Opinion ID: 431843
Heading Depth: 1
Heading Rank: 1

Heading: facts

Text: 2 On June 26, 1979, plaintiff Henry Lee Warren consulted his broker about investing some cash that plaintiff had received from the sale of stock. The broker suggested investing in The Reserve Fund, Inc., a no-load open-end mutual fund, 1 and gave Warren a WATS number to call for more information about the fund's performance. 3 Each day, the Reserve Fund prepared a recorded message based on the following format: 4 The Reserve Fund's current yield on ______ is ______%. We paid ______% for the last ______ days. We earned ______% for the last quarter. Our assets exceed $____________ and our average portfolio life is ____________ days. For further information, please call (212) 977-9880 or write us at 811 Seventh Avenue, N.Y., N.Y. 10019. Thank you for calling. 5 On June 26, the Fund reported on the WATS message that the current yield was 9.88%. Mr. Warren invested $7,827.79 with the Fund that same day. 2 6 On October 22, 1979, Warren instituted this action against The Reserve Fund 3 under Rule 10b-5, 17 C.F.R. Sec. 240.10-5 (1980), promulgated by the Securities and Exchange Commission under Sec. 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. Sec. 78j(b) (1976). 4 Warren's sole claim is based on one line from the Fund's pre-recorded WATS line telephone message. Warren contends that the first sentence of the message, which reported the Fund's current yield, constituted a scheme to defraud the investing public since the figure quoted as the current yield was not the actual rate that funds placed with defendant earned on that date 5 and since a reasonable investor would assume that current yield represented actual dividends paid. Warren claims that the Fund either should have included the true daily yield in the recording or alternatively, that the Fund should not have stated the current yield at all, since stated alone this information misled the public. 6 7 On October 29, 1979, Warren moved for class certification on behalf of all persons, numbering approximately 80,000, who purchased shares of The Reserve Fund during the three year period from October, 1976 through October, 1979. The Fund made a motion for summary judgment claiming that plaintiff suffered no out-of-pocket damages and therefore had no compensable loss. The summary judgment motion was denied without an opinion by Judge Roberts on August 18, 1980. The case was then reassigned to Judge Bunton who denied Warren's motion for class certification. 7 The case was then transferred again to Judge Garcia who dismissed the case on November 9, 1982 after reconsideration of the damages issue. 8 Six months after filing the action, in April, 1980, Warren redeemed his investment and received $8,571.00, representing a gain of $743.21 and a yield of 12.15%.