Professional Documents
Culture Documents
BOUDIN,
Circuit Judge.
_____________
This case
clearly embraces
others,
and is
based on
to bear
not consider.
clues garnered
at issue
does
language,
and
encourages courts
bounds.
on a
We
transaction that
from statutory
not fit
clear
excludes
are left to
and policy.
no
common
transactions, clearly
now brought
some
presents a
make a
language,
In our view,
the
comfortably within
the
policy
or
precedent
I.
On May
17, 1985,
entered into
Inc.
("NDS").
merged
Continental Telecom,
The
into a
NDS
that
subsidiary of
agreement provided
newly created
Inc. ("Contel")
NDS would
Contel
be
and, in
Both
was a
Massachusetts corporation.
At
the time
of the
Previously,
filed with
the Securities
and Exchange
Commission in
-2-2-
into
the Contel
subsidiary on
July
16, 1985.
In
as
corporate existence
in
accordance with
of NDS
the
shall terminate."
merger
agreement, the
stock
and received
their
statement
had contained
materially misleading
firm
of
registration statement
section 11 of
Coopers
had
&
Lybrand.
been issued
Although
before the
1933, 15 U.S.C.
the
merger,
77k,
misstatements
or
material
statements;
after
effective, a
person
acquiring such
specific
accounting
responsible
firm.
Accordingly, the
the
omissions
registration
in
statement
Section
present
including
11(a),
suit,
-3-3-
now
becomes
may be brought,
registration
of a
the
list of
certifying
U.S.C.
conducted
by "any
77k(a).
by
Versyss
Incorporated as Contel's
assignee, was
brought against
the
Lybrand moved
for
the
district court,
Coopers
&
11 plaintiff
securit[ies]."
exchange
so
Patently,
had not
"acquired [NDS]
Contel "acquired"
something
_________
in
the focus
Pointing
because it
of the
to the
dispute is
transfer of
upon the
the NDS
term "security."
certificates, Versyss
claimed that
the
merger.
by Contel through
view of the matter, held that the NDS stock certificates were
an
essence
of
liabilities
what
Contel
of the
former
as a "security"
received
NDS.
The
was
the
assets
district court
and
then
prejudice.
with statutory
language.
section 11 of
security"
statement
after
false
or
misleading
registration
-4-4-
defendant
makes
general terms,
out
statutory
reasonable
defense
inquiry and
"security" is
v.
breadth of
Landreth, 471
________
the Securities
of 1934, provisions
language are
U.S.
construed alike.
681,
terms, even
those
belief.
686
n.1
But
defined in both
differences in
faith
in
77k(a)(4), (b).
which despite
(1985).
good
comprising,
limits are
broadly construed,
strained badly
variety and
a broad construction.1
have outer
limits, and
by describing
what Contel
the date
of the
merger, and
before any
NDS stock
certificates
were
to be
transferred
to
Contel's exchange
____________________
1The 1933 Act
77b(1), provides:
definition,
section 2(1),
15 U.S.C.
"The term
"security" means any
note, stock,
treasury stock, bond,
debenture, evidence
of
indebtedness,
certificate
of
interest
or
participation in
any profit-sharing agreement,
collateral-trust
certificate,
preorganization
certificate or subscription, transferable share,
investment
contract, voting-trust
certificate,
certificate of deposit for a security, fractional
undivided interest in oil, gas, or other mineral
rights, or, in general, any interest or instrument
commonly known as a "security," or any certificate
of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of,
or warrant or right to subscribe to or purchase,
any of the foregoing."
-5-5-
agent,
NDS
ordinary
ceased
merger-law
to exist
as
jurisprudence
corporation.
(Frandsen
________
F.2d 941,
v.
944 (7th
This
is
Jensen_______
Cir. 1986)
("in a merger the shares of the acquired firm are not bought,
they
are
extinguished"))
and accords
with
the Contel-NDS
pattern,
providing
existence . . . of
that
in a
merger
"the
separate
except
the one into which the other or others . . . have been merged
. . . shall
vested in
tit. 8,
. . . shall be
259(a).
80(a)(1),
Accord,
______
(5).
Under
the
same
statutes and
the
merger
stock
underwent
point,
the NDS
considerable
stock
At that
to represent
management of
transformation.
certificates ceased
an
(since it
to reflect voting
rights in the
ceased to have
a management),
In sum,
-6-6-
is effective,
the stock in a
than the
surviving
Shields
_______
v. Shields,
_______
corporation) ceases
498 A.2d
161, 168
to exist
legally."
(Del. Ch.),
appeal
______
this
view
stockholders
is
turned
taken,
in
then--when
their NDS
the
former
NDS
after
_____
the
certificates
of NDS
agreement to
consideration.
Nor
who surrendered
the
represented
the certificates
stock, entitled by
be paid
virtue of
Contel stock
does Contel's
At worst,
the
promised as
position improve
if one
at the time
agreement
was consummated.
It may be
that
be treated as
the
an acquisition.
1934 Act,
trial judge
15 U.S.C.
But,
merger agreement in
as the
this case
between Contel and NDS was not a step on the road to Contel's
acquiring
of NDS securities
an agreement to
is a
second piece of
evidence, culled
from the
Versyss' claim.
Section 11
somewhat,
Section
11(e)
provides
that
the
-7-7-
recovery is
higher)
to be the difference
price paid
plaintiff-buyer
for the
when acquired
by the
three (presumptively
lower)
of the
and either
security
of
security shall
the price at
of in
which such
the market
before
suit, or (3) the price at which such security shall have been
disposed of after
U.S.C.
securities
brings
."
15
77k(e).2
are worth
suit either
securities.
less than
Then,
the price
of value or,
pays a
buyer
if the buyer
In
in
hands of
the
damage calculation.
Yet
in this
case
is
a premise
the NDS
of the
securities
exist.
It would
be fantasy to speak
of the non-
____________________
2Subsection (e) provides a rule for choosing between
alternatives (2) and (3) if the security has been disposed of
after suit but before judgment, and it has several further
limitations and provisos dealing with special circumstances.
None of these provisions alters the basic structure of the
damage formula.
-8-8-
After all, if
tender offer
and then
11.
But
provision does
section
11;
of
and, as
we
have
just
seen,
the
extinction
NDS
standpoint
complaint:
the
that
effective upon
merger
it acquired
a
_
normally
have
other cases
Versyss asks us to
some
elastic
in
do in this case.
their
makeup.
further than
If legislative history
____________________
3The section 11 damage remedy was added by amendment in
1934, 48 Stat. 908, but the original section 11 remedy-rescission of the sale--also assumes continuation of the
securities.
-9-9-
a close one.
and purpose, if
more literal
background of
the
stock
Depression,
the
market
wave
of
1933 Act
boom
is familiar
that
preceded
speculation drove
up
history.
the
the
Great
largely
in the
lives of thousands
of individuals
after years of
these worthless
securities."
2 (1933).
The most
H.R. Rep.
No 85,
notorious example
the public.
The stock,
to
$149 a
share, before
it collapsed--to
the
Joel Seligman,
of
"the
information to prospective
to buy securities."
failure
to
furnish
essential
invited
the 1933
-10-10-
11
was "designed
provisions of
liability
to assure
the Act
on the
U.S. 375,
by imposing a
parties
registered offering."
compliance with
who
play
stringent standard
a
direct
381-82 (1983).
the disclosure
role
in
of
a
Huddleston, 459
__________
Contemporaneous writings
confirm
to the
(Rep. Rayburn);
public.
See 77
Cong. Rec.
2918 (1933)
to say,
there
is little
resemblance between
doubtless after
careful study
Contel
section
11's
transaction
Contel of
create
of information that
statement issued
NDS offering.
of a
section 11
"acquiring such
(for example,
the
doubt that
some years
This mismatch
remedy
in any
security"
tender
NDS shares).
before
ought not
case where
language fits
offer
acquisition
The mismatch
stretching the
went far
does,
language to
the
by
however,
fit Contel's
the
Supreme
Court
has reminded
us,
the
federal
U.S. 551,
-11-11-
556
(1982),
Lybrand has
let alone
been
for all
careless in
of the
merger,
negligence.
certifying
If
the
Coopers &
registration
then state
law
might or
might
not
contrast, is
readily
imposing
registration
liability
on
statement (like
even of purchasers
stringency suggests
and standing.
after the
that,
Section
it applies,
ancillary
parties
to
accountants)
for the
benefit
original offering.
whatever
the
usual
the
Its
rule
very
about
(1963)),
some care
should
be taken
375 U.S.
before
180, 195
section 11
is
is
apparently a
virtually none
Versyss' best
case
of
of the precedents
case is SEC
___
first impression,
provides much
and
assistance.
v. National Securities,
___________________
393 U.S.
453, 466 (1969), which it offers for the proposition that the
transfer of
stock
in a
merger
is a
purchase or
sale
of
U.S.C.
stockholders would
be treated
for purposes
of section
return.
-12-12-
securities.
securities may
is to be
The
key to
the
occur without a
treated as "acquir[ing]"
acquired by
anyone
anomaly--that a
purchaser of
sale of
securities--is
because they
the
cease
to exist
as
time as
lack of precedent
transaction
rarely
for applying
section 11
relies
upon
statements
in a merger
in
an earlier
registration statement
other
time
hand, it may be
to time
but,
when the
to our
On the
registration statement
proved
applied.
Even
so,
applying
section
11
to
merger
expectations;
are liable to
____________________
4The
same reasoning
disposes of
77l(2) (condemning
_
material misstatements or omissions in connection with such a
transaction). The court there was concerned with whether the
plaintiff
who
surrendered
securities in
the
merged
corporation and received new securities in the surviving
corporation was a purchaser or seller (the court said the
plaintiff was both).
Once again, this case would treat the
NDS stockholders as possible plaintiffs but says nothing
about the status of Contel.
-13-13-
remote
purchasers
limits.
well beyond
But section
everyone
for
634 F. Supp.
any harm
inaccurate statement.
more predictable
remotely
See
___
flowing
from a
common law
liable to
false
or
statutes,
notably
statutes
of
limitation,
set
Here, it has been assumed that Contel might well have a claim
under section 11 if it had acquired the NDS stock in a tender
offer and
clear
It is even more
transaction had
been framed
as
a pure
acquisition of
NDS
assets.
______
Faced with
into neither
leave
a merger
transaction that
fits neatly
of lingering unease.
that a security in
For
unease
a non-existent corporation
-14-14-
of 1933,
15 U.S.C.
untrue statement
Section
11 of
77k(a), provides
that
of material
fact or omitted
to
state
material fact
accountant
prepared
required to
(emphasis
added).
stated" may
any part
This
be
of the
sue "every
named as having
registration statement"
section should
impose
liability
on
11 and deferring
words.
of its
In its
power of disposal of
means."
often by some
uncertain or unspecified
see also
________
"acquire"
similarly).
Securities
41
"Security"
Act of 1933,
2(1), 15
(4th ed.
is defined
U.S.C.
1951)
(defining
by the
statute,
possession, control
of disposal over
NDS
Reorganization, setting
states that
Merger
or power
forth the
"each share of
terms of the
NDS Stock
. .
. by
merger, plainly
virtue of
the
[shall]
Contel
Stock
(emphasis added). The words "be converted into and exchanged for"
indicate an acquisition
of NDS
That is, by
securities
issued in
merger is
of no
Contel
the merger to
sold Contel
stockholders of
to exist
following
consequence because
in that
virtue of
which were
NDS stock
stock by Contel
That the
the consummation
Contel acquired
of
the
the stock
ability to
construed "flexibly to
statutes, must be
SEC v.
___
Capital Gains Research Bureau, 375 U.S. 180, 195 (1963); see also
_____________________________
________
Affiliated Ute Citizens of Utah v. United States, 406
________________________________
_____________
151 (1972).
Congress
provisions
In this
passed
of
liability on the
offering."
11
the
regard, the
to "assure compliance
Act
by imposing
U.S. 128,
found that
stringent
standard
of
in a registered
Thus,
essentially
Sess.
Congress imposed
-16-16-
particularly heavy
include mergers
consummated
these goals.
In passing
against them.
11
to any
merger like
the one
presented
transactions in
of
11.
As such, I dissent.
-17-17-