447 F.2d 1305 (6th Cir. 1971), 21046, Kellman v. ICS, Inc.
|Citation:||447 F.2d 1305|
|Party Name:||Harold KELLMAN, individually, Harold Kellman, Trustee for Barbara Kellman, Ira Kellman and Stewart Kellman, Plaintiffs-Appellants, v. ICS, INC., a dissolved Michigan corporation, Information Control Systems, Inc., a Delaware corporation, et al., Defendants-Appellees.|
|Case Date:||September 07, 1971|
|Court:||United States Courts of Appeals, Court of Appeals for the Sixth Circuit|
Wallace Glendening, Detroit, Mich., for plaintiffs-appellants; Jaffe, Snider, Raitt, Garratt & Heuer by C. William Garratt, Detroit, Mich., on brief.
James C. Bruno, Detroit, Mich., for defendants-appellees; Elsman, Young & O'Rourke by John D. Ketelhut, Detroit, Mich., on brief.
Before PHILLIPS, Chief Judge, and McCREE and MILLER, Circuit Judges.
PHILLIPS, Chief Judge.
The issue in this case is whether plaintiffs have stated a claim upon which relief can be granted under the Securities Act of 1933, 15 U.S.C.A. § 77a et seq., or the Securities Exchange Act of 1934, 15 U.S.C. § 78a seq. We agree with the District Court that no such claim is stated and affirm the dismissal of the complaint.
The original plaintiffs in this action were Harold Kellman as trustee for Barbara Kellman, Ira Kellman, and Stewart Kellman; Ann Kellman; Elliel G. Redstone and Daniel Redstone; and V.S.D. Clothing Co., Inc. Subsequently, Harold Kellman was added individually as a party plaintiff and all of the remaining plaintiffs except Harold Kellman as trustee were dismissed from the suit upon settlement of their claims.
On June 28, 1968, Harold Kellman as trustee for Barbara, Ira and Stewart Kellman purchased a total of 100 shares of common stock of Information Control Systems, Inc., a Michigan corporation (Information Control Systems, Inc. subsequently changed its name to ISC, Inc. This corporation will be referred to hereinafter as the 'Michigan Corporation.'). In addition, Harold Kellman as an individual had acquired in various transactions a total 1,071.199 shares of the Michigan Corporation. Some of the shares were acquired as compensation for services, and others in exchange for cash and his services. The value of those services is unliquidated and is a matter of considerable dispute among the parties.
Some time after Harold Kellman acquired his stock in the Michigan Corporation, the majority shareholders of the corporation decided to reorganize and recapitalize the business. The principal factor precipitating their decision is not clear. It appears that during this period someone connected with the Michigan Corporation began to suspect that there had been a violation of the Michigan Blue Sky Laws at the time the corporation originally was organized.
If such a violation has occurred, Michigan Blue Sky Law 1 permits the seller
of the stock to limit his liability by offering to refund the consideration paid for the stock plus interest at six per cent per year from the date of sale.
In any event the plan adopted by the majority shareholders called for dissolution of the Michigan Corporation and an offer to refund to each shareholder the consideration paid by him for the shares plus interest. The plan further called for the organization of a Delaware corporation named Information Control Systems Inc. (hereinafter referred to as the Delaware Corporation) to carry on the business previously conducted by the Michigan Corporation. Shares in the Delaware Corporation were to be issued and sold pursuant to a public offering under the Federal Securities Laws. If the shareholders of the Michigan Corporation did not accept the offer of a refund of the consideration paid by them for their stock, they would automatically receive stock in the Delaware Corporation at a 'one for one' exchange rate.
These alternatives were put to plaintiffs in a letter dated August 12, c969. The letter read as follows:
'TO PURCHASERS OF SHARES OF COMMON STOCK FROM INFORMATION CONTROL SYSTEMS, INC., A MICHIGAN CORPORATION 'Gentleman:
'The sale to you by Information Control Systems, Inc., a Michigan corporation, (now ICS, Inc.), of its shares of common stock, $1 par value, may have been in violation of Section 301 of the Uniform Securities Act of the State of Michigan (Act 265 of the Public Acts of 1964). A copy of Section 410 of the Uniform Securities Act which governs civil liabilities under that Act is attached.
'ICS, Inc. hereby offers to rescind the sale and to take back the shares of common stock of Information Control Systems, Inc., a Michigan corporation (now ICS, Inc.) sold to you by it and to refund to you the consideration paid by you to it together with interest at 6% Per year from the date of payment, less the amount of...
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