Kardon v. National Gypsum Co.

• Decision Date: 02 December 1946
• Docket Number: Civ. A. No. 6203.
• Citation: 69 F. Supp. 512
• Parties: KARDON et al. v. NATIONAL GYPSUM CO. et al.
• Court: U.S. District Court — Western District of Pennsylvania

69 F. Supp. 512

KARDON et al. v. NATIONAL GYPSUM CO. et al.

Civ. A. No. 6203.

District Court, E. D. Pennsylvania.

December 2, 1946.

Henry Arronson, of Philadelphia, Pa., for plaintiff.

R. T. McCracken and E. H. Cushman, both of Philadelphia, Pa., for defendant.

Roger S. Foster, of Philadelphia, Pa., for Securities and Exchange Commission.

KIRKPATRICK, District Judge.

This complaint, in substance, charges a conspiracy, participated in by the three defendants, and certain fraudulent misrepresentations and suppressions of the truth in pursuance of the conspiracy, as a result of which the plaintiffs were induced to sell their stock in two corporations to the Slavins, two of the defendants, for far less than its true value.

None of the three defendants have been served with process in this district. The Slavins were served in the Western District of Michigan; and National, although, being a registered foreign corporation in Pennsylvania it could have been served here, was served at its main office in the Western District of New York. The Slavins have moved to dismiss on the ground that the service upon them was invalid and that the Court has not obtained jurisdiction over their persons. National has moved to dismiss (1) on the same ground and (2) on the ground that the complaint fails to state a valid cause of action against them. National also asserts that, even if served in Pennsylvania, the action could not proceed against it because the Slavins, indispensable parties, have not been and cannot be brought into court.

This Court has jurisdiction over the individual defendants only if the Securities Exchange Act of 1934, 15 U.S.C.A. § 78a et seq., is applicable. Sec. 27 of that Act authorizes extraterritorial service of process in suits "to enforce any liability or duty created by this title or rules and regulations thereunder, or to enjoin any violation of such title or rules and regulations."

Assuming, but not deciding, that the words "to enjoin any violation of such title or rules and regulations" mean enforcement proceedings under Sec. 21 and do not refer to suits by individuals, the main question is whether the defendants' conduct, stated in the complaint as a basis of the plaintiffs' cause of action, gives rise to a liability or involves a breach of duty, created by the Act.

It is not, and cannot be, questioned that the complaint sets forth conduct on the part of the Slavins directly in violation of the provisions of Sec. 10(b) of the Act and of Rule X-10B-5 which implements it. It is also true that there is no provision in Sec. 10 or elsewhere expressly allowing civil suits by persons injured as a result of violation of Sec. 10 or of the Rule. However, "The violation of a legislative enactment by doing a prohibited act, or by failing to do a required act, makes the actor liable for an invasion of an interest of another if; (a) the intent of the enactment is exclusively or in part to protect an interest of the other as an individual; and (b) the interest invaded is one which the enactment is intended to protect. * * *" Restatement, Torts, Vol. 2, Sec. 286. This rule is more than merely a canon of statutory interpretation. The disregard of the command of a statute is a wrongful act and a tort. As was said in Texas & Pacific R. Co. v. Rigsby, 241 U.S. 33, 39, 36 S.Ct. 482, 484, 60 L.Ed. 874, "This is but an application of the maxim, Ubi jus ibi remedium."

Of course, the legislature may withhold from parties injured the right to recover damages arising by reason of violation of a statute but the right is so fundamental and so deeply ingrained in the law that where it is not expressly denied the intention to withhold it should appear very clearly and plainly. The defendants argue that such intention can be deduced from the fact that three other sections of the statute (Sections 9, 16 and 18) each declaring certain types of conduct illegal, all expressly provide for a civil action by a person injured and for incidents and limitations of it, whereas Sec. 10 does not. The argument is not without force. Were the whole question one of statutory interpretation it might be convincing, but the question is only partly such. It is whether an intention can be implied to deny a remedy and to wipe out a liability which, normally, by virtue of basic principles of tort law accompanies the doing of the prohibited act. Where, as here, the whole statute discloses a...