Opinion ID: 355147
Heading Depth: 2
Heading Rank: 1

Heading: As to Reliance

Text: 8 The district court erred in holding that there was no genuine issue of fact regarding the lack of some element of general reliance by plaintiff. Even if some element of general reliance were required, a legal issue discussed in Section III, infra, of this opinion, plaintiff offered sufficient evidence to create an issue of fact in that regard, so that the case could not be decided by summary judgment on that issue. 9 In his deposition, Rifkin specifically stated that he relied on the 1969 Annual Report and other statements emanating directly and indirectly from Recognition in making his seven purchases of Recognition stock in the period in question. He summarized his detailed deposition testimony about his reliance by saying that: 10 I read every document I received from the Company, and to the extent I read it, I relied on it. 11 In making his first purchase, of 50 shares, on December 19, 1969, Rifkin relied on an account of a speech by Recognition's president Philipson, in which Philipson reported that Recognition had achieved a long awaited turnaround for the year ended 1969, a turnaround in earnings, resulting from sharply increasing sales. He also took into account information in trade journals (such as Moody's, Electronic News, and Standard & Poor), and an Arthur D. Little study about the potential for optical recognition equipment. In making his purchase, he relied upon the fact that REI (Recognition) became profitable for the first time; that . . . after years of investment and heavy losses, they . . . alone in the industry were suddenly profitable (and) the turnaround was pretty good. 12 Plaintiff's second purchase, also of 50 shares, was on January 15, 1970. In addition to the material he had relied on in making his first purchase, he relied on an article in Business Week, more complete reports of Philipson's speech, and possibly Recognition's 1969 Annual Report, if he had received it by then. 13 On February 4, 1970, plaintiff purchased another 50 shares. By this purchase at the latest, he received and relied on the company's 1968 and 1969 Annual Reports. He also read a complete transcript of Philipson's speech, which appeared in the Wall Street Transcript issue of January 19, and a welcome letter from Recognition. 14 Plaintiff made his fourth purchase, of 100 shares, on September 10, 1970. He relied on a Barron's article, Recognition's semi-annual report to shareholders, a Recognition press release reporting that it had received a $7,000,000 contract from the United States Post Office, a series of Investors News Reports which Recognition sent its stockholders, and a Wall Street Transcript of another speech by Philipson. 15 Plaintiff's next purchase, of 50 shares, occurred on October 20, 1970. In making this purchase, he relied upon all the information he had previously relied upon. 16 On January 4, 1971, plaintiff made his sixth purchase, of 100 shares of Recognition stock. In making this purchase, he considered a Wall Street Journal article reporting that Recognition would have reported a profit for the year ending 1970, but because of an accounting change and extraordinary items, Recognition was going to have a loss of almost $11,000,000 for the year. 17 Rifkin made his seventh and last purchase on February 12, 1971. He stated that if he received the 1970 Annual Report dated January 4 before making this purchase, he read and relied on it. He also relied on an article by Robert Metz in the New York Times, which showed that Recognition's stock was priced low as compared to prior periods. Rifkin also noted that before all of his purchases he relied on the interim reports (quarterly and semi-annual) he received from the company. By reliance, Rifkin said he meant that he saw and read the material and it was a factor in his determination to buy the Recognition stock. 18 In addition to the specific documents referred to above, Rifkin stated that in making his purchases he relied on the fact that the market price of a stock reflects the company's financial statements and its inherent value: 19 If the price of the stock reflects, and I believe it does, if the price of a stock reflects the financial statements which are circulated to the investment community and if the financial statements are over-stated, inflated, it would be reasonable to believe that the price of the stock was over-stated. I think that a buyer of a security has a right to rely on the fact that the stock value bears some reasonable relationship to the financial statements circulated in the investment market. . . . (Investors) are entitled to rely on the fairness of a price set by the general investment community and that that price has been established as bearing a reasonable relationship to the earnings and balance sheets and if the earnings and balance sheets are over-stated, why their reliance and expectation of paying a fair price is just not borne out. 20 Thus, plaintiff's testimony, if accepted by a trier of fact, would support recovery under even the most restricted reliance requirement. 21