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Martin v. Orvis Bros. & Co.

DECEMBER 17, 1974.




APPEAL from the Circuit Court of Cook County; the Hon. JAMES C. MURRAY, Judge, presiding.


Robert E. Martin filed an action pursuant to the Securities Law of 1953 (Ill. Rev. Stat. 1971, ch. 121 1/2, par. 137.1 et seq.) to void the sale of securities and to recover the purchase price, plus interest and attorney's fees, on the ground that the securities were not registered with the Secretary of State as required by law. Defendant, Orvis Brothers & Co. (hereinafter Orvis), counterclaimed to recover the sum owed by plaintiff to defendant for stock purchased but for which payment had not been made. The case was tried before the court without a jury, with judgment being entered in favor of the plaintiff on his complaint in the principal sum of $243,649.01, together with interest of $57,233.90 and attorney's fees of $37,500; and for defendant on its counterclaim in the principal sum of $79,936.47, together with interest of $20,714.95. This appeal is from the entry of judgment in favor of plaintiff on the complaint. Plaintiff cross-appealed from the entire order, except to the extent it awarded plaintiff's attorney's fees and the principal sum of the counterclaim. The facts, in selective part, follow.

Plaintiff, Dr. Robert E. Martin, was licensed to practice medicine in 1936 and later specialized in internal medicine and radiology. He made early investments in oil and real estate, but by late 1968, he had disposed of his real estate investments. In November of 1965 he began to substantially invest in the stock market, and between then and May 1969, he purchased and sold stock with approximately 17 brokerage houses. During this period he purchased securities costing $6,979,899.96 and sold securities for a price of at least $5,607,526.72. To finance his market activity, plaintiff borrowed money from various Chicago banks; his loans from seven of the banks totaled at least $2,386,800. Although, during this period, plaintiff maintained his medical office and pursued his medical practice, a great, if not the greater, portion of his time appears to have been devoted to his market activity.

During the period of April 15, 1968, thru April 11, 1969, Martin purchased through Orvis, a registered broker-dealer, 25,190 shares of the common stock of Gamma Process Company, Inc., for a total cost of $678,085.74. It is undisputed that the Gamma stock was unregistered in Illinois and sold over the counter (see Ill. Rev. Stat. 1971, ch. 121 1/2, pars. 137.5, 137.12 A & D), and that on June 10, 1969, Martin served his written notice of rescission upon Orvis. See Ill. Rev. Stat. 1971, ch. 121 1/2, par. 137.13.

The particulars of the Gamma stock purchases from Orvis are as follows: Martin purchased the entire 25,190 shares of Gamma stock from defendant through its registered representative, Lee Robert Artoe. Artoe had previously handled an account for Martin at Merrill Lynch.

Martin testified that on April 14, 1968, Artoe, to whom he had not spoken in approximately 3 months, called to say that he was now associated with Orvis and had a "terrific proposition" for Martin as an investment, one which "I highly recommend to you," and which was identified as Gamma Process Company. Martin testified that Artoe called again the next day, and said, "If you are going to buy this stock, let's buy now." He then purchased 500 shares at $12 per share, and before the end of the month had purchased a total of 2,000 shares at prices ranging from $12 to $19 per share.

Martin further testified that he was urged by Artoe to purchase more shares quickly, even if other securities had to be sold to effectuate the additional purchases; that Artoe explained the excellent business prospects of Gamma, which possessed special patents for the process of irradiation, in the most glowing terms; and that Artoe, in May of 1968, had arranged a meeting with Dr. Welt, a key man at Gamma, who confirmed the excellent prospects of Gamma. After the meeting with Dr. Welt, plaintiff testified that Artoe recommended the purchase of 20,000 additional shares, enough to become a director.

By the end of May 1968, plaintiff purchased approximately 7,200 additional shares at prices ranging from $16 to $26 a share; during June 1968, 5,000 more shares were purchased at a price range of $29 to $32. During the period of May and June, both Artoe and Dr. Welt expressed the opinion that the company would grow and the price of the stock would go up. Plaintiff claimed that in July he expressed apprehension to Artoe "about converting good securities to buy this over-the-counter stock," and told Artoe that his funds were running low. But Artoe pressed him to buy more and said that he had some connections at banks from which Martin could obtain additional funds. From July 1 to July 13, 1968, plaintiff purchased 1,300 shares at prices ranging from $40.50 to $45.00. At this juncture, the stock had peaked in price and plaintiff's total acquisition was 15,600 shares.

Thereafter, in November of 1968, Martin attended a meeting with Artoe at which a Mr. Arnel, the president of Gamma, and a Dr. Silverstein, the vice-president in charge of research, stated the very favorable business prospects of Gamma. It was a promotional meeting, attended by 40 to 50 people from various brokerage houses. Martin then met privately with Artoe, Arnel and Silverstein, who further discussed the possibility of Martin becoming a director and told him that he would become a wealthy man from his investment in Gamma. Artoe continued to recommend the stock to Martin as a long-term investment. Plaintiff made his last purchase of stock on April 11, 1969, his total shares now numbering 25,190 for a total purchase price of $678,085.74. The stock was then selling at $18 a share.

Martin stated that in January of 1969, he spoke with Kurt Karmin, a stock broker at Freehling & Company, concerning a quote on Gamma stock; Karmin told Martin that he thought Gamma Process stock was not registered, but wasn't sure. Martin immediately called Artoe who stated that Karmin was full of "hot air," that the company was doing business in Illinois and must have been registered.

Martin stated that he telephoned Karmin in the early part of May, to ask him the quote on Gamma and during this conversation Karmin said that he was positive that Gamma stock was not registered. Martin called the Secretary of State's office which advised him that the stock was not registered. After confirming the nonregistration of the stock, Martin called his attorney, Jay Erens, who told Martin that he had a right to rescind. Martin placed the conversation with Erens about the middle of May.

Jay Erens testified that the conversation took place on June 2, at which time Martin told Erens that Gamma stock was not "qualified for sale" in Illinois, and stated "I don't know what that means."

Kurt Karmin testified for plaintiff and stated that he first heard of Gamma when Martin invited him to attend a meeting at the Union League Club in the fall of 1968 or 1969. The witness did not attend the meeting, but had four other conversations with Martin about Gamma, the second of which occurred months after the first, the third weeks after the second, the fourth days after the third, and the fifth hours after the fourth. He placed his first statement to Martin to the effect that Gamma was not registered in the third conversation. On cross-examination the witness admitted that he could not recall the exact time when Martin invited him to the meetings at the Union League Club, nor was he sure about the time relationship between the various conversations. Although he was faint in his recollection, he did not deny that on August 28, 1969, he told a member of Orvis that the conversation with reference to nonregistration occurred when Gamma stock was selling in the range of $33-$35 a share, which would place the conversation sometime in July or August of 1968.

Robert Artoe, testifying for the defense, stated that after Martin's account was closed out at Merrill Lynch on February 2, 1968, he talked to Martin nearly every day, keeping him abreast of the market. After he went to work for Orvis in early April, Artoe called Martin and advised him that he could trade with Artoe at Orvis. He testified that at the outset he mentioned Gamma to Martin as a stock he liked, and thereafter supplied information to Martin about Gamma on the latter's request. Artoe admitted that he invited Martin to meet with Dr. Welt of Gamma in May of 1968, but denied telling Martin that he ought to buy Gamma stock, or that he should have a designated position in the stock. Artoe testified that after the dinner on May 7, and prior to Martin's purchase on May 8, he told Martin, "This has to be considered long term for now because that much stock can't be immediately liquidated." On May 30 or 31, when Martin wanted to buy still more Gamma stock and Gamma was selling for $25 a share, Artoe testified, "I told him absolutely not to. My exact words were `Put this to sleep.'" Artoe testified that, in connection with Martin's purchases on June 20 and June 21, he stated to Martin: "Please don't. Put this one to sleep. We have plenty. I also believe it is going quite a bit higher, but we have plenty. Let's let it rest." Subsequently, on July 8, Artoe told Martin that ...

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