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Fed. Sec. L. Rep. P 97,592 Westinghouse Credit Corporation v. Bader & Dufty, 627 F.2d 221, 10th Cir. (1980)
Fed. Sec. L. Rep. P 97,592 Westinghouse Credit Corporation v. Bader & Dufty, 627 F.2d 221, 10th Cir. (1980)
2d 221
From the complaint in the instant case we learn that the defendants here are
seeking to finance the action brought by Woodmoor Corporation against
Westinghouse Credit Corporation by offering and selling securities to former
stockholders, allegedly in violation of federal securities law. The claim is that
these so-called securities consist of profit-sharing agreements as to any money
which Woodmoor might ultimately recover in its suit against Westinghouse
Credit Corporation.
There was considerable discovery in the instant case. The defendants then
moved to dismiss under Fed.R.Civ.P. 12(b)(6), and alternatively, sought
summary judgment under Fed.R.Civ.P. 56. The trial court granted the motions
to dismiss and dismissed the cause of action with prejudice on the ground that
the complaint failed to state a claim on which relief could be granted. More
specifically, the trial court held that Westinghouse lacked standing to seek
relief on any of the grounds advanced against any of the defendants.
In Vincent the plaintiffs sought private equitable relief under section 10(b) of
the Act and its implementing Rule 10b-5. The claim was that the defendants
had devised a scheme to defraud the plaintiffs and that, in furtherance of such
scheme, the defendants deceptively purchased securities from a third party, and,
though the plaintiffs were not a party or privy to the purchase itself, they had
nonetheless suffered injury as a result of the effectuation of the overall scheme
to defraud. The trial court, relying on Birnbaum v. Newport Steel Corp., 193
F.2d 461 (2nd Cir.), cert. denied, 343 U.S. 956, 72 S.Ct. 1051, 96 L.Ed. 1356
(1952), granted the defendant's motion to dismiss on the grounds that the
plaintiffs in Vincent were neither buyers nor sellers of a security within the
meaning of Section 10(b) or Rule 10b-5. On appeal, we affirmed.
direct connection between the sale by the defendants of the profit sharing
agreements and the alleged injury to Westinghouse, i.e., the continued
prosecution by Woodmoor Corporation of its suit against Westinghouse. The
connection is only indirect at best. In our view the instant case is actually a
weaker one than Vincent. In Vincent, the defendants made a deceptive
purchase of a security as part of an overall scheme to gain control of a familyowned business at the expense of the plaintiffs, who were a part of the family
and also had an interest in the family owned business. Because of the lack of
direct connection between the purchase of the security and the injury allegedly
suffered by the plaintiffs, we held there was no federal jurisdiction. In the
instant case the defendants by the sale of so-called securities are raising money
to finance Woodmoor's suit against Westinghouse. We find no direct causal
connection between the sale and the alleged injury. Indeed, we doubt that the
injury which Westinghouse claims to have suffered is the type of injury
contemplated by the statute. In sum, Westinghouse does not have standing to
pursue a private action under Section 10(b) or Rule 10b-5, even though it be for
injunctive relief only.
10
11
Westinghouse also objects to the refusal of the trial court to exercise its socalled "inherent equitable powers" to grant Westinghouse standing. In declining
to expand on the rather comprehensive scheme of federal securities laws, the
trial court did not in anywise abuse its discretion.
12
The trial court fixed a cost bond in the amount of $5,000. Westinghouse
complains here about the amount of the cost bond. Whether that matter is
After notice of appeal was filed, the defendants filed with the trial court a
motion to tax costs and allow attorney's fees. Such motion has lain dormant
pending disposition of this appeal. On remand, the trial court shall promptly
hear and determine these ancillary matters.
14
Judgment affirmed.