Source: https://m.openjurist.org/605/f2d/110
Timestamp: 2019-09-17 15:03:12
Document Index: 323974971

Matched Legal Cases: ['§ 12', '§ 12', '§ 12', '§ 11', '§ 12', '§ 14', '§ 11', '§ 11', '§ 77', '§ 11', '§ 11']

605 F2d 110 Collins v. Signetics Corporation R Cillag 78-2500 Collins M R | OpenJurist
605 F. 2d 110 - Collins v. Signetics Corporation R Cillag 78-2500 Collins M R
605 F2d 110 Collins v. Signetics Corporation R Cillag 78-2500 Collins M R
605 F.2d 110
56 A.L.R.Fed. 649, Fed. Sec. L. Rep. P 97,110
Appeal of John R. CILLAG in No. 78-2500.
Corning Glass Works, Appellants in No. 78-2501.
CILLAG, John R., Appellant in No. 78-2502,
CILLAG, John R.
Corning Glass Works, Appellants in No. 78-2503.
Richard K. Masterson (argued), Waters, Fleer, Cooper & Gallager, Philadelphia, Pa., for appellants.
Henry Kolowrat (argued), Jean Wegman Burns, James E. Hipolit, Dechert Price & Rhoads, Philadelphia, Pa., for appellees.
The major question for decision is whether absence of buyer-seller privity is fatal to a claim based on § 12(2) of the Securities Act of 1933.1 The district courts in this circuit that have addressed the question, including Judge McGlynn, the trial judge here, have ruled that unless some special relationship exists between the issuer and the actual seller of the securities, such as control of the seller by the issuer, a purchaser not in privity with the issuer has no claim under § 12(2) against the issuer.2 We agree with this interpretation and, persuaded that the trial court committed no error in dismissing appellants' § 12(2) claim or in ruling on appellants' other contentions, we affirm.
This appeal emanates from a class action brought by stockholders of Signetics Corporation against Corning Glass Works and its formerly controlled subsidiary, Signetics. Plaintiffs were members of the class who purchased Signetics stock pursuant to a public offering on November 1, 1973 from underwriters for $17.00 per share. Plaintiffs claimed that the registration statement and the prospectus which accompanied the offering violated § 11(a)3 and § 12(2) of the Securities Act of 1933. Their complaint alleged that sometime prior to the public offering, Corning, which owned 92% Of Signetics before the offering and 70% Afterwards, had decided to divest itself entirely of its interest in Signetics but had failed to disclose this intention in either the registration statement or the prospectus. The complaint further alleged that Signetics was aware of Corning's intention to sell and that its officers had assisted Corning in the search for a buyer. Eighteen months after the offering, Corning's interest was completely liquidated when Signetics merged into a subsidiary of United States Phillips Corporation, and Signetics' shareholders were required to surrender their stock for $8.00 per share.
Ascertainment of congressional intent with respect to the standard of liability created by a particular section of the securities acts must "rest primarily on the language of that section." Ernst & Ernst v. Hochfelder, 425 U.S. 185, 200, 96 S.Ct. 1375, 1384, 47 L.Ed.2d 668 (1976). In interpreting liability provisions of the acts, we must respect recent Supreme Court teachings that militate against excessively expansive readings. Thus, proof of an actual purchase or sale rather than a lost opportunity to purchase is necessary to recover for a violation of Rule 10b-5, Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975), and scienter is necessary to establish a 10b-5 violation, Ernst & Ernst v. Hochfelder, supra. A defeated tender offeror has no implied cause of action for damages under § 14(e) of the Securities Exchange Act of 1934 or under Rule 10b-5. Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 42, 97 S.Ct. 926, 51 L.Ed.2d 124 (1977). Without allegations of manipulation or deception, no 10b-5 cause of action exists for simple breach of fiduciary duty to minority stockholders. Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 97 S.Ct. 1292, 51 L.Ed.2d 480 (1977). Section 12(k) of the Exchange Act does not authorize the Commission to suspend trading in a security for more than one ten-day period on the basis of a single set of circumstances, SEC v. Sloan, 436 U.S. 103, 98 S.Ct. 1702, 56 L.Ed.2d 148 (1978), and an employees' noncontributory, compulsory pension plan is not a security within the meaning of the Securities Acts, International Brotherhood of Teamsters v. Daniel, 439 U.S. 551, 99 S.Ct. 790, 58 L.Ed.2d 808 (1979).
Consistent with his preliminary ruling, Judge McGlynn permitted appellants' case to go to the jury on the theory of a § 11 violation. Section 11(a) of the Securities Act of 1933 provides civil liability for material misstatements and omissions in registration statements, while enumerating those persons against whom suit may be brought. Section 11(e) establishes the appropriate method for measuring damages caused by a § 11(a) violation, but disallows recovery of those damages proved by defendant to have resulted from a cause other than the misrepresentation.4 This provision places the burden of affirmatively proving lack of causation on the defendant. At trial, the question of causation was submitted to the jury, and appellants, faced with an adverse jury verdict, now mount a host of arguments generally clustering around the contention that there was insufficient evidence to submit the causation question to the jury.5
The factual issues were submitted to the jury by special interrogatories.6 The jury found that prior to the public offering Corning had adopted a policy to reduce its ownership interest in Signetics, and had attempted both to discontinue its financial support of Signetics and to sell its interest therein. Nevertheless, the jury found that this information was not omitted from the prospectus.
The jury also found, however, that the use of distributor sales left Signetics more vulnerable to a fall in demand than was typical for companies in the semiconductor industry, that this fact was omitted from the prospectus, and that the omission was of sufficient magnitude to make statements in the prospectus misleading. Relying on the Bradley testimony, the companies argued that decline in the price of Signetics stock resulted solely from factors other than the material omissions. In answer to the interrogatory on causation, the jury found that the companies had proved by a preponderance of the evidence that the omission from the prospectus was not the cause of appellants' injury.7
Section 12(2), 15 U.S.C. § 77L (2), provides:
See Kramer v. Scientific Control Corp., 452 F.Supp. 812, 814-15 (E.D.Pa.1978); B&B Investment Club v. Kleinert's, Inc., 391 F.Supp. 720, 725-26 (E.D.Pa.1975); Kramer v. Scientific Control Corp., 365 F.Supp. 780, 791 (E.D.Pa.1973); DuPont v. Wyly, 61 F.R.D. 615, 626-27 (D.Del.1973); Dorfman v. First Boston Corp., 336 F.Supp. 1089, 1091-93 (E.D.Pa.1972)
Appellants argue that the companies failed to establish their § 11(e) defense in that they presented inadequate evidence to prove lack of causation under that section; that the decision of the jury on causation was not supported by the evidence; that uncontroverted admissions by the defendants necessitated that the jury find causation; that the jury's finding on causation was against the clear weight of the evidence; that the trial court's submission of the interrogatory on causation was inconsistent with § 11(e) and also deprived the jury of its right to compromise the damage issue; that the trial court's response to the jury's question coupled with the defectively worded interrogatory misled and confused the jury; that defendants' use of admittedly deceptive charts violated the hearsay rule and misled the jury on the issue of damages; and that the jury made a transparent error with respect to the disclosure in the prospectus of Corning's sales attempts before the offering
The interrogatories and jury answers were as follows:
YES X NO ______
YES ______ NO X
(a) Do you find as a fact by a preponderance of the evidence that the extent of Signetics Corporation's reliance on distributor sales left Signetics more vulnerable to a fall in demand than was typical for companies in the semiconductor industry?