Source: https://case-law.vlex.com/vid/573-f-2d-685-594248978
Timestamp: 2020-08-06 14:36:48
Document Index: 697023798

Matched Legal Cases: ['§ 12', '§ 10', '§ 12', '§ 13', '§ 10', '§ 10', '§ 12', '§ 5', '§ 4', '§ 5', '§ 12', '§ 4', '§ 12', '§ 13', '§ 13', '§ 12']

573 F.2d 685 (1st Cir. 1978), 77-1106, Cook v. Avien, Inc. - Federal Cases - Case Law - VLEX 594248978
573 F.2d 685 (1st Cir. 1978), 77-1106, Cook v. Avien, Inc.
Docket Nº: 77-1106 and 77-1107.
Party Name: Benjamin A. COOK et al., Plaintiffs-Appellees, v. AVIEN, INC., et al., Defendants-Appellees, James F. Pritchard, Defendant-Appellant. Benjamin A. COOK et al., Plaintiffs-Appellants, v. AVIEN, INC., et al., Defendants-Appellees.
573 F.2d 685 (1st Cir. 1978)
Before COFFIN, Chief Judge, CAMPBELL and LAY, [*] Circuit Judges.
These appeals arise from claims brought under the Securities Act of 1933, 1 the Securities Exchange Act of 1934, 2 and Securities Exchange Commission Rule 10b-5, 3 to recover the purchase price of certain securities. In September of 1968 Benjamin A. Cook, Rachel C. Lowe, Gerald J. Eydenberg, Donald A. Conte, Peter A. Consiglio, and Advance Coatings Company purchased Avien, Incorporated six percent convertible subordinated notes. Avien was declared a bankrupt in 1976.
The district court entered judgments for the individual plaintiffs under Rule 10b-5
against James F. Pritchard, a stock broker and intermediary on the note sales, based on alleged fraudulent, material omissions made in connection with the sale of the notes. Pritchard has appealed these judgments asserting various defenses including the statute of limitations. The purchasers of the notes have appealed the dismissal of their claims against Leo A. Weiss president, executive director and the chief operating officer of Avien Avien's Board of Directors Pierre A. Alsina, Roy E. Marquardt, Robert A. Weaver, Jr., Robert A. Wiener, and Leo A. Weiss and Robert Weaver, Jr. & Associates, Incorporated, a consulting firm. The plaintiffs assert that the district court erred in denying recovery against all of the defendants under §§ 12(1), 4 12(2), 5 and 17, 6 of the 1933 Act and against Weiss and Avien's Board of Directors under § 10(b) of the 1934 Act. 7
We find that, although violations may have been made out against Weiss and Pritchard under §§ 12(1) and 12(2), the one year statute of limitations in § 13 of the 1933 Act 8 bars plaintiffs' claims against both defendants. We also affirm the trial court's finding that only Pritchard's actions constituted violations of § 10(b) and Rule 10b-5; we nonetheless vacate the judgment against Pritchard and remand for further proceedings on the sole question of whether the statute of limitations had run on the § 10(b) claims against Pritchard. 9
Avien, a manufacturer of jet aircraft fuel consumption measuring devices, achieved spectacular growth during the late 1950s. The company, however, subsequently experienced financial difficulties and underwent reorganization pursuant to Chapter XI of the Bankruptcy Act in 1964. 10 In order to ensure stability Avien thereafter moved toward diversification by acquisition of, and merger with, other corporations. In March of 1968 Avien made its first acquisition when it purchased the Davis-Edwards Pharmacal Corporation.
To further its expansion effort Avien commissioned Robert Weaver, Jr. & Associates to prepare an elaborate brochure referred to as the Avien Fact Report. 11 The report was to be used to acquaint other companies interested in merger or acquisition with Avien. The report presented an optimistic projection of both Avien's and Davis-Edwards' earnings and growth potentials.
Weiss, through Weaver, furnished the brokers with several items concerning Avien including the company's quarterly and annual reports and a copy of the Fact Report. Sullivan and Pritchard were told that the Fact Report was confidential and for their use only. 12
The purchasers first urge that the district court erred in denying recovery against all of the sellers of the notes under § 12(1) of the 1933 Act. Under this section the seller of a security is liable to a purchaser if the sale violates the registration provisions of § 5 of the Act. 13 Sales may, however, be exempted from registration by § 4(2) 14 of the Act if a private offering is made in which the purchasers (1) are limited in number, (2) are sophisticated, and (3) have a relationship with the issuer enabling them to command access to information that would otherwise be contained in a registration statement. See, e. g., Doran v. Petroleum Management Corp., 545 F.2d 893, 899-900 (5th Cir. 1977); Hill York Corp. v. American International Franchises, Inc., 448 F.2d 680, 687-89 (5th Cir. 1971). If securities are sold without full disclosure or effective access to significant information, there is no exemption, the registration provisions of § 5 are violated, and the seller is liable under § 12(1). Although the district court found that the securities were not exempt from registration under § 4(2), the court determined that the § 12(1) claims were barred because the one year statute of limitations in § 13 of the Act had not been tolled by any fraudulent act of the defendants. 15 We agree but for reasons differing from those presented by the trial court.
We hold that, under the explicit language of § 13, the limitations period runs from the date of the violation irrespective of whether the plaintiff knew of the violation. See Gridley v. Cunningham, 550 F.2d 551, 552-53 (8th Cir. 1977); Mason v. Marshall, 412 F.Supp. 294, 299 (N.D.Tex.1974), aff'd, 531
F.2d 1274 (5th Cir. 1976); Ferland v. Orange Groves of Florida, Inc., 377 F.Supp. 690, 703 (M.D.Fla.1974); Shuman v. Sherman, 356 F.Supp. 911, 912-13 (D.Md.1973); Moerman v. Zipco, Inc., 302 F.Supp. 439, 445 (E.D.N.Y.1969), aff'd, 422 F.2d 871 (1970); 3 L. Loss, Securities Regulation ch. 11C(1)(f), at 1742 (2d ed. 1961). It is undisputed that at the time plaintiffs filed their complaints more than one year had elapsed since their purchase of the notes. Under the circumstances, plaintiffs cannot pursue their § 12(1) claims.
296 S.W. 391 (Mo. 1927), 27788, State v. Harmon