrow Stores, Inc., 528 N.Y.S.2d 404 (2d Dep't 1988) (emphasis added). As argued by PPIE, New York law does permit a finding of such a special relationship in a commercial context based upon a contract that places two parties in privity. See Kimmel v. Schaefer, 89 N.Y.2d 257, 263 (1987) (citing Int'l Prods. Co. v. Erie R.R. Co., 244 N.Y. 331, 338 (1927)); Schroders, Inc. v. Hogan Systems, Inc., 522 N.Y.S.2d 404f 406 (N.Y.Sup.Ct. 1987) (Baer, J).

In this case, if the Court were to find a special relationship existed between Del Monte and PPIE, the duty of care imposed upon Del Monte would be a duty of care in the disclosure of information to PPIE. This, however, is the same duty that the parties codified in the Stockholders Agreement. As noted earlier in this Opinion, the Stockholders Agreement provides in § 2.12 that Del Monte provide "as promptly as practicable, such financial statements and other information, including, without limitation, monthly management reports as such Stockholder may reasonably request." Thus, under the Stockholders Agreement, Del Monte was required to reasonably respond to requests for information in good faith. See Wootton Enters., Inc. v. Subaru of American, Inc., 134 F. Supp.2d 698, 704 n. 5 (D.Md. 2001) ("Under Maryland law, there is an implied duty of good faith and fair dealing in all contracts."). Thus, the duty of care under the negligent misrepresentation theory in this case would be no greater than the scope of the obligation arising from the contract itself.

New York law, however, does not permit a tort claim to stand when it merely duplicates an alleged breach of contract.

It is a well-established principle that a simple breach of contract is not to be considered a tort unless a legal duty independent of the contract has been violated. . . . This legal duty must spring from circumstances extraneous to, and not constituting elements of, the contract, although it may be connected with and dependent on the contract.
Clark-Fitzpatrick, Inc. v. Long Island R. Co., 70 N.Y.2d 382, 389 (N.Y. 1987) (citations omitted); LaSalle Bank Nat'l Assoc. v. Citicorp Real Estate Inc., CIV.A. No. 02-7868, 2003 WL 1461483, at *3-*4 (S.D.N.Y. Mar. 21, 2003). Indeed, " [i]f the only interest at stake is that of holding the defendant to a promise, the courts have said that the plaintiff may not transmogrify the contract claim into one for tort."Robehr Films, Inc. v. Am. Airlines, Inc., CIV.A. No. 85-1072, 1989 WL 111079, at *2 (S.D.N.Y. Sept. 19, 1989) (quoting Hargrave v. Oki Nursery, Inc., 636 F.2d 897, 899 (2d Cir. 1980)).

Here, the contract itself is the sole basis for the imposition of a special duty, but that duty only extends as far as the contract's scope — the reasonable disclosure of information by Del Monte to PPIE. PPIE "failed to show that there was a legal duty imposed upon [Del Monte] independent of the contract itself, or that [Del Monte] engaged in tortious conduct 'separate and apart from [its] failure to fulfill [its] contractual obligations.'" D'Ambrosio v. Engel, 741 N.Y.S.2d 42, 44 (2d Dep't 2002) (quoting New York Univ. v. Cont'l Ins. Co., 87 N.Y.2d 308, 316 (1995)). In other words, "[i]f [Del Monte's] conduct is evaluated as if there were no contract here, [PPIE] clearly would not be able to claim that" Del Monte was liable for negligent misrepresentation because "the underlying foundation for such a claim would be [PPIE's] reliance on [Del Monte's duty to disclose information to it], an untenable position if not for the contract." Robehr Films, 1989 WL 111079, at *3; Edwil Indus., Inc. v. Stroba Instruments Corp., 516 N.Y.S.2d 233, 233 (2d Dep't 1987) (dismissing plaintiff's tort claim because a contract obligated the defendant to render accurate statements of sales, which was the "gravamen" of the tort claim); Maharaja Travel, Inc. v. Bank of India, CIV.A. No. 94-8308, 1997 WL 154044, at *4 (S.D.N.Y. Apr. 2, 1997) ("It is insufficient as a matter of law to assert a tort claim along with a breach of contract claim unless the Complaint alleges negligent misrepresentation regarding circumstances wholly collateral to the breach of contract claim or there is a legal duty independent of the contract that exists between the parties.").

Moreover, the Court must consider that "New York's 'economic loss' rule restricts a claimant who has not suffered personal or property injury, but only 'economic loss,' to an action in contract for the benefit of its bargain." Robehr Films, 1989 WL 111079, at *4. New York retains this rule in order to preserve the distinction between tort and contract, in an "attempt to keep contract law 'from drown[ing] in a sea of tort.'" Carmania Corp., N.V. v. Hambrecht Terrel Intern., 705 F. Supp. 936, 938 (1989) (quoting East River S.S. Corp. v. Transamerica Delaval Inc., 476 U.S. 858, 866 (1986)). Therefore, "[i] f the damages suffered are of the type remediable in contract, a plaintiff may not recover in tort." Carmania, 705 F. Supp. at 938.

In this case, PPIE "alleges only economic loss in its proposed negligence claim. It does not claim any personal injury or damage to property, as is required to recover in tort." Robehr Films, 1989 WL 111079, at * 5. This factor, therefore, also points to the fact that, although PPIE's claim sounds in tort, it is actually a claim for a breach of contract. See Maharaja Travel, 1997 WL 154044, at *4 (S.D.N.Y. Apr. 2, 1997) (dismissing plaintiff's fraudulent misrepresentation claim because, inter alia, "[a]11 damages alleged by [plaintiff] as arising from the alleged fraud are recoverable as damages under [plaintiff's] breach of contract claim"). Accordingly, PPIE's claim for negligent misrepresentation is dismissed.

In any event, the Court would dismiss the negligent misrepresentation claim for the same reason that it dismissed the fraud claims: that PPIE could not have reasonably relied on the alleged misrepresentations or omissions. The Second Circuit has explained that even where a duty to disclose may exist, it does not necessarily follow that a party, even one with a special relationship, reasonably relied on misrepresentations or omissions. Hydro Investors, Inc. v. Trafalgar Power Inc., 227 F.3d 8, 21 (2d Cir. 2000) (affirming summary judgment against plaintiff's negligent misrepresentation claim because plaintiff could not establish reasonable reliance); Consol. Edison, Inc. v. Northeast Utils., 249 F. Supp.2d 387, 409 (S.D.N.Y. 2003) (dismissing negligent misrepresentation claim despite fact that there might have been special relationship because plaintiff failed to establish reasonable reliance); Nasik Breeding Research Farm Ltd. v. Merck Co., Inc., 165 F. Supp.2d 514, 536 (S.D.N.Y. 2001) (same).

The Second Circuit has noted that omissions are "nothing more than affirmative misrepresentations" for purposes of deciding whether a party has a duty to disclose. Grumman , 748 F.2d at 738 (1984).

In this case, as explained above, PPIE had access to critical information, including: (1) a statement by Berner of Morgan Stanley in June 1996 that he believed that there would be a financial buyer for Del Monte within one year's time; (2) oral disclosures that Del Monte was "in play" and was on a regular basis receiving inquiries from potential interested parties; (3) Del Monte's September 1996 quarterly financial statement, which disclosed that Del Monte's operating income in the first fiscal quarter of 1997 was $16 million higher than the previous year; (4) Del Monte's Offering Memorandum and Draft Notice of Redemption, which indicated that potential purchasers of Del Monte who had executed confidentiality agreements were conducting due diligence of the Company; (5) a November 1997 oral disclosure by Del Monte's outside counsel and CFO to the same effect; and (6) the January 1997 letter informing PPIE and the Bankruptcy Court that Del Monte now valued PPIE's Del Monte stock at $13.3-$23.7 million.

This information should have indicated to PPIE that the value of its Del Monte stock had likely increased since Del Monte had offered it $1.6 million for the stock in November 1996. Therefore, PPIE's reliance on Del Monte's earlier representations and alleged omissions was not reasonable, but rather reckless, as it demonstrated that PPIE "acted in 'disregard of a risk known to [it] or so obvious that [it] must be taken to have been aware of it, and so great as to make it highly probable that harm would follow.'" Stern Stern Textiles, Inc. v. LEY Holding Corp., CIV.A. No. 84-3295, 1987 WL 6434, at *2 (S.D.N.Y. Feb. 5, 1987) (quoting Dupuy v. Dupuy, 551 F.2d 1005 (5th Cir. 1977, per Judge Wisdom) (quoting W. Prosser, Handbook of the Law of Torts § 34 at 185 (4th ed. 1971)). Accordingly, PPIE's claim for negligent misrepresentation is dismissed both because it is duplicative of the breach of contract claim and because PPIE could not reasonably rely on the alleged misrepresentations and omissions of Del Monte as a matter of law.

VI. PPIE'S BREACH OF CONTRACT CLAIM

PPIE alleges that Del Monte failed to provide information it was required to provide — upon request — under the Stockholders Agreement. As noted above, § 2.12 of the Stockholders Agreement required Del Monte to provide to PPIE all information that PPIE reasonably requested. It is undisputed that PPIE made repeated requests for any and all information that might help it evaluate the value of its Del Monte stock. The question is whether Del Monte satisfied its obligation once these requests were made.

Again, the precise language of the contract stated that Del Monte must provide: "as promptly as practicable, such financial statements and other information, including, without limitation, monthly management reports as such stockholder may reasonably request."

Under Maryland law, "[t]he interpretation of a written contract is ordinarily a question of law for the court. . . ." ABC Imaging of Washington, Inc. v. The Travelers Indem. Co. of Am., 820 A.2d 628, 632 (Md.Ct.Spec.App. 2003). Furthermore, Maryland courts adhere to the "objective interpretation of contracts" principle, under which courts give the words of a contract "their ordinary and usual meaning, in light of the context within which they are employed" as opposed to the meaning that the parties may have intended at the time.ABC Imaging, 820 A.2d at 633. Thus, where the terms of a contract are unambiguous, the court determines its meaning and application as a matter of law. See Auction Estate Representatives, Inc. v. Ashton, 731 A.2d 441, 444 (Md. 1999) ("[T]he clear and unambiguous language of an agreement will not give way to what the parties thought the agreement meant or was intended to mean"). The Maryland Court of Appeals has also made clear that "language which is merely general in nature or imprecisely defined is not necessarily ambiguous." Truck Ins. Exch. v. Marks Rentals, Inc., 418 A.2d 1187, 1190 (Md. 1980).

Nonetheless, "when there is a bona fide ambiguity in the contract's language or legitimate doubt as to its application under the circumstances . . . the contract [is] submitted to the trier of the fact for interpretation." Monumental Life Ins. Co. v. U.S. Fid. And Guar. Co., 617 A.2d 1163, 1174 (Md. Ct. of Spec. App. 1993) (citing Board of Trustees v. Sherman, 373 A.2d 626 (Md. 1977); 4 Williston on Contracts § 616 (1961)). "Ambiguity arises if, to a reasonably prudent person, the language used is susceptible of more than one meaning and not when one of the parties disagrees as to the meaning of the subject language." The Board of Educ. of Charles County v. Plymouth Rubber Co., 569 A.2d 1288, 1296 (Md.Ct.Spec.App. 1990) (citing Truck Ins., 418 A.2d at 1187)). In such cases where "the writing is not clear as to preclude doubt by a reasonable man of its meaning" — the interpretation function passes from the court to the jury. Bethesda Place Ltd P'ship v. Reliance Ins. Co., Civ.A. No. 91-1719, 1992 WL 97342, at *2 (D.Md. Apr. 22, 1992).

The contract in this case "require[s] a factual determination as to what is deemed to be" a reasonable disclosure of documents by Del Monte.Trimed, Inc. v. Sherwood Medical Co., 772 F. Supp. 879, 885 (D.Md. 1991) (finding that the interpretation of a "best efforts" clause in a contract was properly submitted to the jury). Whether the requests for documents by PPIE were reasonable and whether Del Monte adequately responded to those reasonable requests is a question best left to a trier of fact who is "in the best position to make this factual determination, which is dependent on the circumstances of the case." Trimed, 772 F. Supp. at 885; see also Wood v. Allstate Ins. Co., 21 F.3d 741, 747 (7th Cir. 1994) (finding that whether defendant satisfied her contractual duty to respond to reasonable requests made by her insurance company was a material question of fact for the jury). The jury's decision may, of course, be influenced by evidence as to custom and usage in the industry, evidence that was not presented on this motion. See Goodman v. Resolution Trust Corp., 7 F.3d 1123, 1126 (4th Cir. 1993)("If . . . resort to extrinsic evidence in the summary judgment materials leaves genuine issues of fact respecting the contract's proper interpretation, summary judgment must of course be refused and interpretation left to the trier of fact.") (citingWorld-Wide Rights Ltd. P'ship v. Combe Inc., 955 F.2d 242, 245 (4th Cir. 1992)). Thus, the Court finds that the interpretation of the contract as well as its application should be referred to the jury.

Del Monte argues that the contract claim should nonetheless be dismissed because, regardless of the meaning and application of § 2.12, its "supposed duty to provide information never came into effect." (DM Memo at 44). Del Monte points to § 6.6 of the Stockholder's Agreement, which provides that "All notices and other communications provided for herein shall be in writing and shall be delivered by hand or sent by certified mail . . . to the Company." Del Monte claims that because PPIE never made a written request pursuant to § 6.6, PPIE's claim under § 2.12 must fail.

There is in the record, however, evidence that PPIE made one written request for a copy of Del Monte's Board minutes, to which, PPIE alleges, Del Monte did not respond. (PPIE Ex. 39). Whether such a request qualifies as reasonable request under the § 2.12 is a question for the jury.

As explained above, when the language of the contract is unambiguous, it is within the province of the Court to interpret the contract. Here, § 6.6 clearly provides that "all notices and other communications" with Del Monte, which are provided for in the contract, are to be in writing. This language is unambiguous, and the Court finds that it is broad enough to incorporate those communications contemplated by § 2.12. To find otherwise, would be to disregard the plain language of § 6.6. Therefore, according to the contract, PPIE should have made requests in writing.

Nevertheless, PPIE argues that Del Monte waived any claim that it might have to enforce § 6.6 with regard to § 2.12 because of its course of conduct, namely its continual response to PPIE's oral requests for documents and information. In response to this claim, Del Monte points to § 6.5 of the Stockholders Agreement, which states that: "[a]ny term of [the] Agreement . . . may be amended and the observance of any such term may be waived . . . only with the written consent of (a) the Company and (b) Stockholders holding at least 66-2/3% of the outstanding Shares held by all the Stockholders." Del Monte maintains that because the contract has a specific waiver provision requiring written waiver, it could not have waived § 2.12 through its conduct.

There are many instances of such behavior, exemplified by the following two examples. In July of 1996, Herz orally asked Del Monte for "any and all information regarding Del Monte" that would "assist" PPIE in evaluating Del Monte's one million dollar offer. In response to this, Del Monte promised to send its June 30, 1996 financials, which would soon be completed. On August, 23, 1996, Herz again spoke to Del Monte to obtain those financials, which Del Monte did eventually send. Later, when Herz requested financial information from Del Monte that it could bring to the Bankruptcy Court to substantiate the reasonableness of Del Monte's offer, Del Monte faxed PPIE a chart showing Del Monte's total equity value at $35 million.

However, under Maryland law, parties to a contract may waive provisions of that contract by behavior that is "inconsistent with the intention to insist upon enforcing such provisions." Parks v. CAI Wireless Systems, Inc., 85 F. Supp.2d 549, 555 (D.Md. 2000). The Maryland Court of Appeals has defined waiver as "the intentional relinquishment of a known right, or such conduct as warrants an inference of the relinquishment of such right, and may result from an express agreement or be inferred from the circumstances." BarGale Indus., Inc. v. Robert Realty Co., 343 A.2d 529, 533 (Md. 1975); Guardian Life Ins. Co. v. U.S. Tower Servs., Ltd., 714 A.2d 204, 210-211 (Md. Ct. Spec. App. 1998) (same). Moreover, parties to a contract can make an oral agreement, expressly or implicitly, that effectively waives the requirements of a written contact. See Hoffman v. Glock, 315 A.2d 551, 554-55 (Md. Ct. Spec. App. 1974); Fantle v. Fantle, 782 A.2d 377, 382 (Md. Ct. Spec. App. 2001). Notably, "[t]his is so notwithstanding a written agreement that any change to a contract must be in writing." Univ. of Nat'l Bank v. Wolfe, 369 A.2d 570, 576 (Md. 1977) (emphasis added) (citing Taylor v. University Nat'l Bank, 282 A.2d 91, 93-94 (Md. 1971)). Such an

The University Nat'l Bank case involved a similar waiver provision to the one in this case. It provided that "[t]he rights or authority of the Bank under [the] agreement shall not be changed or terminated by said depositors or either of them except by written notice." 369 A.2d 576. The waiver provision in this case differs to the extent that it involves a third party — the other stockholders of the company. While this difference is important, Maryland law appears clearly to favor upholding the common law rule of waiver by course of conduct. Since PPIE attempts to hold only Del Monte liable based on its course of conduct, not the other stockholders, their lack of a direct stake in the action counsels against precluding a finding by the jury of waiver by course of conduct.

oral modification of a written contract may be established by a preponderance of the evidence. . . . Of course, if the written contract provides that it shall not be varied except by an agreement in writing, it must appear that the parties understood that this clause was waived. However, such a clause may be waived by implication as well as by express agreement.
Taylor, 282 A.2d at 93-94 (internal citations omitted) (quoting Freeman v. Stanbern Const. Co., 106 A.2d 50, 55 (Md. 1954))) (emphasis added); Battista v. Savings Bank of Baltimore, 507 A.2d 203, 209 (Md. Ct. Sp. App. 1986) (noting that "the decisions permitting waiver of contractual rights despite a nonwaiver clause requiring a written waiver are consistent with Maryland decisions"); Mayor and City Counsel of Baltimore v. Ohio Cas. Ins. Co., 438 A.2d 933, 936 (Md.Ct.Spec.App. 1982) ("oral modification of a contract, despite a provision requiring all modifications to be in writing, is permitted in Maryland"). Therefore, it is possible under Maryland law for Del Monte to have waived both the waiver provision and the written notice provision.

The question of waiver, though, is one for the fact-finder and should therefore go to the jury. See Battista, 507 A.2d at 209 (stating that "the question of waiver [is] one for the jury," as the question of whether defendant intended to waive is "best left to the fact-finder"); Ohio Gas., 438 A.2d at 936 (factual disputes regarding the extent of modification are for the jury to resolve).

Finally, Del Monte argues that PPIE's breach of contract claim fails because "PPIE can point to no piece of information Del Monte withheld that would have altered the outcome one iota." (DM Memo at 46). While it may indeed be difficult to assess damages in this case, "in Maryland, '[i]t is well settled that every injury to the rights of another imports damages, and if no other damages is established, the party injured is at least entitled to a verdict for nominal damages.'" Planmatics, Inc. v. Showers, 137 F. Supp.2d 616, 624 (D.Md. 2001) (quotingCottman v. Dep't of Natural Res., 443 A.2d 638, 640 (1982) (quoting Baltimore v. Appold, 42 Md. 442, 457 (1875)). In any event, it is a question of fact whether or not there were actual damages in this case, and, therefore, this issue too shall be left for the jury. Accordingly, for the above reasons, Del Monte's motion for summary judgment on the breach of contract claim is denied.

Del Monte also argues that § 3.4(a)(ii) of the Stockholders Agreement restricts PPIE's breach of contract claim with respect to PPIE's assertion that Del Monte withheld information from it with respect to the potential sale of the company. Section 3.4(a)(ii) provides that a stockholder shall "provide written notice . . . of such Offer to the Company and to each of the Other Stockholders not later than the thirtieth day prior to the consummation of the sale. . . ." Del Monte argues that, based on this clause PPIE was not entitled to such information prior to thirty days before a sale of Del Monte. This interpretation of the clause, however, is inapposite to the plain language of § 3.4(a)(ii) for two reasons. First, § 3.4(a)(ii) refers to the obligation of the stockholders to inform one another and the company of a potential sale. It does not create an obligation for Del Monte. Second, the language of the clause clearly establishes the minimum time frame by which stockholders must notify one another and the company of a sale. It does not limit disclosure prior to that time frame.

VII. THE MOTIONS FOR SUMMARY JUDGMENT ON THE THIRD-PARTY COMPLAINT

As noted above, Del Monte's Third-Party Complaint impleaded Charterhouse and Huff Asset Management, Del Monte's former stockholders, alleging claims against them for indemnification and contribution for any liability it may incur with respect to PPIE's tort and contract claims against it. According to Del Morite, Charterhouse and Huff Asset Management ("Third-Party Defendants") were primarily responsible for, actively engaged in and were the parties that stood to benefit from the allegedly wrongful conduct pleaded in PPIE's Complaint. Del Monte alleges that due to the Third-Party Defendants' control of Del Monte, they owed fiduciary duties to both PPIE and Del Monte, including the duty to disclose all material information to PPIE regarding the real value of or any potential sale of Del Monte. Del Monte alleges that since the Third-Party Defendants breached their fiduciary duties, they caused PPIE's alleged damages and thus Del Monte is entitled to indemnity or contribution for any damages it may incur from PPIE's suit. Third-Party Defendants now move for summary judgment on the Third-Party Complaint.

While Del Monte initially brought claims for indemnification and contribution as to the fraud, negligent misrepresentation, and breach of contract claim, the only claim that has survived summary judgment is the breach of contract claim. The Court therefore considers whether Del Monte can bring these claims for contribution and indemnification with respect to PPIE's breach of contract claim.

The contribution claim clearly falls. Under New York law, it is firmly established that contribution is not available when the underlying claim is for breach of contract. See, e.g., Board of Educ. of Hudson City School Dist. v. Sargent, Webster, Crenshaw Folley, 71 N.Y.2d 21, 28 (1987); Rothberg v. Reichelt, 705 N.Y.S.2d 115, 117-118 (2d Dep't 2000); County of Chautauqua v. Pacos Constr. Co., 600 N.Y.S.2d 585, 586 (4th Dep't 1993); Lawrence Dev. Corp. v. Jobin Waterproofing, Inc., 562 N.Y.S.2d 902, 902-903 (4th Dep't 1990). As the New York Court of Appeals has confirmed, the principles of contribution codified by N.Y. C.P.L.R. § 1401 apply only to tort liability and no other common-law form of contribution is applicable to liability arising from contract. Sargent, 71 N.Y.2d at 26-29 (quoting Lawrence Dev. Corp., 562 N.Y.S.2d at 902-03). Thus, "the remedy of contribution is not available to a defendant whose potential liability to the plaintiff is for economic loss resulting from an alleged breach of contract." County of Chatauqua, 600 N.Y.S.2d at 586. In keeping with this unambiguous rule, Del Monte's claim for contribution on PPIE's underlying claim for breach of contract is dismissed.

The parties appear to agree that New York law applies to the contribution and indemnification claims. See Int'l Bus. Mach. Inc. v. Liberty Mutual Fire Ins. Co., 303 F.3d 419, 423 (2d Cir. 2002).

The Court next turns to Del Monte's indemnification claims. Del Monte does not allege that the Third-Party Defendants were contractually bound to indemnify Del Monte, but rests its claim on a theory of implied indemnification. Implied indemnification is available where a defendant is held vicariously liable for the tortious acts of others, or where the liability is based on a defendant's passive negligence in failing to discover or remedy the wrongdoing of another party. See Trustees of Columbia Univ., 492 N.Y.S.2d at 375; County of Westchester, 478 N.Y.S.2d at 314; Am. Transtech Inc. v. U.S. Trust Corp., 933 F. Supp., 1193, 1202 (S.D.N.Y. 1996).

However, where as here, a plaintiff's underlying complaint charges a defendant with direct liability for breach of contract and not constructive or vicarious liability based on its relationship with other parties, there can be no third-party claim for indemnification for that breach of contract. See Lawrence Dev. Corp., 562 N.Y.S.2d at 903 ("because plaintiff seeks to hold defendant liable for its active negligence and breach of contract, defendant has no cause of action . . . based upon the theory of implied indemnity"); Columbus v. McKinnon Corp. v. China Semiconductor Co., 867 F. Supp. 1173, 1178-1179 (W.D.N.Y. 1994) (dismissing third-party complaint for failure to state a claim for indemnification and contribution with respect to breach of contract claims); City of Rochester v. Holmsten Ice Rinks, Inc., 548 N.Y.S.Sd 959, 960-61 (4th Dep't 1989) (defendants could not seek indemnity because the "complaint charge [d] [defendants] only with direct liability for breach of contract and not vicarious liability based upon their relationship to another party. Thus, there is no basis for express or implied indemnity against [third-party defendant].");Resolution Trust Corp. v. Young, 925 F. Supp. 164, 169 (S.D.N.Y. 1996) (dismissing indemnification claim where no contractual provision or vicarious liability alleged).

In the instant case, a finding of liability against Del Monte on any of PPIE's claims would be a finding of active misconduct, thereby precluding Del Monte's eligibility for indemnification as a matter of law. Indeed, if Del Monte were found liable to PPIE on the basis of the breach of contract, its liability would be grounded in its own breach of its § 2.12 duty to provide financial information to PPIE and its other stockholders. Section 2.12 of the Stockholders Agreement unequivocally creates an exclusive obligation from Del Monte to its stockholders. The stockholders have no such contractual obligation to one another and none is alleged. Accordingly, indemnification is not available to Del Monte for its alleged breach of its contractual obligation to PPIE. The Third-Party complaint is therefore dismissed

Del Monte argues that indemnity is available here because any potential wrongdoing that occurred was "done by and at the direction" of Third-Party Defendants in violation of their fiduciary duty to Del Monte and because Third-Party Defendants were relatively more at fault than it. These arguments are unavailing. Although a passively negligent party may obtain indemnification from an actively negligent third-party, it is clear in this case that, if Del Monte were to be held liable, it would be for their active participation in wrongdoing — albeit at the alleged behest of Third-Party Defendants. "[W]here the party seeking indemnification is himself at least partially at fault, indemnity will not be implied." Columbus, 867 F. Supp. 1178.

CONCLUSION

Del Monte's motion for summary judgment is granted with respect to PPIE's fraud and negligent misrepresentation claims and denied with respect to PPIE's breach of contract claim. Morgan Stanley's motion for summary judgment on the fraud claim is granted. Charterhouse and Huff's motion for summary judgment on the Third-Party Complaint is granted.

Del Monte and PPIE are ordered to submit a joint pre-trial order on or before October 23, 2003.

SO ORDERED:


Summaries of

PPI ENTERPRISES (U.S.), INC. v. DEL MONTE FOODS

United States District Court, S.D. New York
Sep 11, 2003
99 Civ. 3794 (BSJ) (S.D.N.Y. Sep. 11, 2003)

dismissing negligent misrepresentation claim where plaintiff alleged only economic loss

Summary of this case from Manhattan Motorcars, Inc. v. Automobili Lamborghini, S.p.A.

dismissing negligence claim for failure to claim personal injury or property damage

Summary of this case from EED Holdings v. Palmer Johnson Acquisition Corp.
Case details for

PPI ENTERPRISES (U.S.), INC. v. DEL MONTE FOODS

Case Details

Full title:PPI ENTERPRISES (U.S.), INC., Plaintiff, v. DEL MONTE FOODS COMPANY and…

Court:United States District Court, S.D. New York

Date published: Sep 11, 2003

Citations

99 Civ. 3794 (BSJ) (S.D.N.Y. Sep. 11, 2003)

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