Kreis v. Mates Investment Fund, Inc.

• Citation: 473 F.2d 1308
• Decision Date: 16 February 1973
• Docket Number: No. 72-1050.,72-1050.
• Parties: Fred P. KREIS, Jr., Appellant, v. MATES INVESTMENT FUND, INC., and Frederick S. Mates, Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

473 F.2d 1308 (1973)

Fred P. KREIS, Jr., Appellant, v. MATES INVESTMENT FUND, INC., and Frederick S. Mates, Appellees.

No. 72-1050.

United States Court of Appeals, Eighth Circuit.

Submitted September 15, 1972.

Decided February 16, 1973.

William J. O'Herin, St. Louis, Mo., for appellant.

David Rosen, Stein & Rosen, New York City, for appellee.

Before BRIGHT and STEPHENSON, Circuit Judges, and TALBOT SMITH, District Judge.^*

PER CURIAM.

The matter before us is an action for rescission. The plaintiff, Fred P. Kreis, Jr. (hereafter "Kreis"), a citizen and resident of Missouri, bought shares of the defendant Mates Investment Fund, Inc. (hereafter, the "Fund") by mail, relying upon a glowing account thereof published in Barron's National Business and Financial Weekly in the issue dated June 3, 1968.¹ Eventually Kreis became unhappy with his purchase. Hence this action.

The ground of rescission asserted was non-compliance by the Fund with the registration provisions of the Missouri Uniform Securities Act, Chapter 409, RS Mo.1969 (hereafter the Act, or the "new" Act), V.A.M.S.

The case was tried upon stipulated facts, set forth in detail in the exhaustive opinion of the District Court, reported in 335 F.Supp. 1299 (E.D.Mo. 1971). We re-state only those facts essential to our ruling.

The Fund is a Delaware Corporation, an "open end" investment company, registered under the Investment Company Act of 1940, with its principal place of business in New York. Its business is that of operating an investment fund and selling shares to the public. Mr. Frederick S. Mates is the president, a director and controlling officer of Mates Investment Fund, Inc., and the sole shareholder of Mates Management Company, Inc. The Fund is duly registered in the Office of the Attorney General of the State of New York and the Fund was, under the laws of New York, entitled to accept offers for the purchase of shares in New York. It had not registered its shares for sale in Missouri under the Act.

After reading the Barron story, Kreis wrote to the Fund, enclosed his personal check for $20,000, and requested that the Fund sell to him the number of shares purchasable for such sum. He requested that delivery be made to the Lindberg Bank, in care of Mr. Spies. The Fund, in due course, cashed the check and mailed Kreis a "confirmation" dated June 5, 1968, reflecting the sale to him of 2,178 shares, the Fund retaining, after adjustments, the sum of $19,541.02. On the same date the Fund posted the sale on its books, and on June 7, physically delivered Kreis' check to the Custodian, Bank of New York. Computation of the Fund's net asset value on June 6, 1968, reflected Kreis' purchase of the Fund shares. The shares were mailed by the Fund to a postal address within Missouri, as was the confirmation. At a later date Kreis was the recipient of 952 additional shares, a stock dividend credited by the Fund to Kreis, valued at $5,178.88.

On May 19, 1969, Kreis sought rescission of his purchase. He had sought to purchase additional shares, but the form letter from the Fund on September 3, 1968, declined his request. The ground stated was that the Fund's shares were not registered for sale in Missouri. Moreover, with reference to the purchase of shares by persons in states where shares were not qualified to be sold, the footnotes to the May, 1969, annual report of the Fund stated that such shareholders "may have a right to rescind their purchases." Mr. Kreis thereafter tendered the return of the shares of the Fund in issue and demanded the return of the price plus interest and attorneys' fees within the provisions of the Missouri Securities Act. The Fund refused to rescind.

It was the holding of the District Court that, upon the facts so stipulated, although there was an offer by Kreis to buy the shares of the Fund under Section 409.415(c), there was no acceptance thereof in Missouri and hence that the Act does not apply to the purchase. In addition, it was held that the stock dividend of 952 shares was outside the coverage of the Act, being exempt under Section 409.401(j)(6) thereof. The Court thus having concluded that the Fund was not liable to Kreis with respect to the sale of the original 2,178 shares or the stock dividend of 952 shares, did not reach the issue of the liability of Frederick S. Mates, asserted by reason of his being the controlling officer and director of the Fund.

The principal issues on appeal turn on the interpretation of the terms offer and acceptance under the Act. The appellant, Kreis, argues that the Court below erred in holding that the offer to buy the securities was not both made and accepted in Missouri. The appellee Fund asserts that neither the offer nor the acceptance can be deemed to have occurred in Missouri.

The "new" Missouri Uniform Securities Act² represents a substantial adoption of the Uniform Securities Act.³ The portion with which we are here principally concerned is a separate section dealing with what was aptly termed (by the draftsmen of the Uniform Act) to be the "bewildering state of affairs"⁴ in the case law governing transactions which crossed state lines. "In order to resolve many uncertainties in this area of conflict of laws, the draftsmen undertook in Section 414 of the Uniform Act Section 415 of the new Missouri Act to codify basic rules to determine the applicability of the substantive provisions of the Act to interstate securities transactions and to define the jurisdiction of the courts over nonresidents in actions under the Act."⁵

The Act provides in part as follows:

409.415 "Scope of the act and service of process

(c) For the purpose of this section, an offer to sell or to buy is made in this state, whether or not either party is then present in this state, when the offer (1) originates from the state or (2) is directed by the offeror to this state and received at the place to which it is directed (or at any post office in this state in the case of a mailed offer); provided however, if an offer is directed to an offeree in a state other than this state and that offer would be lawful if made in such other state, then for the purposes of this section such offer is not made in this state.

(d) For the purpose of this section, an offer to buy or to sell is accepted in this state when acceptance (1) is communicated to the offeror in this state and (2) has not previously been communicated to the offeror, orally or in writing, outside this state; and acceptance is communicated to the offeror in this state, whether or not either party is then present in this state, when the offeree directs it to the offeror in this state reasonably believing the offeror to be in this state and it is received at the place to which it is directed (or at any post office in this state in the case of a mailed acceptance)" emphasis supplied.

It is clear that what the Act is here seeking is to bring both order and predictability into an area in which decisions in the various states heretofore rendered, "defy generalization."⁶ Common law contract concepts, where supplanted by the Act, obviously no longer control in the applicable areas.

With respect to offer and acceptance (with which we are particularly concerned) the Act, as quoted above, defines its own terms but solely, it must be stressed, "for the purpose of this section," that is to say for the scope of the applicability of the new Act and service of process thereunder. For these purposes, "an offer to sell or to buy is made in this state . . . when the offer (1) originates from this state. . . ." Stopping at this point it would seem clear upon our facts that Mr. Kreis made an offer in Missouri. But the statute contains a proviso (not found in the Uniform Act) and it is this proviso that gives rise to the controversy over the term "offer." The proviso, according to Jensen and Mills⁷ in their article in 24 J.Mo.Bar 60 (1968), had its origin in the problem presented (to use their terms) where a Missouri broker offered to sell to a customer in Illinois a security which was registered under the Securities Law of Illinois but not registered in Missouri. As the Act stood without the proviso the Missouri broker would be violating Missouri law. To eliminate the problem the following proviso was added to the new Act:

". . . provided, however, if an offer is directed to an offeree in a state other than this state and that offer would be lawful if made in such

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