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DORFMAN v. FIRST BOSTON CORP.

January 13, 1972

Minnie DORFMAN
v.
FIRST BOSTON CORPORATION et al. JUSTER, INC. v. FIRST BOSTON CORPORATION et al.


Joseph S. Lord, III, Chief Judge.


The opinion of the court was delivered by: LORD, III

Plaintiffs Minnie Dorfman ("Dorfman") and Juster, Inc. ("Juster") have instituted this action to recover damages resulting from their purchase of Pennsylvania Company ("Pennco") bonds in reliance on an allegedly false and misleading offering circular issued by the defendants in connection with the sale. Plaintiffs bring this action on their own behalf and on behalf of all those similarly situated pursuant to F.R. Civ. P. 23. Plaintiffs assert claims under §§ 12(2), 15 and 17(a) of the Securities Act of 1933 ("Securities Act"); §§ 9(a)(4), 10(b) and 18 of the Securities and Exchange Act of 1934 ("Exchange Act"); and §§ 8, 20a and 20b of the Interstate Commerce Act.

 The corporate and firm defendants are Penn Central Transportation Co. ("Transportation Co."), a corporation engaged in the business of railroads; Pennco, a wholly owned subsidiary of Transportation Co. which operates as an investment company and which issued the bonds involved in this action; First Boston Corporation ("First Boston") and Glore Staats Corporation ("Glore"), *fn1" corporations engaged in the sale and underwriting of investment securities which were the principal and managing underwriters of the Pennco bonds; and Peat, Marwick, Mitchell and Company ("PMM"), a partnership of public accountants who acted as auditors and public accountants for Transportation Co. and Pennco. At all times relevant to this action, the individual defendants were officers and/or directors of Pennco and/or Transportation Co.

 A number of defendants *fn2" ("moving defendants") have moved to dismiss plaintiffs' complaint for failure to state a claim on which relief can be granted, F.R. Civ. P. 12(b)(6), insofar as it asserts claims under §§ 12(2), 15 and 17(a) of the Securities Act, §§ 9(a)(4) and 18 of the Exchange Act and §§ 8, 20a and 20b of the Interstate Commerce Act. Defendants' motion is not directed at claims asserted under § 10(b) of the Exchange Act.

 I. Securities Act

 A. Sections 12(2) and 15

 Plaintiffs argue that a number of cases have relaxed the privity requirement and the need to specify the seller of a security in the complaint particularly when a conspiracy is alleged as in the present complaint. Buchholtz v. Renard, 188 F. Supp. 888 (S.D.N.Y. 1960); Bailey v. Huntington Securities Co., 35 F.R.D. 169 (S.D.N.Y. 1963); Lennerth v. Mendenhall, 234 F. Supp. 59 (N.D. Ohio, 1964). *fn4" Plaintiffs' reliance on these cases is misplaced.

 Buchholtz v. Renard, supra, held that when a seller (principal) sells through a broker who acts as his agent, both the agent and the principal can be held liable under § 12, see Cady v. Murphy, 113 F.2d 988 (C.A. 1, 1940), cert. denied 311 U.S. 705, 61 S. Ct. 175, 85 L. Ed. 458 (1940), and the plaintiff's complaint need not identify the particular seller from whom the plaintiff purchased his securities where the principal has affirmatively concealed his identity from the plaintiff. The plaintiffs here have not alleged that the immediate sellers were agents for any of the moving defendants and in fact the offering circular attached to the plaintiffs' complaint indicates that the securities were purchased from Pennco by the underwriters rather than sold by the underwriters as agents of Pennco. Appendix A, pp. 55-57 (referred to in paragraph 29 of Plaintiffs' Consolidated Complaint).

 Bailey v. Huntington Securities Co., supra, held that specification of particular defendants from whom each plaintiff purchased securities was not required when the complaint alleged a conspiracy among persons in control of the direct seller who allegedly violated the Securities Act. Although the complaint in this action charges a conspiracy among the defendants, there is no allegation that any of the defendants controlled the direct seller from whom the plaintiffs purchased or that the direct seller violated the Securities Act.

 Lennerth v. Mendenhall, supra, held that an agent who takes an active part in negotiating a sale for the direct seller but who does not actually sign the contract of sale can nevertheless be held liable with the direct seller under § 12. The complaint in the present case, however, fails to allege that any moving defendant played any role in bringing about plaintiffs' purchases much less the kind of active solicitation involved in Lennerth.

 We therefore dismiss the plaintiffs' complaint insofar as it purports to assert claims under §§ 12(2) and ...


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