The opinion of the court was delivered by: SHADUR
MILTON I. SHADUR, UNITED STATES DISTRICT JUDGE.
Richard Handelsman ("Handelsman") and Jeffrey Wolfson ("Wolfson") initially sued Gilford Securities, Inc. ("Gilford"), Gridcomm, Inc. ("Gridcomm"),
Alan Alpern ("Alpern") and H. Robert Holmes ("Holmes") in a two-count Amended Complaint (the "Complaint"), alleging violations of Securities Exchange Act of 1934 ("1934 Act") § 10(b), 15 U.S.C. § 78j(b), and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5 (together "Section 10(b)"). After taking extensive deposition and document discovery, Alpern has moved for summary judgment under Fed. R. Civ. P. ("Rule") 56(b).
Handelsman and Wolfson have responded in part with a Rule 56 motion of their own against Alpern.
For the reasons stated in this memorandum opinion and order, Alpern's motion is granted and the cross-motion is denied.
This dispute arises out of an investment made by Handelsman and Wolfson in Gridcomm. Both are private investors who trade in options and other securities and also invest as partners in private ventures.
In the spring of 1986
Gridcomm sent its Chairman of the Board of Directors Alpern in search of additional working capital. Alpern eventually encountered Holmes, the president and resident manager of Gilford's Chicago office, who proceeded to arrange meetings with potential investors.
Next Gridcomm sent Handelsman a letter (not authored by Alpern) dated June 9 (the "June 9 Letter"), which stated at the outset:
This letter, when signed below, will constitute an agreement pursuant to which you agree to provide [Gridcomm] a letter of credit ["LOC"] in the amount of $ 250,000.
Substantively the June 9 Letter:
1. required that the LOC be unconditional and for a period of one year;
2. provided some information about Gridcomm, adding:
You may make such further inquiries and inspections through [Gridcomm's] officers and records as you deem appropriate prior to the closing of this investment.
3. obligated Gridcomm to deliver two-year warrants for the purchase of 25,000 shares of common stock (1,000 shares for each $ 10,000 of LOC funds) at an exercise price of $ 9 per share.
As already stated, someone other than Alpern sent the letter to Handelsman and Wolfson. Handelsman signed it on behalf of their partnership (albeit in the wrong space, one provided for the signature of a Gridcomm representative). On June 19 Alpern affixed his signature on behalf of Gridcomm, and at some unknown time the typed portion of the signature section was corrected by handwriting to reflect accurately the affiliations of the two signatories.
Later (in the "June 27 Letter," sent after Handelsman and Wolfson had already made their investment) Alpern wrote to Handelsman outlining a change in the nature of the consideration that had been provided by Handelsman and Wolfson.
Instead of the LOC, Handelsman or Wolfson or both had requested on their behalf that they be permitted to put up collateral sufficient to enable Gridcomm to obtain a $ 250,000 loan, and that was covered in the June 27 Letter.
In addition the June 27 Letter provided:
If you should exercise the Warrants prior to June 30, 1987, the proceeds from such exercise shall be used by [Gridcomm] to obtain release of the Collateral to the extent of such proceeds.
Please sign and return a copy of this letter signifying your agreement.
Handelsman signed the June 27 Letter too. Before he did so, Wolfson had already (on July 10) made a wire transfer of $ 250,000, as was permitted by the already-described contractual change requested by the Handelsman-Wolfson partnership, to provide the requested collateral for the Gridcomm loan.
Schlifke v. Seafirst Corp., 866 F.2d 935, 943 (7th Cir. 1989) repeats the familiar Section 10(b) standards requiring Handelsman to prove
(1) made an untrue statement of material fact or omitted a material fact that rendered the statements made misleading, (2) in connection with a securities transaction, (3) with the intent to mislead, and (4) which caused plaintiff[s'] loss.
For present purposes it may be assumed that Alpern's statements did not meet such a full-disclosure test -- that there were indeed misleading omissions. It may also be assumed that the omitted facts were "material" -- a term that usually refers to the importance of the information to the investment decision (see LHLC Corp. v. Cluett, Peabody & Co., 842 F.2d 928, 931 (7th Cir. 1988)).
Those assumptions may be made because the key here is the second Schlifke element ("in connection with a securities transaction") ...