Court Opinion

ID: 9488007
Source: CourtListenerOpinion
Date Created: 2023-08-05 12:33:29.923656+00
Date Added: 2024-06-11T17:52:37.836436
License: Public Domain

DAVID A. NELSON, Circuit Judge,
dissenting.
Under Michigan jurisprudence, I believe, we must take it as given that a securities issuer’s inadvertent failure to comply with the Michigan Uniform Securities Act does not invariably entitle the purchaser to deny the issuer the benefit of its bargain. As the state’s current Chief Justice observed in an opinion written when he served on the Court of Appeals of Michigan, “Michigan ... has developed a jurisprudence in such cases which recognizes that in certain circumstances, the policy embodied in the state securities’ laws is better served by a more flexible approach.” William’s Delight Corp. v. Harris, 87 Mich.App. 202, 209, 273 N.W.2d 911, 914 (1978).
In Walton v. Semmler, 6 Mich.App. 596, 149 N.W.2d 885 (1967), as the William’s Delight court pointed out, “a purchaser who did not attempt to repudiate his agreement until sued thereon [by the issuer] ... fell outside the scope of the act.” 87 Mich.App. at 210, 273 N.W.2d at 915. “[W]here the seller can establish its own unwitting violation of the act and the purchaser’s culpable involvement or acquiescence in it, no public policy is thwarted by allowing [the issuer to recover the agreed purchase price.]” 87 Mich.App. at 212, 273 N.W.2d at 916.
In the case at bar the district court (Quist, J.) found as a fact that the defendants’ failure to file the “confidential report of offering” required to confirm an exemption from registration under. M.C.L. 451.802(b)(9)(C) was “inadvertent.” Investors Equity Group v. Rosenkrantz Lyon & Ross, Inc., 822 F.Supp. 429, 433 (W.D.Mich.1993). The court further found that the president and sole shareholder of plaintiff IEG was “generally aware of the filing requirements associated with this type of transaction;” that this individual learned in March of 1990 of the defendants’ failure to satisfy the confidential report requirement; and that IEG “may have been ‘hedging its bet’ by waiting until April 2, 1990 [when it was certain that its investment ‘had soured’] to make its rescission demand.” Id. Under these circumstances, it seems to me, there may well have been sufficient “acquiescence” by IEG to bar it, under William’s Delight, from rescinding the agreement.
Be that as it may, the circumstances of this case are such that even if no estoppel defense exists under William’s Delight, it would take only a modest extension of the principle of that case to hold for the defendants under a de minimis concept. Having regard to the policies embodied in Michigan’s securities laws, I agree with District Judges Hillman and Quist that the state’s jurisprudence is flexible enough to accommodate such an approach.
The Michigan Act “is aimed at protecting the innocent purchaser.” William’s Delight, 87 Mich.App. at 212, 273 N.W.2d at 915-16. Here the purchaser clearly received all the *164protection to which it was entitled. On the facts of this case, as Judge Quist pointed out, the confidential report did not have to be filed until “after IEG had made its investment.” Investors Equity Group, 822 F.Supp. at 435.
Judge Quist went on to express himself as follows:
“It is clear that at the time IEG made its investment the Universal offering was entitled to exemption from registration because the Confidential Report of Offering was not yet due. The obvious reason for the Confidential Report of Offering is for the Michigan Securities Bureau’s administrative purposes. It seems to me that it would be an absurd result to rescind the entire transaction because of the tardy filing of an administrative document. The Confidential Report of Offering was designed to inform the State of the completion of an exempt offering. The information contained on the Report had been provided to IEG by the defendants prior to the time IEG made its investment. Obviously, IEG could not have relied upon the Report when deciding whether or not to make its investment since the Report was not yet due.
In this case, IEG knew what it was doing when it made its investment. It also knew of the speculative nature of its investment. This Court finds that the defendants’ failure to file the Confidential Report of Offering within the 30 days as required by statute was a de minimis violation. Therefore, the plaintiff is not entitled to rescind the transaction.” Id. at 435-36 (footnote omitted).
I agree with this analysis, and I would affirm the judgment of the district court. My colleagues on the panel having concluded that the judgment should be reversed, I respectfully dissent.