trusts for plaintiff and her brother, defendant Michael Heyman.
Despite these facts the Heyman court conferred standing on the
plaintiff since she was a beneficiary of the sale and the one who
would be injured by any failure to receive fair market value for
the stock. This court agrees with the reasoning of the Heyman
court and reaches the same conclusion on similar facts in the
present case. On the basis of hindsight now available to him,
William Wirtz cannot now argue that he would have decided to
allocate the stock or the proceeds from its sale to Mary Norris'
rather than plaintiff's trust. Moreover, a failure to receive
fair market value for the estate affects the net worth of the
estate and, accordingly, affects the value of the estate assets
which would fund Susan Norris' trust.
Defendants rely on the following case authority to support
their proposition that a sale by a trustee on behalf of a
plaintiff's trust does not confer standing on that plaintiff to
maintain a 10b-5 action against the trustee. See e.g.,
Fitzsimmons v. Old Security Insurance Company, CCH Fed.Sec.L.Rep.
¶ 96,236 (N.D.Ill. 1977); Lincoln National Bank v. Lampe,
414 F. Supp. 1270 (N.D.Ill. 1976); Rippey v. Denver United States
National Bank, 260 F. Supp. 704 (D.Colo. 1966). These cases rely
on Blue Chip, supra, in holding that standing to maintain a 10b-5
action is limited to actual purchasers or sellers. There is no
controlling case authority on this question since neither the
Supreme Court nor the Court of Appeals for the Seventh Circuit
has yet decided whether beneficiaries of a sale in Susan Norris'
position have standing to maintain a 10b-5 action. Therefore,
this court "is unwilling to extend, or apply, as the case may be,
the holding of Blue Chip to deny plaintiff standing in this
case." Hackford, supra at 549. See also Kirshner and Klamberg,
B. Cause of Action
Having recognized that Susan Norris has standing, the court
must now decide whether she has stated a cause of action under
Section 10(b) and Rule 10b-5. Both proscribe fraud "in connection
with the purchase or sale" of securities.
In approaching that issue, the court is not unmindful of the
recent history of federal securities fraud claims and implied
rights of action in the Supreme Court. While this court has
determined that plaintiff has standing to litigate here if she
has a federal claim, it is also aware that the courts have been
increasingly inhospitable to sweeping within the ambit of federal
securities law claims only marginally related to
purchase-and-sale transactions as commonly understood.
Here the claim relates to the probate court approval in 1966,
1967 and 1968 of the sale of assets of an estate then subject to
probate. The approval was sought and obtained by the
co-executors, defendant William W. Wirtz and plaintiff's mother,
Mary Norris. By the decedent's will the residuary estate, of
which those assets were a part, was to be divided between the
testamentary trusts. During the administration of the estate,
however, the co-executors had the same powers as the succeeding
testamentary trustee to sell assets. Plaintiff claims that
fiduciary Wirtz misled her, his co-executor and the court in
valuing those assets. Such are the stuff of state chancery
actions and, indeed, plaintiff contemporaneously with this action
filed an action in state court.
Plaintiff contends, however, that her approval of the sale was
required, and she alleges that in obtaining that approval
defendant Wirtz misrepresented the asset values by his
nondisclosure of their market, as distinguished from book, value.
Accordingly, she contends, she was fraudulently misled in making
her investment decision respecting the sale of securities.
If the provisions of the instrument upon which she relies were
as she contends, that contention would have considerable,
although not necessarily conclusive, force. The close nexus
between plaintiff's claim and the traditional state role in the
administration of estates brings into question whether her claim
is within the rights implied
under federal securities laws. See Santa Fe Industries, Inc. v.
Green, 430 U.S. 462, 97 S.Ct. 1292, 51 L.Ed.2d 480 (1977). But if
the alleged nondisclosures were material to a required investment
decision, then, arguably, the 10b-5 claim can be maintained. See
O'Brien v. Continental Illinois National Bank & Trust Co., supra.
In O'Brien, supra, plaintiffs were the respective trustees of
nine separate trust funds. In each case plaintiffs had entered
into an agreement with the defendant under which trust funds were
turned over to the defendant for investment. Defendant was given
the responsibility for making such investments in its sole
discretion as it saw fit, subject to a fiduciary duty of due
care. Plaintiffs had power to terminate the agreements at will
but had no right to receive notice of or to be consulted about
proposed investments and had no right to veto investment
decisions. Id. at 57. In concluding that the failure to disclose
certain facts to the plaintiffs did not occur "in connection
with" the purchase of securities, the Court of Appeals for the
Seventh Circuit stated:
The important point for our analysis is the decision
to which the nondisclosure related. If that decision
is whether to purchase or sell a security, the
nondisclosure is in connection with the purchase or
sale. Here, however, that decision was not whether
Continental [defendant] should buy or sell the
securities in question, for the terms of the trust
and agency agreements made that decision solely
Continental's and plaintiffs had no voice in it. The
decision to which the nondisclosure related was
whether plaintiffs should terminate the trust or
agency agreements or, perhaps, take some action
against Continental. As Judge Flaum correctly stated
in his memorandum of decision granting the motions to
dismiss the federal claims,
[T]here was no investment decision to be made by
plaintiffs and no such decisions were affected by
any lack of information on plaintiffs' part. The
"market transactions" were pure; the trust
relationships were not. Rule 10b-5, however,
protects the former and not the latter.
Id. at 60.