The opinion of the court was delivered by: ELAINE E. BUCKLO, District Judge
MEMORANDUM OINION AND ORDER
Plaintiff Francis V. Daniels filed a two count class action
complaint against defendant, Blount Parrish & Company ("Blount")
alleging violations of §§ 12 and 15 of the Securities Act of 1933.
This court certified a class of bondholders. Both parties seek summary
judgment. I grant Blount's motion for summary judgment and deny Mr.
Daniels' motion for summary judgment.
Mr. Daniels represents a class of individuals who purchased bonds from
Blount, an Alabama corporation. The bonds were issued by the City of Wood
River, Illinois ("Wood River"); Blount served as the underwriter for the
bonds. The bonds were issued to fund a file manufacturing facility
project which was to be constructed in an existing industrial park in
Wood River. The facility was to be leased to Enviro Tile of Wood
River, Inc., an Illinois corporation. Mr. Daniels alleges that the bonds
were sold pursuant to a
misleading prospectus and claims Blount has violated §§ 12 and
15 of the Securities Act of 1933.
Summary judgment is proper when there is "no genuine issue as to any
material fact and that the moving party is entitled to a judgment as a
matter of law." Popovits v. Circuit City Stores, Inc.,
185 F.3d 726, 731 (7th Cir. 1999) (citing Celotex Corp. v. Catrett,
477 U.S. 317, 322-23 (1986)). I may consider the pleadings, depositions,
answers to interrogatories, admissions, and affidavits when considering
if a genuine issue of material fact exists. Id. Further, I
"construe all facts in the light most favorable to the nonmoving party
and draw all reasonable and justifiable inferences in that party's
In Count I, Mr. Daniels alleges that Blount violated § 12 of the
Securities Act of 1933, 15 U.S.C. § 771(a)(2). To sustain a claim,
Mr. Daniels must show that (1) Blount offered or sold a security; (2)
through interstate commerce or the mails; (3) using a prospectus; (4)
that contains a material misrepresentation or omission of a material
fact. 15 U.S.C. § 771(a)(2). If Mr. Daniels is able to prove all four
elements, he may recover the consideration paid for the securities.
Mr. Daniels must first show that Blount offered or sold a security;
that is, that Blount was a "seller" for purposes of § 12.
At one time, the Seventh Circuit required strict privity between
buyer and seller for liability to attach under § 12. Sanders v.
John Nuveen & Co., 619 F.2d 1222, 1226 (7th Cir. 1980). However,
in response to Pinter v. Dahl, 486 U.S. 622 (1988), the Seventh
Circuit held that the category of "seller" includes those who
"successfully solicit the purchase, motivated at least in part by a
desire to serve [their] own financial interests or those of the
securities owner." Schlifke v. Sea first Corp., 866 F.2d 935,
940 (7th Cir. 1989) (citing Pinter, 486 U.S. at 647).
The evidence before me demonstrates that Blount did not sell the
securities at question directly to Mr. Daniel or other class
plaintiffs.*fn1 Further, there is no evidence that Blount retained a
financial interest in the securities after their sale to various dealers.
The undisputed evidence shows that Blount instead sold the securities to
dealers, who in turn sold the securities to other parties (including the
plaintiffs). Both parties have submitted confirmation slips showing the
sale of the securities from Wood River to Blount, and from Blount to the
various dealers. Plaintiff's Exhibits to the Statement of Uncontested
Facts, ¶¶ 11, 13; Defendant's Statement of Material
Facts, ¶ C. The slips include sales to the following dealers:
American Municipals, D.E. Frey & Assoc., First Southern Securities,
Josephtahl & Co., and Paragon
Mr. Daniels admits that he purchased the securities at question from
his broker, who worked for a company named RAF, which later changed its
name to "American something." Dep. of Francis V. Daniels, Oct.
22, 2002, p. 29. Both parties also submit a cancelled check, purportedly
for the purchase of the securities at question. The check is made out to
"Correspondent Services Corp. (RAF)" and is endorsed by "Correspondent
Services Corp.". Plaintiff's Exhibits to the Statement of Uncontested
Facts, ¶ 1; Defendant's Statement of Material Facts, ¶ D.
Finally, I have the testimony of Rushton Rice, a principal with Blount.
He states that Blount sold the securities at question to five
broker/dealers and one individual and that Blount retained no financial
interest in the securities once the sale to the dealers was complete.
Affidavit of Rushton Rice, ¶¶ 3, 4. Frederick Simpler, Jr.,
an attorney who served as underwriters' counsel for Blount in connection
with the securities at question, confirms that Blount sold the securities
to the above mentioned dealers and individual. Affidavit of
Frederick Simpler, Jr., ¶ 5. That evidence is unrefuted.
Mr. Daniels alleges that Blount could not have sold the securities to
the dealers, because of a National Association of Securities Dealers
("NASD") rule. Blount is a member of NASD and is bound by its rules. NASD
Rule 2740 states that in connection
with fixed price offerings, selling concessions, discounts or other
allowances can be paid only to brokers or dealers actually engaged in the
investment banking or securities business and only as consideration for
services rendered in distribution. However, the NASD rules also exempt
municipal securities from the term "fixed price offering". NASD Manual
Rule 0120 (stating that the term "municipal securities" is used as
defined in § 3(a) (29) of the Securities Act of 1933). That section,
which has been codified as 15 U.S.C. § 78c(a)(29), defines "municipal
securities which are direct obligations of, or
obligations guaranteed as to principal or interest
by, a State or any political subdivision thereof,
or any agency or instrumentality of a State or any
political subdivision thereof, or any municipal
corporate instrumentality of one or more States,
or any security which is an industrial development
bond (as defined in section 103(c)(2) of Title
26) the interest on which is excludable from gross
income under section 103(a)(I) of Title 26 if,
by reason of the application of paragraph (4) or
(6) of section 103(c) of Title 26 determined as
if paragraphs (4)(A), (5), and (7) were not
included in such section 103(c)), paragraph (1) of
such section 103(c) does not apply to such
15 U.S.C. § 78c(a)(29) (codifying Securities Act of 1933 section
The Offering Memorandum for these bonds states that the
bonds are obligations of Wood River. Defendant's Statement of
Material Facts, ¶ A. Wood River is a city and a political
subdivision of a state; the bonds fall into the definition of
municipal securities. Therefore, the NASD Rule does not apply, and Blount
was not prohibited from selling the bonds to the dealers.
In summary, there is no evidence that Blount was in privity with
plaintiffs, nor that it had a financial interest in the ultimate sale of
the securities to plaintiffs. Blount therefore is not a "seller" for the
purposes of § 12(2). I ...