Fry v. Schumaker

• Decision Date: 10 January 1947
• Docket Number: Civ. No. 6418.
• Parties: FRY et al. v. SCHUMAKER et al.
• Court: U.S. District Court — Eastern District of Pennsylvania

83 F. Supp. 476

FRY et al. v. SCHUMAKER et al.

Civ. No. 6418.

United States District Court E. D. Pennsylvania.

January 10, 1947.

Morton P. Rome, Sundheim, Folz, Kamsler & Goodis, and M. Walton Sporkin, Jr., all of Philadelphia, Pa., for plaintiff.

C. Brewster Rhoads, Sidney L. Wickenhaver, J. Hector McNeal and Nathaniel Shapiro, all of Philadelphia, Pa., for defendants Loraine J. Schumaker, and others.

Richard V. Zug and G. Ruhland Rebmann, Jr., both of Philadelphia, Pa., for defendants Herbert H. Blizzard and others.

Louis Loss, of Washington, D. C., for Securities & Exchange Commission.

KIRKPATRICK, Chief Judge.

This complaint contains four counts. The first two are based on alleged violations of the Securities Exchange Act of 1934, 15 U.S.C.A. § 78a et seq., and Rules X-10B-3 and X-10B-5 of the Securities & Exchange Commission. They differ in that the relief requested in the first is for rescission while the second asks for damages. The third and fourth counts are based upon the common law of fraud and deceit and, as in the first two counts, ask for rescission and damages, respectively.

There are six defendants. Three of them, who are the partners of a brokerage firm, have moved to dismiss the complaint as to them for failure to state a claim upon which relief can be granted.

Inasmuch as the first and third counts are for rescission and it is not alleged that the brokers ever acquired any of the stock, the purchase of which is the basis of the complaint, the plaintiffs do not contend that those counts are applicable to the brokers.

The fourth count unquestionably states facts which, if proved, would establish a cause of action of fraud and deceit at common law against at least one of the defendants other than the brokers. The averments set out a rather elaborate scheme to acquire the plaintiffs' stock at less than its real value by means of fraudulent representations and concealments. It is further averred that, in order to accomplish his purpose, the defendant in question employed the brokers to write a solicitation letter to the plaintiffs offering to purchase their stock. The complaint makes it clear that this was an essential part of the plan. The 21st paragraph of the complaint avers that all the defendants including the brokers, "knew they were practicing devices, schemes, and artifices to defraud, and were engaging in acts and practices and courses of business operating as a fraud and deceit, upon plaintiffs * * *"

On a motion to dismiss for failure to state a valid cause of action the rule as stated by the Circuit Court of Appeals of the Third Circuit is, "...