Bormann v. Applied Vision Systems, Inc.

Decision Date28 February 1992
Docket NumberCiv. No. 4-90-680.
Citation800 F. Supp. 800
PartiesMarvin F. and Carol L. BORMANN, et al. v. APPLIED VISION SYSTEMS, INC., et al.
CourtU.S. District Court — District of Minnesota

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Mark J. Vieno, Minneapolis, Minn., for plaintiffs.

Sherri L. Rohlf, Wood R. Foster, Jr., Siegel, Brill, Greupner & Duffy, P.A., Minneapolis, Minn., for defendants.

ORDER

ROSENBAUM, District Judge.

Plaintiffs seek a return of funds lost, and damages they claim to have incurred, as a result of their purchase of securities offered by defendant Applied Vision Systems, Inc. (AVSI). Plaintiffs commenced this twenty-two count lawsuit on August 30, 1990. They claim violations of the Securities Act of 1933, 15 U.S.C. § 77a et seq. (the 1933 Act); the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq. (the 1934 Act); the Minnesota Securities Act, Minn.Stat. § 80A.01 et seq.; the North Dakota Securities Act, N.D.Cent.Code § 10-04-01, et seq.; and the South Dakota Securities Act, S.D.Codified Laws § 47-31A, et seq., and they assert common law fraud claims.

The Court has jurisdiction over this matter, pursuant to Section 22 of the 1933 Act, 15 U.S.C. § 77v, Section 27 of the 1934 Act, 15 U.S.C. § 78aa, and this Court's pendent jurisdiction.1

At oral argument, counsel for the parties stipulated to the dismissal of Counts 2 and 3 in their entirety. Counsel then agreed to dismiss certain claims in Counts 4, 5, 6, 8, 12, 13, 14, 15, and 17, insofar as those claims were based on securities purchases made prior to July 24, 1987.

Defendants move for summary judgment on eight of the remaining counts. As to Counts 7, 8, 15, 16, and 17, defendants assert that plaintiffs' claims are untimely and barred by applicable statutes of limitations. As to the fraud claims in Counts 12, 13, and 14, defendants contend that plaintiffs have failed to produce any evidence of reliance, an essential element of these claims.

Based upon the files, records, and proceedings herein, and for the reasons set forth below, Counts 7, 8, 15, 16, and 17 are dismissed as untimely. As to Counts 12, 13, and 14, defendants' motion for summary judgment is granted, based upon plaintiffs' failure to produce evidence of reliance.

Background

AVSI was a Minnesota corporation formed in 1984 to design, develop, manufacture, and market an automatic optical inspection (AOI) system. The goal was a system which would permit "non contact" inspection of printed circuit board layers and art work. The business was, ultimately, unsuccessful and AVSI ceased operations in February, 1991.

Beginning in 1987, AVSI sought capital from outside investors. To this end, AVSI made private placement offerings of AVSI securities in 1987, 1988, and 1989. Each offering is summarized below.

1. The 1987 Private Placement

In April, 1987, AVSI offered to sell a minimum of 430,000, and a maximum of 1 million, shares of AVSI common stock, at $1.75 per share. This was to be accomplished through a Private Placement Memorandum, dated April 29, 1987 (the 1987 PPM). The shares were offered by Engler-Budd Company, Inc. (Engler-Budd), on a "best efforts, minimum-maximum" basis. The placement was to be completed by May 31, 1987. The 1987 PPM explicitly reserved the right to extend the offering for an additional 30 days. Rohlf Aff., Att. 1.

In the event that the minimum number of shares was not sold by the specified date, the 1987 PPM provided for termination of the offer and return to subscribers of the proceeds with interest. During the escrow period, purchase subscriptions were irrevocable and the subscription proceeds were to be held in escrow.

The issue was not fully subscribed by May 31, 1987, and so, on June 30, 1987, AVSI issued "Supplement No. 1 to Confidential Private Placement Memorandum" (Supplement No. 1). This supplement extended the closing date of the 1987 PPM offering to July 31, 1987. Rohlf Aff., Att. 11. The offering was further extended on August 12, 1987, when AVSI issued "Supplement No. 3 to Confidential Private Placement Memorandum" (Supplement No. 3), which extended the offering to August 31, 1987. Rohlf Aff., Att. 13. Finally, in a letter to shareholders, dated October 6, 1987, AVSI extended the 1987 PPM offering to October 15, 1987. Rohlf Aff., Att. 15. This offering, however, was restricted to persons who already owned AVSI common or preferred stock prior to April 29, 1987.

Sales pursuant to the 1987 PPM occurred in two phases. On July 24, 1987, after meeting the minimum sale requirement, AVSI broke escrow and closed the sale of 432,858 shares of AVSI common stock.

Certain of the plaintiffs, Arthur J. Kohler, Jr., Arthur J. and Elsie Kohler, Sr., Donald W. Opheim, and William R. Zimbinski (the Phase I plaintiffs), purchased their AVSI securities prior to July 24, 1987. By agreement of the parties, the claims of these plaintiffs have been dismissed as being outside the applicable statute of limitations. A second, and for this case more important, group of plaintiffs purchased stock after July 24, 1987, but prior to August 31, 1987, when AVSI closed on the sale of an additional 190,000 shares of common stock. These plaintiffs' purchases are summarized as follows:

                                             Date of
                                             Subscription
                   Shareholder                  Agreement               Amount
                   Leonard S. Lewicke           7/28/87                 $ 17,500
                   John F. & Carol M. Johnson   8/4/87                    17,500
                   Richard L. Crowell           8/8/87                    17,500
                   Donald W. Opheim             8/24/87                    8,750
                

Rohlf Aff., Att. 7, 8, 9, and 10.

AVSI filed a "Notice of Sale of Securities Pursuant to Regulation D" with the United States Securities and Exchange Commission (SEC), pursuant to Rules 505 and 506 of Regulation D. Rohlf Aff., Att. 16. Defendants complied with the Minnesota and North Dakota blue sky laws, pursuant to Minnesota Statutes, § 80A.15, and North Dakota Century Code, § 10-04-06, on April 30, and August 3, 1987, respectively. On April 15, 1987, AVSI filed a "Statement of Issuer," with the Minnesota Department of Commerce. Rohlf Aff., Att. 17.

2. The 1988 Private Placement

In March 1988, AVSI offered a minimum of 539,411 units and a maximum of 875,000 units at $3.00 per unit. Each unit consisted of two shares of Class A common stock and one warrant. This offering was made by Private Placement Memorandum, dated March 30, 1988 (the 1988 PPM). Rohlf Aff., Att. 22.

The 1988 PPM required a minimum investment of $15,000, which would purchase 5,000 units, "unless this requirement is waived by the company in its sole discretion." Rohlf Aff., Att. 22. The "Statement of Issuer" submitted to the Minnesota Department of Commerce states that the "issuer proposes to make sales to not more than 35 non-accredited investors who are existing shareholders of the issuer and to an unlimited number of accredited investors." Rohlf Aff., Att. 35.

These plaintiffs' (the 1988 plaintiffs) purchases are summarized as follows:

                   Plaintiff                                          Amount
                   Marvin F. and Carol L. Bormann                   $ 30,000
                   Thomas H. Healey                                   22,500
                   Bruce D. Hustad                                    15,000
                   Thomas B. Hustad                                   15,000
                   Gregory R. Oas                                      4,998
                   Donald W. Opheim                                   15,000
                   Thomas J. & Nancy A. Pollock                        6,000
                   Rodney E. Sandelin                                 15,000
                   William R. Zimbinski                               15,000
                   John F. and Carol M. Johnson                       15,000
                

3. The 1989 Rights Offering

By prospectus, dated September 11, 1989, AVSI undertook a further offering of 11,927,476 "rights" to shareholders of record (the 1989 rights offering). Each right granted the non-transferable right to purchase a share of AVSI common stock at $.35 per share. The 1989 Rights Offering was registered pursuant to the 1933 Act. The plaintiffs' purchases are summarized as follows:

                   Plaintiff                                          Amount
                   Marvin F. and Carol L. Bormann                   $ 14,000
                   Richard L. Crowell                                  7,000
                   Thomas H. Healey                                   21,000
                   Bruce D. Hustad                                     7,000
                   Thomas B. Hustad                                    7,000
                   Arthur J. Kohler, Jr.                               3,500
                   Arthur J. and Elsie Kohler, Sr.                     7,000
                   Leonard S. Lewicke                                 17,500
                   Donald W. Opheim                                   17,500
                   William R. Zimbinski                               10,500
                   John F. and Carol M. Johnson                       14,000
                

Summary Judgment

As indicated, defendants seek partial summary judgment. Summary judgment is appropriate if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). Summary judgment may be granted against a party who fails to make a showing sufficient to establish the existence of an element essential to its case and on which that party will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). The opposing party must produce concrete facts demonstrating the issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). If the opposing party fails to carry that burden by establishing significant probative evidence, summary judgment should be granted. Mt. Pleasant v. Associated Electric Cooperative, Inc., 838 F.2d 268 (8th Cir.1988). The factual and legal complexity of a case does not, per se, preclude summary judgment. Cf. Midwest Radio Co. v. Forum Publishing Co., 942 F.2d 1294 ...

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