Rowe v. Maremont Corp.

In early 1977, Herbert and Ann Rowe (plaintiffs) wanted to sell their 225,986 unregistered shares in Pemcor, Inc. Initial efforts of investment bankers to secure a sale for the Rowes were unsuccessful. At about the same time, Maremont Corporation (defendant) was making efforts to acquire new companies. Maremont retained a brokerage company, The Illinois Company, to pursue investment leads and acquisition. The Illinois Company identified Pemcor as a potential acquisition target for Maremont and later told Maremont that the Rowe shares of Pemcor might be available for purchase. The Rowes and Maremont negotiated the sale of the Rowes’ shares to Maremont for $13 a share. During the negotiation period, Rowe’s representative asked if Maremont was going to make a tender offer for Pemcor, and Maremont’s attorney said it were not. After acquiring the Rowes’ stock, Maremont took steps to make a tender offer for Pemcor’s stock for $16.75 a share on August 1, 1977. The Rowes learned about the tender offer on August 2, 1977. On August 3, Pemcor sued the Rowes and Maremont, seeking damages and the stopping of the transaction. On August 15, 1977, the Rowes sent a recission letter to Maremont, seeking to unwind the transaction. Later, the Rowes filed counterclaims against Pemcor and a crossclaim against Maremont, alleging securities fraud. A white-knight investor, Esmark, ultimately merged with Pemcor and exchanged Maremont its Pemcor shares (previously the Rowes’ shares) for Esmark stock. Maremont sold its Esmark shares for over $7 million, making a profit of over $4 million on its purchase of the Rowes’ shares. The district court awarded the Rowes around $750,000 in damages. The Rowes and Maremont appealed, challenging the damage award. Maremont argued that no damages should be awarded. The Rowes argued that the district court did not award enough damages.