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ARPET, LTD. v. HOMANS

March 6, 1975

Arpet, Ltd.
v.
Homans et al.


Knox, District Judge


The opinion of the court was delivered by: KNOX

Plaintiff Arpet, Ltd., a foreign corporation with its principal place of business at Grand Cayman, B.W.I., brought this securities fraud action against Universal Major Industries Corporation (Universal Major), a Nevada corporation, Kastle Oil & Gas Corporation (Kastle), a Pennsylvania corporation which is a wholly-owned subsidiary of Universal Major, and several individual defendants. The individual defendants include officers and directors as well as legal counsel and a certified public accountant for Universal Major at the time of the alleged fraud.

 The court has been presented with various motions to dismiss, motions to strike, and motions for more definite statement on behalf of the defendants. After these motions were filed, the plaintiff entered into a settlement agreement with all of the defendants except Homans and Berner. The court, therefore, now is faced only with the motions of these two individual defendants. At this time, we deem it necessary to consider only the defendants' motions to dismiss for lack of venue and personal jurisdiction and for failure to allege the fraud with sufficient particularity. The defendants of course are without prejudice to renew their other motions at a later time. In dealing with these motions, we note the admonition of the United States Supreme Court that Congress intended the anti-fraud provisions of the federal securities laws to be construed not technically and restrictively, but flexibly to effectuate their remedial purpose. Affiliated Ute Citizens v. United States, 406 U.S. 128, 151, 31 L. Ed. 2d 741, 760, 92 S. Ct. 1456 (1972); Superintendent of Insurance v. Bankers Life & Casualty Co., 404 U.S. 6, 12, 30 L Ed 2d 128, 134, 92 S. Ct. 165 (1971); SEC v. Capital Gains Research Bureau, 375 U.S. 180, 11 L Ed 2d 237, 84 S. Ct. 275 (1963).

 Jurisdiction and Venue

 Defendants Homans and Berner have filed motions to dismiss claiming that venue does not properly lie in the Western District of Pennsylvania and, therefore, this court lacks in personam jurisdiction. Homans supports his motion with an affidavit filed on October 1, 1974, in which he states that he is a resident of New York, New York, that he is not an inhabitant of the Western District of Pennsylvania; that he does not transact business in that district; that he has never sold or participated in the sale of securities in that district; and that he was served with the complaint and summons in the present action at his office in New York, New York. Homans further claims that his only contact with the controversy and parties in the present action was that he acted as outside legal counsel to defendant Universal Major. Berner also filed an affidavit on November 19, 1974, in which he states that he is a resident of Dix Hills, New York; that he is not an inhabitant of the Western District of Pennsylvania; that he does not transact business in that district; that his only contact with that district was to make one trip to northern Pennsylvania between December 2 and 4, 1970, to verify the existence of certain oil and gas wells listed as assets on the Universal Major balance sheet; that he has never sold or participated in the sale of securities in that district; and that service of the complaint and summons in the present action was made on an employee in his office in East Meadow, New York. Berner further claims that his only contact with any parties in the present action was that he was retained as an independent certified public accountant by Universal Major from 1970 through early 1973.

 We agree with other courts which, by analogy to the doctrine of pendent jurisdiction, have held that venue properly laid for claims arising under one federal securities act satisfactorily establishes venue for claims arising under the other. See SEC v. National Student Marketing Corp., 360 FS 284 (D.D.C. 1973); In re Penn Central Securities Litigation, 338 FS 438 (E.D. Pa. 1972); Zorn v. Anderson, 263 FS 745 (S.D.N.Y. 1966); Coburn v. Warner, 110 FS 850 (S.D.N.Y. 1953); 3 L. Loss, Securities Regulation 2009 (1961 Ed.); 6 L. Loss, Securities Regulation 4147 (1969 Supp.). Venue is proper under the Securities Exchange Act of 1934 if any act or transaction constituting the violation occurred in the Western District of Pennsylvania. Although neither Homans nor Berner may have had any substantial contact with this District, venue as to them may be proper under the co-conspirator theory of venue. See Wyndham Associates v. Bintliff, 398 F.2d 614 (2d Cir.), cert. den. 393 U.S. 977, 21 L Ed 2d 438, 89 S. Ct. 444 (1968); Hooper v. Mountain States Securities Corp., 282 F.2d 195 (5th Cir. 1960), cert. den. 365 U.S. 814, 5 L Ed 2d 693, 81 S. Ct. 695 (1961); SEC v. National Student Marketing Corp., supra; In re Penn Central Securities Litigation, supra. In SEC v. National Student Marketing Corp., the United States District Court for the District of Columbia stated the co-conspirator theory of venue as follows:

 
"in a multi-defendant securities proceeding, where a common scheme of acts or transactions to violate the securities acts is alleged, if venue is established for any of the defendants in the forum district there is sufficient justification to establish venue as to the other defendants, even in the absence of any contact or substantial contact by any one defendant within that district." 360 FS at 291-92.

 The court went on to hold that venue as to the New York law firm White & Case and one of its partners, who claimed to have acted only in a representative capacity as attorneys, was properly lodged in the District of Columbia under the co-conspirator doctrine without considering the question of whether these defendants, by their conduct alone, committed violations within that district. 360 FS at 292. In a multi-defendant securities action alleging a common fraudulent scheme, this doctrine permits a plaintiff to present his claim in a single forum, rather than filing in several districts which may be scattered throughout the country.

 We find that venue properly lies in this court under Section 27 of the Securities Exchange Act of 1934. The "act or transaction" portion of this section does not require that the violative acts in this district form the core of the claim. Rather, venue is proper if there is but one act within the forum district which represents more than an immaterial part of the alleged illegal events. See Burkhart v. Allson Realty Trust, 363 FS 1286, (N.D. Ill. 1973); Prettner v. Aston, 339 FS 273 (D. Del. 1972). In paragraph 32 of the amended complaint, the plaintiff alleges that all defendants are liable under the 1933 and 1934 acts for engaging in a common fraudulent scheme involving the sale of the notes and stock to the plaintiff. The affidavit of Dale Hershey, counsel for defendant Homans, filed on December 4, 1974, reveals that at least six of the seven notes were secured by mortgages on certain Kastle oil and gas wells in Crawford County which is located in the Western District of Pennsylvania. Plaintiff's Exhibit A attached to its brief submitted on December 14, 1974, shows that various financing statements were filed in Crawford County in connection with these mortgage notes. The court finds that since the notes in issue were secured by property located in Crawford County and since financing statements to that effect were filed in Crawford County, venue properly lies with this court under the "any act or transaction" language of Section 27 of the 1934 Act. We also note that defendant Kastle, the wholly-owned subsidiary of Universal Major, transacts business and is found in the Western District of Pennsylvania. Given the finding that venue properly lies in this district, the court has personal jurisdiction over defendants Homans and Berner who were served pursuant to the nation-wide service of process provisions of Section 22(a) of the Securities Act of 1933 and Section 27 of the Securities Exchange Act of 1934. The motions of Homans and Berner to dismiss for lack of venue and personal jurisdiction, therefore, will be denied.

 More Definite Statement

 Defendants Homans and Berner also have filed motions to dismiss asserting that neither the original complaint nor the amended complaint have stated their respective roles in the alleged fraud with sufficient particularity. The defendants argue that the plaintiff has failed to comply with Rule 9(b) of the Federal Rules of Civil Procedure which states in part:

 
"In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated ...

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