Appeal from a judgment of the United States District Court for the Southern District of New York, Charles L. Brieant, Jr., Judge, dismissing complaint alleging fraud in the sale of securities in violation of, inter alia, §§ 7, 10, 15, 20 and 29 of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78g, 78j, 78o, 78t, 78cc (1982), and Rules 10b-5 and 10b-16 promulgated thereunder; and §§ 12(2) and 17 of the Securities Act of 1933, 15 U.S.C. §§ 77l(2), 77q (1982). Affirmed in part, vacated and remanded in part.
Mansfield, Kearse, and Winter, Circuit Judges.
Plaintiff Evelyn Zerman appeals from a judgment of the United States District Court for the Southern District of New York, Charles L. Brieant, Jr., Judge, granting defendants' motion for partial summary judgment dismissing two counts of the complaint and for dismissal of the entire complaint pursuant to Fed. R. Civ. P. 12(b)(6). Zerman alleged that statements and omissions of defendants George Ball, Robert Fomon, and E.F. Hutton & Co. ("Hutton") violated §§ 7, 10, 15, 20, and 29 of the Securities Exchange Act of 1934 ("1934 Act"), 15 U.S.C. §§ 78g, 78j, 78 o, 78t, 78cc (1982), and Rules 10b-5 ("Rule 10b-5") and 10b-16 promulgated thereunder, 17 C.F.R. §§ 240.10b-5, 240.10b-16 (1983); §§ 12(2) and 17 of the Securities Act of 1933 ("1933 Act"), 15 U.S.C. §§ 77 l (2), 77q (1982); New York Stock Exchange ("NYSE") Rules 401 and 405; National Association of Securities Dealers ("NASD") Rules of Fair Practice, Article III, § 2 (the "Suitability Rule");*fn1 and various provisions of Florida law.*fn2 For the reasons below, we affirm the judgment in large part; but since we conclude that as to one of the alleged misrepresentations the complaint stated a claim upon which relief might be granted against Hutton under § 10(b) of the 1934 Act and Rule 10b-5, we vacate the judgment of dismissal as to that claim and remand for further proceedings.
Zerman's complaint alleged that on July 1, 1980, she purchased two securities from Hutton at its Pompano Beach, Florida office. One was a $100,000 Government National Mortgage Association ("GNMA") certificate purchased at a price of $104,000 on margin; the other was $10,000 worth of Miami Convention Center bonds (the "Bonds"), for which Zerman paid the full price of $10,000 in cash. Zerman sold the Bonds on February 25, 1981, for $8300; she sold the GNMA certificate on June 22, 1981, for $79,208.05.
On July 12, 1982, Zerman commenced the present action against Ball, as Hutton's former Chief Executive Officer; Fomon, as Hutton's Acting President and Chairman; and Hutton. She alleged that her purchases had been preceded by various false representations and omissions by the defendants, made knowingly and for the purpose of inducing her purchases, and that she had relied on them. Her complaint indicated that the person she dealt with was one Norman Dinerman, a Hutton vice president in the Pompano Beach office, who had not been made a defendant to this action. She alleged that the liability of Ball and Fomon to her arose by virtue of the actions of persons associated with them whom Ball and Fomon failed to supervise.
Zerman's nine-count complaint set forth eight alleged misrepresentations or omissions, as follows:
(a) Dinerman failed to discuss or "consider [Zerman's] financial needs";
(b) Defendants falsely represented "'that the "Municipal" Securities market was up all day and up at 3:30 P.M. and had been up all the previous week'";
(c) Hutton advertised that "When E.F. Hutton Talks, People Listen," thereby assuring that any statement made to her by Dinerman was reliable;
(d) Defendants failed to apprise Zerman of the nature of a margin account and of the prospect that she might be called upon to provide more funds if the market fell;
(e) Defendants assured Zerman that GNMAs could be sold before maturity, but did not tell her that any such ...