11 of the 1933 Act does not require that the securities be acquired from the original offering. Under that section, a purchaser is presumed to have relied on the prospectus if he purchased within twelve months of the offering. See, Weiss v. Tenney Corp., 47 F.R.D. 283, 288 (S.D.N.Y.1969). Note that plaintiffs aver that they purchased the stock within three months of the offering. See paragraphs 11 and 27 of the amended complaint. The motions to dismiss on this ground will be denied.
(3) The fact that the price per share (i.e., $36.75) for which plaintiffs assert that they sold their stock was, evidently by sheer coincidence, exactly the same as the public offering price in the October 31, 1968, prospectus will not prevent them from recovering damages in this action. The measure of damages in their action is the difference between the price they paid for the stock and the amount they received when they later sold it, provided that this difference did not exceed the price at which it was offered to the public. See, § 11(e) and (g) of the 1933 Act; Chasins v. Smith, Barney and Co., 438 F.2d 1167, 1173 (2d Cir. 1971); Sarlie v. E. L. Bruce Co., 265 F. Supp. 371, 376 (S.D.N.Y.1967). Here, plaintiffs say the difference was less than $8.00 per share. The motion to dismiss on this ground will be denied.
(4) The claim made under § 9(a)(4) of the 1934 Act cannot stand because of the failure of the plaintiffs to allege that the stock they acquired was "registered on a national securities exchange." Dorfman v. First Boston Corporation, 336 F. Supp. 1089, 1097 (E.D.Pa.1972). Therefore, the motion to dismiss on this ground will be allowed. Such failure however, is not fatal to the claim under § 10(b)
and § 18
of the 1934 Act, and SEC Rule 10b-5. It is established that a private right of action is implied under § 10(b) of the 1934 Act. Superintendent of Ins. of N.Y. v. Bankers Life and Cas. Co., et al, 404 U.S. 6, 13 n.9, 92 S. Ct. 165, 169 n.9, 30 L. Ed. 2d 128 (1972). Neither § 10(b), nor § 18, nor SEC Rule 10b-5 require that the securities acquired be registered on a national securities exchange. The motion to dismiss under these sections and rule will be denied.
(5) In addition to alleging that the omission of facts was material, paragraph 29 of the amended complaint avers: "The publications and statements and omissions therein were published for the purpose of misleading plaintiffs and other members of his class concerning the true worth of the stock and induced them to purchase the stock." Without deciding that averments amounting to scienter on the part of defendants are required in the complaint in actions of the one here involved,
I think the above-quoted averment amounts to alleging scienter or the intent to defraud. The motions to dismiss on this ground will be denied.
(6) Defendants Williams and Ellis contend that the amended complaint discloses that they "were nonmanagement outside directors of Scientific whose only participation in any of the events out of which liability is claimed to arise is that they signed the Registration Statement as directors and their names appear as directors in the Prospectus." Contrary to this contention, paragraph 7 of the amended complaint avers that these two defendants, as well as the other named directors, "were at all relevant times hereto directors of Scientific." Their signing of the statement is sufficient to make them proper defendants in this action under the allegations of the complaint.
(7) Defendant Jaggers contends that, since he was not a signer of the Registration Statement or a director at the time of filing or named in the statement as "about to become" a director, he could not be liable under § 11 of the 1933 Act and adds that plaintiffs could readily determine all this from the statement on which they claim to have relied. As pointed out under the ruling on venue, statements of facts in a brief, unless agreed to by the opposing party, may not be accepted as true. Moreover, plaintiffs may be able to show that Jaggers ratified past conduct of Scientific claimed by plaintiffs to be the basis for this action.
(8) The amended complaint does not allege privity between plaintiffs on one side with either Kleiner-Bell & Co., Inc., or H.L. Federman & Co., the underwriters, on the other in the acquisition of the fifty shares of stock. This omission, these underwriters say, is fatal to plaintiffs' claim under §§ 12(2), 15 and 17(a) of the 1933 Act. For the reasons well stated in Dorfman v. First Boston Corporation, supra, 336 F. Supp., at 1091-1096, their motion will be allowed as to the claim under §§ 12(2), 15, 17(a)(2). With regard to §§ 17(a) (1) and 17(a)(3), it will be denied.
VI. MOTION FOR A MORE SPECIFIC STATEMENT
Defendants John B. Baird, president of Scientific during the relevant times stated in the amended complaint, and Kleiner-Bell have moved under Rule 12(e), Fed.R.Civ.P., to require plaintiffs to file a more definite statement of their supposed claim, because it is so vague and ambiguous that a responsive pleading cannot reasonably be framed by them. I agree that a number of the allegations are general, conclusory and, in a number of instances, merely following the wording of the securities acts. However, I have ruled that two matters said to be material and omitted from the prospectus have been stated with sufficient particularity to meet the requirements of Rule 9(b) and that the amended complaint asserts facts upon which relief may be granted. In view of the fact that the defendants are numerous and are represented by different attorneys, it seems more appropriate to conclude that the discovery route, rather than the pleading route, will best serve the need to fully and promptly articulate the underlying evidentiary detail claimed by plaintiffs to support the fraud charge. I will deny the motion for a more specific statement.
VII. CLASS ACTION OBJECTIONS
At the outset, some of the defendants have moved to dismiss this action for the asserted reason that in the present case plaintiffs are lawyers whose obvious interest in pursuing this litigation is not to recover the $400 they lost on a "flyer" in the stock market, but to profit from court-awarded counsel fees. They add that plaintiffs' small loss is an amount to be anticipated in the normal course of events in instances of stock of this type and is not enough in itself to justify setting in motion a class action against multiple defendants. Since this suit was brought as a purported class action, it must be treated as such until there is a full determination that a class action is not proper. Kahan v. Rosenstiel, et al., 424 F.2d 161, 169 (3rd Cir. 1970). Further, maintenance of a class action is not subject to valid criticism on the ground that it serves as a device to provide fees for attorneys. Dolgow v. Anderson, 43 F.R.D. 472 (E.D.N.Y.1968). I decline to dismiss the action on these grounds.
And now, to wit, this 27th day of September, 1973, for the reasons stated in the foregoing Opinion, it is ordered that:
(1) The motions of defendants to dismiss the claims under § 9(a)(4), 15 U.S.C. § 78i(a)(4), and the motions of defendants Kleiner-Bell & Co., Inc., and H.L. Federman & Co., to dismiss the claims as to them under §§ 12(2), 15, and 17(a)(2) of the Securities Act of 1933, 15 U.S.C.§§ 77 l (2), 77 o, and 77q (a)(2) are granted;
(2) The motion of defendant George Jaggers to dismiss as to him for lack of venue is denied without prejudice; and,
(3) The motions of defendants to dismiss the complaint on other grounds are denied.