Travis v. Anthes Imperial Limited, No. 71-1587.

• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)
• Writing for the Court: MATTHES, , and LAY and HEANEY, Circuit
• Citation: 473 F.2d 515
• Parties: Glen J. TRAVIS et al., Appellants, v. ANTHES IMPERIAL LIMITED et al., Appellees.
• Docket Number: No. 71-1587.
• Decision Date: 12 January 1973

473 F.2d 515 (1973)

Glen J. TRAVIS et al., Appellants,
v.
ANTHES IMPERIAL LIMITED et al., Appellees.

No. 71-1587.

United States Court of Appeals, Eighth Circuit.

Submitted May 10, 1972.

Decided January 12, 1973.

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John J. Cole, St. Louis, Mo., for appellants

Robert F. Dobbin, New York City, and Thomas E. Deacy, Jr., Kansas City, Mo., for appellees.

Before MATTHES, Chief Judge, and LAY and HEANEY, Circuit Judges.

HEANEY, Circuit Judge.

The defendants have been charged in a private civil action with defrauding the plaintiffs in violation of § 10(b) of the Securities Exchange Act of 1934,¹ Rule 10b-5² and the common law. The District Court, 331 F.Supp. 797, dismissed the action before trial for lack of jurisdiction over the subject matter and for improper venue. We reverse.

STATEMENT OF FACTS³

The plaintiffs are Glen J. Travis and his family of St. Louis, Missouri, and the St. Louis Union Trust Company (the corporate trustee of a Travis-family trust). The St. Louis Union Trust Company is a Missouri corporation with its principal place of business in Missouri.

The corporate defendants—Anthes Imperial Limited ("Anthes"), Molson Industries Limited ("Molson") and Dominion Securities Limited ("Dominion") —are Canadian corporations. Each corporation owns subsidiaries and conducts business in the United States, but the stock of these parent corporations has never been registered with the Securities Exchange Commission or listed on any American stock exchange. The twenty-three individual defendants were at the relevant time controlling shareholders, officers and/or directors of Anthes and/or Molson. Twenty-one of these individual defendants are Canadian residents; two reside in the United States in states other than Missouri.

Anthes has two classes of common stock, A and B, which were at the relevant time freely exchangeable for each other. In August, 1966, the plaintiffs, in a tax-free reorganization, exchanged their stock in a Travis-family corporation,

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Multiplex Company, for shares of Anthes Class A common stock. As of May 25, 1968, Anthes had 2,159,158 shares of common stock outstanding. Approximately 200,640 of these shares were owned by about one hundred stockholders who resided in the United States. The plaintiffs owned nearly eighty per cent of these shares

On June 28, 1968, a tender offer was made by Molson to Anthes Canadian stockholders for the purpose of merging Anthes into Molson. It provided for an exchange of Anthes common stock in return for Molson Class A and Class C stock and cash. Anthes shareholders residing in the United States were excluded from the offer. By September 30, 1968, Molson had acquired over ninety per cent of Anthes outstanding common stock.

The plaintiffs allege that the defendants, through various communications transmitted by mail and instrumentalities of interstate commerce and directed to the plaintiffs in the United States, led the plaintiffs to believe that if they retained their stock until after the expiration of the tender offer to the Canadian shareholders, a separate offer would be made to them and other United States shareholders. The plaintiffs also allege that the defendants did not intend to make the offer. The promised offer, according to the plaintiffs, was to be designed to provide an after-tax result for American shareholders substantially equivalent to that received by the Canadian shareholders. The plaintiffs allege that they relied on the defendants' promises and retained their stock. The plaintiffs further allege that the defendants excluded them from the tender offer with the purpose of denying them an opportunity to participate equally with Anthes Canadian shareholders in the benefits of the merger. This exclusion is alleged to have constituted self dealing because after the merger, some of the individual defendants obtained increased voting control, improved dividends and higher salaries and benefits.⁴

On June 26, 1969, a Molson vice president, telephoned plaintiffs' counsel and told him that a separate offer would not be made to the plaintiffs, but that plaintiffs could either exchange Anthes stock for Class A Molson stock plus cash at the tender offer exchange rate, or receive the cash equivalent thereof determined by the prevailing market value of Molson Class A stock. The Molson vice president allegedly warned that unless the plaintiffs agreed to sell their Anthes stock to Molson on these terms by the end of the following day, Molson would withdraw market support for the plaintiffs' stock.⁵ The plaintiffs acceded and sold their Anthes stock to Molson for $40.40 (Canadian) in cash per share. This price was allegedly substantially less than the plaintiffs would have received

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if they had sold their stock within thirty to sixty days after they first learned of the tender offer to the Canadian shareholders of Anthes when an open market for Anthes common stock still existed

Thereafter, the plaintiffs instituted a class action for damages. The first amended complaint—the one that we deal with here—had two counts. Count I purported to state two separate claims: (1) misrepresentations and nondisclosures in violation of § 10(b) and Rule 10b-5, and (2) self-dealing in violation of § 10(b) and Rule 10b-5. Count II purported to state common law claims for fraud and breach of fiduciary duties.

The defendants moved to dismiss the complaint on the following grounds:⁶ (1) lack of jurisdiction over the subject matter, (2) improper venue, (3) lack of personal jurisdiction over the defendants, (4) insufficiency of service of process, and (5) failure to state a claim upon which relief can be granted.

The trial court considered the defendants' motions on the basis of the complaint, briefs, affidavits and oral argument.

The trial court held that subject matter jurisdiction was lacking under § 27 of the Securities Exchange Act of 1934, 15 U.S.C. § 78aa, because: the plaintiffs were not sellers of securities within the meaning of § 10(b) and the defendants, fraudulent conduct did not induce the sale of the securities; and the transaction was a Canadian one in Canadian securities and circumstances were not present which permitted an extraterritorial application of the Act. Moreover, it held that the defendants' contacts and acts within the United States were not such necessary and substantial acts as to give the court jurisdiction.

The trial court also held that venue was not properly laid in the Eastern District of Missouri under either the special venue provisions of the Securities Exchange Act, 15 U.S.C. § 78aa, or the general venue statute, 28 U.S.C. § 1391. It stated that no acts or transactions constituting the violation had occurred in the district because "statements and negotiations with respect to the sale of plaintiffs' shares were conducted primarily at plaintiffs' initiative" and those acts which did take place in the district were not the acts alleged to have been fraudulent.

The trial court did not consider the defendants' contentions that the court lacked personal jurisdiction over the defendants, that the service of process on the defendants was insufficient, and that the complaint failed to state a claim upon which relief can be granted. The first of these issues was fully briefed and argued to this Court.

The plaintiffs appeal from the trial court's dismissal of their complaint.

SUBJECT MATTER JURISDICTION—COUNT I

Claim 1—The Purchaser-Seller Requirement

Section 27 of the Securities Exchange Act of 1934 gives federal District Courts jurisdiction over suits brought to enforce liability for actions in violation of the Act or the rules promulgated under it.⁷ Section 10(b) and Rule 10b-5

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require that the acts prohibited must be "in connection with the purchase or sale of any security."

We have followed other courts in holding that the quoted phrase generally limits standing to those who are defrauded "purchasers" or "sellers" of securities, and to limit the coverage of the statute and rule to fraudulent practices in connection with the "purchase" or "sale" of securities.⁸

It is unnecessary to relax the standing requirement here because the plantiffs did in fact sell securities to the defendants.⁹

It is equally unnecessary to expand the coverage of the statute and the rule to meet the facts of this case because the defendants' alleged fraud was clearly connected with the sale of securities.¹⁰

The defendants' misrepresentations allegedly induced the plaintiffs to believe that Molson would make a tax-free exchange or equivalent offer for their stock after the tender offer to Anthes Canadian shareholders had expired. Moreover, the defendants encouraged the plaintiffs to hold their Anthes stock until the defendants controlled the market for that stock and could dictate the price at which a sale would be made. Absent defendants' encouragement, the plaintiffs would have sold their stock earlier when a market for Anthes stock existed and the price was higher. The fact that the sale took place at a time when the plaintiffs were aware of all of the facts, including the defendants' misrepresentations, is not fatal to the plaintiffs' claim. Section 10(b) and Rule 10b-5 require only that the fraud be "in connection with the purchase or sale of any security," and, here, the connection is direct and obvious. As Judge Bonsal stated in Stockwell v. Reynolds & Co., 252 F.Supp. 215, 219 (S.D.N.Y.1965):

"The words `in connection with the purchase or sale of any security\' * * * do not require that the purchase or sale immediately follow the alleged fraud. * * * If plaintiffs indeed wished to sell their * * * shares * * * and were induced to defer the sale by the fraudulent representations of the defendants, with the result that they ultimately sold at a greater loss, it follows * * * that the fraud was in connection

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