
USCA1 Opinion

	




                                [NOT FOR PUBLICATION]                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                 ____________________        No. 93-1491                                     PAUL G. GAY,                                Plaintiff, Appellant,                                          v.                            ROBERT P. AXLINE, JR., ET AL.,                                Defendants, Appellees.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                          FOR THE DISTRICT OF MASSACHUSETTS                 [Hon. A. David Mazzone, Senior U.S. District Judge]                                         __________________________                                 ____________________                                        Before                               Torruella, Circuit Judge,                                          _____________                            Coffin, Senior Circuit Judge,                                    ____________________                              and Boudin, Circuit Judge.                                          _____________                                 ____________________            Gerald H. Abrams for appellant.            ________________            Steven E. Kramer for appellees.            ________________                                 ____________________                                 ____________________               COFFIN, Senior Circuit Judge.  In late 1990, plaintiff  Paul                       ____________________          Gay, founder  and president of  Plastic Card Systems,  Inc., sold          his stock in the company to the defendants,  who are PCSI's other          officers and directors.   In this  securities action, he  alleges          that   the  defendants   intentionally   failed  to   disclose  a          substantial business prospect for  PCSI, causing him to sell  his          stock for substantially less  than its real value.   The district          court, following  a bench trial, found  no violation of law.   We          affirm.                                     I. Background                                       __________               Paul Gay founded  PCSI in  1987 and initially  was its  sole          shareholder,  director  and  officer.    Defendant  Robert Axline          joined the company,  which distributes thermal  printing machines          for  an Austrian  manufacturer,1 as  a fifty  percent shareholder          and  chief executive  officer  the next  year.   When  the  other          defendants  became  shareholders in  1990,  Gay  and Axline  each          retained 38.5 percent ownership.               In late 1988, PCSI collaborated with FIMA S.p.A., an Italian          company, to form FIMA USA, Inc. (FIMA USA).  Gay  and Axline each          owned 20  percent of FIMA USA, and  FIMA S.p.A. owned 60 percent.          Axline became president of FIMA USA and Gay became executive vice          president.   FIMA USA distributed plastic  cards, personalization          equipment for  credit  cards, and  other plastic  card and  metal          plate  devices, as  well as  equipment for producing  such cards.          The company served as  exclusive marketing agent for  PCSI's line                                        ____________________               1 These machines are used for printing on plastic cards.                                         -2-          of  thermal printers,  and  also  marketed  a line  of  embossing          machines  for FIMA  S.p.A.   PCSI and  FIMA USA  shared  the same          premises.               In  mid-1990, FIMA  S.p.A. ordered  Gay's termination  as an          officer and director  of FIMA  USA.  Gay  remained, however,  the          president, a  director, and the controlling  shareholder of PCSI.          He became  entitled to vote the majority of the PCSI shares until          all debt owed by PCSI to him and all debt owed by Axline  to PCSI          was paid in full.  After  his termination from FIMA USA, Gay went          to the office  only irregularly and,  following a birthday  party          for him on October 29, he did not return.               A  few days after the party,  Gay initiated discussions with          Axline about  ending their PCSI relationship.   Axline originally          offered to sell his PCSI  shares to Gay for about $50,000,  their          approximate  book value  at the  time as  calculated by  Gay with          assistance  from   PCSI's  accountant.    The   company's  assets          consisted virtually entirely of 36 thermal printing machines.  It          had no  employees, and neither Gay nor Axline placed any value on          possible  projects that were in various stages of discussion.  In          the course of negotiations, Gay and Axline changed buying/selling          positions and, on about  December 12, they agreed that  Gay would          receive a total  of $50,000 consideration for his shares ($42,000          in book value and $8,000 in loan forgiveness).  A closing on this          deal took place on December 20, 1990.               Meanwhile,  on  November  30,  1990, an  inactive  FIMA  USA          distributor, Dave Campbell, had called the company asking for the                                         -3-          use of a PCSI machine for a demonstration for a  possible sale in          Mexico.   In subsequent phone  calls early in  December, Campbell          explained  that  a Kodak  affiliate in  Mexico  was bidding  on a          project  involving  plastic  voter  identification  cards.     At          Campbell's request, Axline provided a letter detailing FIMA USA's          financial  condition and experience with ID cards.  FIMA USA sent          Campbell a machine  for the demonstration,  and a technician  who          regularly worked  as an  independent contractor on  PCSI machines          also traveled to  Mexico on December  9 to assist.   Campbell had          offered to pay for this technical support.               The original  indication from  Campbell was that  the Mexico          project  would involve the  purchase of 17  or 18 machines.   The          number increased to 48  by December 4, and eventually grew to 82.          Although  Axline   remained  in  contact  with  Campbell  through          December, he testified that  he gave little consideration to  the          project   because  it   seemed   an  unlikely   prospect.     The          specifications called for processes outside the capability of the          PCSI machines, Kodak was competing with several other contractors          for the job, and PCSI was competing as subcontractor with a large          company  (DataCard) whose  technology was considered  superior to          its own.               The  nature  of FIMA  USA  and PCSI's  involvement  with the          Mexico project  changed  at the  end of  December, when  Campbell          dropped out  as an intermediary  and Axline began  direct contact          with  Kodak.   On  two occasions  in  early January,  Axline  and          another FIMA USA  officer, Peter Kline, met with  Kodak officials                                         -4-          in  Rochester.   After  the second  meeting,  which was  held  on          January  10,  FIMA USA  informed  its  Austrian supplier  of  the          possibility of a large sale.  A contract was signed between Kodak          and  the  Mexican  government   on  January  14,  and  defendants          testified  that they were informed  on January 22  of the Mexican          government's intent to order 82 PCSI machines.  The equipment was          shipped between February and April.               Gay subsequently filed this securities action, alleging that          the defendants'  failure to  tell him  about the  Mexican project          before the stock closing violated various state and federal laws,          including Section 10(b)  of the Securities Exchange  Act of 1934,          15  U.S.C.    78j(b), and  SEC Rule  10b-5.   He claims  that, if          defendants had disclosed the  deal, he would have waited  to sell          his stock, and would have received substantially more for it.               The  district court  denied  a motion  for summary  judgment          filed  by  defendants because  an  affidavit from  a  former PCSI          employee,  Sobieski,  suggested   that  defendants   deliberately          withheld  from Gay all information about the Mexican project.  In          a  footnote to its pretrial order, however, the court noted that,          "[a]s  stated  in Court  on  January 26,  1993  [the date  of the          unrecorded summary judgment hearing], the facts as stated  in the          defendant's  motion  for  summary judgment  are  deemed  admitted          except  as specifically controverted  by the plaintiff."   In the          court's  view, all that remained to be resolved was the affiant's          credibility, which would lead to a finding of  who knew what, and          when, regarding the Mexican project.                                          -5-               Following a non-jury trial, the court found that the Mexican          project  was  in such  a preliminary  stage  at the  time  of the          closing that  it was  not "material" information  that defendants          had  an obligation to disclose  under either Rule  10b-5 or state          fiduciary duty standards.   The court found incredible Sobieski's          testimony that  defendants took  measures to conceal  the project          from  Gay.  It therefore  granted judgment for  defendants on all          claims.               On appeal,  Gay asserts  that the district  court's judgment          suffers from both procedural and substantive defects.  First,  he          argues  that the district  court improperly considered affidavits          and  depositions  that  were  submitted in  connection  with  the          summary judgment motion  but were not  admitted into evidence  at          trial.   Second, he  contends that the  district court improperly          resolved factual  disputes at  the summary judgment  hearing, and          erred in excluding  those issues  from the trial.   Finally,  Gay          contests  the  district  court's  determination  that  defendants          violated neither federal securities  law nor state fiduciary duty          standards.                                II. Procedural Matters                                    __________________               Gay  claims that the district court  mishandled this case in          two ways.  In  our view, these asserted problems, even  if error,          neither  undermine  the  court's decision  nor  require  extended          discussion.               A. Depositions and Affidavits.                  __________________________                                         -6-               The district  court stated in its opinion  that, in reaching          its   decision,   it   had  considered   depositions   and   "the          uncontroverted  portions  of affidavits"  that were  submitted in          support  of  defendants'  motion   for  summary  judgment.    Gay          complains that these materials were not admitted into evidence at          trial, that  they constituted inadmissible hearsay,  and that the          court's reliance on them therefore was reversible error.               Gay  accepts,  however, that  an  appellate  court will  not          reverse a  trial court in a non-jury  case based on the admission          of incompetent evidence  unless it appears  from the record  that          the  court relied upon that evidence to make an essential finding          that otherwise would not  have been made.  See  generally Hampton                                                     ___  _________ _______          School Dist. v. Dobrowolski,  976 F.2d 48, 52-53 (1st  Cir. 1992)          ____________    ___________          (district  court  judgment will  not  be  reversed for  technical          errors  that do  not affect  substantial rights of  the parties);          DaSilva v. American  Brands, Inc.,  845 F.2d 356,  363 (1st  Cir.          _______    ______________________          1988)  (retrial  not required  when  erroneous  findings are  not          prejudicial).   Gay  identifies only  a single  deposition and  a          limited series of findings as problematic.               Scott Pomerantz, the head of  the Mexican project for Kodak,          was deposed but did not testify  at trial.  The district  court's          opinion  included  the  following  statements  about  FIMA  USA's          prospects early in January:               Pomerantz  had not  made any  decision as to  who would               supply the machines if Kodak were awarded the contract.               Kodak  was  competing with  at  least  two other  prime               contractors, and  FIMA USA  was competing  with another               subcontractor,  DataCard  Corporation,  a   very  large                                         -7-               competitor with technology considered more suitable for               the project.          Gay contends that these  were "critical findings relating  to the          state of mind of  Kodak and Pomerantz," that they  evidently were          drawn  from Pomerantz'  inadmissible  deposition,  and that  they          unfairly  led the  court to  conclude that  PCSI was  unlikely to          obtain the Kodak subcontract.               Whether or  not  the district  court  considered  Pomerantz'          deposition  in  making  these  findings  is  immaterial   because          testimony  elicited  at  trial  warranted  the  same  inferences.          Axline  testified  that, at  the time  he  and Kline  traveled to          Rochester  on January 2, 1990, they knew that they were competing          with DataCard.  He stated  that he saw DataCard equipment  at the          Kodak facility, and was  told by Kodak officials that  they still          were considering DataCard.                 Kline also  testified that the  Rochester trip on  January 2          was  for the purpose of demonstrating that the PCSI machine could          perform as well  as DataCard's, which apparently was preferred at          that  time  because  it  was  believed  to have  better  printing          quality.  Because Pomerantz  was the person with whom  Axline and          Kline  dealt in Rochester, the court properly could find based on          their  testimony that Pomerantz had not yet decided which company          would supply the machines if Kodak won the Mexican contract.               Thus, regardless of the propriety of the court's reliance on          summary judgment  depositions and  affidavits --  and we  make no          ruling on  that issue -- no reversible  error occurred.  The only                                         -8-          findings  that Gay  identifies as  crucial were  otherwise proven          through admissible evidence.               2. Disputed facts at summary judgment                    __________________________________               As  noted  earlier, see  supra  at 5,  the  district court's                                   ___  _____          pretrial  order stated  that all  facts contained  in defendants'          motion for  summary judgment  and  not specifically  controverted          would be deemed admitted.   The court, however, did not  list any          particular facts as already determined.  At the opening of trial,          the  court  observed  that  the proceeding  was  being  held  "to          conclude  the fact  finding,"  and indicated  that the  remaining          factual dispute concerned Sobieski's testimony; specifically, was          Sobieski  telling  the  truth  in charging  that  the  defendants          concealed  the  Mexico project  from Gay  knowing  that it  was a          lucrative opportunity for PCSI.2               Gay  claims  that,  in  confining the  trial  to  Sobieski's          credibility, the district court  essentially found disputed facts          on the motion for summary judgment, thus improperly denying him a          full hearing  on his claims.   He points to three  issues that he          believes were improperly found at the summary judgment stage:               *DataCard remained in contention  to supply the machines for          the Mexican project until mid-January 1991;                                        ____________________               2 Sobieski testified that he had been instructed not to tell          Gay anything about the Mexican project because "there was [a] lot          of money for all to be made in this deal . . . [a]nd he no longer          was a part of the company."  He also claimed to have been told to          take  various security measures to limit Gay's access to the PCSI          office  and warehouse space, such as fixing window blinds so that          Gay could not see in and keeping certain doors locked "in case of          an  unannounced visit."   Sobieski  was fired  from PCSI  in 1991          because of insubordination and poor job performance.                                         -9-               *the  project was unlikely for FIMA USA and PCSI because the          specifications included  processes outside the capability  of the          PCSI machines; and               *pricing  information was first  submitted to Kodak's Mexico          affiliate on January 16, 1991.               We think  it unnecessary to explore the proper boundaries of          the district court's authority  to resolve these issues following          the  summary  judgment hearing  because  any  such findings  were          revisited fully  at trial,3 and  Gay was given  ample opportunity          to disprove them.   During the course of the  two-day proceeding,          the district court heard extensive testimony about all aspects of          the  Mexican deal from  the principals of  FIMA USA and  PCSI, as                                        ____________________               3 Indeed, it is not clear that the court actually viewed the          facts contested  by Gay as  having been found before  trial.  The          court at one point  described broadly the matters that  needed to          be explored at trial:               Motions for summary judgment . . . were denied  because               there was an issue of fact; that is,  what Mr. Gay knew               and when  did he know it and who told him, and what Mr.               Axline and others knew and what they concealed from Mr.               Gay,  if they did, and the role that Mr. Sobieski plays               in this case.          The judge later noted  that it was unnecessary to  hear testimony          on the background facts concerning Gay's founding of PCSI and his          relationship with  the company because "[w]e all  know that. That          was undisputed."  He went on:                     The question now is  what happened in November and               December of  1990, what was  concealed from Mr.  Gay by               Axline and others,  and what they said to  Mr. Sobieski               about his role.                                         -10-          well as from the plaintiff and his witnesses.  Each  of the three          points raised as crucial by Gay was addressed.4                We  already have  noted evidence  identifying DataCard  as a          competitor  of PCSI's through at  least the beginning of January.          See supra at 7-8.  Whether that status continued for another week          ___ _____          or so is of no consequence, since the crucial  point of reference          is   the  December  20th  closing.    As  for  the  date  pricing          information was provided to Kodak, the district court heard ample          testimony explaining that the pricing originally was done through          the distributor  Campbell and  that  FIMA USA  first submitted  a          price list directly to  Kodak on January 16th or 17th.   Axline's          testimony  at trial  also  permitted the  district court  to find          that, regardless of the  capability of the PCSI machines  to meet          the specifications of the Mexican project as they ultimately were          defined, FIMA USA's principals initially felt the deal was beyond          their range  because PCSI's  equipment could not  accommodate the          Mexican  government's desire to include a photograph on the voter          ID card.               In sum, the district court allowed the parties wide scope in          presenting   evidence  at   trial  notwithstanding   its  limited          articulation of the issues that remained to be resolved.  We have                                        ____________________               4  Gay has not identified any testimony or other evidence on          these issues  that he was barred  from presenting as  a result of          the district court's pretrial  order.  Indeed, at the  opening of          the  trial,  Gay's attorney  noted  his  view that,  despite  the          pretrial order, he  viewed the major  issues as controverted  and          therefore sought  to introduce all  of his  proposed 25  exhibits          into evidence.   The  court allowed all  the exhibits,  reserving          ruling on their credibility, relevance and weight.                                           -11-          no  basis  for concluding  that  the court  made  its factfinding          prematurely  on any  significant issues.   Moreover,  at no  time          following  issuance  of  the   amended  pretrial  order  did  Gay          meaningfully seek reconsideration or clarification of the court's          ruling.5     Certainly  in  these  circumstances   there  was  no          reversible error in the court's procedure.                                III. Securities Claim                                     ________________               To  prevail  with  a  claim  under  section  10(b)  of   the          Securities  and  Exchange  Act,  and  associated  Rule  10b-5,  a          plaintiff   must  prove   scienter,   a  material   omission   or          misrepresentation by the  defendant, reliance and  due diligence.          See Milton  v. Van Dorn Co.,  961 F.2d 965, 969  (1st Cir. 1992);          ___ ______     ____________          Holmes v.  Batson,  583  F.2d 542,  551  (1st Cir.  1978).    The          ______     ______          district court in  this case reached  only the material  omission          element.   It concluded  that the information  about the  Mexican          project known by  the defendants  at the time  of Gay's  December          20th stock closing was not material and that, consequently, their          failure to disclose it was not actionable.               Gay argues that the evidence unequivocally demonstrated that          the  information  was material,  and  he  attributes the  court's                                        ____________________               5  At the end of his pretrial memorandum, following the list          of  exhibits  to  be introduced  at  trial,  Gay  noted that  the          document  was  filed  in  accordance with  footnote  two  of  the          district  court's  amended  pretrial  order.    He  then  stated:          "Plaintiff objects  to the ruling  in said footnote  and reserves          his rights with respect  thereto."  A similar statement  was made          in another memorandum filed with the court before trial.                                         -12-          erroneous conclusion at  least in  part to its  mistaken view  of          certain  critical  facts.   We  agree  that the  court's  opinion          reflects two relevant factual  mistakes, see infra at 14,  and we                                                   ___ _____          consequently  have reviewed  the record  and the  court's opinion          with particular care.  We believe that neither error, nor both in          combination, is  sufficiently crucial  to  undermine the  court's          finding on materiality.               The  standard used  in our  circuit for  determining whether          undisclosed information  is material follows the  formulation set          out by the  Supreme Court  in TSC Industries,  Inc. v.  Northway,                                        _____________________     _________          Inc.,  426 U.S. 438, 449 (1976): "whether there is `a substantial          ____          likelihood that,  under all  the circumstances, the  omitted fact          would have assumed  actual significance in the deliberations of a          reasonable shareholder,'" SEC v. McDonald,  699 F.2d 47, 49  (1st                                    ___    ________          Cir.  1983).   See  Milton, 961  F.2d  at 969.    As we  recently                         ___  ______          emphasized,  not  every piece  of  relevant  information will  be          deemed material:                    The   mere  fact  that   an  investor  might  find               information interesting or desirable is  not sufficient               to   satisfy  the  materiality  requirement.    Rather,               information is "material" only  if its disclosure would               alter  the  "total  mix"  of  facts  available  to  the               investor and "if there is a substantial likelihood that               a reasonable  shareholder would consider  it important"               to the investment decision.          Milton, 961 F.2d at 969 (emphasis omitted).          ______               We  further  have recognized  that  if  an alleged  omission          involves   "speculative  judgments  about   future  events,"  id.                                                                        ___          (emphasis omitted), materiality will  depend upon "a balancing of          both  the indicated probability that the event will occur and the                    _____________________                                         -13-          anticipated  magnitude of the event  in light of  the totality of          ___________________________________          the  company activity,"  id. (emphasis  in original).   See  also                                   ___                            ___  ____          McDonald,  699  F.2d  at  50.   In  other  words,  the  fact that          ________          discussion  has   begun  about  a  project   with  a  potentially          substantial impact  on a  company's stock price  ordinarily would          not be material if the likelihood of its happening were extremely          remote.               The district  court concluded  that the defendants  were not          required  to inform Gay about the Mexican project because, at the          time  of the  closing,  the  deal  was "extremely  uncertain  and          contingent  in  nature."     The  court  noted   that  both  "the          anticipated magnitude  of the sale  and the  probability that  it          would  occur were both small as of  December 20."  The court also          deemed significant Gay's lack of  interest in other pending  PCSI          projects of which he was aware.  It observed that Gay consciously          placed  no   value  on   these  business  opportunities   in  the          negotiations.               The  district  court's  analysis  suffers  from two  factual          flaws.  First,  its statement that  the anticipated magnitude  of          the Mexican  project as of December 20  was small does not square          with  the undisputed evidence that the  number of machines needed          had swelled to 48 by early December.  This number exceeded PCSI's          inventory.   Because the  inventory constituted virtually  all of          PCSI's  assets, the  Mexican  project's potential  impact on  the          company's  value fairly  could be  described only  as substantial          once the deal encompassed all of the remaining machines.                                         -14-               Second, in noting  Gay's lack of  interest in other  ongoing          PCSI  business dealings,  the  court singled  out  a project  for          American  Express.    In fact,  PCSI  was  not  involved in  that          project.   The American Express deal was the subject of testimony          at trial because it  was a significant opportunity for  FIMA USA,          but it would have had no effect on PCSI's value.               In  our view,  these errors  are not  fatal to  the district          court's materiality  analysis, which rested much  more heavily on          the  uncertain nature of the  Mexican project than  on its scope.          That  the court  erroneously described the  project as  small may          chip  the foundation  of  its analysis,  but  the weight  of  the          probability  finding prevents its collapse.   See infra at 16-17.                                                        ___ _____          The mistaken  reference to the American  Express project likewise          has limited impact.   The  court cited Gay's  failure to  inquire          about  the progress of that  deal as illustrative  of his general          attitude toward various ongoing business dealings involving PCSI.          Although  Gay argues that the American Express project was unique          because it was so developed and had great potential (and thus was          more similar to  the Mexican  deal), the district  court did  not          single out the American Express deal on that basis.  It described          American Express  as "one of  several other  projects during  the          pre-closing period which  were more advanced  and more likely  to          bear fruit."   The finding for which the  district court used the          American  Express project -- that Gay valued his PCSI stock based          solely  on  its equipment  inventory  --  remains supported  even          without American Express.  See infra at 18.                                     ___ _____                                         -15-               Having  concluded that  the  court's errors  do not  require          reversal  of its judgment, we now turn  to a more complete review          of  its determination  that  defendants did  not violate  section          10(b) in failing  to disclose  what they knew  about the  Mexican          project before the December 20th closing.  Our review, of course,          is  only  for clear  error.   See  Crellin Technologies,  Inc. v.                                        ___  ___________________________          Equipmentlease Corp., No.  93-1615, slip op.  at 13-15 (1st  Cir.          ____________________          March  8,  1994) (findings  in a  bench  trial are  reviewed with          "considerable  solicitude"); Gamma  Audio &  Video, Inc.  v. Ean-                                       ___________________________     ____          Chea,  11 F.3d 1106, 1111  (1st Cir. 1993)  (factual findings and          ____          mixed  questions of  fact  and law  both  reviewed under  clearly          erroneous standard).               As indicated above, the district court based its materiality          ruling on two primary determinations  -- that the probability  of          the sale  was  small  as  of  December  20th  and  that  Gay  had          demonstrated  a lack  of interest  in prospective  PCSI projects.          Neither of these can be termed clearly erroneous.                The Mexican  project first came  to PCSI's attention  in the          phone  call from Campbell, the distributor, on November 30th.  By          the  time of the closing, three weeks later, the following events          had  occurred: Michael  Rochette, an  independent  contractor who          worked on  PCSI machines,  had traveled  to Mexico at  Campbell's          request and expense to participate, with other  competitors, in a          demonstration  for  the Mexican  government;  also  at Campbell's          request, Axline had faxed a letter containing financial and other          background  information about FIMA USA to Mexico; Axline had been                                         -16-          in regular contact with Campbell, from both Campbell's home  base          in Canada  and from  Mexico, throughout  December; the  number of          machines at stake in  the project had increased from  an original          estimate of 17 or 18 to at least 48.               There is no evidence that, during this period, Axline or any          other defendant was  given reason  to believe that  FIMA USA  had          more than a remote chance of obtaining the Mexican business.  The          demonstration in  which Rochette  participated on  about December          10th included three different Kodak proposals (only one involving          PCSI machines) as  well as efforts by  two other companies.   Not          only  did Axline and others  testify that they  believed the PCSI          machines  could  not  perform  the  work,  but  there   also  was          skepticism about Campbell's ability to land a deal in Mexico from          his  base  in Canada.   See,  e.g.,  Testimony of  Frank Gubello,                                  ___   ____          national  service manager  for FIMA  USA, Tr.  II, at  88-89 ("It          sounded kind of fishy  to me . . . . [I]t  just didn't sound like          it was  going to come  off.").  Axline testified  that FIMA USA's          activity  in December  simply  was routine  effort  to support  a          dealer: "It was just another one of those things that  come in on          a regular basis which you work on . . . . We gave it very limited          potential.  In fact, [we] didn't think much about it."               Nothing  cited  by  the  plaintiff, with  the  exception  of          Sobieski's  affidavit and testimony,  contradicts the defendants'          assertion that the  deal appeared to be no more  than a long shot          until  early   January,  after  Axline  and   Kline's  visits  to          Rochester.  The  district court found Sobieski's testimony  to be                                         -17-          "inherently  implausible,"  and  we will  not  second-guess  this          credibility judgment.  See  Gamma Audio & Video, Inc., 11 F.3d at                                 ___  _________________________          1115 ("It is established beyond cavil that the  trial judge is in          the  best position to assess  the credibility of  witnesses . . .          .").  The district court's summary of the evidence on probability          is  therefore uncontradicted: "What little contact the defendants          had  with the  project prior  to December  20  was merely  in the          nature  of an  inquiry by  a distributor  and a  demonstration of          machines which  had, as far  as these defendants  were concerned,          very little chance of ripening into a sale."               Gay claims  that the court improperly  ignored the imminence          of the Mexican government's decision on a contractor,  and argues          that the court  should have recognized that a reasonable investor          would have held  his stock  pending the decision.   Although  the          advantage  of hindsight  gives  this assertion  some appeal,  the          court's  supportable conclusion  was  that there  was nothing  of          substance to  wait for as of December 20th.  Had the closing been          ten days later,  after the  direct contact between  FIMA USA  and          Kodak, Gay's point would  be more compelling, even with  no other          evidence  of FIMA USA's chances  of winning the  subcontract.  At          that  stage, unlike  on  December 20th,  there  was a  basis  for          viewing FIMA USA and PCSI's relationship with the project as more          than just a distributor's inquiry.6                                        ____________________               6 Gay cites language from SEC.  v. McDonald, 699 F.2d 47, 50                                         ____     ________          (1st  Cir.  1983),  to  the  effect  that  "[a]  `reasonable,  if          speculative, investor' would consider information indicating even          the  possible  occurrence   of  an  event  of  magnitude   to  be          important."  This statement did not mean that a major event would                                         -18-               The court's  assessment of materiality also  was informed by          evidence demonstrating  Gay's lack  of interest in  other pending          PCSI projects.  Although  he remained president of PCSI  until he          sold his stock, Gay stopped coming to the office after October 29          because he felt uncomfortable being  in an office where  everyone          else was employed by FIMA USA.  At no time did  he ask the status          of any of the "development  ideas and projects" in which  he knew          PCSI  had a hand  at the  time he and  Axline began to  discuss a          stock buyout,  including a  project with  the United  States Post          Office that had resulted in the sale of a machine.               Gay maintains that none of  these other possibilities was as          significant in size or as imminent as the Mexican project, and he          insists that his lack of interest in them is therefore irrelevant          in determining the materiality of the Kodak deal.  In so arguing,          however, Gay presumes that  the Mexican project was so  developed          before December  20th that it obviously  was distinguishable from          PCSI's  other opportunities.   The  district court,  in rejecting          Sobieski's testimony  and  crediting defendants',  found  to  the          contrary.               In our view, the evidence  indicating that Campbell's bid on          behalf  of PCSI  was  a long-shot,  together with  Gay's explicit          testimony that he was uninterested in "incipient business ideas,"                                        ____________________          be  deemed  material within  the meaning  of  Rule 10b-5  even if          wholly improbable.  In McDonald,  the probability was strong that                                 ________          the relevant  event  would take  place, see  id. at  49, and  the                                                  ___  ___          court's finding was that "the future event was sufficiently large          to remain material even  discounting for whatever uncertainty may          be thought to have existed." Id. at 50.                                       ___                                         -19-          supports  the district  court's finding  that disclosure  of what          defendants knew  about the  Mexican project  as of  December 20th          would not have "alter[ed]  the `total mix' of facts  available to          the  investor," Milton, 961 F.2d at 969 (emphasis omitted).  This                          ______          is enough to  foreclose us  from finding that  the court  clearly          erred.  We therefore affirm its judgment on the 10(b) claim.                               IV. Fiduciary Duty Claim                                   ____________________               Gay argues that,  even if the district court  properly found          that defendants were not required to disclose the Mexican project          under  Rule  10b-5,  they  still  may  be  found  responsible for          violating state fiduciary  duty standards.  He  contends that the          burden of  disclosure for fiduciaries under  Massachusetts law is          greater than that imposed by federal securities law.               Gay relies heavily on Donahue v. Rodd Electrotype Co. of New                                     _______    ___________________________          England,  367  Mass. 578,  328 N.E.2d  505  (1975), in  which the          _______          Massachusetts  Supreme Judicial  Court  quoted  language from  an          opinion by  Justice Cardozo  describing the standard  of behavior          among  partners in a joint  venture as "[n]ot  honesty alone, but          the punctilio of an honor the most sensitive."  367 Mass. at 594.          See  also Wartski  v. Bedford, 926  F.2d 11,  13 (1st  Cir. 1991)          ___  ____ _______     _______          (quoting  Donahue).  Gay maintains that,  under the "punctilio of                    _______          honor" standard,  whatever information  defendants had  about the          Mexican project  should  have been  disclosed in  advance of  the          stock closing.               We  cannot agree.    The basic  fiduciary requirement  under          Massachusetts law  is that business partners  and stockholders in                                         -20-          close  corporations   refrain  from   acting  out   of  "avarice,          expediency  or  self-interest  in  derogation of  their  duty  of          loyalty  to  the  other  stockholders and  to  the  corporation,"          Donahue, 367  Mass.  at  593; 328  N.E.2d  at 515.    In  quoting          _______          Cardozo's language, the SJC in Donahue simply  was restating this                                         _______          strict good  faith standard and  distinguishing it from  what the          SJC viewed as  the lesser  standard of "good  faith and  inherent          fairness"  to which directors and stockholders must adhere in the          normal discharge of their responsibilities.7               We  see   nothing  to  be  gained  from   discussing,  as  a          categorical  matter,  whether  the  Massachusetts  fiduciary duty          standard requires  greater disclosure than  Rule 10b-5.   But see                                                                    _______          Sugarman  v. Sugarman, 797 F.2d  3, 8 (1st  Cir. 1986) ("Majority          ________     ________          shareholders . . . must fully disclose all the material facts and                                                         ________          circumstances surrounding or  affecting a proposed transaction.")          (emphasis added); Pavlidis v. New England Patriots Football Club,                            ________    __________________________________          675  F. Supp.  696,  698 (D.  Mass.  1987) ("The  fiduciary  duty          imposed on a  majority shareholder under Massachusetts  law is to                                        ____________________               7  In  fact, the  full  Cardozo  quotation in  Donahue  more                                                              _______          clearly  reflects  the  distinction  being  made  between  simple          "honesty" and fiduciary duty:               Joint adventurers, like copartners, owe to one another,               while the enterprise continues,  the duty of the finest               loyalty.    Many  forms  of conduct  permissible  in  a               workaday world  for those  acting at arm's  length, are               forbidden to those bound by fiduciary duties. . . . Not               honesty alone, but  the punctilio of an  honor the most               sensitive, is then the standard of behavior.          367  Mass. at 594 (quoting Meinhard v. Salmon, 249 N.Y. 458, 463-                                     ________    ______          64 (1928)).                                         -21-          disclose material information.") (citing  Sugarman).  It suffices                                                    ________          to say  that, in this  case, the  district court did  not err  in          rejecting Gay's fiduciary duty claim.               The record fails to demonstrate that defendants took actions          to benefit themselves without  regard for, or in spite  of, their          obligation of loyalty to  Gay.  The court permissibly  found that          it  did not  occur to them  to discuss the  Mexico project simply          because of  their good faith  belief that  the project was  not a          realistic  opportunity for PCSI.   It further found  that Gay was          not in a disadvantaged position vis-a-vis the defendants because,          as  president and  majority shareholder  of PCSI,  he had  "every          opportunity to  look after his  own interests."   Defendants  had          neither   superior  business   knowledge  nor   more  substantial          experience than Gay, a well educated businessman  who was advised          throughout the negotiations process by a lawyer and accountant.8               In  short,  Gay  has failed  to  prove  a  violation of  the          standard of "utmost  good faith and loyalty," Donahue,  367 Mass.                                                        _______          at 593.   We consequently find  no error in  the district court's          ruling on  the fiduciary  duty  claim, and  for similar  reasons,          endorse the  judgment for defendants  on Gay's claim  under Mass.          Gen. Laws Ann. ch. 93A.               Affirmed.               _________                                        ____________________               8 We  are unpersuaded  by Gay's  argument that he  was at  a          disadvantage  because all  of the  information about  the Mexican          project  was  channeled  through  FIMA USA,  not  PCSI.    PCSI's          machines were the target  of Campbell's inquiry, and there  is no          basis for concluding that he would have been outside the loop had          he  stayed  abreast of  recent  company  activity either  through          inquiry or visits to the office.                                         -22-                                         -23-
