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GOULD v. TRICON

June 9, 1967

Gould, Plaintiff
v.
Tricon, Inc., et al., Defendants


Tenney, District Judge.


The opinion of the court was delivered by: TENNEY

TENNEY, District Judge:

Plaintiff, the owner of 20,850 shares of stock of Tricon, Inc., brings this action against the various defendants under Sections 12(2) and 17(a) of the Securities Act of 1933, 68 Stat. 686 (1954), as amended, 15 U.S.C. § 77l (1958); 68 Stat. 686 (1954), as amended, 15 U.S.C. § 77q (1958), and under Section 10(b) of the Securities Exchange Act of 1934, 48 Stat. 891 (1934), 15 U.S.C. § 78j (1958), and Rule 10b-5 promulgated pursuant thereto (17 C.F.R. § 240.10b-5), alleging that the various defendants are liable for making material untrue statements in a prospectus and supplementary prospectus of Tricon, Inc., and for omitting certain material facts therefrom.

 Defendant Tricon, Inc., during the time of all of the events complained of, was a corporation duly organized and existing under the laws of the State of Connecticut and had its principal place of business in the State of Connecticut.

 Defendant Sano & Co. (presently in default) was a partnership having its principal place of business at 15 William Street, New York, New York, and defendant Anthony Sano (also presently in default) was a general partner therein.

 At all such times, defendant J. Dudley Smith was the President and Chairman of the Board of Directors of defendant Tricon, Inc., and was the owner of 75,000 shares of the stock of said defendant, which shares represented 60 per cent of the outstanding shares of Tricon, Inc., prior to October 27, 1958, the date of the public offering.

 At all such times, defendant Joseph T. Akers was the Vice-President and Secretary and a member of the Board of Directors of Tricon, Inc., and was the owner of 25,000 shares of the stock of said defendant, which shares represented 20 per cent of the outstanding shares prior to the public offering.

 Defendant Israel Slutzky was the Treasurer and a member of the Board of Directors of defendant Tricon, Inc., and continued to be so until early 1959 (the exact date of his resignation being in dispute), and was the owner of 25,000 shares of the stock of said defendant, which shares represented 20 per cent of the outstanding shares prior to the public offering.

 By reason of their filling the entire slate of offices, constituting the entire board of directors and owning 100 per cent of the stock of defendant Tricon, Inc. and otherwise, defendants Smith, Slutzky and Akers, individually and collectively, at least up until the time of the public offering, controlled defendant Tricon, Inc.

 Defendant Smith had spent much of his life designing and inventing various marine devices. From 1956 until February 1957, Smith worked on a "push-pull" steering device (sometimes called the "Tru-Ster" device) for Anti-Corrosive Metal Products Co., Inc. (hereinafter referred to as "Anti-Corrosive"), a New York corporation. A licensing agreement entered into between Smith and Anti-Corrosive (Exhibit 16) gave Anti-Corrosive the right to all future and related inventions, improvements and patents relating to the steering device. Richard Mack, the President of Anti-Corrosive, testified that at the time Smith left, the device was incomplete and unworkable.

 In May 1957, Smith began work on the Tricon steering device, which device he claims was unrelated to the Anti-Corrosive steering device. In June 1958, the defendant Tricon, Inc. was formed, with defendants Smith, Akers and Slutzky acting as directors.

 On or about October 27, 1958, and thereafter, defendant Tricon, Inc., acting through its underwriter and agent, Sano & Co., offered for sale to the public 150,000 shares of stock of defendant Tricon, Inc. at a price of $2.00 per share by means of a prospectus dated October 27, 1958. (Exhibit 1.) The prospectus stated, among other things, that the Tricon control device had already been designed and developed by Smith; that all development work was complete; that Smith had conveyed all his right, title and interest in the Tricon device to defendant Tricon, Inc.; that detailed drawings of the Tricon device were available; and that the erection of production facilities would cost about $60,000. No mention was made of Smith's prior association with Anti-Corrosive. The defendant Tricon, Inc., acting through Sano & Co., furnished a copy of the prospectus to plaintiff.

 On January 6, 1959, Slutzky's resignation as Treasurer and Director of Tricon, Inc. was accepted by the Board of Directors. (Slutzky Exhibit G.) At about this same time, Slutzky's construction company, I. & O.A. Slutzky, submitted a proposal for the construction of production facilities in Greenwich, Connecticut, at an estimated cost of $120,000. (Exhibit 18.)

 Plaintiff, on or about February 2, 1959, relying on the truth, accuracy and completeness of the prospectus and having no knowledge of any untrue statements or omissions, purchased 13,850 shares of the stock for the agreed purchase price of $27,700.00 from defendant Sano & Co., as underwriter and agent of defendant Tricon, Inc. Said purchase and sale took place in the City of New York and was transacted by the use of the mails and the means and instruments of transportation and communication in interstate commerce.

 On February 21, 1959, a special meeting of the Board of Directors of Tricon, Inc. was held, at which time Slutzky's proposal to construct the Greenwich facilities was accepted. (Exhibit 21.) On February 26, 1959, notice of a special stockholders' meeting to be called for the purpose of approving the construction contract entered into between Tricon, Inc. and I. & O.A. Slutzky (Exhibit A) was mailed to all shareholders. Plaintiff alleges that he never received notice of said meeting. Nevertheless, plaintiff did attend the ...


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