Appeal from the District Court of the United States for the Northern District of Illinois, Eastern Division; William H. Holly, Judge.
Before EVANS, Circuit Judge, and LINDLEY and BRIGGLE, District Judges.
This appeal is from a judgment for appellees entered upon a directed verdict at the close of appellants' case. The action was in tort for damages sustained by reason of appellees' alleged fraud in inducing and executing a syndicate agreement which concerns itself with the marketing of stock in Backstay Welt Company, in which appellants were interested. Appellants are the members of the syndicate and appellees the members of the stock brokerage firm, Hornblower & Weeks, which contracted to manage and operate the syndicate. Jurisdiction exists because of diversity of citizenship.
The declaration (filed August 12, 1932) contains two lengthy counts alleging a loss of $465,710.18, which resulted in part from the purchase by the syndicate of 10,000 shares of B.W. Co.'s common stock. This stock was bought at $42.72 per share, and it is alleged the stock now has a value of only $3 per share. One item of the loww, aggregating $40,496.99, covers interest and brokerage charges, and other relatively minor items.
Appellants were and are owners of common stock in the B.W. Co., and Indiana corporation engaged principally in the manufacture of welts, gimps, bindings, and other appliances used chiefly on automobiles and as weather stripping and for refrigerators. The firm of Hornblower & Weeks is engaged in the brokerage business and has offices in eight cities in the United States. The statement of B.W. Co., at the time of listing the stock on the Detroit market, showed 1,170 shares of 2,000 authorized preferred stock issued, and 80,673 shares of 100,000 authorized common stock issued. The present company was formed September 1, 1928. It was originally founded in 1899 as a partnership and first incorporated in 1910. It originated with Schemmel in his work shop. It grew steadily and became a corporation. It continued to expand in the volume of its products. This growth was the result of Schemmel's industry, energy and devotion. Regrettable is it that this worthy offspring should be used as a lure or bait to attract a speculative public. The company's net income for Federal tax purposes for 1930 was $117,319.98.
The alleged false, material representations of fact made as inducements to enter into the contract (which representations were relied on, according to the declaration) were:
(1) Appellees had facilities in their Detroit office which were required to create general trading on the market in B.W. Co.'s common stock, and could do so in a fixed period beginning February 27, 1929.
(2) Appellees would disseminate information among the public regarding the true value and merits of the stock so as to stimulate dealing, and they could overcome the existing indifference of the trading public to the stock, and appellees' representatives believed that the shares had a much greater value than the market value.
(3) Appellees would give the required publicity to the stock's merits to create a wider market.
(4) They would push through customary channels, trading in the stock.
The two appellees served, first filed a plea of the general issue in assumpsit and a couple of years later filed an additional plea of general issue in tort -- not guilty. In April, 1934, these two appellees filed a motion for a bill of particulars which the appellants answered seriatim.
After appellants' evidence was in, the appellees moved for a directed verdict, which motion, predicated on the ...