Court Opinion

ID: 9463318
Source: CourtListenerOpinion
Date Created: 2023-08-04 23:02:46.890187+00
Date Added: 2024-06-11T17:38:01.445923
License: Public Domain

BARRETT, Circuit Judge
(specially concurring):
I believe that the thread is too thin to hold the facts of this case to the manipulative and deceptive devices proscribed by Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) and Rule 10b-5 of the Commission, 17 CFR 240 10b-5. Reliance can only be had upon one letter submitted by Strong to Holdsworth wherein Strong represented that the corporation would never pay dividends in the future. That was an untrue statement. In addition, Strong omitted to state a number of material facts. Both because the thread is so thin and in light of the close relationship between the three stockholders, I agree with Judge Seth’s view that this is not the type of security transaction contemplated for remedial purposes under Rule 10b-5.
I, too, concur in part VI of Judge Doyle’s opinion, relying upon these specific findings of the trial court: (a) that the Holdsworth sale of his stock to Strong, although made without examination of the corporate books and records, was excusable in view of the close relationship — friendship between them, coupled with the fact that Strong did not keep accurate or complete books and records, and (b) that even had Holdsworth examined the books and records of the corporation kept by Strong, they would not have revealed the falsity of Strong’s representations.
In concurring, I believe it is important to point out certain defaults on the part of Holdsworth. He was a practicing attorney, an accountant and a businessman who was no stranger to business transactions and legal entanglements. He knew “the ropes”. Holdsworth was a director, officer and stockholder of Sans-Copy. Title 16-10-33, Utah Code Annot., Replacement Vol. 2B (1953) provides, inter alia, that the business and affairs of a corporation shall be managed by the board of directors. Title 76-13-8, Utah Code Annot., Vol. 8 (1953) provides that every director of a corporation is deemed to possess such a knowledge of the affairs of his corporation as to enable him to determine whether any act, proceeding or omission of its directors is a violation of Chapter 13 entitled “Corporation Frauds”. The term “director” embraces any of the persons having by law the direction or management of the affairs of a corporation. Title 76-13 — 12, Utah Code Annot., Vol. 8 (1953).
Holdsworth did not perform the duties imposed upon him under the laws of Utah as a director and officer of the corporation. His default was, in large measure, an invitation for the fraud practiced upon him. Holdsworth’s professional and business background was such that he was familiar with corporate affairs; he was familiar with financial reports, statements and accountings; and, almost certainly, he knew that the internal financial reports of a corporation could be and often are “doctored” so as to fail to disclose the true facts and that an independent audit would disclose the true state of affairs. It is only in reliance of the two specific trial court findings heretofore referred to that I am willing to accede that Strong’s intentional fraud bars him from avoiding the liability imposed. A word of caution is in order. *700While “negligence” and “fraud” are not legally equivalent terms, still the circumstances of each case must be carefully considered. In a proper case negligence may be so gross as to take the place of a deliberate intention to work a fraud.