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WEST v. ZURHORST

July 14, 1967

Wallace G. West and Claudia M. West, Plaintiffs
v.
Charles S. Zurhorst and Susan M. Zurhorst, Defendants


Motley, District Judge.


The opinion of the court was delivered by: MOTLEY

MOTLEY, District Judge:

This matter came on by way of cross motions seeking summary relief. Plaintiffs moved this court for an order, Rule 56 (c), Fed. R. Civ. P., granting them partial summary judgment on their second claim for relief and directing an assessment of damages. Defendants have cross-moved for an order, Rule 56 (c), Fed. R. Civ. P., in favor of defendants dismissing the complaint and each claim sought to be stated therein. Rule 56 (c) provides in part:

 
The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.

 Plaintiffs' complaint, dated August 28, 1966, alleges two claims for relief. The first claim alleges that defendants entered a combination and conspiracy to defraud plaintiffs. Additionally, it is alleged that plaintiffs, relying on false and fraudulent representations by defendants, purchased stock in and loaned money to the Lost Village Operations, Inc., a New York close corporation controlled by defendants at the time of the representations. It is alleged that the representations were made in a letter prospectus in or about May, 1956. Allegedly, the conspiracy was furthered by defendants in or about February, 1961, by the making of further false representations.

 Plaintiffs claim that they, relying on defendants' representations between 1956 and 1962, purchased twenty-eight shares in the corporation for an aggregate sum of $14,000. Additionally, between 1962 and 1965, plaintiffs loaned the corporation monies in the amount of $3,500.

 Jurisdiction as to plaintiffs' first claim for relief is based on diversity of citizenship, 28 U.S.C. § 1332, and the pendent jurisdiction of the federal courts. United Mine Workers of America v. Gibbs, 383 U.S. 715, 16 L. Ed. 2d 218, 86 S. Ct. 1130 (1966); See generally, Lowenfels, Pendent Jurisdiction and the Federal Securities Acts, 67 Colum. L. Rev. 474 (1967).

 Plaintiffs' second claim for relief allegedly arises under Section 10 (b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j (b), *fn1" and Rule X-10 B-5 of the Securities and Exchange Commission, 17 C.F.R. § 240.10b-5. *fn2" Jurisdiction is invoked pursuant to 15 U.S.C. § 78aa. *fn3"

 Plaintiffs claim that defendants' letter prospectus, over the signature of defendant Susan M. Zurhorst, was false and fraudulent, failing to disclose material facts as to the title to the property on which the "Lost Village" was located. It is alleged that the prospectus was received in the mail by plaintiffs, and was relied on by them to their detriment in that it induced them to purchase stock in and loan money to Lost Village Operations, Inc.

 The material facts as to which the moving parties contend that there is no genuine issue are as follows:

 1) By deed dated November 24, 1951, recorded in the Putnam County Clerk's office in Liber 790 at page 484 of Deeds, George W. Turner and others conveyed to defendant Charles S. Zurhorst a certain tract of land situated in the Town of East Fishkill, Dutchess County, New York, described as follows:

 
All that piece or parcel of land situate, lying and being in the Town of East Fishkill, County of Dutchess and State of New York, bounded as follows:
 
On the north by lands now or formerly of the heirs of John Seymour Emans; on the east by lands now or formerly of Richard Turner; on the south by lands now or formerly of said Richard Turner and lands of Allan Smalley and on the west by lands now or formerly of said Allan Smalley and of the heirs of Orrin Fisher, deceased.
 
Containing 75 acres of land be the same more or less.
 
The parties of the first part also remise, release and quitclaim to the parties of the second part, their heirs and assigns forever all that land, if any, which may lie between the southern boundary of the above described premises and the Grape Hollow Road, it being expressly understood, however, that the covenants ...

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