Court Opinion

ID: 6912779
Source: CourtListenerOpinion
Date Created: 2022-07-23 22:29:39.830384+00
Date Added: 2024-06-11T16:06:33.852636
License: Public Domain

ON PETITION FOR REHEARING
B. Alan Wight, Portland, argued and reargued the cause for appellants, cross-respondents. On the hriefs were Norman J. Wiener, J. David Petersen, and Miller, Anderson, Nash, Yerke & Wiener, Portland.
Marvin 8. Nepom, Portland, argued and reargued the cause for respondents, cross-appellants. With him on the briefs was Leo Levenson, Portland.
BRYSON, J.
Plaintiffs sued to rescind three separate stock purchases, and the trial eourt decreed rescission of the third purchase only. The court found that the Myers had been induced to make that purchase by defendant Bruce’s representation on December 27, 1968, that the TiLINE, Inc., stock was “going to go interstate.” The court further found that this representation and its *100innuendo as understood by the Myers were false. On appeal, this court affirmed the trial court’s decree.
The defendants petition for rehearing, contending that there was no evidence that Myers misunderstood the statement “going interstate” made by defendant Bruce to plaintiffs and that plaintiffs did not rely on an erroneous statement in purchasing TiLINE stock. We granted a rehearing to again review the sufficiency of the evidence.
 A representation that a certain stock is going to go interstate is ambiguous. The phrase can indicate that the stock will become available for nationwide distribution as the result of an interstate registration with the Securities and Exchange Commission. The phrase can also indicate that the stock will qualify for interstate sale through a completed distribution of the stock to residents of a single state coupled with either: (1) convincing proof that the entire issue has come to rest in the hands of residents who have purchased for investment purposes only and without a view to resale, or (2) the expiration of one year from the first date of the intrastate offering.①
*101At the trial of this ease, plaintiff Robert Myer testified concerning Bruce’s explanation of the phrase “going to go interstate” as follows:
“Q. What were those that you were relying on at that time? What were the key statements that you were relying on?
“A. One of the very key statements at this time was that it was going to go interstate at this date and this would open up a much wider field of potential sale for the stock and it certainly would be of interest to people outside of this area. He could sell to friends in South Dakota, to a doctor friend he had in San Diego, to other people, as could all other representatives who were interested in selling TiLINE stock.
“Going interstate certainly would be an asset to TiLINE. And it would be important to them as a stock, the value of the stock, certainly could then be sold to more people and become more valuable.
U* * * * #
“Q. At that meeting, did he tell you what that meant?
“A. I will assure you that he had earlier told me what that meant and I would very well imagine that many of these points were reiterated at that time.
“One of them would probably be, knowing that he was from South Dakota, at that time that he could now go back there and sell stock of the TiLINE and-
“Q. All right. Now, previously, what did he tell you that the word ‘interstate’ meant?
“A. He had told us that going interstate would allow such as myself to be able to now buy the stock as being a resident of another state.
a* * * # «
*102“Q. Would you explain that,-please? .
“A.: Well, Don told us that the stock of TiLINE was going interstate. That is, it would be sold nationally; that he, Don Bruce, for instance, could go out to South Dakota and solicit — where lie had come from — and solicit sales. He could go down to California. It would become a national thing where, up until now, he had been restricted to the State of Oregon.”
This testimony demonstrates that Myer under.stood Bruce to mean that after a certain date, brokers and individuals could sell TiLINE stock to nonresidents of Oregon. The record contains no indication, that Myer ever inquired, or that Bruce ever explained the various methods by which TiLINE stock could qualify for interstate sale. Myer’s testimony does not demonstrate a particular concern for the method by which TiLINE stock would so qualify. Myer relied on the qualification of TiLINE stock for interstate sale; he did not rely on such a qualification by means of an S.E.C. registration or by any other particular means.
The TiLINE stock did qualify for interstate sale, and thus Bruce’s representation that TiLINE was “going to go interstate” was true. Therefore, there was no reliance on an alleged erroneous statement by defendants because the stock could be sold in interstate transactions; Myers’ final stock purchase was transacted while they were residents of California and they could dispose of the stock in the same manner. We therefore conclude there is no evidence that Bruce’s representations suggested a false innuendo to the Myers or that defendants detrimentally relied on a falsehood. The decree of the trial court is reversed in this respect.
Part of former opinion withdrawn. Reversed in part; affirmed in part.

 In determining whether a stock qualifies for interstate sale through a consummated intrastate distribution, the test is whether the stock has come to rest in the hands of resident investors who have purchased without a view to further distribution or resale. S.E.C. Securities Act Release No. 33-4434, 26 Fed. Reg. 11896 (1961). The Commission presumes, subject to refutation, that the sales of dealers within one year of the first date of the offering are part of the process of primary distribution. Brooklyn Manhattan Transit Corp., 1 S.E.C. 147, 162-63 (1935). Where there is proof that the stock has in fact come to rest, the stock may be traded to nonresidents without affecting the intrastate exemption. S.E.C. Securities Act Release No. 33-4434, supra. A general rule has developed from the Brooklyn Manhattan Transit case that resales to nonresidents more than one year from the first date of distribution are permitted, although there is little actual authority for this practice in the official releases-of the S.E.C. See Schaefer, An Annotated Checklist for the Federal Intrastate Exemption from Regis*101tration of Securities, 34 Mont L Rev 1, 8 (1973); but cf. Emens & Thomas, The Intrastate Exemption of the Securities Act of 1933 in 1971, 40 Cinn L Rev 779, 786 (1971): “[R]esales to nonresidents more than one year after distribution has ended are acceptable.” (Emphasis added.)