Drexel Burnham Lambert, Inc. v. Merchants Inv. Counseling, Inc., 1-483A112

• Citation: 451 N.E.2d 346
• Decision Date: 11 July 1983
• Docket Number: No. 1-483A112,1-483A112
• Parties: Fed. Sec. L. Rep. P 99,420 DREXEL BURNHAM LAMBERT, INCORPORATED and Moseley, Hallgarten, Estabrook & Weeden, Inc., Appellants (Defendants Below) v. MERCHANTS INVESTMENT COUNSELING, INC., and Merchants National Bank & Trust Company of Indianapolis, Appellees (Plaintiffs Below).
• Court: Court of Appeals of Indiana

Page 346

451 N.E.2d 346

Fed. Sec. L. Rep. P 99,420

DREXEL BURNHAM LAMBERT, INCORPORATED and Moseley, Hallgarten, Estabrook & Weeden, Inc., Appellants (Defendants Below) v. MERCHANTS INVESTMENT COUNSELING, INC., and Merchants

National Bank & Trust Company of Indianapolis,

Appellees (Plaintiffs Below).

No. 1-483A112.

Court of Appeals of Indiana,

First District.

July 11, 1983.

Phillip A. Terry, Roger D. Erwin, McHale, Cook & Welch, p.c., Indianapolis, Kenneth E. Meister, Cahill, Gordon & Reindel, p.c., Shearman & Sterling, New York City, Kent M. Frandsen, Parr, Richey, Obremskey & Morton, Lebanon, for appellants.

James A. McDermott, Anne N. DePrez, Barnes & Thornburg, Indianapolis, Thomas A. Whitsitt, Peyton, Giddings, Whitsitt, Baker & McClure, Lebanon, for appellees.

ROBERTSON, Presiding Judge.

Drexel Burnham Lambert, Incorporated (Drexel) and Moseley, Hallgarten, Estabrook, & Weeden, Inc. (Moseley), bring an interlocutory appeal challenging the trial court's denial of their motion to dismiss in a securities claim initiated by Merchants Investment Counseling, Inc. (Merchants Investment) and Merchants National Bank and Trust Company of Indianapolis (Merchants Bank).

We affirm.

Merchants Bank and Merchants Investment filed a complaint seeking to recover $798,875, which they paid for 83,000 shares of stock in Flight Transportation Corporation (FTC) that were purchased from Drexel and Moseley. Drexel and Moseley acted as lead underwriters in the public offering of the FTC stock. Merchants Bank and Merchants Investment sought this amount pursuant to section 11 of the Securities Act of 1933, 15 U.S.C. Sec. 77k and Ind.Code Sec. 23-2-1-19 . Drexel and Moseley moved to dismiss the complaint or in the alternative, to stay the Indiana proceedings on the theory of forum non conveniens.

On June 3 and June 4, 1982, the Securities and Exchange Commission (SEC) declared effective two Registration Statements filed by FTC for 715,000 shares of common stock and 25,000 units of securities consisting of debentures and warrants to purchase FTC common stock. Merchants Bank and Merchants Investment purchased 5000 shares from Moseley and 75,000 from Drexel, as well as 3000 shares from Thompson, McKinnon Securities, Inc., which has not been named as a defendant.

The SEC suspended trading in FTC's shares on June 18, 1982, and sought injunctive relief against FTC, two subsidiaries of FTC, and its chairman in the United States District Court for the District of Minnesota. The SEC alleged that FTC had violated numerous federal securities provisions regarding the offering.

Drexel and Moseley initiated a class action against FTC in United States District Court for the District of Minnesota. The class consists of purchasers of the offering and Merchants Bank and Merchants Investment are potential members of the class. Approximately thirty actions against FTC, alleging violations of federal and state securities laws, have been filed. On November 2, 1982, the Judicial Panel for Multistate Litigation granted the motion of Drexel and Moseley to coordinate and consolidate the pretrial proceedings in the District Court in Minnesota. A documentary depository has been established there to facilitate discovery.

Merchants Bank and Merchants Investment filed their complaint on January 7, 1983, alleging violations of section 11 of the Securities Act of 1933 and I.C. 23-2-1-19. Drexel and Moseley filed a motion to dismiss, or in the alternative, to stay the proceedings pending the litigation in Minnesota. The motion was based upon the theory of forum non conveniens. Their argument is simply that Minnesota is better suited to handle the litigation and the litigation in Indiana would be duplicative. The trial court denied this motion.

Jurisdiction of claims of section 11 of the Securities Act of 1933 is governed by 15 U.S.C. Sec. 77v. This section provides:

(a) The district courts of the United States, and the United States courts of any Territory, shall have jurisdiction of offenses and violations under this subchapter and under the rules and regulations promulgated by the Commission in respect thereto, and concurrent with State and Territorial courts, of all suits in equity and actions at law brought to enforce any liability or duty created by this subchapter. Any such suit or action may be brought in the district wherein the defendant is found or is an inhabitant or transacts business, or in the district where the offer or sale took place, if the defendant participated therein, and process in such cases may be served in any other district of which the defendant is an inhabitant or wherever the defendant may be found. Judgments and decrees so rendered shall...