Court Opinion

ID: 9462561
Source: CourtListenerOpinion
Date Created: 2023-08-04 22:43:54.900192+00
Date Added: 2024-06-11T17:37:38.913843
License: Public Domain

ROSENN, Circuit Judge
(concurring).
I agree with the majority that we must reverse the dismissal of Count IV of Kusner’s complaint. I believe, however, that his cause of action rests not only on section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) (1971), discussed in Part I of the majority opinion, but at least on one other section of the federal securities laws.
Of particular applicability here is section 11 of the Securities Act of 1933, 15 U.S.C. § 77k (1971). It provides in relevant part:
(a) In case any part of the registration statement, when such part became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, any person acquiring such security . . . may . . . sue—
(1) every person who signed the registration statement;
(2) every person who was a director of . or partner in the issuer at the time of the filing of the part of the registration statement with respect to which his liability is asserted
Kusner directed his complaint at the allegedly false and misleading statements in the prospectus incorporated into the regis*1240tration statement. Section 11 is more precisely tailored to this set of facts than is section 10(b), the general fraud section of the 1934 Act.
Moreover, under section 11 Kusner need only show that he acquired securities covered by the prospectus and that the false statements or omissions were material.1 Neither reliance nor a causal connection between the drop in value of the security and the false or misleading registration statement is an element of a section 11 action. See 3 L. Loss, Securities Regulation at 1721-1735 (2d ed. 1961). Nor is a section 11 plaintiff required to prove fraud. Rather, as the Second Circuit has stated:
Civil liability under section 11 and similar provisions was designed not so much to compensate the defrauded purchaser as to promote enforcement of the Act and to deter negligence by providing a penalty for those who fail in their duties.
Globus v. Law Research Service, Inc., 418 F.2d 1276, 1288 (2d Cir. 1969), cert. denied, 397 U.S. 913, 90 S.Ct. 913, 25 L.Ed.2d 93 (1970). Thus, holders of convertible debentures who simply alleged material false statements and material omissions in a registration statement under which they purchased the bonds were held to have stated a sufficient cause of action under section 11 in Escott v. Barchris Construction Co., 283 F.Supp. 643 (S.D.N.Y.1968).
On the other hand, while liability may be established more readily under section 11 of the 1933 Act, the scope of liability may be more limited than under section 10(b) of the 1934 Act. Liability under section 11 may not be imposed upon those defendants which did not sign the prospectus or perform directorial functions for the Trust.2 Moreover, if Kusner proceeds under section 11, he may need to consider whether he will be precluded from proceeding under section 10(b) as well. Montague v. Electronic Corp. of America, 76 F.Supp. 933, 936 (S.D.N.Y. 1948).3
As to the defendants’ contention that Kusner is barred from suit by section 8.7 of the Indenture, I join with Judge Gibbons in rejecting that argument for the reasons stated in part II of the majority opinion.

. “Material” is defined by 17 C.F.R. § 230.-405(1) (1975) as “matters as to which an average prudent investor ought reasonably to be informed before purchasing the security registered.”

. A “controlling person” may be reached, however, under section 15 of the Securities Act of 1933, 15 U.S.C. § 77o (1971).

. But cf. Feit v. Leasco Data Processing Equipment Corp., 332 F.Supp. 544, 563 (E.D.N.Y. 1971); Rosenberg v. Globe Aircraft Corp., 80 F.Supp. 123, 124 (E.D.Pa.1948).