Bertozzi v. King Louie Intern., Inc., Civ. A. No. 76-0158.
Decision Date | 13 September 1976 |
Docket Number | Civ. A. No. 76-0158. |
Citation | 420 F. Supp. 1166 |
Parties | Albert N. BERTOZZI et al. v. KING LOUIE INTERNATIONAL, INC., et al. |
Court | U.S. District Court — District of Rhode Island |
COPYRIGHT MATERIAL OMITTED
Paul F. Greene, Edward J. Bertozzi, Jr., of Edwards & Angell, Providence, R. I., for plaintiffs.
Max Wistow, Providence, R. I., Marvin Rich, Kansas City, Mo., for defendants.
Plaintiffs have filed this class action on behalf of themselves and certain other stockholders of King Louie International, Inc., one of the defendants herein. The other individual defendants allegedly constitute the management of King Louie and have, through their working control of the corporation, caused it to issue a tender offer to plaintiffs' designated class to purchase 139,246 shares of common stock with corporate funds. According to the amended complaint, the "defendants have caused copies of the Tender Offer herein to be sent to plaintiffs in this district". Plaintiffs further contend that the tender offer, and its distribution to plaintiffs in Rhode Island, is an integral part of a scheme perpetrated by and on behalf of the individual defendants, inter alia, to perpetuate their control of King Louie and cause it to "go private" to the detriment of public shareholders.
Relying on these facts, other asserted material omissions from the tender offer, and two recent decisions of the Second Circuit Court of Appeals, plaintiffs claim that the defendants have devised a plan which violates § 10(b), of the Securities Exchange Act of 1934 (the Act), 15 U.S.C. § 78j(b), Rule 10b-5 of the Securities and Exchange Commission (SEC), 17 C.F.R. § 240.10b-5, promulgated thereunder, and § 14(e) of the Act, 15 U.S.C. § 78n(e). See Green v. Santa Fe Industries, Inc., 533 F.2d 1309 (2d Cir. 1976); Marshel v. AFW Fabric Corp., 533 F.2d 1277 (2d Cir. 1976). In its ruling on plaintiffs' motion for a temporary restraining order, the Court examined the cited decisions and adopted their reasoning to find that the allegations of the verified complaint stated a violation of §§ 10(b) and 14(e) of the Act, as well as Rule 10b-5. A temporary restraining order was issued against King Louie to halt further action related to the tender offer. That order has been extended by consent of the parties. Since that ruling an amended complaint has been filed, as well as several motions, to which we now turn.
In Counts I (§ 14(e) of the Act) and II (§ 10(b) of the Act and Rule 10b-5) of their amended complaint, plaintiffs assert violations of provisions of the Securities Exchange Act of 1934. Jurisdiction and venue are asserted under § 27 of the Act. 15 U.S.C. § 78aa, which provides:
Plaintiffs claim that venue is properly premised in the District of Rhode Island upon two grounds recognized in § 27: 1) that this is "the district wherein any act or transaction constituting the violation occurred"; and 2) that this is "the district wherein the defendant . . . transacts business." If either ground for venue is met, it is clear that the defendants are properly before the Court, since § 27 permits service of process "in any other district of which the defendant is an inhabitant or wherever the defendant may be found".
In support of the first ground, plaintiffs point to the allegation that the defendants caused copies of the tender offer to be sent, presumably by interstate mail, to plaintiffs, almost all of whom reside in Rhode Island. Both plaintiffs and defendants agree upon the standard to be applied to test the adequacy of this action to support venue and cite many of the same cases.
Jacobs v. Tenney, 316 F.Supp. 151, 158 (D.Del. 1970).
Defendants acknowledge that as a general rule the use of interstate mail to distribute a proxy solicitation or, as here, a tender offer can constitute adequate ground for venue under § 27. Authority for this proposition was analyzed in Sarratt v. Walker, 405 F.Supp. 132, 134 (D.S.C.1975):
See also Travis v. Anthes Imperial, Ltd., 473 F.2d 515 (8th Cir. 1973). Cf. Goldberg v. Touche Ross & Co., 390 F.Supp. 290 (S.D. N.Y.1975).
Despite the broad language of the cited decisions and the wide accessibility that § 27 is designed to provide, cf. Kane v. Central American Mining & Oil, Inc., 235 F.Supp. 559, 565 (S.D.N.Y.1964), defendants urge the Court to consider the distribution of the tender offer to plaintiffs in Rhode Island immaterial because only a small number of the shareholders live here. In support of this position, defendants cite dicta in Puma v. Marriott, 294 F.Supp. 1116, 1120 (D.Del.1969); and Blanning v. Tisch, 378 F.Supp. 1058, 1063 (E.D.Pa.1974).
With all due respect, the Court is not convinced that an act which "constitutes an important step in the execution of the fraudulent, deceitful scheme or in its consummation", Hooper v. Mountain States Securities Corp., 282 F.2d 195, 204-205 (5th Cir. 1960), cert. denied, 365 U.S. 814, 81 S.Ct. 695, 5 L.Ed.2d 693, loses its materiality because its multistate consequences are diffuse and not concentrated in the forum state. Plaintiffs' federal claims are based upon an allegedly fraudulent and manipulative tender offer: without the mailing of that tender offer to the public shareholders of King Louie, the scheme could never be realized. Thus, the use of interstate mails to distribute the tender offer in Rhode Island must be considered an integral and material part of the allegedly fraudulent scheme. In addition, according to the July 8, 1976, affidavit of Paul F. Greene, plaintiffs owned 12.1%, not 2.5% as asserted by defendants, of the publicly held shares of King Louie stock at the time the tender offer was commenced. As a result, the Court concludes that defendants' reliance on dicta in Puma, supra, and Blanning, supra, is factually as well as legally misplaced.
Defendants do not take issue with the applicability of the "co-conspirator" theory of venue to make all the defendants amenable to suit in the forum if venue is proper under § 27 as to any one of them. Plaintiffs have alleged that the individual defendants herein joined together with King Louie in the assertedly fraudulent tender offer. The Court has ruled that King Louie's distribution of the tender offer by interstate mail to plaintiffs in Rhode Island satisfies the venue provisions of § 27. It is further alleged that, as directors of King Louie, the individual defendants directly caused the tender offer to be mailed into the state. This need not be established, however, in order to hold the individual defendants amenable to suit in the forum under § 27, since the "co-conspirator" theory of venue is clearly applicable:
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