Straley v. Universal Uranium and Milling Corp.

• Decision Date: 19 April 1961
• Docket Number: No. 16986.,16986.
• Citation: 289 F.2d 370
• Parties: William Thomas STRALEY, Ruth R. Straley and William Reynolds Straley, a minor, by William Thomas Straley, his guardian ad Litem, Appellants, v. UNIVERSAL URANIUM AND MILLING CORPORATION, a Nevada corporation, Kent Johnson, Louis Stillson, Elmer K. Agaard, Carl Fisher, Little Star Uranium Co., Inc., a Wyoming corporation, Anschutz Drilling Co., Inc., a Colorado corporation, Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

289 F.2d 370 (1961)

William Thomas STRALEY, Ruth R. Straley and William Reynolds Straley, a minor, by William Thomas Straley, his guardian ad Litem, Appellants, v. UNIVERSAL URANIUM AND MILLING CORPORATION, a Nevada corporation, Kent Johnson, Louis Stillson, Elmer K. Agaard, Carl Fisher, Little Star Uranium Co., Inc., a Wyoming corporation, Anschutz Drilling Co., Inc., a Colorado corporation, Appellees.

No. 16986.

United States Court of Appeals Ninth Circuit.

April 19, 1961.

Greenbaum, Baker & Ancel, Mark G. Ancel, Los Angeles, Cal., for appellant.

Horace J. Knowlton, Salt Lake City, Utah, for appellees.

Robert W. Driscoll, San Marino, Cal., for corporate appellees.

Before BARNES, JERTBERG and KOELSCH, Circuit Judges.

JERTBERG, Circuit Judge.

The sole question presented on this appeal is: may laches bar the recovery by the purchaser of the consideration paid for securities issued in violation of Title 15 U.S.C.A. § 77e, where the purchaser proves his claim under Title 15 U.S.C.A. § 77l(1), and has brought his action within one year from the date of the sale of such securities as required by Title 15 U.S.C.A. § 77m?

At the conclusion of the trial which followed pretrial conferences culminating in a pretrial order, the district court denied relief to appellants on the ground that laches barred them from asserting their claims against appellees. From such judgment appellants filed a timely appeal.

Jurisdiction of the district court is based on the provisions of Title 15 U.S. C.A. § 77l and Section 77v. This Court has jurisdiction under Title 28 U.S.C.A. §§ 1291 and 1294.

Section 77e(a) (1) in substance declares it unlawful for any person directly or indirectly to make use of the mails or instruments of transportation or communication in interstate commerce to sell a security unless a registration statement as to such security is in effect. Section 77l(1) provides in substance that any person who sells a security in violation of Section 77e 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." Section 77m provides in substance that no action shall be maintained to enforce any liability created under Section 77l(1) unless brought within one year after the violation on which it is based.

Under findings of fact of the district court, which are unquestioned on this appeal, the appellants would have been entitled to judgment against the appellees for the full consideration paid, plus interest (less $400 which was stipulated to be the value of the stock at the time of the tender), if the district court had not found that the claims of appellants were barred by laches.

On November 21, 1955, appellants purchased 30,000 shares of the common stock of Universal Uranium and Milling Corporation, a Nevada corporation, one of the appellees (hereinafter called "Universal"), of the par value of one cent per share, for 35 cents per share. The sales of the stock to appellants were consummated at Los Angeles by one Clyde Morton, an agent of Universal. In January 1956, Morton was called before the Securities and Exchange Commission in Los Angeles, and appellants then learned that the shares of stock were sold in violation of the Securities Act and that they could recover the consideration paid for such stock if they filed a claim therefor. On March 2, 1956, the shareholders of Universal voted to merge said corporation with Little Star Uranium Co., Inc., a Wyoming corporation, one of the appellees (hereinafter called "Little Star"). Appellants gave their proxies to Clyde Morton with instructions to vote the same in favor of the merger. Clyde Morton attended the meeting and voted appellants' stock in favor of the merger. The merger was completed on May 4, 1956, and Little Star, as the successor and surviving corporation, took over the assets and assumed all of the liabilities and obligations of Universal. On July 3, 1956, appellants exchanged their shares of stock in Universal for an equal number of shares in Little Star. At the time of this merger the shares of Little Star were selling on the open market in Salt Lake City for fifty cents per share. During the summer of 1956 the shareholders of Little Star voted to merge with Anschutz Drilling Co., Inc., a Colorado corporation, one of appellees (hereinafter called "Anschutz"), and the merger between Little Star and Anschutz was consummated and Anschutz, as the successor and surviving corporation, took over all of the assets and assumed all of the liabilities and obligations of Little Star. None of the shares of stock of appellants was voted for the merger, although appellants made no objections to the same, and on October 8, 1956 appellants exchanged their shares of stock in Little Star for shares of stock in Anschutz. By early November 1956, the shares of stock of Anschutz had dropped to a point where they had only a nominal value. On November 20, 1956 appellants instituted suit based on the rescission of the sales of the shares of stock to recover the purchase price paid therefor. They had previously made tender of the securities to appellees and been met with refusal of their demand for the return of the purchase price. The appellees affirmatively alleged in their answers that the appellants' claim was barred by laches in failing to act prior to the mergers hereinbefore mentioned and the resultant detriment thereby caused to the appellees.

The district court specifically found that the appellants delayed making demands upon the appellees until the day before the expiration of the statute of limitations and that "said delay was with the intention of determining the market price of the stock to decide whether it would be to the advantage of" appellants "to keep said stock or to obtain the return of their money"; that said delay resulted in injury to appellees in that, if appellants had requested a refund of their money within five or six months after ascertaining that the stock was sold in violation of the Securities Act, appellees could have made the refund without loss; that said delay was unreasonable. The district court also found that the appellants had full knowledge of the matters referred to in the complaint on and before the mergers of Universal and Little Star, and Little Star and Anschutz; that appellants failed to give either Little Star or Anschutz notice of their claims prior to either of the mergers, and that if appellants had asserted their claims against Little Star prior to the merger with Universal, or prior to Little Star's merger with Anschutz, each of said corporations would have had the opportunity to have adjusted or settled the said claims prior to either merger; and that as a result of the inaction of appellants Anschutz and Little Star were misled to their detriment and that each merger was consummated without knowledge of appellants' claims.

From the extensive findings of fact of the district court on the subject of laches, the district court concluded the appellants waited an unreasonable time "after discovering that they could get their money returned before commencing this action" and that the appellants' claims are barred by laches.

The basic purpose and intent of Congress in enacting the Securities Act of 1933 was to protect innocent purchasers of securities, and the provisions of the Act must be construed in light of such intent and purpose. A. C. Frost & Co. v. Coeur D'Alene Mines Corp., 1940, 312 U.S. 38, 61 S.Ct. 414, 85 L.Ed. 500. In accordance with such intent and purpose it was held in the above cited case that a sale of securities in violation of Section 77e(a) (1) was not void but merely voidable at the option of the purchaser.

The basic issue presented on this appeal arises from the conclusion of the district court that the equitable doctrine...