Straley v. UNIVERSAL URANIUM AND MILLING CORPORATION

• Decision Date: 24 March 1960
• Docket Number: No. 20742.,20742.
• Citation: 182 F. Supp. 940
• Court: U.S. District Court — Southern District of California
• Parties: William Thomas STRALEY, Ruth R. Straley, and William Reynolds Straley, a Minor, By William Thomas Straley, his guardian ad litem, Plaintiffs, v. UNIVERSAL URANIUM AND MILLING CORPORATION, a Nevada corporation, Kent Johnson, Louis Stillson, Elmer K. Aagaard, Carl Fisher, Louis D. Smith, Little Star Uranium Co., Inc., a Wyoming corporation, Anschutz Drilling Co., Inc., a Colorado corporation, Defendants and Third Party Claimants (Horace J. Knowlton, Third Party Defendant).

182 F. Supp. 940

William Thomas STRALEY, Ruth R. Straley, and William Reynolds Straley, a Minor, By William Thomas Straley, his guardian ad litem, Plaintiffs, v. UNIVERSAL URANIUM AND MILLING CORPORATION, a Nevada corporation, Kent Johnson, Louis Stillson, Elmer K. Aagaard, Carl Fisher, Louis D. Smith, Little Star Uranium Co., Inc., a Wyoming corporation, Anschutz Drilling Co., Inc., a Colorado corporation, Defendants and Third Party Claimants (Horace J. Knowlton, Third Party Defendant).

No. 20742.

United States District Court S. D. California, Central Division.

March 24, 1960.

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

Robert W. Driscoll, Los Angeles, Cal., for defendant Anschutz Drilling Co., Inc.

Horace J. Knowlton, Salt Lake City, Utah, appeared for himself and all other defendants.

CROCKER, District Judge.

This is a civil action brought by William Thomas Straley, Ruth R. Straley, and William Reynolds Straley, under the Securities Act of 1933 (15 U.S.C.A. §§ 77a-77aa) to recover the consideration paid for stock sold in violation of the Act. 15 U.S.C.A. § 77e provides that it is unlawful to use the mails or interstate commerce in the sale of certain unregistered securities. 15 U.S.C.A. § 77l (1) provides that the seller of securities in violation of Section 77e is liable to the purchaser who sues to recover the consideration paid. 15 U.S. C.A. § 77m provides that no action shall be maintained unless brought within one year of the violation.

The facts of this case place a question of statutory interpretation novel to the Securities Act before this court, to wit, can the defense of laches bar the remedy of a plaintiff who has proven a claim under 15 U.S.C.A. § 77l(1) and has brought his action within the one-year period provided by 15 U.S.C.A. § 77m?

Counsel for plaintiffs has correctly argued that the Securities Act of 1933 created a new cause of action in the plaintiffs, that the limitation of one year provided in 15 U.S.C.A. § 77m is an integral part of the cause of action, and that upon the expiration of one year the right, not merely the remedy, is extinguished. In addition to the cases cited by plaintiffs' counsel, a full discussion of this rule can be found in the opinion of Judge Yankwich in the case of Adams v. Albany, D.C.1948, 80 F.Supp. 876. This court, however, does not agree with counsel for plaintiffs when he concludes that since the one-year limitation is an integral part of the statute that the plaintiffs have an absolute year in which to file their action, which in effect is arguing that facts which transpire within the one-year period and which constitute laches cannot be a defense to this action. The Supreme Court case of Patterson v. Hewitt, 1904, 195 U.S. 309, at page 318, 25 S.Ct. 35, at page 37, 49 L.Ed. 214, sets forth what I believe to be the better view when the Court states: "Where the statute is in terms applicable to suits in equity, as well as at law, it is ordinarily construed, in cases demanding equitable relief, as fixing a time beyond which the suit will not, under any circumstances, lie; but not as precluding the defense of laches, provided there has been unreasonable delay within the time limited by the statute."

The intent of Congress in passing the Securities Act of 1933 was to protect innocent purchasers of securities. In accordance with this intent it has been held that a sale in violation of the Act is not void but merely voidable at the option of the purchaser. See A. C. Frost & Co. v. Coeur D'Alene Mines Corp., 1941, 312 U.S. 38, 61 S.Ct. 414, 85 L.Ed. 500. The Securities Act itself is silent as to whether laches can be a defense, but since the remedy provided by the Act is essentially one of rescission the silence of Congress should be construed, in my opinion, as indicating that all existing defenses to a claim for rescission of an agreement which was voidable at its inception, including laches, should apply. Such a construction does not emasculate the legislative purpose or cause noxious consequences: the mere fact that a particular investor's remedy is barred does not mean that private investors worthy of protection are barred.

Having concluded that laches, short of the period provided in 15 U.S.C.A. § 77m is a defense to a claim arising under 15 U.S.C.A. § 77l(1), it must now be determined if the plaintiffs are guilty of laches.

Laches is not, like limitation, a mere matter of time, but it is principally a matter of the inequity of permitting a claim to be enforced; laches is an inequity founded upon some change in the condition of the property or the relations of the parties. See Galliher v. Cadwell, 1892, 145 U.S. 368, 12 S.Ct. 873, 36 L.Ed. 738; Johnson v. Atlantic G. & W. I. Transit Co., 1895, 156 U.S. 618, 15 S.Ct. 520, 39 L.Ed. 556; Penn Mutual Life Ins. Co. v. City of Austin, 1898, 168 U.S. 685, 18 S.Ct. 223, 42 L.Ed. 626.

The testimony was conflicting on many points,¹ but in regard to the defense of laches the court's findings are that on November 21, 1955, the plaintiffs purchased the stock of Universal Uranium and Milling Corporation (hereinafter referred to as Universal) which is the subject of this lawsuit for 35 cents per share from Clyde Morton, an agent of Universal. In the latter part of January, 1956, Clyde Morton was called before the Securities Exchange Commission in Los Angeles, California, and plaintiff William T. Straley then learned that the stock was sold in violation of the Securities Act and that plaintiffs' money...