traded after the ineffective cancellation order. (Pl. Mem. at 14) However,
for securities purchased after the ineffective cancellation, the
misrepresentation does not concern their value. For securities sold after
the ineffective cancellation, the misrepresentation does not concern the
consideration received. Thus, defendants' misrepresentations do not satisfy
§ 10(b)'s "in connection with" requirement. Because TD Waterhouse is not
liable under § 10(b), plaintiffs also fail to state a claim under
§ 20(a) of "controlling person" liability against Chapel.
Accordingly, those claims are dismissed.
Plaintiffs devote much of their argument contesting the position
— which they attribute incorrectly to defendants*fn1 — that
to satisfy the "in connection with" requirement, a misrepresentation must
concern the value of the security traded. (Id. at 12) Plaintiffs argue
for an even broader standard which would encompass misrepresentations
that "pertained" to the securities purchased or sold — whether or
not they related to the securities' value. (Id. at 14) Plaintiffs cite a
line in Superintendent of Ins. v. Bankers Life & Casualty Corp.,
404 U.S. 6, 12-13(1971) in which the Court said that the "crux of the
present case is that Manhattan suffered an injury as a result of deceptive
practices touching its sale of securities. . . ." (emphasis added). (Id.
at 10) Plaintiffs then argue that Bankers Life cited A.T. Brod & Co. v.
Perlow, 375 F.2d 393 (2d Cir. 1967) to reject, the proposition that
"there can be no violation of Rule 10(b) where `no fraud is alleged as to
the investment value of the securities.'" (Id.) Bankers Life did not cite
A.T. Brod & Co. for that proposition*fn2 nevertheless, that case did
reject the proposition that the misrepresentation must concern the
securities' value, stating that a "10b-5 action will survive even though
the fraudulent scheme or device is unrelated to `investment value.'"
A.T. Brod & Co., 375 F.2d at 397.
However, neither Bankers Life nor A.T. Brod & Co. is inconsistent with
the "in connection with" requirement as it subsequently developed in the
Second Circuit, limiting Section 10(b) to misrepresentations concerning
either the value of the security or the consideration received, because
in both cases the misrepresentation related to the value of the
consideration. Bankers Life described the misrepresentation as a
"deceptive device which deprived [the seller] of any compensation for the
sale of its valuable block of securities." Bankers Life, 404 U.S. at 10.
A.T. Brod & Co. described the misrepresentation as placing orders "with
the fraudulent intent of paying for the securities only if their market
value had increased by the date payment was due." A.T. Brod & Co., 375
F.2d at 395. The misrepresentations in both cases, therefore, fall within
the Second Circuit's requirement that the misrepresentation concern
either the value of the security or the consideration received.*fn3
Again, no misrepresentation
or either the value of a security or the consideration received is present
Because I have dismissed plaintiffs' federal law claims, only their
state law claims remain. "In general, where the federal law claims are
dismissed before trial, the state law claims should be dismissed." Marcus
v. AT&T Corp., 138 F.3d 46, 57. Accordingly, I decline to exercise
jurisdiction over plaintiffs' state law claims.
For the reasons stated above, the complaint is dismissed.