Court Opinion

ID: 9463636
Source: CourtListenerOpinion
Date Created: 2023-08-04 23:11:49.347663+00
Date Added: 2024-06-11T17:38:12.250151
License: Public Domain

VAN GRAAFEILAND, Circuit Judge,
concurring in part and dissenting in part:
I concur with the majority that the judgment appealed from must be reversed and the matter remanded. However, I do not agree that the proper test of defendants’ liability under § 12(2) is whether they exercised reasonable professional care in evaluating financial data.
Although § 12(2) is often spoken of as a negligence statute, this description is not completely accurate. Before defendants can be put to the burden of showing that they exercised reasonable care, plaintiff must first establish that they made an untrue statement of a “material fact” or omitted to state a “material fact” necessary in order to make the statements not misleading.
Construing an expression of opinion so as to make it a statement of fact requires some rather fancy legal footwork. This result has been accomplished most gracefully where the opinion is a forecast of future earnings. See, e. g., Marx v. Computer *530Sciences Corp., 507 F.2d 485, 489 (9th Cir. 1974); G. & M., Inc. v. Newbern, 488 F.2d 742, 745-46 (9th Cir. 1973); Ferland v. Orange Groves of Florida, Inc., 377 F.Supp. 690, 705 (M.D.Fla.1974). Where the statement in question is a pure expression of opinion, as distinguished from a forecast, it is a contradiction in terms to call it a statement of fact. See Anderson v. Knox, 297 F.2d 702, 720-21 (9th Cir. 1961), cert. denied, 370 U.S. 915, 82 S.Ct. 1555, 8 L.Ed.2d 498 (1962); Myzel v. Fields, 386 F.2d 718, 734 n.8 (8th Cir. 1967), cert. denied, 390 U.S. 951, 88 S.Ct. 1043, 19 L.Ed.2d 1143 (1968); Rotstein v. Reynolds & Co., 359 F.Supp. 109, 113 (N.D.Ill.1973); Bowman v. Hartig, 334 F.Supp. 1323, 1328 (S.D.N.Y.1971); Phillips v. Reynolds & Co., 294 F.Supp. 1249, 1256 (E.D.Pa.1969). The “material fact” in such instance is that the speaker honestly holds the opinion which he has expressed. 1 A. Bromberg, Securities Law § 5.3, at 97 (1967). In Hanly v. SEC, 415 F.2d 589, 596-97 (2d Cir. 1969), we held that a securities dealer implicitly represents that he has an adequate basis for his opinions. However, in that SEC initiated action we merely tracked the language of SEC releases No. 34-6721 and No. 33-4445, issued February 2, 1962; and ,we specifically stated that this “implied warranty” may not be as rigidly enforced in a private action for damages.
In the instant case, events subsequent to plaintiff’s purchase have proven that the defendants’ opinion, implied rather than expressed,1 concerning the credit-worthiness of Penn Central paper was probably in error and that defendants’ potential exposure is tremendous, running into many millions of dollars.2 Requiring defendants to prove, “in the bright gleam of hindsight”, SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 867 (2d Cir. 1968) (Friendly, J., concurring), cert. denied, 394 U.S. 976, 89 S.Ct. 1454, 22 L.Ed.2d 756 (1969), that they exercised reasonable professional care in arriving at their erroneous opinion, places upon them an almost insurmountable burden. The better rule, I submit, would place upon the defendants the burden of proving that their opinion was based upon a review of the pertinent available data and was held honestly and in good faith. If the defendants’ opinion was thus held honestly and in good faith, there was no misstatement of a material fact; and there is no need to reach the issue of negligence.
It is seldom that the purchaser of stock does not secure from his broker some expression of opinion concerning the wisdom of the purchase. If each such opinion is construed to be a statement of material fact, the next substantial break in the securities market may well put most brokers out of business. While it is possible that “Representations as to value, soundness and worth of securities . . . ” may, in some instances, show much more than “. . . the mistaken judgment of [an] honest man . .,” Holmes v. United States, 134 F.2d 125, 133 (8th Cir. 1943), the proper measure of culpability should not be whether other dealers might reasonably have arrived at another judgment.

. The District Court found that plaintiff purchased the Penn Central note without question when it was offered for sale. 406 F.Supp. at 46. He concluded, however, that “[w]hen Goldman, Sachs sold this paper, it was understood that it was holding out the paper as credit-worthy and high quality.” Id. at 46-47. (Emphasis added).

. There are at least fifteen such cases pending against these defendants in the Southern District of New York and a substantial number in other District Courts. See Welch Foods, Inc. v. Goldman, Sachs & Co., 398 F.Supp. 1393, 1402 (S.D.N.Y.1974).