Greenwich Savings Bank v. Shields

• Decision Date: 12 January 1955
• Citation: 131 F. Supp. 368
• Parties: The GREENWICH SAVINGS BANK, Plaintiff, v. Paul V. SHIELDS et al., Defendants.
• Court: U.S. District Court — Southern District of New York

131 F. Supp. 368

The GREENWICH SAVINGS BANK, Plaintiff, v. Paul V. SHIELDS et al., Defendants.

United States District Court S. D. New York.

January 12, 1955.

Sincerbeaux & Shrewsbury, New York City, for plaintiff, Ralph M. Carson, Alfred W. Bergren, New York City, of counsel.

Cahill, Gordon, Reindel & Ohl, New York City, for defendant Shields & Co., Mathias F. Correa, New York City, of counsel.

Begley, Diamond & Begley, Schenectady, N. Y., for defendant Parsons, Brinckerhoff, Hall & Macdonald.

Gross, Welch, Vinardi & Kauffman, Omaha, Neb., for defendants Robert E. Schweser Co. and Leonard L. Lawrence, Watters & Donovan, New York City, of counsel.

Asbury S. Edmonds, New York City, for defendant Marshall Dancy.

McGOHEY, District Judge.

Defendants Leonard L. Lawrence and Robert E. Schweser Co. separately move to set aside and vacate the service and alternatively to dismiss the complaint for failure to state a claim against them upon which relief can be granted.

The motions are in all respects denied.

The action is brought by a purchaser of the bonds of the Bellevue (Nebraska) Bridge Commission against the following defendants: the co-partners of Shields & Co., a partnership doing business in New York; Robert E. Schweser Co., a Nebraska corporation not doing business in New York; Leonard L. Lawrence, Chairman of the Bellevue (Nebraska) Bridge Commission; the copartners of Parsons, Brinckerhoff, Hall and Macdonald, a partnership doing business in New York; and Marshall Dancy, an individual doing business in New York. Shields & Co. and Robert E. Schweser Co. underwrote the sale and distribution of the bonds to the public. Parsons, Brinckerhoff, Hall and Macdonald prepared a traffic study included in a circular made available to prospective buyers.

The plaintiff alleges that it contracted to and did purchase $300,000 of bonds from Marshall Dancy, in reliance upon the circular and traffic report delivered by Dancy to the plaintiff; that certain specific representations in the traffic report were false and known to the defendants to be so; that the defendants were engaged in a common plan and concert of action to cause the plaintiff to purchase bonds in reliance upon misrepresentations in the circular and traffic report.

The moving defendants are charged with having acted in concert with the other defendants to defraud plaintiff in violation of the Securities Act of 1933, § 17(a), 15 U.S.C.A. § 77q, and the Securities Exchange Act of 1934, § 29, 15 U.S.C.A. § 78cc, and § 10(b) 15 U.S.C.A. § 78j, and Rule X-10B-5 (17 CFR 202) promulgated thereunder.

Neither moving defendant resides in or does business in New York. Both were served with process in Nebraska, purportedly under the statutory authority for extraterritorial service contained in § 22(a) of the 1933 Act, 15 U.S.C.A. § 77v, and § 27 of the 1934 Act, 15 U.S. C.A. § 78aa.

The argument for dismissal may be summarized as follows. The plaintiff's claim is based solely on the falsity of a prospectus and communication. Section 77l prescribes the only "Civil liabilities arising in connection with prospectuses and communications". These liabilities are imposed only on a "person who * * * sells a security". Neither of the moving defendants is charged with making the sale. Moreover when the securities sold are issued by a political subdivision of a state, as the bonds here concededly were, the "person who * * * sells" such securities is exempted from the liabilities imposed by 77l. Accordingly the complaint does not...