53 F.3d 159 (6th Cir. 1995), 93-1760, Investors Equity Group, Inc. v. Universal Symetrics Corp.
|Citation:||53 F.3d 159|
|Party Name:||INVESTORS EQUITY GROUP, INC., Plaintiff-Appellant, v. UNIVERSAL SYMETRICS CORPORATION; Rosenkrantz, Lyon & Ross, Inc.; Kamal Hughes; Juris Mednis; Leslie A. Wicks, Defendants-Appellees.|
|Case Date:||May 09, 1995|
|Court:||United States Courts of Appeals, Court of Appeals for the Sixth Circuit|
Argued Sept. 19, 1994.
Rehearing and Suggestion for Rehearing
En Banc Denied July 14, 1995.[*]
Michael H. Perry (argued and briefed), Mark R. Fox, Fraser, Trebilcock, Davis & Foster, Lansing, MI, for plaintiff-appellant.
Phillip J. Neuman, Jacob & Weingarten, Troy, MI, for Universal Symetrics Corp.
Scott K. Nigro, Feinberg, Felzen & Nigro, New York City, Liviu Vogel (argued and briefed), Salon, Marrow & Dyckman, New York City, for Rosenkrantz, Lyon & Ross, Inc., Kamal Hughes, Juris Mednis, Leslie A. Wicks.
Before: KENNEDY, WELLFORD, and NELSON, Circuit Judges.
WELLFORD, J., delivered the opinion of the court, in which KENNEDY, J., joined. NELSON, J. (pp. 163-64), delivered a separate dissenting opinion.
WELLFORD, Circuit Judge.
Investors Equity Group ("IEG" or "plaintiff"), a Michigan corporation dealing in commercial real estate, filed a diversity action against Rosenkrantz, Lyon & Ross, Inc. ("RLRI"), a licensed stock brokerage firm, Kamal Hughes, an account executive at the Chicago offices of RLRI, and others (collectively "defendants"). Plaintiff, through its president and sole shareholder, Roger Thornburg, alleges that the defendants sold securities in violation of the Michigan Blue Sky Laws, which require securities to be either registered or exempt from registration. See Mich.Comp.Laws Ann. Secs. 451.701, 451.802(b)(9)(C). Plaintiff sought rescission of the sale and recovery of the purchase price, together with interest and attorneys' fees, pursuant to section 410 of the Michigan Uniform Securities Act ("Act"). Id. Sec. 451.810(a)(1). Plaintiff filed motions for judgment on the pleadings and summary judgment, arguing that the Michigan Blue Sky Laws impose strict liability for failure to register non-exempt securities. The district court 1 rejected plaintiff's strict liability theory, maintaining that "Michigan courts do not hold that violation of the Act justifies granting the Act's remedies under all circumstances." No. 5:90-CV-43, 1992 WL 501775, at * 3 (W.D.Mich. Apr. 8, 1992). The district court specifically recognized two defenses which might prevent the plaintiff's recovery--in pari delicto and a de minimis violation. Id. at * 3-4.
Following a two day bench trial on the issue of whether defendants satisfied either equitable defense, the district court denied plaintiff's claim for rescission. The district court held that defendants, though not entitled to the equitable defense of in pari delicto, were not liable for a de minimis violation of the Act. 822 F.Supp. 429, 434, 436 (W.D.Mich.), modified, 822 F.Supp. 436 (W.D.Mich.1993).
Plaintiff seeks relief from two securities transactions with defendants because the defendants neither registered the securities nor complied fully with the Michigan statutory requirements for exemption. With respect to the Universal Symetrics transaction, defendants did not file the confidential report of offering with the administrator of the Michigan Department of Commerce, Corporations and Securities Bureau within thirty days after the initiation of the offering and every ninety days thereafter as required in section 402(b)(9)(C). See Mich.Comp.Laws Ann. Sec. 451.802(b)(9)(C). In fact, defendants did not file the report until after plaintiff brought suit. With respect to the Chronodynamics transaction, defendants never filed a report at all.
Section 301 of the Act provides that "[i]t is unlawful for any person to offer or sell any security in this state unless (1) it is registered under this act or (2) the security or transaction is exempted under section 402."
Id. Sec. 451.701. Section 402(b)(9)(C) provides that a security is exempt from registration if
[a] commission is not paid or given ... for soliciting any prospective purchaser in this state, except to a broker-dealer registered pursuant to this act who is not affiliated with the issuer or its affiliates.... The broker-dealer or issuer shall file with the administrator on such forms as the administrator prescribes, a confidential report of offering within 30 days after initiation of the offering in this state and every 90 days thereafter until the final report of completion of the offering.
Id. Sec. 451.802(b)(9)(C). Furthermore, section 410 provides that any person who...
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