Dauphin Corporation v. Davis, Civ. A. No. 2346.

• Decision Date: 23 January 1962
• Docket Number: Civ. A. No. 2346.
• Citation: 201 F. Supp. 470
• Parties: DAUPHIN CORPORATION, Plaintiff, v. James J. DAVIS, George C. Wilkinson, Halcyon Corporation, Redwall Corporation, Paul Steiner, and Hunt Investment Company, Defendants.
• Court: U.S. District Court — District of Delaware

201 F. Supp. 470

DAUPHIN CORPORATION, Plaintiff, v. James J. DAVIS, George C. Wilkinson, Halcyon Corporation, Redwall Corporation, Paul Steiner, and Hunt Investment Company, Defendants.

Civ. A. No. 2346.

United States District Court D. Delaware.

January 23, 1962.

John P. Sinclair, of Berl, Potter & Anderson, Wilmington, Del., for plaintiff, Windels, Currie & Rice, New York City, of counsel.

John M. Bader, John Biggs, III, of Bader & Biggs, Wilmington, Del., for certain defendants.

S. Samuel Arsht, of Morris, Nichols, Arsht & Tunnell, Wilmington, Del., and Vincent F. Kilborn and Willis C. Darby, Jr., Mobile, Ala., for defendant George C. Wilkinson.

STEEL, District Judge.

The complaint purports to allege a cause of action under Sections 12(2) and 17(a) of the Securities Act of 1933, 15 U.S.C.A. §§ 77l(2) and 77q(a), and Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C.A. § 78j(b) and Rule X-10B-5 thereunder. Jurisdiction is asserted under Section 22(a) of the Act of 1933, 15 U.S.C.A. § 77v(a), and Section 27 of the Act of 1934, 15 U.S.C.A. § 78aa. All defendants have moved to dismiss the complaint. In the aggregate they allege that the complaint fails to state a cause of action, that the venue is improper as to the non-resident defendants, that service upon the non-residents outside of this district was invalid, and that because of the venue and service infirmities indispensable parties were lacking. During argument counsel for defendant stated that the affidavits were not to be considered in determining whether a good cause of action had been substantively stated, but only in connection with the other grounds of the motion.

The complaint recites numerous complex transactions in which the defendants have engaged, beginning in January 1960 and ending in June 1960, by which plaintiff claims it was defrauded of over $1,000,000. Despite the somewhat confusing nature of the complaint, two acts are discernible as culminations of the series of transactions alleged:

1. In April 1960 the defendant Davis caused the defendant Halcyon Corporation, which Davis controlled, to sell to Dauphin Corporation, the plaintiff, all of the stock of National Properties, Inc., for which plaintiff paid Halcyon in stock of Great American Industries, Inc. (GAI) having a market value of $270,000. At the time, National held a note of Halcyon for $750,000. Within ten days thereafter Davis, without authority from or notice to the plaintiff, caused National to sell the $750,000 Halcyon note to Hunt Investment Company for $750. At the time, Davis was an officer, director and substantial stockholder of Hunt. This latter transaction took place at a time when Halcyon owned securities totalling $720,000 which it could have applied to partial payment of the note.

2. In June 1960 National, which was then a subsidiary of the plaintiff, purchased the outstanding stock of Hatboro Industrial Park, Inc., by paying to the defendant Redwall $50 for the Hatboro common stock, and by delivering 21,600 vtc's of GAI, having a market value of $54,000, in payment of 21,600 shares of the Hatboro preferred stock. Of the preferred stock sold to plaintiff, defendant Redwall owned 3,600 shares and defendant Steiner owned 3,000 shares. The complaint does not disclose who owned the remaining shares. At the time of the purchase the value of the Hatboro preferred and common stock was "illusory".

Other pertinent allegations of the complaint are that Davis, in connection with both transactions, made misrepresentations of material facts, and omitted to state material facts necessary to make his statements to the plaintiff not misleading in the light of the circumstances under which they were made; that the series of acts which the complaint details constituted devices, schemes or artifices to defraud the plaintiff in the offer of securities to it; that the defendants, by such acts, engaged in transactions, practices and courses of business which operated as a fraud and deceit upon plaintiff; and that in connection with the foregoing the defendants made use of interstate facilities.

The complaint further alleges that Davis, in his capacity as an officer, director and counsel for plaintiff, acted jointly and secretly with the other defendants to bring about the transactions; and that in connection with the National Properties transaction the other defendants were to be the actual beneficiaries with Davis and actively concerted and participated with him in it.

These allegations bring all of the defendants into the case. Their relationship to the...