505 F.2d 97 (5th Cir. 1974), 73-3278, Associated Builders, Inc. v. Alabama Power Co.

Docket Nº:73-3278.
Citation:505 F.2d 97
Party Name:ASSOCIATED BUILDERS, INC., Plaintiff-Appellant, v. ALABAMA POWER COMPANT, Defendant-Appellee.
Case Date:December 13, 1974
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

Page 97

505 F.2d 97 (5th Cir. 1974)

ASSOCIATED BUILDERS, INC., Plaintiff-Appellant,


ALABAMA POWER COMPANT, Defendant-Appellee.

No. 73-3278.

United States Court of Appeals, Fifth Circuit

December 13, 1974

Page 98

Phillip Henry Pitts, Joe T. Pilcher, Jr., Selma, Ala., for plaintiff-appellant.

John Bingham, Thomas W. Christian, Birmingham, Ala., for defendant-appellee.

Before WISDOM and CLARK, Circuit Judges, and GROOMS, District Judge.

WISDOM, Circuit Judge:

Associated Builders, Inc. filed this class action suit in federal district court alleging that it had purchased three bonds in reliance on a prospectus which misrepresented the redemption provisions of the bonds. Associated Builders sought damages under Sections 12 and 17 of the Securities Act of 1933, 15 U.S.C. 77l and 77q; Sections 18 and 10 of the Securities Exchange Act of 1934, 15 U.S.C. 78r and 78j(b), and Rule 10b-5, 17 C.F.R. 240.10b-5, promulgated thereunder. 1 The district court mistakingly treated the suit as an action for breach of contract and dismissed the complaint for failure to state a claim which would invoke federal jurisdiction. Because we conclude that a reasonable fact-finder could not find that the prospectus, appended to the complaint, was misleading, we agree with the district court that dismissal was appropriate. The appropriate ground for dismissal, however, is failure to state a claim, not want of federal jurisdiction. Accordingly, we vacate and remand the case for entry of an appropriate order of dismis-sal.


The Facts

In November 1970, Alabama Power Company issued $60 million of first mortgage bonds, under a mortgage indenture between the company and the Chemical Bank as trustee. The bonds were to yield nine percent interest and to mature November 1, 2000. Underwriters purchased the entire issue, at prices slightly below par and sold the bonds at par to the public. In February 1971, Associated Builders, allegedly under the impression that the bonds were absolutely protected against call without premium until November 1, 1975, bought three $1,000 bonds in the after market from a broker. Associated paid $1,060 for each bond. In March 1972, Alabama Power notified bondholders of its intent to redeem roughly $7 million of the bonds at par, without premiums, chosen by lot by the trustee. The redemption notice listed two of the three bonds held by Associated Builders. One year later, Alabama sought to redeem an additional $8 million of the series 2000 bonds. The appellant's third bond was not included in this call.

Associated Builders, after receiving the first redemption notice, wrote Alabama Power demanding an explanation,

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and contending that Alabama lacked authority to redeem the bonds without premium before November 1975. Alabama Power replied that consistent with the mortgage indenture and the prospectus, the redemptions were being made by operation of the sinking fund. It claimed the right, in accordance with the terms of the mortgage indenture, to redeem the bonds at any time, without premium, if the redemption were by operation of the sinking fund. On the other hand, if the redemption were otherwise than by operation of the sinking fund, Alabama operation of the sinking fund, Alabama could redeem the bonds only at stated premium prices, but could not redeem the bonds before November 1, 1975, for the purpose of refunding them at a lower interest rate.

Associated Builders, asserting that the redemption was unlawful, forwarded only one of its called bonds and retained the other. It sold the third bond, which had not been called, for $1,080, realizing a $20 profit.


The Complaint

The complaint alleged that the prospectus 'included an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements made in the light of the circumstances under which they were made, not misleading'. 2 Specifically, Associated Builders cited three portions of the prospectus and concluded that the action seeking to redeem the bonds 'was contrary to the representations made by the Defendant in the prospectus, in that no premium was paid upon the redemption and in that the redemption was sought to be accomplished at a regular redemption price prior to November 1, 1975, for the purpose or in anticipation of refunding at an effective interest cost of less than 9.07%.' In short, liberally and fairly read, the complaint charged, in the words of the appellant's brief, 'simply that the prospectus was misleading in that it erroneously suggested to purchasers that no such redemption could be made'.

No underlying facts are in dispute. The appellant did not allege in its complaint or on appeal that the redemption was inconsistent with the terms of the mortgage indenture. Nor has the appellant alleged at any point that the redemption was not by operation of the sinking fund. The only allegation is that the prospectus, appended to the complaint, was misleading on its, face in allegedly suggesting that no bonds could be redeemed before November 1, 1975, without premium, if the redemption were for the purpose of or in anticipation of refunding at a lower interest rate. Because we conclude from the face of the prospectus that no such misleading representation was made, we hold that Associated Builders has failed to allege a claim on which relief can be granted under the federal securities laws. 15 U.S.C. 77l and 77q; 78r and 78j(b); Rule 10b-5, 17 C.F.R. 240.10b-5.

This court does not favor judgments of dismissal. Such judgments, as we have noted elsewhere, have a high mortality rate. E.g., Thompson v. Allstate Insurance Co., 5 Cir. 1973, 476 F.2d 746. Nonetheless, complaints are not impregnabel. 'A (complaint) may be dismissed 'A (complaint) may be dismissed on motion if clearly without any merit; and this want of merit may consist in an absence of law to support a claim of the sort made, or of facts sufficient to make a good claim, or in the disclosure of some fact which will necessarily defeat the claim.' De Loach, v. Crowley's, Inc., 5 Cir. 1942, 128 F.2d 378. See 2A Moore's Federal Practice P12.08 at 2271 (2d ed. Supp.1974). Judgments of dismissal and summary

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judgments, in proper cases, maintain the integrity of the law.

On a motion to dismiss, the well pleaded allegations of fact are taken as true. E.g. Campbell v. Beto, 5 Cir. 1972, 460 F.2d 765. Accordingly, for the purposes of our review of the judgment of dismissal, we...

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