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April 18, 1985


The opinion of the court was delivered by: HUYETT



 Presently before me are defendants' motions for summary judgment on Count II of plaintiffs' complaint which alleged a violation of the Securities Exchange Act of 1934 ("Act"), 15 U.S.C. § 78j(b), and the regulations promulgated thereunder, including Rules 10b-5 and 10b-6. 20 C.F.R. §§ 240.10b-5 & 240.10b-6.


 On September 10, 1981 plaintiffs and defendants Rothrock and Surnamer *fn1" entered into an agreement under which plaintiffs purchased a fifty-one percent stock interest in Jordan Industries, Inc. ("Jordan"), and a fifty percent interest in Central Valley Real Estate ("Central"). The combined purchase price of these securities was $525,000, although the parties hotly contest the amounts exchanged. Eleven days later, on September 21, 1981, plaintiffs transferred some or all of this stock to Gardner Technology Associates ("GTA"), a Pennsylvania limited partnership. *fn2" Once again, the parties do not agree on the terms or nature of this transfer.

 After this transfer, plaintiffs allege that GTA became aware that Jordan and Central were riddled with undisclosed liabilities and that the assets of the businesses were not as represented by the defendants at the time of the initial sale to plaintiffs. The exact nature of these misrepresentations is more fully discussed in an earlier opinion in this case in which I granted defendants' motion to dismiss plaintiffs' civil RICO claim. Gardner v. Surnamer, 599 F. Supp. 477 (E.D. Pa. 1984).

 Defendants have now moved for summary judgment on the securities law count of the complaint. The basis of these motions is the argument that plaintiffs have suffered no actual damages and therefore cannot maintain a § 10(b) action. Plaintiffs deny that they have suffered no damages and assert that even if they have no cause of action in their personal capacities, they can still maintain this action as assignees of GTA.

 Summary judgment may be granted when it has been established that there are no issues of material fact and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Small v. Seldows Stationery, 617 F.2d 992 (3rd Cir. 1980). The court does not decide issues of fact, but merely determines if there is an issue of fact to be tried. Ettinger v. Johnson, 556 F.2d 692 (3rd Cir. 1977). The facts must be viewed in the light most favorable to the non-moving party and any reasonable doubt as to the existence of a genuine issue of fact is to be resolved against the moving parties. Continental Ins. Co. v. Bodie, 682 F.2d 436 (3rd Cir. 1982). For the reasons set forth below, defendants' motions will be denied.

 Plaintiffs' Ability to Pursue this Action on Their Own Behalf

 Count II of plaintiffs' complaint is based on § 10(b) of the Securities and Exchange Act of 1934 which states:

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.

 Defendants argue forcefully that plaintiffs cannot maintain this action on their own behalf because they have not suffered any actual damages. The courts have universally applied the "actual damage" standard of § 28(a) of the Act to § 10(b) claims. See 15 U.S.C. § 78bb(a). Such "actual" damages are an essential element of a cause of action under § 10(b). Gould v. American-Hawaiian S.S. Co., 535 F.2d 761 (3rd Cir. 1976); Rubenstein v. I.U. Inter'l Corp., 506 F. Supp. 311 (E.D. Pa. 1980). Defendants argue that "actual damages" should be equated with "out of pocket" losses, and that under any formulation, plaintiffs have reaped substantial profits from their eleven day ownership of the stock in question.

 In general:

Most courts have construed the term "actual damages" to preclude punitive awards and to limit compensatory damages to the plaintiff's actual monetary loss, including consequential damages. The courts further define a monetary loss as money actually paid out by a plaintiff and not as money a plaintiff hoped to realize. As a result, the courts are in almost unanimous agreement that the out-of-pocket measure of damages which operates to make plaintiff whole, applies to Rule 10b-5 violations with only limited exceptions.

 Note, Reaping the "Fruits of an Unrealized Speculation": May a Buyer Who Profits from a Transaction also Recover Damages Under Rule 10b-5, 33 Rutgers L. Rev. 973, 975-76 (1981).

 In Abrahamson v. Fleschner, 392 F. Supp. 740 (S.D.N.Y. 1975), the court was faced with a situation which is somewhat similar to the one presented in the present case. That case also involved a 10b-5 action in which plaintiffs, who were limited partners, sued the partnership, its three general partners, and its accounting firm for a variety of alleged misrepresentations. Defendants moved for summary judgment arguing, inter alia, that plaintiffs had not suffered any actual damages and therefore could not state a claim under Rule 10b-5. The court accepted this argument in spite of the fact that plaintiffs represented to the court that they could have made more money than they actually did were it not for the fraud of the defendants. The court stated: "[a] close reading of the cases relied upon by plaintiffs reveals no support for their claim that they are entitled to damages in a situation where no loss has been suffered and where a substantial gain has in fact been made." Id. at 746-47. See also Rubenstein, 506 F. Supp. at 318.

 Similarly, in Beissinger v. Rockwood Computer Corp., 529 F. Supp. 770, 788-89 (E.D. Pa. 1981), the court posed a hypothetical which reflects fairly closely the facts of this case. In its discussion ...

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