(d) Fourth Ground (2nd Motion of Group I, cont.)
'The complaint fails to allege the names of the individual or individuals from whom they purchased the said securities, or if named has failed to allege that such individuals were controlled persons within the meaning of Section 15 of the Securities Act of 1933, 15 U.S.C.A. § 77o.'
This ground is rejected since the statutes in question, as interpreted under the Federal Rules of Civil Procedure, do not require such particularity in pleading. Stadia Oil & Uranium Co. v. Wheelis, 10 Cir., 1957, 251 F.2d 269; Whittaker v. Wall, 8 Cir., 1955, 226 F.2d 868; Schillner v. H. Vaughan Clarke & Co., 2 Cir., 1943, 134 F.2d 875.
The Order at the end of this Opinion will summarize the results of the foregoing rulings.
Group II Motions.
This group of three defendants consists of Delaware Valley Financial Corporation; J. Myron Honigman; and Mildred Honigman. The complaint identifies J. Myron Honigman as president of the Delaware Valley Financial Corporation. Defendant Mildred Honigman, who is not specifically identified in the complaint, is taken to be one of the defendants categorized in paragraph 13 of the complaint as one of the persons in control of American Dryer Corporation or a nominee of, or a person controlled by, one of the other defendants who are more particularly identified.
These defendants have not answered, but have filed two motions under various provisions of Rule 12, Fed.R.Civ.P. as discussed separately below.
A. Motion to Dismiss under Rule 12(b).
'1. The complaint fails to state a claim against these defendants on which relief can be granted in that it fails to allege that plaintiffs purchased any specific securities from these defendants or what securities plaintiffs purchased from these defendants * * *.'
As will be seen in due course in connection with the answer of defendants Robinson & Co., Inc. and Frank Brodsky (Group IV) and their uncontradicted affidavit accompanying motion under Rule 56 Fed.R.Civ.P., the November 13, 1959 purchase of 50 shares of American Dryer stock from or through the defendant brokers is not denied.
Defendants insist that if the plaintiffs rely on a sale by these particular defendants, they must allege when these defendants made the sale, or who was the vendor. Cook v. Kuljian Corp., D.C.E.D.Pa.1956, 137 F.Supp. 833, 834; Holmberg v. Williamson, D.C.S.D.N.Y.1955, 135 F.Supp. 493, 495.
Those cases, on their particular facts, seem eminently sound to this Court -- but in no way helpful as to the instant problem. In the Cook case, where a tort committed at an unspecified time and place was claimed, Judge Kraft pointed out that in the absence of those facts, it was impossible to determine whether the act was tortious under the law of the jurisdiction in which it had occurred. The complaint was therefore dismissed subject to amendment within 30 days to cure the defects. Cook v. Kuljian Corp., D.C.E.D.Pa.1956, 137 F.Supp. 833, 834. The Holmberg case was a claim under certain sections of the Securities Act of 1933. The dismissal, with leave to amend, was primarily necessitated by the subject matter, 'fractional undivided interest(s) in oil, gas, and mineral rights.' Reference to the opinion at page 495 discloses that the practice of the oil and gas business with reference to sales of such interests was a major and determining factor in the result. Holmberg v. Williamson, D.C.S.D.N.Y.1955, 135 F.Supp. 493, 495.
The principle here applicable, to the contrary, appears to this Court to be that which has so many times been applied in this district and circuit:
'* * * there is no justification for dismissing a complaint for insufficiency of statement, except where it appears to a certainty that the plaintiff would not be entitled to relief under any state of facts which could be proved in support of the claim. * * *' Continental Collieries v. Shober, 3 Cir., 1942, 130 F.2d 631, 635.
Quoting the foregoing, Judge Kirkpatrick in 1948 wrote that 'This statement epitomizes the theory of notice pleading, introduced by the Federal Rules.' MacDonald v. Winfield Corporation, D.C.E.D.Pa.1948, 82 F.Supp. 929, 930. Any number of statements to the same effect can be found in the cases collected in 2 Moore's Federal Practice P12.08, esp. 1960 Supplement pages 188 ff.
Plaintiffs have alleged that these defendants are controlling or controlled persons in connection with the sale of unregistered stock of American Dryer Corporation. These allegations are sufficient to state a claim under Section 77l. Zachman v. Erwin, D.C.S.D.Tex.1959, 186 F.Supp. 681, 685. In another Securities Act case it was said:
'Defendant Rankin contends that he is not liable to the plaintiffs because he did not participate in the stock sales to them. Plaintiffs concede that Rankin's liability arises only by reason of the so-called 'control' provisions of the Act. The statute does not define the terms 'controls', 'controlled', or 'controlling'. These terms should be given a broad definition to permit the applicable provisions of the Act to become effective wherever the fact of control actually exists. This fact is one for determination by the jury * * *' Stadia Oil & Uranium Co. v. Wheelis, 10 Cir., 1957, 251 F.2d 269, 275.
For the foregoing reasons, this part of the motion will be denied.
(Group II, Motion A cont., point 2) '2. The complaint * * * fails to allege the date of the violation * * *'
The earlier discussion (1st ground of Group I's 2nd Motion) resolved that point against plaintiffs. The same ruling is applicable to this group of defendants; see Order at end of this Opinion.
(Group II, Motion A cont., point 3) '3. The complaint is in the form of a class action and fails to comply with the essential requirements of Rule 23 of the Federal Rules of Civil Procedure * * *'
The class suit aspect of this case has been discussed at some length, although from a different aspect, earlier in this Opinion under the First Motion of Group I. It is taken as conceded, at the present stage, that the action purports to be a spurious class suit under Rule 23(a)(3), Fed.R.Civ.P.
No other parties have sought to intervene -- as heretofore discussed -- and this ground, and a similar ground, numbered (4), of these defendants, will be overruled without further discussion, since the problem is, in a sense, a moot one.
B. Motion for More Definite Statement Under Rule 12(e).
This motion consists of three grounds, numbered 5 to 7 to the effect that the complaint is too vague and ambiguous, and covers reasons already advanced by Group II defendants heretofore discussed under their motion under Rule 12(b).
The motion will be denied. If the defendants need further information to prepare their defense, it should be secured under the discovery procedure as provided by the Federal Rules of Civil Procedure. Reese v. Pennsylvania R.R., D.C.W.D.Pa.1953, 14 F.R.D. 153, 155; Sierocinski v. E. I. Du Pont De Nemours & Co., 3 Cir., 1939, 103 F.2d 843.
Group III Motions.
The two parties in this group are the Citizens & Southern Bank, and Myron Freudberg, described in the complaint as the president thereof.
These defendants have filed an answer which, in essence, disclaims knowledge of or denies every allegation of the complaint. They admit only that the bank is a Pennsylvania state banking corporation, and that Myron Freudberg is its president. Specific denials of participation in the alleged conspiracy; use of the mails; that plaintiffs purchased any American Dryer stock from them; that plaintiffs made any tender; and that these defendants in any way violated the Securities or Securities & Exchange Act are alleged.
As Second Defense they say:
'Section 12 of the Securities Act of 1933 is the Section which provides civil liabilities for violations of the Act. This Section provides for liability if any person who 'offers or sells a security', in violation of the Act. It is denied that the defendants were persons who 'offered' or 'sold' any stock in American Dryer Corporation.'
As Third Defense they request judgment against plaintiffs and on behalf of these two defendants, saying 'Under all the facts in law defendants are entitled to judgment.'
For the sake of raising for consideration, insofar as possible, all contentions presented by the various defendants, the foregoing request for judgment, as stated in the Third Defense quoted above, is for the present treated as a Motion for Judgment on the Pleadings under Rule 12(c), Fed.R.Civ.P.
The Group III defendants have not briefed or argued this point, and it will be assumed that the motion is being reserved -- as indeed it must under the applicable Rules 12(c) and 7(a) -- until the pleadings are closed
Group IV Motion.
This last group consists of the security brokerage firm Robinson & Cir., Inc. (par. 11 of complaint) and Frank Brodsky, employed as its salesman (par. 12). These defendants filed an answer consisting of four defenses. The first three duplicate matters raised by other defendants and, for reasons to appear, are deemed unnecessary to the following discussion. Their fourth defense consists of denials or disclaimers of knowledge as to all parts of the complaint except paragraphs 11 and 12, which identify these party defendants, and the following qualified admissions:
'1. Defendants admit that plaintiffs purchased fifty shares of American Dryer Corporation on or about November 13, 1959, from New York Hanseatic Co., through Robinson & Co., Inc. acting as broker for the purchasers * * *'
'17. Admitted that on or about February 18, 1960, plaintiff Herman Newberg, through a representative, requested a rescission of the purchase of fifty shares of American Dryer Corporation. Denied that any tender or request of rescission has ever been made on behalf of Yetta Newberg. Denied that Defendants, Robinson & Co., Inc. and Frank Brodsky, have any duty to rescind, inasmuch as said defendants have never sold shares of American Dryer Corporation to plaintiffs.'
Thereafter these defendants filed their Motion for Summary Judgment pursuant to Rule 56, Fed.R.Civ.P. based on the plaintiffs' complaint, the answer of these defendants heretofore described, and the affidavit of Frank Brodsky attached to said motion, which is as follows:
'Frank Brodsky, being duly sworn according to law, deposes and says that he is a Registered Representative employed by Robinson & Co., Inc., and is a Vice President of Robinson & Co., Inc.
'Your deponent avers that on or about November 13, 1959 he purchased, as agent for plaintiffs, fifty shares of American Dryer Corporation common stock from New York Hanseatic Co., a reputable Trading House, in the over-the-counter market. The total purchase price was $ 475 plus a commission of $ 9.75 to Robinson & Co., Inc., and a charge of $ .25 for postage and insurance. In the transaction, Robinson & Co., Inc. acted as broker on behalf of the buyer. It did not sell the stock to plaintiffs, or act as broker for the seller.
'Robinson & Co., Inc. has had no other transactions with the plaintiffs involving American Dryer Corporation stock. Robinson & Co., Inc. has had no relationship whatever with American Dryer Corporation, its officers, directors or employees, or with any of the other defendants named in the Complaint, regarding American Dryer Corporation stock. The purchase of fifty shares of American Dryer Corporation stock by plaintiffs through Robinson & Co., Inc. was in the normal course of business of Robinson & Co., Inc. acting as broker for the buyer, and had nothing to do with any of the other defendants named in the Complaint.
'Attached as an exhibit hereto is a photocopy of the confirmation of the transaction wherein Robinson & Co., Inc. acted as broker for the plaintiffs in connection with the aforesaid purchase of fifty shares of American Dryer Corporation stock.
'(s) Frank Brodsky'
The photocopy of the confirmation of the transaction clearly states: 'B -- as your Broker (agent) and in compliance with your instructions, we have this day Bought for your account and risk.'
Plaintiffs have made no attempt to controvert the foregoing motion and affidavit except, in brief and argument, to assert that all persons having anything to do with the sale of the unregistered securities are within the scope of the act.
This Court finds, however, that there is no genuine issue as to any material fact concerning these defendants, and that -- since there is no showing that these defendants participated in the sale in question -- they are entitled to summary judgment as a matter of law.
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