Opinion ID: 344913
Heading Depth: 2
Heading Rank: 3

Heading: Remaining Elements of the Cause of Action

Text: 57 Since the omitted facts pass the stringent objective element of the recklessness test, the district court's determination of the materiality of the Burke and Ernst & Ernst reports that there is a substantial likelihood they would be considered important by a reasonable investor is not open to argument, especially since materiality assessments are peculiarly for the trial court as fact-finder. 27 TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 448, 96 S.Ct. 2126, 2132, 48 L.Ed.2d 757. 28 With materiality established, reliance in an omissions case is presumed. Affiliated Utes Citizens v. United States, 406 U.S. 128, 92 S.Ct. 1456, 31 L.Ed.2d 741. 29 58 Of course, Sundstrand would be open to a defense of non-reliance on the omissions if Meers could meet the burden of proof running against him to establish such an affirmative defense. McLean v. Alexander, 420 F.Supp. 1057, 1077-1079 (D.Del.1976). Note, The Reliance Requirement in Private Actions Under SEC Rule 10b-5, 88 Harv.L.Rev. 584, 606 (1975); Wheeler, Plaintiff's Duty of Due Care Under Rule 10b-5: An Implied Defense to an Implied Remedy, 70 Nw.U.L.Rev. 561 (1975); Note, Reliance Under Rule 10b-5: Is the Reasonable Investor Reasonable?, 72 Colum.L.Rev. 562, 567 (1972). In a nondisclosure case, reliance is vitiated if the plaintiff is chargeable with the omitted information. Under a negligence standard of liability, plaintiff could not justifiably claim reliance if he had not exercised due diligence. Wheeler, supra. But under a reckless or Hochfelder scienter standard, (i)f contributory fault of plaintiff is to cancel out wanton or intentional fraud, it ought to be gross conduct somewhat comparable to that of defendant. Holdsworth v. Strong, 545 F.2d 687, 693 (10th Cir. 1976); cf. McLean v. Alexander, 420 F.Supp. 1057, 1078 (D.Del.1976). 59 We find nothing in the record that remotely suggests that Sundstrand was recklessly remiss in not ferreting out on its own the information contained in the Burke and Ernst & Ernst reports before its down payment to Huarisa on January 9, 1969 (mem. op. at 60-61). Rather, the record clearly suggests that if Meers had disclosed the reports, Sundstrand would not have executed the January 9 stock option transfer agreement with Huarisa which compelled it to transfer 5,686 of its shares to Huarisa in return for receiving his option to buy the Burke shares. 30 60 Nor can Meers insulate himself from this liability by urging that he was only involved in the SKI-Sundstrand merger, for it is clear that the January 9 agreement was an integral part in any such merger by preventing Sun Chemical from purchasing the Burke shares for another thirty days (mem. op. 17-18), i.e., until February 9. Since Meers' conduct was partly responsible for Sundstrand's signing the stock option transfer agreement, 31 his nondisclosure was sufficiently in connection with the purchase or sale of any security, as required by Rule 10b-5. Eason v. General Motors Acceptance Corp., 490 F.2d 654 (7th Cir. 1973), certiorari denied, 416 U.S. 960, 94 S.Ct. 1979, 40 L.Ed.2d 312; Heit v. Weitzen, 402 F.2d 909, 912 (2d Cir. 1968), certiorari denied, 395 U.S. 903, 89 S.Ct. 1740, 23 L.Ed.2d 217. 61 It follows that Meers must share in the Huarisa estate's and Sun Chemical's liability on a material omission Rule 10b-5 theory. Therefore, we need not decide whether Meers would also be liable as an aider and abettor 32 or as a controlling person of SKI under 15 U.S.C. § 78t(a) the alternative grounds purportedly establishing Meers' liability in the opinion below. 62