Northland Capital Corporation v. A. David Silver and A. David Silver & Co.

ties, particular to select out one but rather against filing

motive—retaliation NORTHLAND CAPITAL specific claim—and to render that motive CORPORATION, presence mere unlawful.1 The of some Appellant, changes motive noth- other “undesirable” ing purpose operation about the A. David SILVER and A. David Silver general “animus,” statute. The notion of Co., & et al. refers, majority repeatedly to which the summary may be a convenient of the facts No. 83-1449. case, concept

of this it is nonetheless a Appeals, United States Court of alien to the statute under which this case District of Columbia Circuit. agree must decided. I would that when Argued Feb. 1984. showing initial a claimant makes an employer’s improp- discrimination was May Decided erly particular motivated within the 49, then the

sense Section burden of naturally party shifts to the proceeding potential access to information that

might showing. rebut that An initial show-

ing “improper” of some sort of mo- other however,

tive, is immaterial to the claim- case,

ant’s and indeed can tend to aid majority’s theory

the defense. The proof shifts burden of whenever general improper

form of animus or motive

has can been demonstrated have but one of 1) practical effects:

two conversion Sec- legislative provision

tion 49 a limited

designed prevent against retaliation

filing all-purpose into an claims restraint decisions; 2) employment overruling

Congress’ determination that a claimant carry light showing

must some burden of the motive for the discrimination

against him was the one set forth event, majority’s

statute. In either mangles the

construction statutе. course, bargaining agreements, legal rights, give collective tractual and Of rise to statutes, laws, scope federal state and the Constitution different cases—cases outside the of Sec- may preclude employment actions based on oth- tion 49. employer er motivations. Those sources of con- §§ (“the

Act, (1982), 78a-78kk ’34 U.S.C. Act”) the common and ‍​‌‌‌‌​‌​​​‌​​​​‌​​‌‌‌​‌‌‌‌‌‌​‌​​‌​​​‌​​‌​‌‌​​‌​‌‍under law of fraud Silver, A. against A. David David Silver & Co., inside and outside di- and various Corporation (“Wat- of rectors Watkins kins”) to recover remitted via Northland to Watkins a wire transfer. standing Northland claimed that it had bring private cause action under Rule 10b-5, 10(b) promulgated under section Act, 78j(b). the ’34 15 U.S.C. summary judgment, motion for On District Court concluded Northland securities, purchaser not a inas- was much as Northland and never Watkins meeting came to a of the minds with re- spect purchase to the of the securities in question. The court therefore concluded that, under Chip Stamps the case of Blue Stores, v. Manor Drug (1975),requiring 44 L.Ed.2d 539 plaintiff purchaser to be actual satisfy Rule 10b-5’s that the fraud be “in connection with the securities,” or sale Northland had bring private cause of under action the ’34 Act. The court dis- claim, the remaining missed common-law solеly upon was court’s which based D.C., Ammerman, Washington, Harris S. pendent jurisdiction. appealed appellant. for judgment. District For the rea- Court’s Waibel, se, pro appellee. Edward M. below, stated sons we affirm. STARR, WALD, Before Cir- BORK I Judges. cuit closings of deals are Successful financial Opinion Circuit for the Court filed alike; fundamentally every all unsuccess- Judge STARR. closing way. ful unsuccessful in its own events led to the unsuccessful Dissenting opinion Judge filed by Circuit closing precipitated here and this lawsuit WALD. began the fall of 1978 Watkins when STARR, Judge: Circuit Corporation undertook a for addi- search issue, Watkins, capital. This case al- presents recurring tional District of Co- corporation corpo- in a unique setting, principal beit factual lumbia with its federal en- question Virginia, securities laws. The be- rate offices in Northern was gaged operating fore us is at issue fran- whether transaction the business “purchase” here constituted a or “sale” chise outlets for the International House of 10(b) Securi- eastern At under section of the Pancakes seaboard. its Exchange height, operated thirty ties Act of 1934 Rule 10b-5 Watkins such res- founder, Capi- of- promulgated thereunder. Northland taurants. The chief еxecutive ficer, Corporation (“Northland”) brought major stockholder was Philander tal Claxton, Exchange action under III. Of relevance to the matter the 1934 Securities us, principal capitalization, Mr. Claxton’s duties of its before small Northland limit- responsibility for the financial included ed participation the Watkins financ- enterprise. Defendant Ed- matters ing $50,000. Transcript Deposition Waibel, president Watkins, ward (“Barnum George Barnum at 56 Deposi- responsible operations. principally tion”). was no chief financial officer. There SBIC’s, Like other Northland’s sole busi- In Mr. Claxton on behalf Wat- ness in is to invest small business. It a engaged A. David Silver A. kins of David field, having participated veteran in the in Co., capital & a New York Silver venture 30 to 40 since incorporation investments its concern, to raise one million dollars of addi- Deposition in 1967. Barnum at 8. North- capital target tional for Watkins. This was however, land, generally upon relies other through placement reached private to be portion SBIC’s its to close of the transac- consortium with a of small business invest- tion usually because Northland is a minor (SBIC’s). companies pre- ment Mr. Silver participant any given in financing аnd be- describing pro- a memorandum pared the cause, words, in Mr. Barnum’s Duluth is detailing investment and posed Watkins’ not capital “the venture center of the and financial de- operations condition. His world.” at 10. financing Id. This nowas on a scription Watkins was based exception to rule. Mr. Barnum autho- report opinion pur- and a 1978 letter audit Allied, rized which he “the characterized as Price, prepared by portedly Waterhouse & investor,” lead to act on Northland’s behalf Co., acknowledged of which are now both contemplated closing. at the at 101. Id. forgeries. Mr. the memo- to be Silver sent He further stated on “rode 'SBIC’s, variety including to a randum coattails as far setting as [Allied’s] (“Allied”), Capital Corporation Allied based terms of the investment.” Id. at 16. D.C., Washington, plaintiff and North- Capital Corporation, Duluth, land based consulting After partici- with the other Opposition Minnesota. Plaintiff’s to De- pating Allied SBIC’s set forth terms of Statement fendant’s of Material Facts 1126 investment in a letter dated Statement”). (“Plaintiff’s January 26, purposes 1979. For this case, important im- requirements the most syndicator Allied acted as the of the Wat- posed upon by the SBIC’s Watkins as were financing, persuading kins six other SBIC’s (1) all follows: amounts received from participate the transaction. Allied the investors would be used to construct major participant, reserving was also locations; (2) new franchise the total $250,000 of for investment itself. financing amount placed of the would be Northland, Statement Plaintiff’s separate “development account” from hand, other was located from the far except which it could not be of the withdrawn center action which was about to use in the Capitalized $350,000, construction of franchise loca- transpire. North- tions; (3) that after had at the time and the construction land of this transaction Barnum, employees, building, realty improvements two Mr. and who was President, would, arrange- Dunphy, and Mrs. who was sale-leaseback ment, secretary enjoyed Barnum’s to other Mr. and who be sold investors and leased Secretary. title of Assistant Because back to Watkins.1 return for their infu- provide locations, completion ap- 1. These terms as follows: to finish of the proved in 1.07 above. money The 1.07 borrowed will be used to complete 1.09 Once the location is new construct franchisee locations which operational, store is it is undеrstood that approved by must Allied. building land and will be sold to investors money placed separate 1.08 will be pay and leased back to Watkins. The sale will development approved by account of a bank (1.08) back the bank full into account No Allied. funds can be withdrawn from the account, land, from the amount used bank account to estab- except buy pay for 'construc- loan, building. lish not building, the land The sale will fees and tion interest on 9, 1979, day, Mr. funds, receive The next March the SBIC’s were to Glad- sion Allied, stone, officer and Mr. an Claxton warrants only interest also stock not attempt close the met in an transaction. closing. at the be delivered time meeting because, was unsuccessful Capital, of Allied Letter of David Gladstone among things, Mr. Gladstone other (Jan. Claxton, Corp. Mr. Watkins concerned that Board of Directors Watkins’ 1979), Deposition Gladstone Exhibit approved had not transaction structured, the transaction so With opinion prepared by letter purportedly closing was scheduled for March counsel marks Watkins’ bore tell-tale Mr. He elected known to Barnum. fact later, forgery. A week Mr. Gladstone sent attend, having Duluth deserted twenty-two a letter which identified items Indies of a West the sunnier climes necessary “in order to close loan.” telephone Barnum with no service. island thereafter, 21, 1979, negoti- on March Soon Dunphy, his secre- at"37. Mrs. Deposition 6, 1979, April foundered. ations On Mr. by instructed tary, testified she was representatives sent a letter Silver $50,000 dispatch the North- Barnum to Mr. SBIC’s, officially participating inform- Allied’s in accordance with land investment that the had called ing them deal been off. Dun- Deposition of Elizabeth instructions. you stated: The letter been “[A]ll (“Dunphy phy Deposition”). at 8 closings that didn’t close. That’s what happened Corp____” with Watkins Memo- impor- ensuing pivotal The events are of Silver, of A. A. David randum David Silver Northland- tance as to the nature of the Gladstone, Co., to David Gladstone Depo- & By March Mrs. Watkins transaction. financing, fact, Exhibit The sition Dunphy from had received no instructions was never closed. leaving Allied. she herself was As meeting, March 9 At unsuccessful telephoned following day, vacation the she executed a Mr. Claxton nonetheless num- However, Washington. Allied’s offices Among of documents. those ber docu- according deposition Mrs. tes- Dunphy’s agreement was an letter from ments Wat- timony, speak with an she was unable to Allied, setting Watkins’ kins to forth ver- Allied, secretary officer of and an Allied contemplated transaction. The sion suggested that she call Mr. Silver. She did states, contrary to Watkins’ version Al- so, but, according Dunphy, to Mrs. Mr. 26, 1979, proposal January lied’s replied busy, unhelpfully Silver that he was percent of the Watkins would use 50 net that he did not know the date of the clos- proceeds financing working ing, and that she call Mr. should Claxton. percent capital acquire and 50 additional call, response ensuing her Mr. Clax- operate sites to as restaurants. Letter of Dunphy ton told Mrs. to wire the funds to Claxton, Corp., to Mr. Watkins Allied In- First Bank of Wash- Union National 1(A)(8). Corp., Paragraph vestment Bar- ington Cherouny, of one a sen- care Mr. Deposition, agreement 6. The num Exhibit president ior vice of Union First. She closing letter stated that the was to take money, that it would wired “assumed” contemplated March 9. place on It further closing, be held escrow until the notes and “in the warrants total departed Dunphy Deposition on vacation. aggregate amount of not less than seven Fatefully, at 9-12. funds fifty ... hundred dollars will be thousand by to Watkins’ were transferred the bank by Company to the sold Purchasers at telephone general corporate This Id., 1(A)(1). account. closing____” Paragraph The conversation constituted the whole letter several Watkins stated “conditions of closing,” including communications with Watkins Northland’s purchasers furnish prior closing. with a to the scheduled Watkins Gladstone, made, paid Capital Corpo- David can be Letter of Allied be unless full amount ration, Claxton, Corporation to Mr. Watkins fund. into the 26, 1979). (Jan. copy of the Board of Directors’ resolution terms and conditions substantially in ac- legal opinion and a from Watkins’ counsel cord with those outlined [Mr. Claxton’s] satisfactory purchasers. Id., to the summary Para- of the loan transaction and as graph spaces meeting V. letter had discussed at the Board of signatures at the end reserved for the of Directors March 1979.” Deposition of signify Waibel, the various SBIC investors to their Edward Exhibit 1. Despite the acceptance of the terms of the approval, closing, Board’s as we have agreement. Importantly, spaces seen, place. these re- ever took mained blank. goodA deal of water had flowed over the

Finally, and still meeting, at the March 9 dam the time of Mr. Bаrnum’s return signed Mr. Claxton at least one stock war- from the early West Indies in April. Upon Duluth, rant and one debenture note. This warrant his return to Mr. Barnum found subject to the the Watkins the documents previous sent the month which, seen, just letter as we have was Mr. Claxton. When Mr. Barnum also dis- unsigned by covered, the SBIC’s. Stock Warrant from Mr. April letter, Silver’s (March 9, 1979). Corp. No. 6 of Watkins that the financing closed, had not he be- Deposition Sharp, of Marianne Exhibit 2-C. came “suspicious” thereupon called agreement, note, and the stock Mr. ensuing Claxton. In their telephone conversation, warrant were then sent to Northland.2 agreed Mr. Claxton to send $50,000 back to Northland the remittance 16, 1979, On March a full week after the agreed further to treat the meeting, March 9 Watkins’ Board of Di- simple repaid loan to immediately pro- rectors met to consider Mr. Claxton’s interest. Deposition Barnum at 39-41. On posal financing.3 for the 1.25 million dollar 18, 1979, April Mr. Claxton sent a Watkins By memorandum, earlier dated March $50,767.12 check in the amount of to North- 1979, Mr. Claxton had notified his Board of land, representing principal both and accu- the terms of the investment. This memo- mulated interest on the loan. Mr. Barnum randum, like Watkins’ agree- version of the attempted check, to cash the but it was discussed, already ment stated that returned for insufficient funds. May On financing terms of the would allow Wat- 10, 1979, filed voluntary petition Watkins proceeds kins to use half the working as bankruptcy in the United States District capital and half develop- for real estate Virginia. Court for the Eastern District of response ment.4 In to Mr. Claxton’s mo- tion, the Board on March 16 authorized brought present Northland then $1,250,000 Allied, Watkins to borrow fraud action under both the ’34 Act and the “upon Northland and five other SBIC’s common law in the United States District may 2. The District Court believed Mr. Claxton 4. The memorandum to the Board stated as fol- signed also have warrants for other SBIC’s. In- lows: deed, the Plaintiff s Statement indicates that Mr. Following meetings and conversations with Claxton sent out documents to all SBIC’s who representatives of the SBIC’s with whom we meeting. did not attend the Plaintiffs State- negotiating, have been a tentative Deposition ment See also of A. David f reached, subject your approval has been (stating Silver at 117 that he assumed notes and and that of Union First The [Bank]. terms of investors). warrants were sent to all out-of-town (1) loan are as follows: The total However, because it is not clear from the record $1,250,000, amount will be of which non-attending that other SBIC's received war- $625,- development will be for real estate appeal grant rants and because on from a (4) working capital____ 000 will be for summary judgment we draw must all inferences portion real estate of the loan will be subordi- appellant, in favor of the we assume that Mr. $2,500,000 financing. nated to of additional Claxton sent a stock warrant and debenture working capital portion will be subordi- note to Northland. Debt____ nated to all Senior original suggested by 3. The amount Mr. Silver Deposition Cherouny, of Robert Exhibit 9. dollars, for the investment was one million syndication $1.25 in the court of it was raised to million. policy objective of served the In its limitation District of Columbia. for the Court had identified in avoiding litigation it claim, alleged that vexatious Northland federal pur- Newport “in connection with the seminal case of Birnbaum defrauded been security” Cir.), and therefore (2d or sale F.2d 461 cert. Corp., chase Steel 10(b) section standing to sue under enjoyed denied, 72 S.Ct. thereunder. promulgated Rule 10b-5 holding (1952), was L.Ed. 1356 the Court’s discovery, defendants extensive After interpretation of ultimately on its based on the summary judgment moved hist language legislative of the Act and its facts undisputed on the grounds ory.6 securi- “purchaser” of not a was Northland mo- granted Court The District Thus, ties. appel reject we at the outset meet- there “no concluding that tion, holding argument Chip’s lant’s Blue North- Watkins ing minds” between govern not cases such as the instant should never became thus Northland land and type may present since this of case one The court then purchaser of securities. Indeed, in danger suits. Blue of strike claim. pendent common-law dismissed itself, accept had appellate court Chip court’s appealed the district of 10b-5 interpretation ed the Birnbaum argument in this Prior to oral judgment. out an general principle, but carved as a voluntary entered into a appeal, Northland case, exception in the circumstances of that except Ed- with all defendants dismissal Drug Manor had been offered because Waibel, president. former Watkins’ ward antitrust Chip part of an appellate court held decree. The consent II as an offeree that Manor’s identification func served the same a written document A delimiting appro tion as a contract 10(b) and Rule the ’34 Act Section The Su priate plaintiffs under 10b-5. ma- prohibit thereunder promulgated 10b-5 Court, however, held to the con preme “in con- nipulative and fraudulent devices entertaining trary, concluding that such purchase or sale of securi- nection with a the Birnbaum rule theory “would leave language in Blue ty.” Interpreting this case-by-case erosion ... open to endless Stores, 421 Drug Chip Stamps v. Manor group of depending particular on whether a 1917, 723, 44 L.Ed.2d 539 95 S.Ct. U.S. sufficient thought were ... to be plaintiffs (1975), held that Supreme Court potential of discrete than the world ly more or of securities purchasers actual sellers excep large justify at to purchasers damages may bring private a action 755, at 421 95 S.Ct. 1934.7 suggesting a tion.” U.S. that such Rule 10b-5. While 5, Chip Stamps, U.S. at n. 95 Blue 421 733 should construe 6. See declares that we 5. The dissent (holding wording n. that "the of S.Ct. at 1924 5 in the Act to conform the definition of "sale" '34 10(b), making pur- connection with fraud in § Secu- different definition contained in the to the Act, security a violation of the is chase or sale The Su- Act of 1933. Dissent at 1433. rities provide surely badly strained when construed to however, Chip, preme Court's decision in Blue action, purchasers not to or sellers of a cause securities, opposite approach: precisely the it inter- takеs large”) (emphasis but to the world at differing language prets the two Acts as original). in differing See Blue of the Acts’ ambits. evidence 733-734, Stamps, S.Ct. at Chip 421 U.S. at 95 ignore dissenting opinion to seems 7. The Congress' (noting term that use of the 1924-1925 case-by- engage Supreme to in Court’s refusal Act showed that or sale” in the 1933 "in offer analysis Chip. policy That refusal case in remedy Congress provide a wished to "when although Supreme Court demonstrates that securities, purchase nor sell it who neither those reaching analysis policy into account took doing expressly”). so To had little trouble in required plaintiff Act a conclusion that the '34 linguistic ignore differences between the sue, standing purchaser it to be a to have suggest implicit- two Acts is to in the definitions per requirement as a se rule established doing Congress it ly did not know what was by policy generally be rebutted which could not language. differing This we when it chose the cases. The dissent in individual considerations stating requirement refuse to do. our ‍​‌‌‌‌​‌​​​‌​​​​‌​​‌‌‌​‌‌‌‌‌‌​‌​​‌​​​‌​​‌​‌‌​​‌​‌‍also incorrect is 1427 world, Chip post-Blue strip statutory “purchase In the words or “purchaser” person is, “seller” meaning. must be or sale” of their core It all, after meaning of the Ex- express within the Securities statute with terms that is before bring change Act to have suit us for examination. v. Symons Chrys- Board, under Rule ler Corp. 10b-5. Loan Guarantee 670 238, F.2d 241 (D.C.Cir.1981)(holding that B principle that remedial statutes are to liberally be question to the construed to We thus turn whether effectuate their purpose “purchaser” give “does not judiciary of securities. Northland is a li- cense, interpreting “purchase provision, A sale” under the Act is or to disre- pur gard entirely including “any plain meaning contract” to defined as of words security. by Congress”). U.S.C. chase or sell 15 used See also Sacks v. § 78c(a)(13) Inc., “purchase” Reynolds, The terms & 593 F.2d at (applying 1240 broadly plain meaning and “sale” are to be construed rule the context of a action). purposes the ’34 A requirement effectuate the remedial 10b-5 bedrock Securities, Act, Inc., Reynolds see the formation of or bargain Sacks contract 1234, (D.C.Cir.1978); 593 1240 Good parties, including F.2d between unrelated those (7th constituting sale, Epstein, purchase man v. 582 F.2d 410 is that the Cir.1978), denied, putative 440 99 purchaser cert. U.S. and seller come to a (1979), L.Ed.2d 499 are meeting or, phrase of the minds in the meaning. (Second) Contracts, common-law limited to their the Restatement mu- Rockwell See Broad v. International tual assent the essential (5th Cir.1980). Corp., 614 F.2d transaction.9 This presup- is Therefore, posed have not com interpreting courts allowed case law Rule technicalities, pose instance, may determining mon-law which 10b-5: for when a unwary made, traps opportunities for the courts look the time at way unscrupulous, to stand in the of which was a “meeting there of the minds.” finding statutorily cognizable “purchase” Dynamics, See Radiation Inc. v. Gold- (2d muntz, Cir.1972). or “sale.”8 pur undisputed The ’34 Act’s vital remedial It is clear from the facts poses cannot, permitted to of this that no mutual occurred case assent Treatment, assent, of mutual discussed in the text fol- see Waste Inc. v. Southeastern Chem- lows, any policy Inc., Systems, (N.D.Ga. is at concern of Blue odds with F.Supp. 944 Nuclear Chip Chip. Dissent at 1434-1435. Blue 1980). litigation re- concerned that “vexatious" would allowing plaintiffs standing sue on sult from 9. See Contracts Restatement (Second) they buy allegation that the mere intended to (1977) (defining “agreement” “a manifesta- security. sell a The Court feared defen- part assent on tion mutual two or more difficulty disposing dants of such would defining persons” bargain as “an subjective suits the of the because of nаture exchange promises exchange promise to or to a plaintiff’s proof Chip, intent. of 421 U.S. at exchange perform- performance a litigation is 95 S.Ct. at 1929. Vexatious ances”); 17§ Contracts Restatement of (Second) however, likely, obviously more when a no (stating that “the a formation of contract re- plaintiff that must show there was mutual as- bargain quires is a a which there manifesta- sent the offeror and More- between himself. exchange tion of mutual assent to the and con- over, proof plaintiff a not have does to adduce sideration”). Therefore, Northland at- whether subjective of the defendant’s intent order to tempts predicate purchase the of a existence prove principle objec- mutual assent. fully bargain, a on a which consists of executed controlling tive of intent is manifestation exchange, see Restatement Contracts of (Second) very contract is well established. See formation c, contract, comment or on a which con- § (1957). Williston Contracts on part promise sists at least of a future instance, 8. For some courts have allowed performance, required. mutual assent agrеement, unenforceable under the oral albeit (1973); 7-2 1A Sales Corbin § also Williston on frauds, predicate to serve as a statute of at 82-83 Contracts under to sue 10b-5. See Desser Ashton, (S.D.N.Y.1975); F.Supp. but actions, fi- ties In laws. These even Northland. Watkins between here, together, suggest one when do not as the taken nancings such by a usually consummated gave are and Watkins mutual assent Northland transactions which closing constituting or settlement a bargain pur- to a formal contract or exe- formally agree to parties mutual chase securities. To have assent embodying documents requisite cute the circumstances, party one must these contemporary age In the agreement. by have an offer accepted word or deed accountants, and financial ana- lawyers, Here, specific from the other.10 seldom, ever, if financing is lysts, a presented, neither the circumstances wir- two simple handshake between a result of $50,000 ing sending of of the nor the financing of the The structure principals. interpret- reasonably stock can be warrant No typical. agree- oral therefore here was acceptance. ed as an reachеd, and was it is abun- on terms ment Northland, course, entirely was at lib- parties contemplated that all dantly clear erty separate agreement a to come to with necessary for there to be closing was Watkins, Mrs. testimony but Dun- Indeed, expressly Barnum au- Mr. deal. phy, clearly secretary, Northland’s indi- Allied act on Northland’s behalf thorized cated that it did not As we do so. have contemplated closing, thus not at the seen, Dunphy Mrs. testified that she was understanding closing that a signifying find instructed to out from Allied where necessary also that Northland in- but she so should send Northland’s funds as to as part enter the transaction of a tended to closing. be available for the After unsuc- investors, solitary not as consortium attempts get cessful instructions from independently its fel- operating investor Allied, investor, the lead she called Mr. Mr. Clax- low SBIC’s. documents Claxton of Watkins find out where she out on behalf of Watkins on March ton sent money. Dunphy should wire the Mrs. testi- plainly contemplated closing both 9 also $50,000 fied that she intended the to be group and a transaction with of inves- closing held until in “escrow” on occurred tors. $1,250,000 financing. Thus, the proposed undisputed closing that the contem- It is Dunphy’s Mrs. act can ministerial parties place. never took As plated by the imagination interpreted stretch of the seen, day closing on have was to we Northland, acceptance, on behalf of Allied, acting occurred behalf separate Her offer from Mr. Claxton. ac- investors, found numerous differences changed understanding tion in no wise to the respect Watkins with terms of with parties of all the that Allied and Watkins addition, repre- the transaction. Allied’s to close a pur- would have the deal before suspicious some sentatives became about place. chase would take provided supporting documentation suspi- These differences and Watkins. sending Mr. Nor does Claxton’s to North- resolved. cions were never land the Watkins’ version of the letter agreement, together a note and with war- dispute this, does not Northland subject rant were the terms of which that even in the ab- nonetheless contends letter, render the transaction a Dunphy’s closing, wiring Mrs. sence of notwithstanding aborted $50,000 closing. together Mr. when taken First, sending if Mrs. Dunphy’s even sending of a stock warrant and Claxton’s represent a could separate note to Northland somehow be construеd as an separate, transaction invitation to a individual between and Wat- transac- kins, cognizable under the tion could have federal securi- that been consummated rule, exceptions 22 states: to this § set out comments 10. Restatement Contracts (Second) The manifestation of mutual assent to an ex- change ordinarily to the Restatement, b are relevant the form an offer here. takes proposal by party by ac- one followed an by parties. ceptance party the other closing, without a formal it is clear that the Our conclusion that neither Mrs. Dun- phy’s nor Mr. Claxton’s actions by documents sent Mr. Claxton to North- sufficed to create a of securities is confirmed land were not intended to evidence or con- by Mr. Barnum’s understanding. own acceptance. Indeed, agree- stitute an When Mr. Barnum returned to Duluth ment which Mr. Claxton sent to Northland from the Caribbean he suspicious became space signa- had reserved for Northland’s when he found documents that would nor- ture to allow Northland to evidence its mally part be sent as of a closing, but acceptance agreement. of the terms of the discovered that in fact no clоsing had taken undisputed It is neither place. He promptly telephoned Mr. Clax- acting signed nor Allied on its ever behalf They ton. immediately agreed in that con- Moreover, undisput- agreement.11 it is versation that money Northland’s would be agreement ed that the Watkins letter con- returned, interest, and that the trans- plainly critical tained a term at variance action would be treated as a simple loan. proposal with Allied’s on behalf the Mr. signed Barnum never proposed Thus, agreement SBIC’s.12 and war- that Mr. Claxton had sent. rant which Mr. Claxton returned to North- short, Barnum, Mr. Northland, on behalf of materially land contained different purchaser never acted as a of a security an essential item of the contract from but rather as one who trying was to recov- those Northland offering, was and thus money company er his plainly had intended acceptance. could not constitute an place in escrow discovering after (Second) Restatement of Contracts 59.13 the transaction had been called off.14 imagine 11. The dissent seems to facts when it person agrees this situation would be when a asserts that "Claxton knew of the terms Company North- sell valuable sеcurities of A contained $50,000, land desired when it sent paper envelope but North- agrees in a to an investor who proposed land did not know that Watkins had hypothetical, the transaction. In our the en- its own terms.” Dissent at 4. Under the velope actually undis- contains the worthless securities facts, puted playing Northland was not the role Company B. Under Restatement (Second) wolf, departing pack by of lone from led (stating misrepresen- § 163 ”[i]f Contracts present Allied to cut its own deal and its own tation as to the character or essential terms of a beyond terms. It is clear cavil that all Mrs. proposed appears contract induces conduct that Dunphy seeking effecting to do in the wire by to be a manifestation of assent one who funds, was to have Northland's share of transfer opportunity neither knows or has reasonable consortium, pursuant to its commitment to the know of the character or essential terms of the closing available for the that was destined not to contract, his conduct is not effective By imagination, be. no stretch of the much less assent), aas manifestation of there is no con- facts, Dunphy setting was Mrs. forth some hyрothetical tract in this because the would-be separate new or terms on behalf of Northland. misrepresentation seller’s went to an essential Thus, apparent term. the investor’s assent is above, 12. As discussed in the text Allied re- contract, though not effective. Even there is no quired that all investment funds be used might “purchase" a court well find a under the sites; Watkins to obtain construction trast, in con- Act; meaning appar- of the ’34 what allows the provided document sent to Allied escape obligation ent seller to contractual is a Watkins could use the investment one-half mon- misrepresentation very evil at which the —the ey working capital. Act is aimed. not, course, We do take issue with acceptance Watkins Board's of Mr. Clax- salutary principles of contract law relied on proposal appellant ton’s does not aid the by the dissent. Dissent at 1433-1434. On the assent, establishing mutual because Mr. Clax- case, however, undisputed they facts of the are were, seen, proposals ton’s as we have at vari- inapplicable. Dunphy When on March Mrs. proposals ance with the of the investors. on Northland’s behalf wired the funds to Union First, that, circumstаnces, performing she was not 14. We hold these Northland’s side bargain, attempting put but was where no manifestation of mutual assent rather ever money parties, “purchase” existed in escrow until between the with- Allied closed the deal meaning closing in holding, of the ’34 Act occurred. This on Northland’s behalf. At the aborted Allied, prevent very day does not a court on the next as Northland’s finding purchase apparent agent, pro- where there was became aware that Mr. Claxton was negated posing manifestation of mutual assent that was different terms from those of the invest- party’s misrepresentation. example ing An SBIC’s. When Mr. Barnum and Mrs. Dun- 1430 Indeed, was no assent. we mutual as have

C seen, the financial transaction which the Plan argues that v. Baurer purchased warrant was to be was never (D.C.Cir. Inc., 770 Group, ning closed, bargain separate and no between pur that a 1981), compels the conclusion Northland and Watkins was ever struck. Baurer, place In here. sale took chase or exchange $15,000 in investor advanced Appellant argues an also that we should company. a promissory a note analogize sending Mr. Claxton’s of the doc- if end of a provided that at the The note a pledgе. uments Northland to Because and the com period States, the investor thirty-day 424, v. Rubin United 449 U.S. 101 on a to terms 698, able to come pany (1981), were not S.Ct. 66 L.Ed.2d 633 that holds venture, be would partnership pledge security a is a “sale” of a under together with certain payable Act, come due that ’33 Northland contends a If, hand, an the other interest. accrued pledge is also a sale of securities under reached, the note would be agreement were Passing over the ’34 Act. substantial only accrued inter paid in full and deemed question whether the differences between concluded due. The court would be est statutory the ’33 Act and the ’34 Act in the security, note was a promissory that compel a definition of sale would different agreement, de terms because pledge conclusion whether a is a sale about note, invest “established its definition,15 scribed under the latter’s we conclude Baurer, occurred, 669 F.2d at ment character.” pledge simple that no for the Northland and Watkins never reason that holding, inapposite is Baurer’s Indeed, agreed pledge to a of securities. issue here is to the case before us. The Northland, in the like other SBIC’s deal “security,” is a but not whether a warrant structured, that Mr. never even bar- Silver “purchaser” a Northland was whether gained pledge contemplated for a Baurer, argued one In no the warrant. purchase outright of Watkins' securities.16 note, purchase did not that the investor argues explicit requirement mutual assent be- The dissent that the for there was exchange is parties of funds of mutual assent in this case not consist- tween the case, however, variety ent law deei- note. In this there with of securities for the vacation, Reynolds Appellant argues phy Mr. Barnum found also that Sacks v. returned from sent, Securities, Inc., (D.C.Cir.1978), agreement, that Mr. Claxton had 593 F.2d 1234 purchaser. differing signed supports position it Mr. never that is In terms. Barnum Therefore, Sacks, representative agreement. Reyn- varying could former account time Northland, asserts, Reynolds dissenting claiming opinion as the olds sued under 10b-5 personal reasonably impression her accounts and been under the had failed to transfer accepted performance her to her new had on the accounts of some of customers Watkins investing brokerage claims that SBIC’s. firm. She because Reynolds and her to between trans- "every inсluding ’33 Act defines a sale as 15. The fer the securities was a contract "otherwise disposition security or contract sale [securities]," dispose see 15 U.S.C. 77b(3). security____’’ in a 15 U.S.C. § interest 78c(a)(14), transaction constituted "sale” § simply including as The Act defines a sale ’34 meaning of Act. within the "every dispose contract to sell or otherwise of [a court held that the transaction not Sacks "sale," 78c(a)(14). security].” U.S.C. circuits because the or sale split pledge are on whether a comes within the surrendering required of 10b-5 "some con- 78c(a)(14) and ambit of the definition in section trol, change ownership, change in funda- predicate on whether it is a sufficient therefore mental nature of an investment.” Northland jurisdiction Compare, e.g., Al under 10b-5. language suggest its “sur- seizes on this Miramon, (5th Cir.1980) ley 614 F.2d 1372 v. rendering” "surren- of funds and Mr. Claxton's sale) pledge (finding that a with Mallis dering” security gives it however, sue FDIC, (2d Cir.1977), grant v. 568 F.2d 824 cert. again, Sacks is Once 10b-5. ed, L.Ed.2d U.S. S.Ct. inapposite unique address the because it did not granted improvidently sub here, dismissed cert problem namely presented the lack of Mallis, nom. Bankers Trust Co. dispute mutual was no assent. Sacks there (1978) (finding 55 L.Ed.2d 357 Reynolds representative that the account sale). pledge that a is a agreed to the transfer.

1431 already the Dissent 1435. We have federal securities laws do sions. not confer controlling upon that it roving shown is consistent with the federal a courts commis- sion principal genre every of this The to address injury sophisti- law circuit. cated, small, the albeit cases from other circuits with which investment concern such approach may inconsistent as Northland suffer in the dissent deems our course of attempting negotiate the to and “forced seller” cases in which close are proximate deal. The dissenting to ex- cause of shareholder is forced Northland’s misfortune was plainly place securi- the failure to change cash or other securities for $50,000 the in until closing. situa- escrow the liquidation merger. in a or That ties proper The arrangements business were exceedingly remote from the facts tion not Bank, effected with Union First and very of this case. As the name “forced the transfer transformed Watkins in effect suggests, exchange merger in or sale” an into agent. Northland’s escrow When no result of liquidation operation that is a occurred, closing law, Watkins failed to governing con- return corporate and the the funds thought it had en- corporate governance tractual structure of to trusted Union itself, First. Such facts might in is not different kind from a con- give well rise applicable to claims under exchange. scope legal tractual law, District they Columbia or state but types significance exchanges of both are simply do not constitute by or principles defined well established sale of securities law, under the ’34 Act.18 unlike the aborted transaction here. holding to today presented Our as the facts Affirmed. goes us no means to the far different settings embodied seller” WALD, “forced Judge, Circuit dissenting: cases.17 panel’s I must dissent from the decision protect that Rule 10b-5 person does not

D fraudulently who is to exchange induced Finally, emphasize we that our in return decision for a security. worthless not in manner majority, mistakenly, does undermine the The I think finds no policies remedial “purchase Security broad Rule or Exchange 10b-5 sale” for ’34 '34 designed Act. The Act is purposes, preconditions Act because opera- protect safeguard investors and issuing laid down Northland to the war- capital met, tion How- Nation’s markets. rant had not been hence there was ever, stated, as thе Supreme “meeting Court has of the minds” between Wat- laws, “Congress, enacting By imposing kins and Northland. its own not provide “meeting prerequisite did intend to federal broad the minds” to a remedy “purchase for all fraud.” Marine Bank v. sale” the Act the ma- Weaver, 551, 556, 455 102 jority protection U.S. S.Ct. shields from the investor provisions 409 Specifically, Exchange L.Ed.2d of the Securities Act not, say, suggest pres- Appellant argue We do needless does not the district requirement regard- dismissing of mutual erred ence assent court the common law Rather, presented. dismissing of the less circumstances ‍​‌‌‌‌​‌​​​‌​​​​‌​​‌‌‌​‌‌‌‌‌‌​‌​​‌​​​‌​​‌​‌‌​​‌​‌‍fraud claim after the federal claim to pendent. we do not before us a since transaction which it was dismissal was clear- reflecting extraordinary change ly struc- in the within the See court’s discretion. Financial Bankshares, corporation, Metzger, as ture would be the case General Inc. v. merger (D.C.Cir.1982) liquidation, (reversing with a we must examine the district court’s parties jurisdiction pendent a transaction between two unrelated decision retain over of that and the determine nature transaction law claims federal common when claims were legal flowing trial). incidents therefrom. The element dismissed before also United Mine us, Gibbs, guides of mutual assent thus in these cir- Workers cumstances, analysis, obviously (1966) (stating in our but we L.Ed.2d 218 "if the federal trial, though need not and therefore do not erect it as a are claims dismissed before even sense, settings completely jurisdictional alien to the insubstantial well’’). facts before us. state claims should be dismissed deal, lied, they were which unable close the fraudulent conduct very kind Fur- question of the drafters. to do so. is no Claxton There concern

was a core reading of thermore, panel’s proposal restrictive Allied’s knew at this time the one in this case on “purchase or sale” different joint investment broad with the directly at odds contemplated hand proposal Watkins’ other or sale” “purchase reading of reason one no deal transaction. This was the Act’s to effectuate adopted courts Nonetheless, despite came off. the failure hand on the other and purposes remedial 9, to close March and with full the deal on the Su- policies which of the none serves knowledge par- desired to that Northland con- in factual has different preme Court ticipate in other along a loan SBICs purchaser or sell- justify invoked texts terms, only on did Allied’s Claxton not re- dam- private er for $50,000. Rather, acting turn Northland’s age actions. duly Watkins, as a officer of authorized he amply, case have been this Northland, SBIC’s, The facts of among sent alone accurately, in the detailed main and in the $50,- stock and debenture note for warrant appeal Because is an opinion. majority precise deposited amount in Wat- granting of the court’s from the district account, subject to the terms kins’ of the summary judgment, motion defendants’ agreement ultimately worked out.1 From facts and the reasonable we must view facts, inferred in appel- these it must be may them in be.drawn from inferences that lant’s favor that the warrant note were appellant. most favorable light sent Claxton in return Northland’s Center, Inc. v. Souvenir See National $50,000. Inc., 728 F.2d Figures, Historic question There is little Claxton’s viewed, (D.C.Cir.1984). So I believe forged undisputed finan- conduct—use too short shrift to sever- majority given has cial induce investment in his statements to against al militate dis- crucial facts which company target of Rule 10b-5. See —is company’s defrauded claim missal of the Inc., Planning Group, Baurer on any trial has been held. Based before (“Rule (D.C.Cir.1981) 14n. 10b-5 court, facts before the uncontested trial engaged in ‘any person’ reaches fraud to days happened on the critical this is what securities”) (quoting induce the in early March. Lowenfels, Bromberg A. L. Securities & failing get request- March after On (1981)). ques- 2.1 There is also Law little Allied, ed the lead instructions SBIC injured by tion that Northland was such on relied to set the final whom Northland $50,000, misrepresentation it lost because investment, terms of its intended North- appropriated to its which Watkins own use. directly how land called Claxton and asked concludes majority nonetheless that be- money it transmit the it intended should discovery cause Allied’s fortuitous of the closing time for the invest Watkins forgery prevented deal from closing, March 9. Claxton instructed scheduled for a Rule Northland cannot maintain 10b-5 directly wire the Northland to funds action. account. We can therefore Watkins’ bank presume was aware on March 9 Claxton to rest this majority purports conclu- $50,000 already had been that Northland’s sion the strict tenets contract law account. deposited Watkins’ “meeting says require which it minds” Watkins and Northland David between be- March Claxton met with

On Gladstone, “purchaser” viсe-president of Al- fore Northland can be executive clear, states, majority argument, we still counsel for stated must as- At Northland that, although grant un- summary judg- court record is district sume on review of this clear, in fact no other SBIC received stock war- ment that Claxton sent stock warrant and Appellees take with this rants. did not issue Maj.Op. debenture note to Northland. Appellees issue assertion. Even if the had taken at n. 2. totally and the record was therefore than less within protec- Here, so as to come Claxton knew of the terms provisions of the orbit of the antifraud tive it desired when sent $50,000, Maj.Op., Exchange Act. at 1427 Securities but Northland did not know that Watkins shortchanges the in- doing, In so it n. had proposed Thus, its own terms. North- respects. here three vestor land could reasonably regard Watkins’ ac- ceptance of its as manifesting as- First, accepted princi ignores it the well sent to terms, those Watkins, person having ple of contract law that who accepted the money, cannot later the terms of an claim no knows contract was party, subsequently who formed by another because there was no meeting accepts performance by party, cannot of the minds. obligations by claim his contractual avoid Second, majority ignores the defini- meeting there “no of the minds.”2 ing tion of “sale” in the 1933, Securities Act of Navegazione v. Amicizia Societa Chi See passed only year one before the Securities Corp., Sales Nitrate & Iodine 184 lean Exchange Act and authoritatively used as a (S.D.N.Y.1959), F.Supp. aff'd, 116 274 F.2d source for of statutory definition denied, (2d Cir.), 843, cert. 363 U.S. 80 805 common to both Acts. The Securities Ex- (1960); 1612, see, 4 L.Ed.2d 1727 e.g., S.Ct. change Act of 1934 did not explicitly define Supply Big

Associated Hardware Co. v. “purchase sale,” or but there is “no reason Co., (3d Distributing 355 F.2d 114 Wheel to believe Congress intended, year one Cir.1965); Unlimited, Inc., In re Mailers 6 after passage Act, of the Securities 238, (Bkrtcy.E.D.Pa.1980). B.R. 240 “The dilute concept of sale the Securities parties operative manifestations of are the. Exchange Act.” Lawrence v. Securities contractually bind accordance them] [to Comm., Exchange 276, (1st 280 meaning to them by attached one Cir.1968).3 In the Act Congress 1933 ex- parties if party of does not know plicitly provided that “sale” any includes any meaning of different attached “disposition of an interest in security ... other, and the other knows the meaning § value,” 77b(3), for 15 thereby U.S.C. party.” attached first Restatement obviously coverage envisioned of transac- § (Second) 20(2) (1979). of Contracts And tions like that between Northland and Wat- conduct of party acceptance “the [such kins here. performance] of may mainfest assent even Third, though he does not in fact the majority identify assent.” Re fails to § (Second) 19(3) single policy statement why of Contracts reason a court should accepts person performance pledger 2. Even where a Act definition of sale to hold a knowing perform- seller, on which security without the terms standing is a and therefore has tendered, obligated person pay is ance is 10b-5), dismissed, sue under Rule cert. 435 U.S. Contracts, the value received. Corbin on 381, for 1117, (1978); 98 S.Ct. L.Ed.2d 55 357 L. legal obligation recogni- 102 This is a Loss, Regulation, Fundamentals Securities of reality exchange that some kind of tion or 655-56, ("there (1983) authority 922-23 for place. has taken "sale” looking to the 1933 Act definition [of sale] construing pari on an in 1934 Act materia Prescott, Turben, See Mansbach v. Ball & 598 States, approach”); Rubin United v. 449 U.S. cf. 1017, Cir.1979); (6th F.2d 1029 National Bank of 424, 432, 698, 702, 101 S.Ct. 66 L.Ed.2d 633 Co., v. All Assurance Commerce American 583 (1981) (Blackmun, J., concurring) (referring to 1295, (5th Cir.1978) ("аlthough 1298 F.2d there interpreting definition of sale in 1934 Act in slight wording are differences in between the securities); pledges 1933 Act to cover Interna 1933 Securities Act and the 1934 Securities Ex Daniel, Act, tional Brotherhood change Teamsters v. [purchase 439 the definitions 551, 8, 790, 8, functionally U.S. 556 n. S.Ct. equivalent”); are 99 795 n. sale] Daniel v. 58 Teamsters, (1979) (implying International Brotherhood 561 L.Ed.2d 808 that a sale under 1223, (7th Cir.1977) (in any value, F.2d 1242 both disposition [the 1933 the 1934 Act includes Acts a ‘sale’ of interest 1934] [in securi noting the Court not decide “need whether ty] depends upon there ... whether has been a meaning of ‘sale’ under the Securities Ex it"), disposition grounds, other rev’d ‍​‌‌‌‌​‌​​​‌​​​​‌​​‌‌‌​‌‌‌‌‌‌​‌​​‌​​​‌​​‌​‌‌​​‌​‌‍on 439 change meaning Act is different from its 551, 790, (1979); 99 S.Ct. L.Ed.2d U.S. 58 808 Act”). under the Securities Deposit Corp., v. Federal Insurance Mallis (2d Cir.1977) (relying F.2d 828-30 on 1933 money paid its and received se- Northland principles and fed- law contract ignore both in return. No court would have to history, Rule curities law and read eral securities inquiry in order subjective prerequisite or embark sale” “purchase 10b-5’s “purchase or sale” oc- whether law. decide restrictively than the common more case; alleged, under the facts in this test curred the name it does All of this objective that an ex- quite it clear seems bring private damage suit standing money and securities between change of Chip Stamps v. Manor adopted by Blue Quite place. took and Claxton Stores, 421 95 S.Ct. U.S. Drug majority’s regarding candidly, the concerns (1975). Maj.Op. 1426- 44 L.Ed.2d 539 Chip standing entirely doctrine Chip the Blue that Blue disagree, I me. elude majority's conclu- supports the any way occurred in sale purchase that no sion fact, a closer examination of case. exchange case reveals that Chip Court, money for that occurred in this Supreme fol Chip, the In Blue “purchase in Birn case should considered a first laid down lowing rule Co., purposes 461 sale” for the of Rule 10b-5. As F.2d Newport Steel baum Cir.), denied, Chip, 72 the in Blue the bounds (2d Court noted cert. (1952), announced sue cannot be L.Ed. 1356 “derive[d] 10(b).” language sellers” of securi only “purchasers or [section] 737, private damage Accordingly, at 95 at 1926. standing bring to U.S. S.Ct. ties have so, “policy In doing Rule the Court turned to considerations 10b-5. actions “meeting portions the of ... to flesh out the of law Chip never talked about Blue respect congres- the part “purchaser of its or with which neither the minds” as Rather, the explained it sional enactment nor administrative requirement. seller” standing regulations guidаnce.” conclusive rule denied offer Id. Birnbaum (1) recognizing overriding potential plaintiffs: of While remedial three classes of they allege merely policy implied behind the cause of action ferees who would 10(b) security “deserving but under section purchased for allow have —to fraud, (2) allege merely plaintiffs damages which in who recover ... shareholders [to] they by have of have sold their shares but fact been caused violations Rule would 10b-5,” 738, fraud, (3) 421 95 at shareholders who U.S. at S.Ct. 1926— for adopted court the Birn- allege that the fraud decreased value nonetheless investment, allege rule that rule has “counter- their but who do not baum because vailing advantages purely as a matter that the fraud influenced their investment ... limiting policy,” namely potential 421 U.S. 738- of Chip, decisions. Blue at 39, pur widespread litigation. 421 95 at 1926-27. The stated vexatious U.S. S.Ct. 739-40, at 95 pose Chip’s adoption imag- of the Birn S.Ct. at 1927-28. I can Blue prevention legitimate standing “limiting ine no need for such a doctrine was baum suit, however,'where principle” to “strike and the elimination of bar suits” hands, require money changed and securities private damage actions that would plaintiffs’ plaintiff apparently lost inquiry intо the a sizeable sum. a treacherous regarding subjective decisions whether Contrary statement, majority’s to the 740, 746, 421 at 95 or U.S. invest sell. See Chip’s holding was Blue thus “based 1927, at ultimately on interpreting] its ... the lan- case, contrast, by guage legislative Northland obvi- of the Act and its histo- In this ry,” balancing much ously within of the three so as on does not fall including Chip sought injuries that would flow or plaintiffs classes that Blue from fact, excluding nonpurchasers policies In reflected nonsellers and to eliminate. all, protection.4 Chip’s do not at since from Rule’s Blue Chip apply in Blue fact, opinion sepa- heavy majority Chip majority’s curred in the to issue reliance the Blue significance opinion “emphasizing] policy justices prompted who con- rate on three

1435 policy analysis (D.C.Cir.1978); thus can instructively 1240 Broad v. Rockwell In applied majority’s “meeting here. The Corp., 418, ternational 614 (5th F.2d 435 prerequisite, the minds” like the Birn- Cir.1980), part in and rev’d part aff'd rule, has the “disadvantage” “pre- baum grounds, (5th on other 642 Cir.) F.2d 929 venting] deserving plaintiffs some banc), (en denied, cert. 965, 454 U.S. 102 recovering damages that in fact have been 506, 70 (1981); S. Ct. L.Ed.2d 380 Goodman caused violations of Rule 421 10b-5.” Epstein, 388, (7th v. 582 F.2d 410 Cir.1978), 738, U.S. 95 S.Ct. at 1926. the other On denied, 939, cert. 1289, U.S. 99 S.Ct. hand, it not has none of the “counter- (1979); L.Ed.2d 499 Armel, Mader v. vailing advantages” of the rule Birnbaum Cir.1968), 158, (6th F.2d denied, rt. ce preventing litigation “strike suits” and 930, 394 U.S. 89 S.Ct. 22 L.Ed.2d 459 turning subjective proof plain- of what a (1969); Co., Vine Finance Beneficial hypothetical tiff would have done in a situ- (2d Cir.), denied, cert. fact, ation, “meeting 88 S.Ct. 19 L.Ed.2d 460 minds” is tension with the (1967). Thus, courts granted stand purposes of the Birnbaum rule because it ing plaintiffs: (i) whose securities were objective invites a defendant to rebut evi- converted to claims for by merger cash subjective dence of a sale with contentions liquidation,5(ii)where stock pledged parties actually agreed that the never loan,6 collateral for a (iii) and where a the terms of the transaction. See Blue shareholder granted corpora Chip, 421 U.S. at 95 S.Ct. at 1931. right tion a of first refusal The majority’s tunnel-visioned focus on stock.7 These that, decisions demonstrate Chip’s discussion of the Act’s lan- purposes standing to sue under Rule guage history is thus understandable 10b-5, all that required non-gratui is a since, case, unlike the Court it can control, tous “surrendering of change in point policy to no of the Act which is ad- ownership, change in the fundamental vanced in this restricting case investment____” nature of an Sacks, 593 investor, of an pays actual who money in- 1240; F.2d at Baurer, see also 669 F.2d at tending purchase to one kind of security, (a purchase 779 of a security occurred since receives a different ultimately disposed “notes were ... of ... and value worthless kind from the seller. given return]”); see also 15 U.S.C. [in As this recognized, and other courts have § 77b(3) (1933 Act definition of “sale” in the policies remedial of the pro anti-fraud any disposition cludes a security of for Security Exchange vision of the Act embod value). ied in Rule 10b-5 command a liberal inter Although the majority says pretation sale”; it takes “purchase or no according issue with the ly, holdings cases, the courts have read these the rule to allow 17, private Maj.Op. text at n. damage imposed suits in its self situations much re- recognizable quirement less as traditional case sales or this there be a purchases “meeting than this one. the poses See Sacks v. minds” in fact Securities, Inc., Reynolds 1234, 593 F.2d irreconcilable conflict with them. Under espe- Co., the text of the Acts of 1933 and 1934 and 6. See Chemical Bank v. Arthur Andersen & 10(b) language cially 439, and rule 10b-5.” F.Supp. (S.D.N.Y.1982), 552 450-51 rev’d on 755, 421 U.S. at 95 S.Ct. at 1935 Chip, grounds, (2d 1984); other 726 F.2d 930 Cir. see L, (Powell, Marshall, JJ., joined by Stewart and Loss, 3, supra also L. note at 925. concurring). McCloskey MсCloskey, 7. See F.Supp. v. 450 991 Miramon, 1372, 1380-81, Alley 5. See v. 614 F.2d (E.D.Pa.1978), (noting Congress "if had intended (5th Cir.1980) (liquidation 1384-85 deemed executory [section limit to exclude 10b] [an] sale); Gramlich, F.Supp. forced Bolton v. simply contract ... it could have defined the (S.D.N.Y.1982) (same); 839-40 Valente v. any non-executory (emphasis term as contract." (D.Del.1978) Pepsico, F.Supp. 1236-37 original)). sale); Loss, (merger deemed forced see also L. supra note at 923-24 instance, test, case, policies require of the Act merger for majority’s recognition “sale” that a occurred when transformation of a stock- liquidation’s or failed to close and Claxton never- deal for into claims cash would shares holder’s purchase stock theless sent the minds” “meeting of since the no involve note rather than warrant and debenture agrees dispose of the never stockholder $50,000.8 returning Northland’s price. majority’s bargained for a stock Rule 10b-5 that did one isolated case cite to sum, In insis- majority’s I find that the doctrine, “meeting of the invoke minds” minds, in meeting tence (citing Maj.Op. at 1427 Dy- sense, see Radiation prerequisite strict contract law as a Goldmuntz, namics, purposes Inc. finding purchase v. sale Cir.1972)), (2d persuade. allowing private damages also fails action under Exchange contravenes Securities Act was an insider trad- Dynamics Radiation 10b-5, policy the remedial of Rule conflicts the issue was whether ing case which broadly prevailing precedent, which already agreed pur- defendant had purchase construes the or sale acquired he the shares before chase actions, totally is un- Rule 10b-5 If postdated the fraud inside information. justified by Supreme Court’s Blue purchase, cognizable no agreement to reasons, Chip opinion.9 For I dis- these court “meet- injury occurred. The used a sent. at what ing of the minds” test determine agreement was reached. That point the “meeting minds” test

use requirement as way predetermines ‍​‌‌‌‌​‌​​​‌​​​​‌​​‌‌‌​‌‌‌‌‌‌​‌​​‌​​​‌​​‌​‌‌​​‌​‌‍its “purchase sale” under

an element Where, Exchange Act.

the Securities

here, completed by the the commitment is

very paying security, injury act of for the to the fraud whether or not attributable Thus, agreement was

an actual reached. does not stand for Dynamics

Radiation proposition that no sale or can “meeting

exist without a of the minds.” course, (b) any dispute, majority can is there as the 8. Of before Northland recover from Nor Watkins, any principal suggests, Maj.Op. Chip’s it must he acted show see over Blue n. requisite with the scienter. Ernst & Ernst holding buy one who did or sell or Hochfelder, security bring has no a Rule 10b-5 Thus, my position in this L.Ed.2d 668 Again, nothing damages action. that has to do automatically impose liability сase would not with whether the facts here fall within the defi- if, developed the facts defendant were "sale.” nition of trial, he that he was not aware of can show (c) majority misper- footnote In its to induce the fraudulent scheme investment. my view of the do not contend ceives facts. I $50,000 Watkins, sending dissent, responding majority to this making independent offer. I maintain arguments which I makes several discrete per- rather that because Northland tendered reply note: (i.e., payment) formance under (a) argues Chip pointed It that Blue out the venture, part joint SBIC’s as the other phrase difference between the and sale” "offer Claxton knew made because that Northland in the in the 1933 Act and "sale” Act intending joint payment to be a venturer thereby coverage inferred a broader of transac- joint did under these terms and that the venture Maj.Op. tions n. 5. the 1933 Act. See close, obligated point. argue I he was to return North- There is no debate on that some- thing quite money legally responsible "sale” means or else be different —that land’s held thing supra n. having same both Acts. out in "sold” warrants he mailed point, The authorities are unanimous on this money. return for the whisper Chip and there is not even contrary.

Case Details

Case Name: Northland Capital Corporation v. A. David Silver and A. David Silver & Co.

Court Name: Court of Appeals for the D.C. Circuit

Date Published: May 25, 1984

Citation: 735 F.2d 1421

Docket Number: 83-1449

Court Abbreviation: D.C. Cir.