Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

NEMITZ v. COUNNY

June 14, 1963

ORVAL
v.
NEMITZ, PLAINTIFF, V. WALTER F. CUNNY AND MARGARET O. CUNNY, DEFENDANTS.



The opinion of the court was delivered by: Parsons, District Judge.

Some time prior to April 30, 1958, the defendant Walter F. Cunny negotiated with plaintiff for the purchase of plaintiff's 893 shares in Falls Products Incorporated, and, in so doing, made a number of telephone calls to the plaintiff, the transmission and receipt of which all took place wholly within the State of Illinois.

On or about April 30, 1958, the sale was consummated, and the defendant Walter F. Cunny thereafter held the certificate representing the shares so purchased and sold until November 30, 1960, at which time he caused them to be transferred on the books of the corporation and to be issued to the defendant Margaret O. Cunny, his wife.

The complaint alleges that all of the parties herein are directors and shareholders in Falls Products Incorporated. In Count I thereof, the defendant Walter F. Cunny is charged with devices, schemes, and artifices to defraud through the use of an instrumentality of interstate commerce, and with acts or practices which operated as a fraud or deceit upon the plaintiff. This count alleges violations of Rule 10b-5 (17 C.F.R. § 240.10 b5) adopted by the Securities and Exchange Commission pursuant to Section 10(b) of the Securities and Exchange Act of 1934 (15 U.S.C.A. § 78j(b)).

Section 78j provides in part:

    "It shall be unlawful for any person, directly
  or indirectly, by the use of any means or
  instrumentality of interstate commerce or of the
  mails, or of any facility of any national
  securities exchange —
  "(b) To use or employ, in connection with the
  purchase or sale of any security registered on a
  national securities exchange or any security not
  so registered, any manipulative or deceptive
  device or contrivance in contravention of such
  rules and regulations as the Commission may
  prescribe as necessary or appropriate in the
  public interest or for the protection of
  investors."

And Rule 10b-5 provides:

    "It shall be unlawful for any person, directly
  or indirectly, by the use of any means or
  instrumentality of interstate commerce, or of the
  mails, or of any facility of any national
  securities exchange, (1) to employ any device,
  scheme or artifice to defraud, (2) to make any
  untrue statement of a material fact or to omit to
  state a material fact necessary in order to make
  the statements made, in the light of the
  circumstances under which they were made, not
  misleading,

  or (3) to engage in any act, practice, or course
  of business which operates or would operate as a
  fraud or deceit upon any person, in connection
  with the purchase or sale of any security."

Count II of the complaint is a common law action alleging both actual fraud and a breach of a fiduciary relationship resulting in constructive fraud in connection with the same purchase of shares of stock from plaintiff by the defendant Walter F. Cunny.

Both defendants have filed separate motions to dismiss the complaint.

In support of the motions, insofar as they are directed to Count I of the complaint, defendants urge that Section 78j (b) and Rule 10b-5 have no application to the alleged facts of this case because:

(1) The transaction involved herein is solely an intrastate transaction and in regard to the stock of a closed corporation, incorporated in Illinois, and not dealt in on any stock exchange;

(2) No means or instrumentality of interstate commerce or of the mails or any communication device was used in the purchase or sale of the stock complained of;

(3) If said statute is construed to apply to an intrastate transaction, said statute is unconstitutional in that Congress would have thereby exceeded its legislative jurisdiction ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.