Document: 471 U.S. 701 105 S.Ct. 2308 85 L.Ed.2d 708 W. George GOULD, Petitionerv.Max A. RUEFENACHT et al. No. 84-165. Argued March 26, 1985. Decided May 28, Syllabus Respondent Ruefenacht (hereinafter respondent) purchased 50% of the stock a company whose president previously had owned all stock. allegedly in reliance on financial documents and oral representations made by various individuals, including petitioner Gould, company's corporate counsel. Part consideration for deal was respondent's promise that he would participate management, which did, but his actions were at times subject to president's veto. subsequently began doubt accuracy some been him. He ultimately filed suit Federal District Court, alleging violations of, inter alia, Securities Act 1933 Exchange 1934. The court granted summary judgment defendants, holding respondent not "security" within meaning Acts, "sale business" doctrine prevented application Acts. Court Appeals reversed. Held: is does apply. Landreth Timber Co. v. Landreth, 681, 2297, 692. Pp. 704-706. (a) Where an instrument bears label "stock" possesses characteristics typically associated with stock, required look beyond character economic substance transaction determine whether instruments involved here called possessed are usually traditional P. 704. (b) There sound policy reasons rejecting as rule decision cases involving sale closely held corporation. doctrine's depends primarily control has passed purchaser, may be determined simply ascertaining what percentage purchased. Acquisition more than or effect transfer operational control, while instances de facto obtained acquisition less 50%. Such seemingly inconsistent results stem from fact actual also depend other variables. Therefore, Acts' applicability such rarely certain time transaction. Application lead arbitrary distinctions between transactions covered Acts those not. 737 F.2d 320 (CA3 1984), affirmed. Robert C. Epstein, petitioner. Peter Steven Pearlman, respondents. Daniel L. Goelzer, Washington, D.C., S.E.C. amicus curiae support respondents special leave Court. Justice POWELL delivered opinion 1 This case presents question securities antifraud provisions federal laws (the Acts). 2 * In 1980, (hereafter 2,500 shares Continental Import & Export, Inc., importer wine spirits, Joachim Birkle. Birkle Continental's 100% prior sale. shares, paid $250,000, represented outstanding 3 According respondent, Birkle; Christopher O'Halloran, certified public accountant; firm's management. record reveals helped solicit contracts firm, participated hiring decisions, signed banking resolution so could endorse checks Birkle's absence, engaged minor pursuits. All while, however, remained full-time employee another corporation, behalf 4 After $120,000 stock's purchase price, him others. this suit,1 §§ 12(2) 17(a) (1933 Act), 15 U.S.C. 77l(2), 77q. alleged § 10(b) 1934 (1934 78j(b), Rule 10b-5, 17 CFR 240.10b-5 (1984). concluding 3(a)(10) Act, 78c(a)(10), 2(1) 77b(1). Finding intended manage jointly Birkle, concluded business 5 United States Third Circuit It ruled plain language definitions included issue here, it disagreed Court's conclusion must applied every Because Courts divided over sales arguably transferring business, we certiorari. 469 1016, 428, 83 355 For stated our announced today 692, now affirm. II 6 where see Housing Foundation, Inc. Forman, 421 837, 851, 95 2051, 2060, 44 621 (1975), will "stock," they listed Forman App. 50a. As noted U.S., 687, S.Ct., 2302, corporation typical kind their terms We conclude III 7 Aside instruments, there acknowledges, Brief Petitioner 27, each purchaser. See, e.g., Sutter Groen, 687 197, 203 (CA7 1982); King Winkler, 673 342, 345 (CA11 Frederiksen Poloway, 637 1147, 1148 (CA7), cert. denied, 451 1017, 101 3006, 69 389 (1981). Control, turn, To sure, many cases, voting effects control. even ownership result effective still These variables rights, veto requirements super-majority vote issues pertinent state law certificate incorporation its bylaws. See Golden Garafalo, 678 1139, 1146 (CA2 1982) ("In 'economic reality,' considerably 100%, often 50%, controlling block which, when sold single holder, effectively transfers power business"); supra, 346 (application "is [merely] function numbers"). Whether how management purchaser intends be, 695-696, 2297. under theory, Accord, Hazen, Taking Stock Sale Closely Held Corporations, 61 N.C.L.Rev. 393, 406 (1983). Rather, findings court—often only after extensive discovery litigation. 8 factors type involved, corporation's security seller, purchasers others.2 Likewise, if same bought small amounts through several different transactions, possible apply one gave "control." F.2d, 335. make little sense view purpose protect investors. Moreover, parties' inability neither serves protective nor permits compensate added risk no protection negotiating IV 9 "security," therefore 10 Affirmed. 11 [For dissenting STEVENS, ante, 2312.] complaint named defendants Continental, well Gould. defaulted failure appear. O'Halloran 19.6 brief urging example, although buyer seller likely constitute either party, sellers, none whom exercised probably considered buyer. 320, 335, n. 36 1984); McGrath Zenith Radio Corp., 651 458, 467-468, 454 835, 102 136, 70 114 (1981); Seldin, When Not Security, 37 Bus.Law. 637, 679 (1982).

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