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Securities and Exchange Commission v. Research Automation Corp.

decided: October 16, 1978.


Appeal from judgment of the United States District Court for the Southern District of New York, Sylvester J. Ryan, District Judge. The District Court granted the motion of the Securities and Exchange Commission for summary judgment and permanently enjoined Konstantinos Tserpes and Basil Martos from violating the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. Affirmed.

Before Kaufman, Chief Judge, and Mansfield and Meskill, Circuit Judges.

Author: Kaufman

In this era of mounting congestion at every level of the federal courts, procedural devices capable of terminating litigation quickly efficiently, and fairly acquire increased significance. One of the most important of these mechanisms is the motion for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. Today we take the opportunity to restate the law covering such motions, in the context of an action brought by the Securities and Exchange Commission to enjoin violations of the securities laws. Our aim is primarily to illustrate the effective use of summary judgment in the appropriate case.

Konstantinos Tserpes is the founder, president, and majority stockholder in Research Automation Corporation (RAC), a New York concern established to design and manufacture industrial machinery. Basil Martos, an accountant, is a vice president. RAC's chief product is an "automatic transfer unit," a device that conveys polished metal parts such as lipstick cases from one segment of an assembly line to the next. RAC has built one version of this machine but has never sold it, nor has the firm derived income from any other source. Its only revenue has been secured from loans made by corporate officers and the sale of RAC common stock to approximately 92 people.

In August 1972, the SEC filed a complaint against RAC, Tserpes, Martos, and Athan Hamos, a director of RAC. The Commission alleged that the defendants offered and sold unregistered securities, in violation of § 5 of the Securities Act of 1933, and made false and misleading statements to investors in connection with those activities, thereby contravening § 17(a) of the 1933 Act, § 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5. Specifically, the complaint charged that the defendants failed to reveal to investors that RAC had no sales or earnings and that the proceeds from the sale of stock would be applied toward reduction of RAC's indebtedness to its officers instead of development of the transfer unit. The Commission also asserted that RAC and its officers misrepresented the status of a patent application covering the unit and falsely stated that they had a firm order for the machine.

Since the complaint was filed, this case has travelled a long road both in the Southern District of New York and here.*fn1 During the course of this protracted litigation, the Commission has dropped the registration charges under § 5, and RAC has been permanently enjoined by default from violating the securities laws.*fn2 This appeal concerns Judge Ryan's grant of summary judgment against Tserpes and Martos, the remaining defendants in the case.*fn3 We affirm.



A brief review of the provisions of the summary judgment rule is in order. Rule 56(e) provides that when a motion for summary judgment is supported by the documents listed in Rule 56(c) depositions, affidavits, answers to interrogatories, and admissions an adverse party may not rest upon mere conclusory allegations or denials. The party opposing the motion must set forth "concrete particulars," Dressler v. The MV Sandpiper, 331 F.2d 130, 133 (2d Cir. 1964), and cannot make a secret of his evidence, holding it close to his chest until the trial. See Donnelly v. Guion, 467 F.2d 290, 291 (2d Cir. 1972). It is not sufficient merely to assert a conclusion without supplying supporting arguments or facts in opposition to the motion. Id. at 293. See Applegate v. Top Associates, Inc., 425 F.2d 92, 96 (2d Cir. 1970).

In determining whether to grant a motion for summary judgment, of course, the district court "cannot try issues of fact; it can only determine whether there are issues to be tried." American Mfrs. Mut. Ins. Co. v. American Broadcasting-Paramount Theatres, Inc., 388 F.2d 272, 279 (2d Cir. 1967). Moreover, it must resolve any doubts in favor of the party opposing the motion. Id. Thus, summary judgment is likely to be inappropriate when the issues concern intent, E. g., Friedman v. Meyers, 482 F.2d 435, 439 (2d Cir. 1973), or are otherwise "complex and convoluted," American Broadcasting, supra, 388 F.2d at 280.*fn4 Summary judgment, however, is not necessarily precluded merely because the legal issue is complex. 6 Moore's Federal Practice P 56.15, at 56-398 (1976). Indeed, the policy favoring efficient resolution of disputes, which is the cornerstone of the summary judgment procedure, would be completely undermined if unsubstantiated assertions were sufficient to compel a trial. Accordingly, even in suits for injunctive relief, the district courts should not hesitate to grant a plaintiff's request for summary judgment when the defendant has failed to meet the requirements prescribed by Rule 56(e). And this principle is not diluted simply because the Commission is the moving party. See SEC v. Spectrum, Ltd., 54 F.R.D. 70 (S.D.N.Y.1971) (Gurfein, J.); SEC v. American Beryllium & Oil Corp., 303 F. Supp. 912 (S.D.N.Y.1969); SEC v. American Commodity Exchange, Inc., 546 F.2d 1361 (10th Cir. 1976); SEC v. Geyser Minerals Corp., 452 F.2d 876 (10th Cir. 1971); Latta v. SEC, 356 F.2d 103 (9th Cir. 1965) (per curiam), Cert. denied, 384 U.S. 940, 86 S. Ct. 1459, 16 L. Ed. 2d 539 (1966).

In the case before us, the Commission's motion for summary judgment was supported by depositions, transcripts of the Commission's investigative proceedings,*fn5 records of the United States Patent Office, and documents drafted by the defendants themselves. After receiving three extensions of time to respond, Tserpes alone submitted an affidavit. He did not, however, file the statement of "material facts as to which it is contended that there exists a genuine issue to be tried" required by Rule 9(g) of the Southern District of New York.*fn6 Judge Ryan found that the Tserpes affidavit had "totally failed to contradict (the charges) with any specificity," and accordingly determined that there was no need for a trial. He entered summary judgment for the Commission, permanently enjoining Tserpes and Martos from violating the antifraud provisions of the 1933 and 1934 Acts.


We agree with Judge Ryan's determination that there were no issues of fact requiring plenary trial. Not only did Tserpes and Martos utterly fail to meet their obligations under Rules 56(e) and 9(g), but there is every indication that they could not have done so.

For example, the Commission attached to its motion papers a letter to RAC investors, signed by Tserpes, stating that RAC possessed a binding contract for five automatic transfer units and that additional orders were expected shortly. To put the lie to that claim, the Commission pointed to Martos's statement in his deposition that no units had ever been sold, and to Tserpes's sworn statement before SEC investigators that he had no intention of entering into binding contracts until facilities for mass production had been established. In his opposition papers, Tserpes merely asserted that the contract exists. He neither produced a copy of the document nor ...

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