Appeal from an order of the United States District Court for the Southern District of New York, Harold R. Tyler, Jr., Judge, dismissing a complaint alleging a violation of the Securities Exchange Act of 1934 pursuant to Fed. R. Civ. P. 12(b) (2) for lack of jurisdiction over defendants-appellees. Reversed and remanded.
Kaufman, Chief Judge, Clark, Associate Justice,*fn* and Smith, Circuit Judge.
Although the Securities Exchange Act of 1934 [1934 Act]*fn1 is hardly a model of precision, the statute does speak with atypical clarity in authorizing nationwide service of process.*fn2 We thus find erroneous the district court's dismissal of this complaint, alleging in substance a violation of Section 10(b) of the 1934 Act*fn3 -- not for improper venue (Fed. R. Civ. P. 12(b) (3)) and not for failure to state a claim (Fed. R. Civ. P. 12(b) (6)) -- but for lack of jurisdiction over the person of the moving defendants (Fed. R. Civ. P. 12(b) (2)), all of whom had been personally served in Massachusetts. Convinced that there is nothing so extraordinary about this case to justify such an disposition, and after concluding that no alternative grounds for dismissal can be supported on the record before us, we reverse.
Since this appeal comes to us at a very early stage in the litigation, we have had, by necessity, to glean the facts from the barest skeleton of a record -- the complaint and affidavits in support of and in opposition to the motion to dismiss -- fleshed out only minimally by the depositions of plaintiff-appellant Irving Mariash and defendant-appellee A. Warren Wilkinson, taken to shed some additional light on that motion. In late November 1967, six men, including defendant Charles Morrill, organized Viatron Computer System Corporation [Viatron] under the laws of Massachusetts. The founders selected the Boston firm of Peabody, Brown, Rowley & Story [Peabody, Brown] to serve as legal counsel to the corporation. Defendants David Pokross and Wilkinson, partners in Peabody, Brown, were invited, moreover, to serve as Director and "Clerk," respectively, of Viatron.
Presumably, to avoid the costs of compliance with the registration requirements of Section 5 of the Securities Act of 1933 [1933 Act], 15 U.S.C. § 77e, the organizing group elected to obtain initial capitalization through a private placement exempt from registration under Section 4(2) of the 1933 Act, 15 U.S.C. § 77d(2).*fn4 Accordingly, the founders sought out friends and relatives who would be willing to purchase Viatron stock, bearing a restrictive legend (so-called "lettered stock"), for investment purposes only.
In the late fall of 1967, Dr. Edward Bennett, one of the original organizers and President of Viatron, approached his uncle, Mariash, in New York City about investing in Viatron stock. Bennett explained to Mariash that the Viatron securities were of a restricted nature and could not be freely traded unless and until Viatron's counsel, Peabody, Brown, considered it proper to release the restrictions. Authorization for that release, moreover, would take the form of an opinion letter, issued by Peabody, Brown, to Viatron's transfer agent. With these limitations in mind, Mariash purchased 250 shares of Viatron stock for $25,000. Following a series of stock splits, Mariash's total share holdings multiplied to 50,000 shares of restricted, Viatron stock.
Among the other private placement sales which occurred during this period of initial capitalization was one by Morrill to his cousin, defendant Bernard Burwick. Burwick purchased 78,600 shares of Viatron for an amount not disclosed in the record -- all of which, like Mariash's, were of a restricted nature.
On July 20, 1970, some time after Viatron had floated a public issue of its common stock, Dr. Bennett was removed from the position of President of the company. Shortly thereafter, with the market for Viatron stock falling, Mariash contacted Morrill and, subsequently, Peabody, Brown, demanding an opinion letter authorizing the release of his shares' restrictions. He urged, as grounds for his request, that Bennett's removal represented a "change of circumstances," which entitled Mariash to alter his investment status and sell his shares. Mariash claims he first spoke to Wilkinson about obtaining such opinion letter by telephone on August 11, 1970. Wilkinson, in his deposition, stated that Mariash did not speak with him until August 17. There is agreement, however, that the first letter sent to Wilkinson by Mariash, concerning preparation of an opinion letter, was dated August 14, 1970.
Following receipt of this letter, Wilkinson told Mariash that he would be reluctant to prepare an opinion letter without a supporting opinion by independent New York counsel. Mariash then obtained an opinion letter from Breed, Abbott & Morgan, while Mariash's broker, F. I. duPont, Glore Forgan & Co. [duPont], secured a similar letter from its counsel, Carter, Ledyard & Milburn. Both letters, dated August 20, were promptly mailed to Wilkinson in Boston. On August 24, 1970, Wilkinson drafted an opinion letter, addressed to Viatron's transfer agent, First National City Bank [FNCB] in New York City, authorizing the removal of the restrictive legend on Mariash's 50,000 shares of Viatron stock.
The August 24 letter was received by FNCB in New York on August 26. More importantly, according to Mariash's deposition testimony, he did not receive his copy of the opinion letter until August 26. Upon its receipt, he stated, he immediately brought the letter to duPont to provide the basis for his request that his Viatron stock be offered for sale on the open market. To his chagrin, however, he was informed by duPont that such sale would now be difficult because a large block of approximately 75,000 shares had already been placed on the market. After some inquiry, Mariash learned that this large block of Viatron stock had been offered for sale by Goodbody & Co. on behalf of Bernard Burwick.
Burwick, like Mariash, required, as a prerequisite to the sale of his "lettered stock," an opinion letter from Peabody, Brown authorizing the transfer agent to remove the restrictive legend. Indeed, Burwick had tried to obtain such a letter in late 1969 but when his counsel, Ropes & Gray, balked at issuing a supporting opinion, Peabody, Brown refused the request. It appears from the record that Burwick was similarly unsuccessful at that time in his effort to secure a "no action" letter from the Securities Exchange Commission which, we understand, would also have facilitated sale of the restricted stock. On August 26, 1970, however, Burwick visited Wilkinson once again, and repeated his request for the necessary opinion letter. To support his "change of circumstances" justification for the letter, Burwick proffered a medical certificate, dated August 25, 1970, reporting Burwick's poor health. After Wilkinson telephoned Ropes & Gray and learned that this time it would agree to provide a supporting opinion, he agreed to furnish the requisite opinion letter to Burwick.
The record is silent as to when Burwick's opinion letter, dated August 26, reached FNCB, or, for that matter, when Burwick received it, although we note that, unlike Mariash's opinion letter, a copy of the Burwick opinion letter was prepared for Burwick's broker, Goodbody & Co. In any event, according to Mariash's version of the facts, when he arrived at his broker's office in New York some time on August 26, Goodbody & Co. had already announced for sale Burwick's 78,600 shares of Viatron stock. It cannot reasonably be disputed, ...