Dack v. Shanman

• Decision Date: 07 February 1964
• Citation: 227 F. Supp. 26
• Parties: Philip DACK et al., Plaintiffs, v. Neil James SHANMAN et al., Defendants.
• Court: U.S. District Court — Southern District of New York

227 F. Supp. 26

Philip DACK et al., Plaintiffs, v. Neil James SHANMAN et al., Defendants.

United States District Court S. D. New York.

February 7, 1964.

COPYRIGHT MATERIAL OMITTED

Malchman & Klied, New York City, for plaintiffs.

Hoffberg & Stecher, New York City, for defendant Sidney Tager, a/b/a The Tager Co.

Robert Schwartz, Huntington Station, N. Y., for defendant Albert Wasserman.

Germaise, Frietag & Altman, New York City, for defendants Diversified Collateral Corp., Harlan Street and Leo Greenfield.

McLEAN, District Judge.

This is an action for the return of the purchase price of certain stock of Diversified Collateral Corporation allegedly purchased by plaintiffs from defendants. The complaint contains four counts. Defendant Sidney Tager, doing business as The Tager Company, moves for summary judgment on each count on the ground that it is barred by the statute of limitations. He also moves to dismiss the third count on the additional ground that it fails to state a claim.

Plaintiffs purchased the stock in November and December 1960. Although this action was begun as to certain defendants in November 1961, it was not commenced as to defendant Tager until August 15, 1963, almost three years after the date of purchase. There is no dispute about this and no issue as to any material fact, as far as the statute of limitations is concerned. Defendant's motion for summary judgment raises only questions of law.

The first count alleges in substance that "defendants herein and said Neil James & Co. Inc." sold the stock to plaintiffs by using the mails and means of communication in interstate commerce, that no registration statement with respect to the stock was in effect, and that the sale therefore violated Section 5(a) of the Securities Act of 1933 (15 U.S.C. § 77e(a)). A right of action for such a violation is given by 15 U.S.C. § 77l(1). Section 77m provides that an action to enforce a liability created by Section 77l(1) must be brought within one year after the violation. As to the moving defendant, this count is therefore barred. Plaintiffs do not contend otherwise. As to this count, the motion for summary judgment is granted.

The second count alleges in substance that in selling the stock to plaintiffs, "said Neil James & Co. Inc. and defendants herein" made untrue statements of material facts and omitted to state material facts in violation of Section 12 of the Securities Act of 1933 (15 U.S.C. § 77l(2)). Section 77m provides that an action to enforce a liability created by Section 77l(2) must be brought within one year after the discovery of the untrue statement or omission, or after such discovery should have been made by the exercise of reasonable diligence. Obviously plaintiffs must have discovered the alleged untrue statements and omissions more than one year before the action was begun against defendant Tager, for it was almost three years before that date that they filed their complaint against the other defendants alleging that such statements and omissions had been made. The second count is thus barred by the statute of limitations. Plaintiffs do not contend otherwise. As to the second count, the motion for summary judgment is granted.

The third count presents different questions. It merely realleges certain previous paragraphs of the complaint and then alleges that defendants "in making the statements and omitting to make the statements set forth in paragraph 10 of the second count, violated the provisions of Section 17 of the Securities Act of 1933 as amended, 15 U.S.C. 77q, relating to fraudulent interstate transactions."

This amounts to a charge that the same misstatements and omissions which form the basis of the claim in count 2 of violation of Section 77l(2) also constitute a violation of Section 77q.

It has been held on several occasions that although Section 77q does not expressly state that a private individual may maintain an action for its violation, such a right of action is to be implied from the fact that the section makes it "unlawful" in the sale of securities to employ a scheme to defraud or to obtain money by means of untrue statements or material omissions. Osborne v. Mallory, 86 F.Supp. 869 (S.D.N.Y.1949); Thiele v. Shields, 131 F.Supp. 416 (S.D.N.Y. 1955)

I followed these decisions in Pfeffer v. Cressaty, 223 F.Supp. 756 (S.D.N.Y. 1963).

Defendant Tager's motion to dismiss this count is based on the theory that the count lacks allegations necessary to state a cause of action for fraud and deceit. But no such allegations need be made. It is sufficient to allege that defendants made untrue statements of material facts or omitted to state material facts. Ellis v. Carter, 291 F.2d 270 (9th Cir. 1961); See SEC v. Capital Gains Bureau, 375 U.S. 180, 198, 84 S.Ct. 275, 11 L.Ed.2d 237 (1963)

Although the third count is in very abbreviated form, I believe that it can fairly be construed as containing such an allegation. It therefore states a claim. Defendant's motion to dismiss for failure to state a claim is denied.

The Securities Act of 1933 is silent as to the statute of limitations governing an action for violation of Section 77q. It has been held that in these circumstances this court must look to the applicable New York statute. Osborne v. Mallory, supra

There are two possibilities here, either the six-year New York statute of limitations applicable to actions for fraud (Civil Practice Act, § 48(5)), or the six-year statute applicable to actions to recover upon a liability created by statute (C.P.A. § 48(2)).^* Although conceivably the fraud statute might be applicable here, it seems safer in view of the allegations of this complaint to make use of the statute of limitations which covers actions to recover upon a liability created by statute. In either case it is clear that the third count is not time barred. As to this count, defendant Tager's motion for summary judgment is denied.

The fourth count is even more elliptical than the third. It merely realleges a few paragraphs of the first count and adds an allegation that "in the sale as aforesaid of said common stock * * * said Neil James & Co. Inc. was acting as the agent of * * * defendant Sidney Tager." It will thus be observed that in the first count plaintiffs allege that "defendants" (which literally means all defendants, including defendant Tager), "and said Neil James & Co. Inc." sold the stock, whereas in the fourth count they allege that it was actually Neil James & Co. Inc. which sold it but that Neil James & Co. Inc. was acting as agent of Tager. As far as the substance of the charge against Tager is concerned, it would seem at first blush that the fourth count is merely a repetition of the first, for it adds nothing of substance to...