Holtzman v. Proctor, Cook & Co., Inc.

• Decision Date: 30 December 1981
• Docket Number: Civ.A. No. 77-915-MC.
• Parties: George W. HOLTZMAN, et al., Plaintiffs, v. PROCTOR, COOK & CO., INC., et al., Defendants.
• Court: U.S. District Court — District of Massachusetts

528 F. Supp. 9

George W. HOLTZMAN, et al., Plaintiffs, v. PROCTOR, COOK & CO., INC., et al., Defendants.

Civ.A. No. 77-915-MC.

United States District Court, D. Massachusetts.

December 30, 1981.

John C. Wyman, Roche, Carens & DeGiacomo, Boston, Mass., for plaintiffs.

B. B. Denniston, III, Goodwin, Procter & Hoar, Boston, Mass., for defendants.

Roscoe Trimmier, Jr., Ropes & Gray, Boston, Mass., for George N. Proctor.

MEMORANDUM AND ORDER

McNAUGHT, District Judge.

This action was commenced on March 30, 1977, by several members of the Holtzman family against their former stock brokerage firms and principals of those firms. The complaint alleges that in April, 1971 a broker, then employed by Proctor, Cook & Co., sought accounts from the plaintiffs and made representations as to how he would handle those accounts. The plaintiffs seek to recover for losses which were allegedly caused by the fraud, breaches of contract and violations of various federal securities laws committed by the named defendants.¹

The plaintiffs are George W. and Marion Holtzman, their sons George R. and Edward, and George's wife Barbara. The defendants are Proctor, Cook, a corporation which was dissolved as of December 12, 1973; Adams & Peck, a partnership which purchased certain of the assets of Proctor, Cook and which succeeded to plaintiffs' accounts in March, 1973; Braman B. Adams (now deceased) and James A. Bryant, two of the former partners of Adams & Peck; and George N. Proctor, a former director and shareholder of Proctor, Cook and a former partner in Adams & Peck.

Defendants have moved for dismissal of the complaint and/or for summary judgment. The parties have submitted the motions for consideration without a hearing. Since affidavits, answers to interrogatories, and a deposition have been submitted to and considered by the court, the motions are treated as motions for summary judgment.

I. Facts.

In April of 1971, James M. Potts, a broker at Proctor, Cook, solicited the business of the plaintiffs. The plaintiffs opened various accounts with Potts allegedly in reliance on Potts' experience, his familiarity with the plaintiffs' financial picture, and his express oral agreement to invest conservatively and to limit losses to no more than 15% per year.²

The plaintiffs each executed a customer's agreement and a trading authorization vesting in Potts the discretionary power to invest plaintiffs' funds and property. The agreements do not mention the alleged representations of Potts.

The accounts of the plaintiffs suffered losses in the years after they were opened with Proctor, Cook. The combined accounts of George W. Holtzman declined in value from approximately $120,000 when they were opened to approximately $62,500 by March of 1973.

In March of 1973, Adams & Peck purchased certain of the assets of Proctor, Cook. The purchase agreement disclaimed assumption of any obligations or liabilities of Proctor, Cook except those set out in a schedule attached to the agreement. Plaintiffs' accounts were among those transferred to Adams & Peck, where they remained for nearly three more years. Adams & Peck retained the services of Potts for approximately one year after the transfer. Potts left Adams & Peck in the spring of 1974 and a Mr. Klauer took over the management of the plaintiffs' accounts.

In 1974 Klauer allegedly told Holtzman that the accounts were in good order and that he would keep a close watch over them. Relying on those assurances, it is claimed, Holtzman permitted Adams & Peck to retain management of the accounts. In a letter dated February 14, 1976, Holtzman informed the defendant Proctor that the plaintiffs were making a claim and requesting arbitration under the rules of the New York Stock Exchange. The accounts were closed in the spring of 1978.

Throughout the period in which they had accounts with Proctor, Cook and Adams & Peck, the plaintiffs received confirmation slips whenever a transaction occurred in any of the accounts and monthly statements showing any transactions and listing the holdings in their accounts at the end of each month.

II. Claims of Plaintiffs.

Plaintiffs' major allegations are that defendants, through the representations of Potts and by their own actions, committed fraud and violated various federal laws and rules and regulations of the Securities and Exchange Commission (S.E.C.) and of the New York Stock Exchange (N.Y.S.E.).

Count I charges common law fraud. Counts II and III allege breaches of contracts. Count IV appears to allege a violation of S.E.C. Rule 10b-5, 17 C.F.R. § 240, 10b-5. In Count V, plaintiffs allege that their accounts were "securities" and that Potts made untrue statements in the solicitation of those "securities" in violation of Rule 10b-5. Counts VI and XI also charge violations of Rule 10b-5 in that trading in the accounts when they were not registered as securities was a fraudulent and deceptive course of business. Count X charges that all defendants are derivatively liable for the alleged violations of securities law because they either knew or had reason to know of the illegal activities and participated therein. Finally, Count XIII³ states a claim for a violation of N.Y.S.E. rules.

Plaintiffs seek recision of their contracts with Proctor, Cook, the return of all funds and property deposited with Proctor, Cook, plus interest, damages, costs and attorney's fees.

III. Motions to Dismiss And/Or for Summary Judgment.

(A) Proctor, Cook & Co.

Proctor, Cook & Co. was dissolved by decree of the Massachusetts Supreme Judicial Court on December 12, 1973. According to M.G.L. c. 156B, § 102,

"Every corporation whose corporate existence for other purposes is terminated ... shall nevertheless be continued as a body corporate for three years after the time its existence is terminated, for the purpose of prosecuting and defending suits by or against it ... provided, that the corporate existence of such a corporation, for the purposes of any suit brought against it prior to the commencement of, or during said period of three years, shall continue beyond said period for a further period of 90 days after the final judgment in the suit."

Since Proctor, Cook was dissolved on December 12, 1973, and this suit brought in March of 1977, the plaintiffs' action against Proctor, Cook is barred by Mass. General Laws c. 156B, § 102.

Plaintiffs' contention that they did not know of the dissolution of Proctor, Cook until 1976 does not aid their cause. M.G.L. c. 156B, § 102 is a statute mandating the survival of corporations for certain purposes; it is not a statute of limitations. Tolling principles are therefore inapplicable. See Canadian Ace Brewing Co. v. Anheuser-Busch, Incorporated, 448 F.Supp. 769 (N.D.Ill.E.D.1978), aff'd 601 F.2d 593 (7th Cir. 1979), cert. denied 444 U.S. 884, 100 S.Ct. 175, 62 L.Ed.2d 113 (1979). Further, Mr. Holtzman's statements in his letter dated February 14, 1976 (Bryant Affidavit, Exhibit I) indicate that he knew then that Proctor, Cook had been "taken over by Adams & Peck" and that he realized that "the statute of limitations will soon apply to any claim we may have against Proctor and Cook". (Bryant Affidavit, Exhibit I). Such knowledge on the part of Mr. Holtzman makes his delay in filing suit against Proctor, Cook unjustifiable, even apart from the provisions of the statute.

For these reasons, the plaintiffs' claims against Proctor, Cook were brought too late, and the motion of Proctor, Cook for summary judgment must be granted.

(B) George N. Proctor

Mr. Proctor argues that any claims arising out of his former status as a shareholder or director of Proctor, Cook must fail. Insofar as plaintiffs seek to impose upon Proctor whatever liability the corporation may have had, I agree with him.

Plaintiffs have neither alleged nor shown: (1) that the assets of Proctor, Cook prior to its dissolution were insufficient to satisfy their claims against it, (2) that Proctor so controlled the assets of Proctor, Cook as to work fraud upon them, (3) that Proctor continued the business of the corporation after its dissolution, or (4) that the dissolution of Proctor, Cook was an attempt to escape its alleged liability to plaintiffs. See Gonzalez v. Progressive Tool & Die Co., 455 F.Supp. 363 (E.D.N.Y.1978) and 463 F.Supp. 117 (E.D.N.Y.1979).

In light of plaintiffs' knowledge of Proctor, Cook's status in February of 1976 and their failure to bring suit at that time, it would be unjust to impose the liability of Proctor, Cook upon Mr. Proctor.

Mr. Proctor should be held liable only for his own actions or omissions, if any. (See, however, discussion of statute of limitations at Part III. (D), infra.) Summary judgment, therefore, is allowed as to any claims seeking to impose "corporate" liability on defendant Proctor.

(C) Adams & Peck, Braman Adams, and James Bryant

Defendants Adams, Bryant, and Adams & Peck argue that they are not liable as successors for the acts of Proctor, Cook prior to the purchase of the Proctor, Cook assets by Adams & Peck in March of 1973. Since there is no charge that Adams & Peck was involved in any of Potts' alleged representations in 1971 or any activity prior to March of 1973 and since Adams & Peck did not employ Potts until March of 1973, Adams & Peck, and Bryant and Adams, can be liable for pre-173 conduct only if it succeeded to the liabilities of Proctor, Cook as a purchaser of its assets. The purchase agreement between Proctor, Cook and Adams & Peck (Bryant Affidavit, Exhibit H) provides that Adams & Peck would not assume any obligations or liabilities which arose out of Proctor, Cook's conduct of its business except those listed in an exhibit to the agreement (chiefly contracts). The claims of the plaintiffs are not listed.

Plaintiffs argue that the liability of these defendants is based on the fact that Potts was employed by them and continued to affirm his alleged representations to the plaintiffs during that employment....