Wassel v. Eglowsky
| Decision Date | 30 July 1975 |
| Docket Number | Civ. No. 72-1239-K. |
| Citation | 399 F. Supp. 1330 |
| Parties | Bernard V. WASSEL, and Sevy Wassel, his wife, Plaintiffs, v. Edward M. EGLOWSKY and Stephen H. Stillerman, Defendants. Edward M. EGLOWSKY and Stephen H. Stillerman, Defendants and Third-Party Plaintiffs, v. Arnold GOLDMAN and Central Trust Company, Third-Party Defendants. |
| Court | U.S. District Court — District of Maryland |
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Francis S. Brocato, Baltimore, Md., for plaintiffs.
Gerald D. Fischer and Blackman, Lefrak, Myerson & Feld, New York City, and Gerald A. Zimlin, Baltimore, Md., for defendants and third-party plaintiffs.
Arnold Goldman, Rochester, N. Y., pro se.
James P. Garland, Robert B. Haldeman and Semmes, Bowen & Semmes, Baltimore, Md., for third-party defendant Central Trust Co.
Plaintiffs, Bernard and Sevy Wassel,1 allege violations of the Securities Act of 1933, 15 U.S.C. §§ 77a-aa, and the Securities Exchange Act of 1934, 15 U.S.C. §§ 78a-hh, by defendants, Edward M. Eglowsky and Stephen H. Stillerman.2 The latter deny liability but secondarily assert, with regard to any possible liability on their part to Wassel pursuant to Wassel's '33 Act contention,3 third-party claims for indemnification or contribution against third-party defendants Central Trust Company and Arnold J. Goldman, Esq.4 A lengthy non-jury trial has developed considerable conflict in testimony, thus necessitating, at the threshold, findings by this Court.
On August 31, 1972, plaintiffs5 purchased 25,000 shares of Dyna-Mech Sciences, Inc. (hereinafter referred to as "Dyna-Mech"6) at a price of $1.00 per share. Dyna-Mech, a New York corporation, was incorporated in August 1968 by certain residents of Rochester, New York for the purpose of manufacturing an "all-terrain vehicle" (ATV). Initially, 370,000 shares were issued to William Steckerl, Dyna-Mech's President; 161,750 to Harry Lortz, a Dyna-Mech Vice-President; and 154,750 to Sidney Berke, another Dyna-Mech Vice-President. Approximately 5500 shares were issued to others who were members of Dyna-Mech's Board of Directors and to attorneys in a law firm which represented Dyna-Mech at the time of its incorporation. An additional 76,416 shares of Dyna-Mech were sold to a number of residents in the Rochester area seemingly pursuant to the intrastate exemption provided by section 3(a)(11)7 of the Securities Act of 1933 (). In all, as of October 1968, there were 768,416 shares of Dyna-Mech outstanding. Apparently, in March 1970, Dyna-Mech engaged in another intrastate offering of 250,000 shares, thus raising the total number of outstanding shares to 1,041,306.
Soon after its incorporation Dyna-Mech ran into increasingly severe financial problems. In 1970 Steckerl was in contact with Edwin Miller, Jr., a Canadian citizen, and President of Canusa Holdings Limited, incorporated in Delaware, and also President of Canusa Holdings Limited, a Canadian corporation.8 Miller offered to provide Dyna-Mech with $60,000 of additional capital and to assist in arranging additional financing for Dyna-Mech. In return Canusa was issued 220,000 shares of Dyna-Mech stock on June 17, 1970 and was granted an exclusive distributorship for the ATV in Canada. The Dyna-Mech stock certificate which Canusa obtained bore the following legend:
No sale, offer to sell or transfer of the shares represented by this certificate shall be made unless a registration statement under the Federal Securities Act of 1933, as amended, with respect to such shares is then in effect or an exemption from the registration requirements of such Act is then in fact applicable to such shares.
Lortz had been discharged by the Dyna-Mech Board of Directors sometime previous to the transactions with Canusa and his 161,750 shares had been repurchased by Dyna-Mech for $8,000 (in settlement of certain litigation). Thus, the 220,000 shares acquired by Canusa represented more than 20% of the total of 1,099,556 of Dyna-Mech then outstanding. Subsequently, a dispute arose between Dyna-Mech and Canusa, resulting in the institution of a number of lawsuits in the New York courts in late 1970 between Canusa on the one hand and Dyna-Mech and Steckerl and Berke individually on the other hand. Those lawsuits were eventually settled in June 1973.
Arnold J. Goldman, Esq., a personal friend of Steckerl, replaced Dyna-Mech's original corporate counsel in July 1970 after the Lortz shares had been repurchased and after the contract with Canusa had been entered into. There was not any written designation of Goldman as Dyna-Mech's corporate counsel, then, or at any time subsequent. Seemingly, one of Goldman's first services as Dyna-Mech counsel involved a contract with Central Trust Company, a Rochester bank, pursuant to which Central Trust agreed to continue acting as Dyna-Mech's stock transfer agent for a fee of $500 a year.
By early 1971, Dyna-Mech's financial difficulties had worsened, and Steckerl and Berke placed advertisements in various newspapers seeking additional financing.9 A group from Indiana indicated interest and in February 1971 that group, the "Pitcher group", received a total of 500,000 shares of newly issued Dyna-Mech stock.10 After July 1971, Steckerl and Berke ceased their active participation in Dyna-Mech's affairs and all of Dyna-Mech's corporate books and records as well as the ATV proto-type were moved to Marion, Indiana. However, the Pitcher group failed to pay the notes with which it had purchased the Dyna-Mech stock, resulting in litigation in the New York courts between the Pitcher group on the one hand and Steckerl and Berke on the other hand. Goldman represented Steckerl and Berke and seemingly Dyna-Mech in that litigation, which was eventually settled in 1973 at which time the Pitchers turned over title in a building valued at $30,000 to Steckerl and Berke. In the late spring of 1972 the corporate records and books of Dyna-Mech were returned to Goldman by the Pitchers.
In the spring of 1972 Miller indicated to Goldman a desire either to take over Dyna-Mech on his own behalf or on behalf of others. Goldman told Steckerl and Berke of Miller's interest and was authorized by Steckerl and Berke to conduct negotiations with Miller.11 Apparently, there was also an initial proposal by a man named Birkenshaw who was brought into the picture by Miller and who was interested, for a short time, in April 1972, in gaining control of Dyna-Mech. The Birkenshaw negotiations came to naught. However, by June 1972 a plan had been worked out by Goldman and Miller pursuant to which Miller proposed that he would negotiate the takeover of Dyna-Mech by William Thompson, a resident of California. That June plan was memorialized in a letter dated June 7, 1972 from Miller to Goldman and signed by them both, which in relevant part read:
I Shall On Behalf Of My Client:
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