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LIST v. FASHION PARK

October 23, 1963.

List
v.
Fashion Park, Inc., et al.



The opinion of the court was delivered by: WYATT

WYATT, District Judge: Plaintiff List has brought an action against numerous defendants, based on a sale by him of stock as to which there are alleged to have been violations by defendants of Section 10(b) of the Securities Exchange Act of 1934 (15 U.S.C. § 78j(b); the "Act") and Rule 10b-5 promulgated by the Securities and Exchange Commission thereunder (17 C.F.R. § 240.10b-5) - so-called "antifraud" provisions.

Section 10(b) of the Act as supplemented by Rule 10b-5 applies to the purchaser of a security and makes unlawful in that connection (1) "any device, scheme, or artifice to defraud", (2) the making of "any untrue statement of a material fact" or the omitting "to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading", and (3) "any act, practice or course of business which operates ... as a fraud or deceit".

A civil remedy is not expressly given for a violation of these provisions but in this Circuit (and others) such remedy has been held to be available.Fischman v. Raytheon Mfg. Co. , 188 F.2d 783 (2d Cir. 1951).

 Plaintiff has demanded a trial by jury and, if there be genuine issues for trial, would appear entitled to a jury trial because this is an action "at law". 15 U.S.C. § 78aa; see Loss, Securities Regulation (3d ed.), pp. 1849-1851.

 Two of the defendants - H. Hentz & Co., a partnership, and William P. Green, one of the partners - move for summary judgment. Fed. R. Civ. P. 56.

 The claims of the plaintiff can best be determined, not from his complaint but from a statement of his "contentions" annexed to a pretrial order made by judge Levet and filed January 16, 1963. By such order, the pleadings were "deemed amended" to raise the issues set up by the "contentions" which are in substance as follows:

 (1) that defendant Lerner, a director of Fashion Park, Inc., with the help of Hentz, Green and other defendants, bought from List 5100 shares of Fashion Park at $18.50 per share on November 17, 1960 (Fashion Park stock was traded over-the-counter);

 (2) that in a matter of weeks the stock was sold to Hat Corporation for $50 per share;

 (3) that defendant Lerner was under an obligation to disclose to List anything which would have affected the value of Fashion Park stock;

 (4) that the purchase from List was made without disclosing facts known to Lerner which would have affected the market value of the Fashion Park stock;

 (5) the facts known to Lerner and to his "co-workers" (which must be taken to include Hentz and Green, although there is no express averment) and not disclosed to List were:

 a. that Lerner, a director of Fashion Park, was the prospective buyer of all or some of the 5100 shares;

 b. that the stock of Fashion Park had been selling at a discount from book value largely because the controlling stockholders refused to sell, get new management, merge or reorganize Fashion Park;

 c. that before November 4, 1960, the situation of Fashion Park had become "critical" because of threats from a labor union to ...


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