Independence Shares Corporation v. Deckert

• Court: U.S. Court of Appeals — Third Circuit
• Writing for the Court: BIGGS, CLARK, and JONES, Circuit
• Citation: Independence Shares Corporation v. Deckert, 108 F.2d 51 (3rd Cir. 1939)
• Decision Date: 20 December 1939
• Docket Number: 7147.,No. 7146,7146
• Parties: INDEPENDENCE SHARES CORPORATION et al. v. DECKERT et al. PENNSYLVANIA CO. FOR INSURANCES ON LIVES AND GRANTING ANNUITIES v. SAME.

108 F.2d 51 (1939)

INDEPENDENCE SHARES CORPORATION et al. v. DECKERT et al. PENNSYLVANIA CO. FOR INSURANCES ON LIVES AND GRANTING ANNUITIES v. SAME.

Nos. 7146, 7147.

Circuit Court of Appeals, Third Circuit.

November 11, 1939.

Rehearing Denied December 20, 1939.

Walter Biddle Saul, Francis H. Bohlen, Jr., and Saul, Ewing, Remick & Saul, all of Philadelphia, Pa., for appellant Pennsylvania Co. for Insurances on Lives and Granting Annuities.

Robert F. Irwin, Jr., George M. Kevlin, Joseph Whetstone, Harris J. Latta, Jr., Donahue, Irwin, Merritt & Gest, and Townsend, Elliott & Munson, all of Philadelphia, Pa., for appellants Independence Shares Corporation and others.

Harry Shapiro, of Philadelphia, Pa., for appellees.

Before BIGGS, CLARK, and JONES, Circuit Judges.

BIGGS, Circuit Judge.

A bill of complaint was filed in the court below by the appellees against the appellant, Independence Shares Corporation, a Pennsylvania corporation, and certain affiliated companies. The appellees purchased Capital Savings Plan Contract Certificates issued by Capital Savings Plan, Inc., and have alleged in their bill of complaint that these were sold to them by the fraud and misrepresentations of Capital Savings Plan, Inc. by the use and means of instruments of transportation or communication in interstate commerce and by the use of the mails. At the time of the sales, Independence Shares Corporation was a wholly owned subsidiary of Capital Savings Plan, Inc. Upon December 31, 1938, however, Capital Savings Plan, Inc. and Independence Shares, Inc. merged and the appellant, the resultant corporation, acquired all of the assets and assumed all of the liabilities of Capital Savings Plan, Inc.

The bill of complaint also alleges that the assets of Independence Shares Corporation are being wasted and dissipated and that that corporation is insolvent. The bill prays the appointment of a receiver for the assets of the corporation who shall ascertain and adjudicate the claims of creditors and shall liquidate and dissolve the company. The complaint also asks for certain injunctive relief which we will discuss at a later point in this opinion. The bill is cast in the form of a class suit brought by the appellees not only on their own behalf but also for the benefit of all certificate holders similarly situated.

The court below denied motions to dismiss the bill of complaint made upon the ground that it stated no cause of action and that the court was without jurisdiction, and referred the case to a master to hear and report upon the question of solvency or insolvency of the appellant. This order, 27 F.Supp. 763, filed May 18, 1939, has been appealed from by Independence Shares Corporation.

The contract certificates purchased by the appellees called for payments to be made by the subscribers. These payments were made by the subscribers to the other appellant, The Pennsylvania Company for Insurances on Lives and Granting of Annuities as trustee. The Pennsylvania Company made certain deductions from the sums paid to it and invested the balance as directed by Independence Shares Corporation in Independence Trust Shares for the accounts of the respective certificate holders. Independence Shares Corporation created these trust shares by itself purchasing the shares of stock of certain specified corporations. The trust shares represent interests in the stocks so bought. The Pennsylvania Company in turn purchased aliquot portions of the trust shares and holds its purchases as we have stated for the benefit of the accounts of the certificate holders. At the time of the filing of the bill of complaint a sum of money representing charges made by the appellant for the reinvestment of funds was in the possession of The Pennsylvania Company. By an order entered June 2, 1939, the court below enjoined The Pennsylvania Company from paying over the sum referred to to Independence Shares Corporation or otherwise disposing of it during the pendency of the action. The Pennsylvania Company has appealed from this order.

Since the two appeals grow out of the same set of facts, we will dispose of them in one opinion.

The complainants with one exception are citizens of Pennsylvania. The jurisdiction of the court below cannot be sustained therefore upon diversity of citizenship. Lee v. Lehigh Valley Coal Company, 267 U.S. 542, 45 S.Ct. 385, 69 L.Ed. 782; Salem Trust Co. v. Manufacturers' Finance Company, 264 U.S. 182, 44 S.Ct. 266, 68 L.Ed. 628, 31 A.L.R. 867; Osthaus v. Button, 3 Cir., 70 F.2d 392. Nor does the amount in controversy exceed the sum of $3,000. Section 24(1) of the Judicial Code as amended, 28 U.S.C.A. § 41(1). The claims of the appellees may not be aggregated and the claim of no one appellee amounts to more than $2,000. Moore's Federal Practice, Vol. 2, Section 23.08; Pinel v. Pinel, 240 U.S. 594, 36 S.Ct. 416, 60 L.Ed. 817; Lion Bonding & Surety Co. v. Karatz, 262 U.S. 77, 43 S.Ct. 480, 67 L. Ed. 871.

In our opinion, none the less, the court below had jurisdiction of the controversy by virtue of the provisions of Sections 12 (2) and 22(a) of the Securities Act of 1933 (May 27, 1933, c. 38, Title I, 48 Stat. 84 and 86, 15 U.S.C.A. §§ 77l(2) & 77v(a).

Section 22(a) provides that "The district courts of the United States * * * shall have jurisdiction of offenses and violations under this title * * * 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 title subchapter. * * *"

Section 12(2) of the Act states that "Any person who * * * sells a security * * * by the use of any means or instruments of transportation or communication in interstate commerce or of the mails, by means of a prospectus or oral communication, which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, * * * and who shall not sustain the burden of proof that he did not know, * * * of such untruth or omission, shall be liable to the person purchasing such security from him, who may sue either at law or in equity in any court of competent jurisdiction, to recover the consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security, or for damages if he no longer owns the security."

Jurisdiction in this case, however, is not dependent upon diversity of citizenship and amount in controversy. The field which is carved out for the operation of federal jurisdiction by Section 22(a) is "all suits in equity and actions at law brought to enforce any liability or duty created by this title subchapter." Since the Act stems from the exercise of federal power under the commerce clause there is no question raised in the case on the line of power.

Section 12(2) of the Securities Act therefore provides a right to sue in a District Court of the United States for one who has purchased securities upon an untrue statement of a material fact made by the use of any means of transportation or communication in interstate commerce and that such a suit may be maintained by the aggrieved person in an action at law or by a bill in equity depending upon whether the cause of action is cognizable at law or in equity. At the present time, the remedy of the aggrieved person lies in the "civil action" prescribed by Rule 2 of the Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c. The nature of the suit, however, remains as specified by Section 12(2). The defrauded person must seek to recover "the consideration" paid by him. The relief given by the section is for a money judgment or for a money decree payable to the individual who has been defrauded.

Section 16 of the Act, 48 Stat. 84, 15 U.S.C.A. § 77p, providing that "The rights and remedies provided by this title subchapter shall be in addition to any and all other rights and remedies that may exist at law or in equity" does not relate...