In an opinion that continues to cloud the sale of a home computer network to the Reader's Digest Association, a federal judge has ruled that a former partner in the firm that once controlled the computer network was improperly ousted and still owns almost a third of the company.
U.S. District Judge Richard B. Kellam of the Eastern District of Virginia withheld a ruling on who actually owns the computer network called The Source, which has been hailed as a breakthrough with as much earnings potential as the development of the telephone or television.
Owners of The Source computers are able to receive the United Press International news wire; quotas from stock exchanges; electronic mail; ready-made programs to perform accounting, word processing, home finance tasks and other electronic services.
Kellam indicated he would rule on the ownership question after further hearings and upheld several claims of William von Meister who had challanged the sale.
The Readers' Digest Association announced it had bought control of the Source in September, when the company purchased a majority interest in Source Telecomputing Company from Jack Taub for $3 million.
Taub and von Meister, who developed the concept of The Source, had been partners in a corporation called Digital Broadcasting Corp. DBC's subsidiary Telecomputing Corporation of America originally controlled The Source. Ownership was later transferred to Source Telecomputing by Taub after he ousted Von Meister from the management of DBC and negotiated to buy Von Meister's stock.
But Kellam ruled late last week that the sale was never consummated and that Von Meister still controls 314,000 shares of DBC stock -- or 31 percent of the company over which Taub has been exercising effective sole control.
Kellam also ruled that Taub maliciously breached his fiduciary duty to von Meister and is liable for both compensatory and punitive damages, although the judge withheld setting an amount.
"I'm obviously very pleased with the ruling," von Meister said yesterday. "To me the most important aspect of it all is that it vindicates my name and reputation in this industry, which is a small industry."
In a complicated set of claims and counterclaims, Taub had sued von Meister seeking $3 million in damages, claiming that von Meister had misrepresented the profitability of DBC to get Taub to dump more money into the company. Taub has said that he took over a foundering and badly managed company from von Meister in the fall of l979.
Judge Kellam denied Taub's claim that von Meister made false claims about how prosperous DBC was and also denied two claims by von Meister against Taub.
Taub's attorney Peter K. Stackhouse said he was pleased with some aspects of the ruling but the Taub probably would appeal others, including the finding by Kellam that Taub had breached his fiduciary responsibility to shareholder von Meister in his conduct of corporate affairs.
"At the time Taub took those actions he was acting on his good faith belief that he had bought von Meister's stock" and was responsible to no shareholder other than himself, and Stackhouse. Stackhouse said he was not surprised by the ruling that the sale had not been consummated, noting that "the mechanism through which Taub thought he did it was full of holes."
In the long run, the court proceedings "may well substantiate the propriety of the sale [of the Source to Readers' Digest Association]," said Stackhouse. "The biggest and most complicated issue is unresolved," he said. s
Although Stackhouse said that the record so far in the case is not sufficient to answer the question of ownership, he said that he believed that it would show eventually that Source Telecomputing and one of it's predecessor companies both had rights to the computer network.
While the legal dispute has been proceeding, Taub has been enjoined from profiting from the sale and barred from making further changes in Source Telecomputing's ownership. Kellam continued that injunction and asked the parties in the case to advise him about how to conclude the preceedings.