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Polycast Technology Corp. v. Uniroyal, Inc.

United States District Court for the District of Connecticut · 1990 · Civil Procedure

Civil ProcedureSummary JudgmentSecurities FraudRICONegligent MisrepresentationContract RemediesRule 56reliance

Facts

Uniroyal sold its wholly owned subsidiary Plastics to Polycast through a stock purchase agreement after repeatedly lowering Plastics' projected 1986 earnings, ultimately presenting a September 5, 1986 forecast of $13.3 million as a 'rock bottom' figure. Polycast alleged that defendants knowingly manipulated earnings projections for 1986 and later years, failed to disclose Northrop's cancellation of a fuel-cell contract, and thereby induced Polycast to buy Plastics for $110 million. Polycast later contended Plastics actually earned far less than projected and that the forecasting process itself was corrupt. The agreement also contained warranties, indemnity provisions, a merger clause, and limited survival periods for certain warranties.

Issue

Whether defendants were entitled to summary judgment on Polycast's securities fraud, common-law fraud, Section 12(2), RICO, negligent misrepresentation, contract, and damages theories. In particular, the court had to decide whether the record conclusively defeated reliance, scienter, damages, RICO continuity, special-relationship duty, and warranty-based remedies.

Rule

Summary judgment is improper if the record, viewed in the nonmovant's favor, permits a reasonable jury to find the essential elements of the claim. In securities and common-law fraud, a plaintiff may show actionable reliance not only on a specific projection's accuracy but also on the defendants' good-faith integrity in the process by which the projection was generated. For civil RICO, related predicate acts must also show continuity, which requires either a substantial period of repeated conduct or a threat of future repetition; a short-lived, one-shot scheme threatening no future criminal conduct does not satisfy that requirement.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Blue Mesa Holdings negotiated to buy all shares of a manufacturing subsidiary from Great Harbor Industries in Denver. After several downward revisions to the subsidiary's earnings forecast, Great Harbor's executives presented a final forecast as the product of a careful, honest internal process; Blue Mesa later negotiated a lower purchase price after receiving signs the exact number might still slip, but closed anyway. Discovery then revealed evidence that the forecasting process had been deliberately manipulated from the start.

On the seller's summary-judgment motion on Blue Mesa's fraud claim, which is the best analysis of reliance?

Explanation. The majority held that reliance may rest not only on belief in the exact projected figure, but also on reliance on the defendants' good-faith integrity in the process producing the projection. A buyer's loss of faith in the precise number does not automatically negate reliance if a jury could find the buyer still trusted the process as honest and would have walked away had it known the process was corrupt. That creates a triable issue, so summary judgment is improper.