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ROSEN v. ALBERN COLOR RESEARCH

June 20, 1963

Alvin ROSEN
v.
ALBERN COLOR RESEARCH, INC., et al.



The opinion of the court was delivered by: KRAFT

This case poses an interesting and important question, and apparently one of first impression.

Plaintiff brought his action under the provisions of the Securities Exchange Act of 1934, to recover damages claimed as the result of alleged misrepresentations and failures to disclose on the part of defendants, or some of them, in the sale of certain securities by the plaintiff. Presently before us are defendants' motions to dismiss the complaint for lack of jurisdiction.

 'The Court has jurisdiction of this action by virtue of the provisions of Sections 10(b), 27 and 29(b) of the Securities Exchange Act of 1934, and Rule X-10B-5 of the Securities Exchange Commission.'

 The allegation alone is sufficient to empower this Court to assume jurisdiction over the case. Defendants' real contention is that the complaint fails to state a cause of action under the statute. The situation here is essentially identical with that presented in Romero v. International Terminal Operating Co., 358 U.S. 254, 79 S. Ct. 468, 3 L. Ed. 2d 368 (1959), and the Court's remarks there are equally pertinent here (p. 359 of 358 U.S., p. 473 of 79 S. Ct.):

 'The District Court dismissed petitioner's Jones Act claim for lack of jurisdiction. 'As frequently happens where jurisdiction depends on subject matter, the question whether jurisdiction exists has been confused with the question whether the complaint states a cause of action.' Montana-Dakota Utilities Co. v. Northwestern Public Service Co., 341 U.S. 246, 249 (71 S. Ct. 692, 95 L. Ed. 912). Petitioner asserts a substantial claim that the Jones Act affords him a right of recovery for the negligence of his employer. Such assertion alone is sufficient to empower the District Court to assume jurisdiction over the case and determine whether, in fact, the Act does provide the claimed rights. 'A cause of action under our law was asserted here, and the court had power to determine whether it was or was not well founded in law and in fact.' Lauritzen v. Larsen, 345 U.S. 571, 575 (73 S. Ct. 921, 924, 97 L. Ed. 1254).'

 However, since the facts are undisputed, and the case presents only a question of law, we shall treat the motion as one for summary judgment.

 Section 10(b) of the Securities Exchange Act, 15 U.S.C. § 78j(b) provides:

 'It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange -- * * *

 '(b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.'

 It is unnecessary, for present purposes, to consider the implementing Rule X-10B-5, of the Securities Exchange Commission.

 Briefly stated, the transactions in question were effected through telephone conversations between plaintiff, speaking from a telephone (Market 7-8032) located at 1011 Chestnut Street, Philadelphia, Pennsylvania, and Samuel Chavenson, speaking from a telephone (Evergreen 6-7400) located at 3316 Spring Garden Street, in the same City. Each call was transmitted from the number calling to that number's exchange, thence over a 'direct trunk' to the exchange of the number called, and thence to the number called. All the wires carrying the calls were located within Philadelphia. The telephone lines between Market 7-8032 and the Market Exchange, and between Evergreen 6-7400 and the Evergreen Exchange, were susceptible to use and were, on occasion, used for both intrastate and interstate calls.

 The precise question, then, is whether, under these agreed facts, the transactions here involved were effected 'by the use of any means or instrumentality of interstate commerce', within the meaning of the statute. We think they were not.


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