The opinion of the court was delivered by: PLATT
Defendant, National Bank of North America ("NBNA" or the "Bank"), has moved to dismiss the complaint pursuant to Rules 9(b), 12(b) and 6 and 56(b) of the Federal Rules of Civil Procedure, on the grounds that the complaint fails to state a claim upon which relief can be granted; more particularly, that Section 17(a) of the Securities Act of 1933, 15 U.S.C. § 77q(a), and Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), are not applicable; that Sections 67(d) and 70(e) of the Bankruptcy Act, 11 U.S.C. §§ 107(d) and 110(e), are also inapplicable; and that as such the Court lacks jurisdiction to entertain plaintiff's claim for negligence and that the Court lacks subject matter jurisdiction.
On June 9, 1972, Minute Approved Credit Plan, Inc. ("Minute") made and effected a public offering of approximately 100,000 shares of its common stock (Complaint Para. 4). At or about the same time Lawrence Goral and Anthony Greco entered into a scheme with certain officers and directors of Minute to loot the company by misappropriating its assets (Complaint Para. 5).
On July 18, 1972, NBNA issued to Joseph Lichtman, Minute's President, two cashier's checks, aggregating $90,000., payable to the order of Minute. Lichtman endorsed the checks on behalf of the corporation, making one payable to Anthony Greco and the other to Lawrence Goral. The checks were then deposited in the endorsee's respective accounts at another bank, forwarded to NBNA for collection and duly paid by the Bank. (Complaint Paras. 7 and 8.)
An involuntary petition in bankruptcy was filed against Minute in January 1973 and it was adjudicated a bankrupt in March 1973.
The instant action is an attempt by the Trustee in Bankruptcy ("Trustee") to recover $90,000 from NBNA on the ground that the two transactions on July 18, 1972 violated the anti-fraud provisions of the federal securities laws and Section 67(d) of the Bankruptcy Act. For the purposes of this motion the Court must accept as true the allegations in the complaint.
On April 11, 1975, subsequent to the commencement of this action, an indictment was filed in the United States District Court for the Southern District of New York naming the aforesaid individuals and officers and directors of Minute as defendants, charging them with conspiracy and securities fraud. NBNA was not named or implicated in any way as a defendant in that indictment.
Count I of the Trustee's complaint alleges essentially that the issuance of the two checks on July 18, 1972 were in violation of Rule 10b-5, an SEC rule promulgated under Section 10(b) of the Securities Exchange Act of 1934, and Section 17(a) of the Securities Act of 1933. However, there is no allegation that the Bank was a participant in the scheme or conspiracy to loot the corporate assets or that the Bank was in possession of the $90,000 or in any way benefited from the challenged transactions.
Rule 10b-5 provides that it is unlawful to defraud or misrepresent ". . . in connection with the purchase or sale of any security." The phrase "in connection with" has been construed to mean that the fraud practiced must have been prior to or contemporaneous with the sale of securities. Pepsico, Inc. v. W. R. Grace & Co., 307 F. Supp. 713, 720 (S.D.N.Y. 1960). See also Fuller v. E. I. duPont, Glore, Forgan & Company, 54 F.R.D. 557 (W.D. Mo. 1971); Seward v. Hammond, 8 F.R.D. 457 (D.Mass. 1948). Although this is a point of first impression for this Court, there appears to be no reason to depart from the position enunciated in the Southern District of New York and other Districts to the effect that frauds occurring subsequent to the sale are not actionable under Rule 10b-5.
The complaint sets forth that the sale was approved by Minute and effected on June 9, 1972 and, further, that the conspiracy to misappropriate corporate assets was entered into at about the same time. It also charged that the Bank issued two cashier's checks in July 1972; subsequent documents established those checks were drawn on July 18th. The first possible connection of the Bank to the sale of Minute's stock occurred more than five weeks after the alleged ...