Getter v. RG Dickinson & Co.

• Decision Date: 28 September 1973
• Docket Number: Civ. No. 11-309-C-2.
• Citation: 366 F. Supp. 559
• Parties: Douglas D. GETTER et al., Plaintiffs, v. R. G. DICKINSON & CO. et al., Defendants. R. G. DICKINSON & CO. et al., Third-Party Plaintiffs, v. AUDIO COMMUNICATIONS, INC., et al., Third-Party Defendants.
• Court: U.S. District Court — Southern District of Iowa

366 F. Supp. 559

Douglas D. GETTER et al., Plaintiffs, v. R. G. DICKINSON & CO. et al., Defendants.

R. G. DICKINSON & CO. et al., Third-Party Plaintiffs, v. AUDIO COMMUNICATIONS, INC., et al., Third-Party Defendants.

Civ. No. 11-309-C-2.

United States District Court, S. D. Iowa, C. D.

September 28, 1973.

COPYRIGHT MATERIAL OMITTED

Dwight W. James, L. Call Dickinson, Jr., John R. Mackaman, Des Moines, Iowa, for plaintiffs.

Richard G. Santi, A. Arthur Davis, Donald A. Wine, Thoma, Schoenthal, Davis, Hockenberg & Wine, Des Moines, Iowa, for defendants and third-party plaintiffs.

Herschel G. Langdon, Richard G. Langdon, Herrick, Langdon, Belin & Harris, Des Moines, Iowa, Reginald Leo Duff, Carro, Spanbock & Londin, New York City, for third-party defendant, Glenn M. Feit.

William B. McDonald, Richard R. Chabot, Austin, McDonald, Myers & Peterson, Des Moines, Iowa, Franklin Poul, Judith R. Cohn, Wolf, Block, Schorr & Solis, Philadelphia, Pa., for third-party defendants, Tait, Weller & Baker and Arnold N. Parris.

Eugene Davis, Des Moines, Iowa, for third-party defendants, E. Michael Daspin and Robert A. Glick.

David Brodsky, Des Moines, Iowa, Sheldon I. Saitlin, Simpson & Shefsky, Chicago, Ill., for third-party defendant, William R. Bowler.

James E. Cooney, Des Moines, Iowa, for third-party defendant, Paul A. Zamarra.

MEMORANDUM AND ORDER

HANSON, Chief Judge.

This Order is predicated upon (1) the Motions to Quash Service of Process and to Dismiss the Third-Party Complaint filed by Third-Party Defendant Glenn M. Feit on July 27, 1972 and Glenn M. Feit's Amendment to his Motions to Quash Service of Process and to Dismiss the Third-Party Complaint filed on July 31, 1972; (2) the Motion to Dismiss for Lack of Venue and Jurisdiction of the Person filed by Third-Party Defendants E. Michael Daspin and Robert A. Glick on August 11, 1972; (3) the Motions to Quash Service of Process and to Dismiss the Third-Party Complaint filed by William R. Bowler on August 15, 1972; (4) the Motion of Third-Party Defendants, Tait, Weller and Baker and Arnold N. Parris to Dismiss the Third-Party Complaint filed on August 11, 1972; and (5) the Motion of Third-Party Defendant Paul A. Zamarra to Dismiss Third-Party Complaint filed on September 8, 1972. The Court notes that a resistance has been filed to these motions and that replies to this resistance have been forthcoming.

Plaintiffs in the original suit are certain purchasers of common stock of Audio Communications, Inc. The defendant and third-party plaintiff R. G. Dickinson & Co. was the vendor-broker, and the remaining defendants and third-party plaintiffs are officers and employees of Dickinson. The third-party defendants are Audio Communications, Inc. whose stock was offered to the plaintiffs in the transaction which is the subject of the original complaint and certain officers and directors of Audio Communications, Inc. The accounting firm of Tait, Weller and Baker which prepared accounting statements of Audio Communications, Inc. and a member of that firm, Arnold N. Parris are also included as third-party defendants.

The underlying action was brought pursuant to Section 22 of the Securities Act of 1933 (15 U.S.C., Section 77v), Section 27 of the Securities Act of 1934 (15 U.S.C., Section 78aa), and Ch. 502 of the Code of Iowa, under pendent jurisdiction. The original complaint is in three counts, the first two alleging an offer and sale of securities without a registration statement, an election to rescind accordingly, and a tender of the securities under Section 12(1) of the Securities Act and Ch. 502 of the Code of Iowa in respective counts. The third count alleges deceit in violation of Section 12(2) and Section 17(a) of the Securities Act of 1933, and in violation of the Securities Exchange Act of 1934, Section 10(b) and Rule 10b-5 thereunder, and Section 15(c)(1) and Rule 15c 1-2 thereunder.

The Third-Party Complaint in seven counts alleges that any acts, omissions, or misrepresentations to the plaintiffs by the defendants (third-party plaintiffs) were the direct result of fraudulent acts, omissions, and misrepresentations made by third-party defendants to third-party plaintiffs. Count I is based upon fraud and misrepresentations and seeks indemnity or contribution from all third-party defendants for any amount adjudged against the third-party plaintiffs in favor of the plaintiffs. Count II alleges that negligence of the third-party defendants resulted in the acts, omissions and misrepresentations of the third-party plaintiffs and seeks contribution and indemnity from all third-party defendants. Count III alleges breach of duty from a principle to its agent and seeks contribution and indemnity from all third-party defendants except Tait, Weller & Baker and Arnold Parris. Count IV is based upon Section 10(b) of the Securities Exchange Act of 1934 (15 U.S.C., Section 78j(b)) and alleges fraud and deceit and misrepresentation in connection with the placement for sale and the sale of Audio stock. This count also seeks contribution and indemnity from all third-party defendants. Count V alleges that Tait, Weller & Baker and Arnold Parris failed to use due care and breached said duty in the preparation of accounting statements for Audio Communications, Inc. This count seeks contribution and indemnity only from Tait, Weller & Baker and Arnold Parris. Count VI alleges that third-party defendants breached their duty to the plaintiffs under the purchase agreements for Audio stock and that third-party plaintiffs are third-party beneficiaries of that agreement. Contribution and indemnity are sought against all third-party defendants except the accounting defendants. Count VII is asserted against only Glenn M. Feit and alleges fraud or negligence in the issuance of a legal opinion concerning the particular stock transaction involved in this suit. This count seeks contribution or indemnity with respect to all sums that may be adjudged against third-party plaintiffs in favor of plaintiffs.

The Court has spent a considerable length of time reviewing lengthy motions, briefs, and affidavits filed relating to the above motions. The Court has also reviewed the case authority cited by the parties and some more recent cases decided since these briefs were filed. Essentially identical issues are involved in each of the motions to dismiss or to quash service filed by the third-party defendants. Therefore, the Court consolidates these motions for purposes of this ruling.

The above motions basically contend that there is a failure to state a claim for which relief may be granted, lack of subject matter jurisdiction, improper venue, and lack of personal jurisdiction over the individual third-party defendants. For these reasons the Court is asked to dismiss the third-party complaint.

This Court must determine whether this is a proper forum to hear the third-party complaint or whether the third-party complaint may be heard in any forum. The Court must also eventually determine whether this third-party cause of action should be transferred to New Jersey.

I.

The first issue involves only Count IV of the Third-Party Complaint where the third-party defendants allege that R. G. Dickinson and Company and other third-party plaintiffs do not have standing to sue because they are not a "seller or purchaser" of securities. Birnbaum v. Newport Steel Corporation, 193 F.2d 461 (2d Cir. 1952), cert. denied, 343 U.S. 956, 72 S.Ct. 1051, 96 L. Ed. 1356 (1952) is cited for the proposition that a cause of action based upon Rule 10b-5, 17 C.F.R., Section 240.106-5 and Section 10(b) of the Securities Exchange Act of 1934 (Title 15 U.S.C., Section 78j(b)) must be prosecuted by a plaintiff who is a "seller or purchaser" of securities. The third-party defendants contend that the third-party plaintiffs are not "sellers or purchasers" within the scope of the Birnbaum doctrine and the following cases: Greater Iowa Corp. v. McLendon, 378 F.2d 783, 790-791 (8th Cir. 1967); City Nat'l. Bank v. Vanderboom, 422 F.2d 221, 228-229 (8th Cir. 1970); Vanderboom v. Sexton, 422 F.2d 1233, 1243 (8th Cir. 1970); Erling v. Powell, 298 F.Supp. 1154, 1156 (D.S.D.1969), aff'd., 429 F.2d 795, 797-799 (8th Cir. 1970); Greenstein v. Paul, 400 F.2d 580, 581 (2d Cir. 1968); Iroquois Industries, Inc. v. Syracuse China Corp., 417 F.2d 963, 966 (2d Cir. 1969), cert. denied, 399 U.S. 909, 90 S.Ct. 2199, 26 L.Ed.2d 561 (1970); Kahan v. Rosenstiel, 424 F.2d 161, 173 (3d Cir. 1970); Landy v. F. D. I. C., 486 F. 2d 139 (3d Cir. 1973); Rekant v. Desser, 425 F.2d 872, 877 (5th Cir. 1970); Herpich v. Wallace, 430 F.2d 792, 804-805 (5th Cir. 1970); Levine v. Seilon, 439 F.2d 328, 329 (2d Cir. 1971); GAF Corp. v. Milstein, 453 F.2d 709, 721-722 (2d Cir. 1971); Drachman v. Harvey, 453 F.2d 722, 731 (panel), 738 (en banc) (2d Cir. 1972). The Birnbaum doctrine was most recently discussed by the Eighth Circuit in Travis v. Anthes Imperial Limited, 473 F.2d 515 (8th Cir. 1973):

"We have followed other courts in holding that the quoted phrase (of the S.E.C. Act) generally limits standing to those who are defrauded `purchasers' or `sellers' of securities, and to limit the coverage of the statute and rule to fraudulent practices in connection with the `purchase' or `sale' of securities."

The third-party plaintiffs do not claim that the "purchaser-seller" requirement to assume standing to sue is not applicable in this case. They assert instead that they should fall within the "purchaser-seller" category of Birnbaum and its progeny. It is contended that a line of cases following Birnbaum utilize a "broad brush" approach in characterizing persons as buyers or sellers of securities and that the third-party plaintiffs fall within this expanded classification. In other words, plaintiffs who might not fit a definition of purchaser or seller in the strict sense of the words would fall within the "purchaser or seller" requirement of Birnbaum under a broadened...