Court Opinion

ID: 9483730
Source: CourtListenerOpinion
Date Created: 2023-08-05 09:30:13.256295+00
Date Added: 2024-06-11T17:49:48.597558
License: Public Domain

TORRUELLA, Circuit Judge
(dissenting).
Section 11 of the Securities Act of 1933, 15 U.S.C. § 77k(a), provides that “any person acquiring [a] security” whose registration statement “contained an untrue statement of material fact or omitted to state a material fact required to be stated” may sue “every accountant ... who has with his consent been named as having prepared or certified any part of the registration statement” (emphasis added). This section should impose liability on Coopers & Lybrand in this case.
I arrive at my conclusion by reading the plain language of § 11 and deferring to the ordinary and common meaning of its words. See Aaron v. SEC, 446 U.S. 680, 685, 100 S.Ct. 1945, 1950, 64 L.Ed.2d 611 (1980) (construing § 17 of Securities Act of 1933 in light of plain meaning). In its plain meaning, “acquire” means “to come into possession, control, or power of disposal of often by some uncertain or unspecified means.” Webster’s Third New International Dictionary 18 (1981); see also Black’s Law Dictionary 41 (4th ed.1951) (defining “acquire” similarly). “Security” is defined by the statute, Securities Act of 1933, § 2(1), 15 U.S.C. § 77b(1), and the *659NDS stock, prior to the merger, was covered by this definition.
The issue in this case, as I see it, is whether Versyss ever gained possession, control or power of disposal over NDS stock. In this regard, section 2.2 of the Agreement and Plan of Reorganization, setting forth the terms of the merger, plainly states that “each share of NDS Stock ... by virtue of the Merger and without any action on the part of the holder thereof, [shall] be converted into and exchanged for” Contel Stock (emphasis added).
The words “be converted into and exchanged for” indicate an acquisition of NDS stock by Contel in that Contel gained possession, control, or power of disposal pursuant to the merger. That is, by virtue of the merger, Contel sold Contel securities which were issued in the merger to stockholders of NDS, and bought all shares owned by NDS stockholders. That the NDS stock ceased to exist following the consummation of the merger is of no consequence because Contel acquired the stock prior to such extinction. Indeed, Contel gained its ability to extinguish NDS stock as a result of its acquisition.
Moreover, § 11, like all securities statutes, must be construed “flexibly to effectuate its remedial purpose.” SEC v. Capital Gains Research Bureau, 375 U.S. 180, 195, 84 S.Ct. 275, 285, 11 L.Ed.2d 237 (1963); see also Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 151, 92 S.Ct. 1456, 1471, 31 L.Ed.2d 741 (1972). In this regard, the Supreme Court has found that Congress passed § 11 to “assure compliance with the disclosure provisions of the Act by imposing a stringent standard of liability on the parties who play a direct role in a registered offering.” Herman & MacLean v. Huddleston, 459 U.S. 375, 381-82, 103 S.Ct. 683, 687, 74 L.Ed.2d 548 (1983) (citations omitted). Thus, Congress imposed essentially fiduciary standards upon those who sign registration statements, including ethical and competence standards meant to ensure sound and honest business practices. H.R.Rep. No. 152, 73d Cong., 1st Sess. 23 (1933). Accountants such as Coopers & Lybrand have a particularly heavy responsibility to the public. H.R.Rep. No. 85, 73d Cong., 1st Sess. 9 (1933).
Interpreting “acquire” to include mergers consummated by stock exchange, such as the one which occurred here, furthers these goals. In passing § 11 Congress wished to control unsound and fraudulent, business practices. Whether an acquisition occurs pursuant to a simple sale or a complex merger, the threat of such practices exists, and § 11 should protect all innocent purchasers against them.
The holding of the majority, on the contrary, precludes the application of § 11 to any merger like the one presented here, and thus allows parties to structure their transactions in the form of such a merger to circumvent the application of § 11. Such an end-run around § 11 hardly effectuates its broad remedial purpose.
As such, I dissent.