Klapmeier v. Telecheck International, Inc.

• Decision Date: 11 September 1970
• Docket Number: No. 5-70 Civ. 31.,5-70 Civ. 31.
• Citation: 315 F. Supp. 1360
• Parties: James E. KLAPMEIER, John F. Harris, Jack Dekker, Zaven Dadekian, Dave Wilbourn, Plaintiffs, v. TELECHECK INTERNATIONAL, INC., a Hawaii Corporation, Harry M. Flagg, Harry D. Felt, Robert J. Baer, Herbert C. H. Chun, George L. K. Kerr, Herman T. F. Lum, Bruce A. McCandless, Gerald C. McKenna, David S. Nakano, Omar A. Tunks, J. Edwin Whitlow, and Clifford H. N. Yee, Defendants.
• Court: U.S. District Court — District of Minnesota

315 F. Supp. 1360

James E. KLAPMEIER, John F. Harris, Jack Dekker, Zaven Dadekian, Dave Wilbourn, Plaintiffs, v. TELECHECK INTERNATIONAL, INC., a Hawaii Corporation, Harry M. Flagg, Harry D. Felt, Robert J. Baer, Herbert C. H. Chun, George L. K. Kerr, Herman T. F. Lum, Bruce A. McCandless, Gerald C. McKenna, David S. Nakano, Omar A. Tunks, J. Edwin Whitlow, and Clifford H. N. Yee, Defendants.

No. 5-70 Civ. 31.

United States District Court, D. Minnesota, Fifth Division.

September 11, 1970.

Rider, Bennett, Egan, Johnson & Arundel, by Stuart W. Rider, Jr., Minneapolis, Minn., for plaintiffs.

Dorsey, Marquart, Windhorst, West & Halladay, by Peter Dorsey and James H. O'Hagan, Minneapolis, Minn., for defendants.

NEVILLE, District Judge.

Jurisdiction in the above entitled case over the persons of certain parties defendant, residents of Hawaii and California, not claimed to be reachable by process under the Minnesota long-arm statute, depends upon the application of 15 U.S.C. § 78aa, § 27 of the Securities Exchange Act of 1934, which reads:

"The district courts of the United States * * * shall have exclusive jurisdiction of violations of this chapter or the rules and regulations thereunder, and of all suits in equity and actions at law brought to enforce any liability or duty created by this chapter or the rules and regulations thereunder. Any criminal proceeding may be brought in the district wherein any act or transaction constituting the violation occurred. Any suit or action to enforce any liability or duty created by this chapter or rules and regulations thereunder, or to enjoin any violation of such chapter or rules and regulations, may be brought in any such district or in the district wherein the defendant is found or is an inhabitant or transacts business, and process in such cases may be served in any other district of which the defendant is an inhabitant or wherever the defendant may be found. * * *" Emphasis added

and on § 22(a) of the Securities Act of 1933, codified as 15 U.S.C. § 77v, which makes similar provision for nationwide service of process.

The basis for plaintiffs' allegations both of amenability to personal jurisdiction under the above section and of liability under certain sections of the Securities Act is their contention that these defendants are "controlling persons" within the meaning of 15 U.S.C. §§ 77o and 78t(a).

The issue of "control" is a complex fact question which requires an examination of the relationships of the various alleged "controlling persons" to the person or entity which transacted the sale of securities alleged to have violated the Act, an examination of which cannot be limited to a cursory review of their proportionate equity positions, employment or director status on the relevant dates. While a majority shareholder might as a matter of law be held to "control" the entity regardless of his actual participation in management decisions and the specific transaction in question, the absence of a substantial ownership of shares does not foreclose liability under the Act as a "controlling person". The court does not believe this issue is adaptable to resolution against the plaintiffs at this early stage of the case. In a situation where jurisdictional facts are so closely intertwined with the ultimate factual issue determinative of statutory liability, this court must work from a presumption that jurisdictional facts alleged in the complaint to the effect that these defendants are, or were, "controlling persons" are correct for purposes of pretrial motions attacking jurisdiction. To grant the motions now would be a determination of the ultimate fact question that the movants were not "controlling persons". The determination to deny the motions to dismiss however cannot and should not be read to imply an ultimate finding that they are or were "controlling persons", but only that thus far the court does not have sufficient evidence before it to be able intelligently to rule on the question. Conceivably after discovery...