The opinion of the court was delivered by: BONSAL
Eight plaintiffs move on behalf of themselves and the class they represent (1) for an order pursuant to Rule 56, F.R. Civ. P., granting partial summary judgment against defendants Texas Gulf Sulphur Company (TGS), Claude O. Stephens, Charles F. Fogarty, Richard D. Mollison, and Earl L. Huntington, or, in the alternative, (2) for an order pursuant to Rules 56(d) and 16, F.R. Civ. P., simplifying the issues.
This action arises out of events of November, 1963 through April, 1964 when TGS discovered valuable ore bodies in Timmins, Ontario.
Following announcement of the discovery, the Securities Exchange Commission (SEC) instituted an action against TGS and certain of its officers and directors (the SEC action). The SEC alleged violations of Section 10(b) of the Securities Exchange Act of 1934 (the 1934 Act), 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. 240.10b-5, promulgated pursuant thereto. The complaint brought by the SEC alleged in part that TGS had issued a materially false and misleading press release on April 12, 1964 with respect to its activities in Timmins, Ontario. The issue of liability was tried to this court, S.E.C. v. Texas Gulf Sulphur Co., 258 F. Supp. 262 (S.D.N.Y. 1966). The Court of Appeals remanded, 401 F.2d 833 (2d Cir. 1968), cert. denied, Coates v. S.E.C., 394 U.S. 976, 89 S. Ct. 1454, 22 L. Ed. 2d 756 (1969), directing that this court reconsider the April 12, 1964 press release in light of its opinion. On remand, this court held that the April 12 press release was misleading to the reasonable investor in the exercise of due care, that the framers of the release failed to exercise due diligence in its issuance, and that TGS had violated Section 10(b) and Rule 10b-5, 312 F. Supp. 77 (S.D.N.Y. 1970).
This action was instituted by former shareholders of TGS. The complaints allege that TGS and certain of its officers and directors issued the April 12 press release, and that the release was knowingly false and misleading as to material facts, in violation of Section 10(b) and Rule 10b-5. This action has been conditionally determined to be a class action, Cannon v. Texas Gulf Sulphur Company, 47 F.R.D. 60 (S.D.N.Y. 1969), and by order dated November 10, 1969, and amended order dated June 19, 1970, the class has been defined as:
"all former shareholders of the common stock of Texas Gulf Sulphur Company who claim they sold their stock between April 12, 1964 and 10:55 A.M. on April 16, 1964 in reliance upon the April 12, 1964 press release issued by Texas Gulf Sulphur Company relating to exploratory activities in Timmins, Canada."
Plaintiffs allege that they sold TGS common stock between April 12 and 10:55 A.M. on April 16, 1964, in reliance on the April 12 press release and seek money damages.
Plaintiffs seek partial summary judgment on the grounds (1) that defendants are estopped from denying the material falsity of the April 12 press release, their knowledge of its falsity, and the reasonable reliance thereon of the named plaintiffs when they sold their shares, by reason of the decision of the United States District Court of Utah in Reynolds v. Texas Gulf Sulphur Company, 309 F. Supp. 548 (D. Utah 1970) and the decisions of this court and the Court of Appeals in the SEC action; (2) that there exists no genuine issue as to a material fact that the defendants knew that the April 12 press release was false and misleading when they prepared and issued it, as shown by discovery heretofore taken.
In claiming collateral estoppel, plaintiffs point to Reynolds, a consolidated action brought by other former shareholders of TGS under Section 10(b) and Rule 10b-5 against TGS and Fogarty. Reynolds held that the April 12 press release was "misleading, intentionally deceptive, inaccurate and knowingly deficient in material facts pertaining to the results of drilling" and violated Section 10(b) and Rule 10b-5 (309 F. Supp. at 562). Plaintiffs contend that because of Reynolds, defendants are estopped from denying the material falsity of the April 12 press release and their knowledge of its falsity.
The only defendants in Reynolds were TGS and Fogarty, so that collateral estoppel could only apply to them, and not to the other defendants against whom partial summary judgment is sought. 1B, Moore Federal Practice, P 411 . See also, Bruszewski v. United States, 181 F.2d 419 (3d Cir.), cert. denied, 340 U.S. 865, 71 S. Ct. 87, 95 L. Ed. 632 (1950). For the reasons stated in Fink et al. v. Coates et al., 323 F. Supp. 988, filed this date, the court in its discretion denies the motion for partial summary judgment insofar as it is based on Reynolds.
With respect to the SEC action, this court stated on the remand:
"All of the shareholders [witnesses at the trial on remand] appear to have been reasonable investors as that term has been defined by the Court of Appeals, and all were influenced by the press release * * *. (312 F. Supp. at 83.)
"[The] press release is found to have been misleading to the reasonable investor using due care, and since the framers did not exercise due diligence in its issuance, TGS violated ...