APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA
Before Aldisert and Weis, Circuit Judges, and Diamond, District Judge.*fn*
The major question for decision is whether absence of buyer-seller privity is fatal to a claim based on § 12(2) of the Securities Act of 1933.*fn1 The district courts in this circuit that have addressed the question, including Judge McGlynn, the trial judge here, have ruled that unless some special relationship exists between the issuer and the actual seller of the securities, such as control of the seller by the issuer, a purchaser not in privity with the issuer has no claim under § 12(2) against the issuer.*fn2 We agree with this interpretation and, persuaded that the trial court committed no error in dismissing appellants' § 12(2) claim or in ruling on appellants' other contentions, we affirm.
This appeal emanates from a class action brought by stockholders of Signetics Corporation against Corning Glass Works and its formerly controlled subsidiary, Signetics. Plaintiffs were members of the class who purchased Signetics stock pursuant to a public offering on November 1, 1973 from underwriters for $17.00 per share. Plaintiffs claimed that the registration statement and the prospectus which accompanied the offering violated § 11(a)*fn3 and § 12(2) of the Securities Act of 1933. Their complaint alleged that sometime prior to the public offering, Corning, which owned 92% Of Signetics before the offering and 70% Afterwards, had decided to divest itself entirely of its interest in Signetics but had failed to disclose this intention in either the registration statement or the prospectus. The complaint further alleged that Signetics was aware of Corning's intention to sell and that its officers had assisted Corning in the search for a buyer. Eighteen months after the offering, Corning's interest was completely liquidated when Signetics merged into a subsidiary of United States Phillips Corporation, and Signetics' shareholders were required to surrender their stock for $8.00 per share.
The § 12(2) issue is presented in an appeal by John R. Cillag from an adverse summary judgment in favor of Corning and Signetics. The record indicates that the Signetics stock issue was subject to a "firm commitment" underwriting agreement, by which Signetics agreed to sell the entire stock issue to the Lehman Brothers Company, the lead underwriter, and to several other underwriters who participated in the offering. Appellant Cillag purchased his 2,200 shares not from Corning or Signetics, but from members of the underwriting syndicate 600 shares from a broker-dealer of the Advest Company and 1,600 shares from Shields & Company. No underwriters were named as defendants in this suit. By uncontroverted affidavit, each appellee averred that it does not control, and has never controlled, Advest Company, Shields & Company, or any other underwriter who participated in the offering. Appendix at 125a-126a. Appellants' documents contain no factual averments sufficient to put into contest the representation that Signetics and Corning occupied no special relationship with the underwriters who sold the securities to the appellants. Absent such a relationship, the appeal must fail.
We have no difficulty in concluding that Congress intended the unambiguous language of § 12(2) to mean exactly what it says: "Any person who . . . (2) offers or sells a security . . . shall be liable to the person purchasing from him . . . ." This section is designed as a vehicle for a purchaser to claim against his immediate seller. Any broader interpretation would not only torture the plain meaning of the statutory language but would also frustrate the statutory schema because Congress has also provided a specific remedy for a purchaser to utilize against the issuer as distinguished from the seller of a security. Thus, § 11 gives anyone acquiring a security a specific right of action for misrepresentations against every person who signed the registration statement, or was a director or partner of the issuer, or prepared a certified statement contained in the registration statement, or was an underwriter with respect to the security. 15 U.S.C. § 77k.
Ascertainment of congressional intent with respect to the standard of liability created by a particular section of the securities acts must "rest primarily on the language of that section." Ernst & Ernst v. Hochfelder, 425 U.S. 185, 200, 96 S. Ct. 1375, 1384, 47 L. Ed. 2d 668 (1976). In interpreting liability provisions of the acts, we must respect recent Supreme Court teachings that militate against excessively expansive readings. Thus, proof of an actual purchase or sale rather than a lost opportunity to purchase is necessary to recover for a violation of Rule 10b-5, Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 95 S. Ct. 1917, 44 L. Ed. 2d 539 (1975), and scienter is necessary to establish a 10b-5 violation, Ernst & Ernst v. Hochfelder, supra. A defeated tender offeror has no implied cause of action for damages under § 14(e) of the Securities Exchange Act of 1934 or under Rule 10b-5. Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 42, 97 S. Ct. 926, 51 L. Ed. 2d 124 (1977). Without allegations of manipulation or deception, no 10b-5 cause of action exists for simple breach of fiduciary duty to minority stockholders. Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 97 S. Ct. 1292, 51 L. Ed. 2d 480 (1977). Section 12(k) of the Exchange Act does not authorize the Commission to suspend trading in a security for more than one ten-day period on the basis of a single set of circumstances, SEC v. Sloan, 436 U.S. 103, 98 S. Ct. 1702, 56 L. Ed. 2d 148 (1978), and an employees' noncontributory, compulsory pension plan is not a security within the meaning of the Securities Acts, International Brotherhood of Teamsters v. Daniel, 439 U.S. 551, 99 S. Ct. 790, 58 L. Ed. 2d 808 (1979).
Neither by theory nor factual presentation did the appellants proffer a case against appellees of aiding and abetting the actual seller. It is therefore unnecessary to discuss at length our decision in Monsen v. Consolidated Dressed Beef Co., 579 F.2d 793 (3d Cir. 1978). There a company that sold unregistered securities to its employees through a promissory notes program was found to have violated § 12(1) and § 12(2) of the 1933 Act, and § 10(b) of the Exchange Act of 1934. The company had borrowed money from a bank which demanded that the unregistered securities be subordinated to the bank's secured interest. The bank was found by the jury to be an aider-abettor, but the trial court entered judgment n. o. v. in its favor. On appeal, this court dealt solely with the question of how much evidence is required to constitute aiding and abetting. We determined that the evidence was sufficient and reinstated the jury verdict without specifically discussing whether there can be aider-abettor liability under § 12(2) as distinguished from § 10(b), on which the jury's verdict also rested. It is significant that there was no underwriting agreement in Monsen ; and here, unlike Monsen, the actual seller of the securities, the underwriters, were not named as defendants. Moreover, in the context of a summary judgment proceeding, appellants' evidence did not support an aiding and abetting theory against the defendants.
We therefore affirm the grant of summary judgment on the basis that appellant Cillag had no claim against the appellees under § 12(2) because he did not purchase the securities from them.
Consistent with his preliminary ruling, Judge McGlynn permitted appellants' case to go to the jury on the theory of a § 11 violation. Section 11(a) of the Securities Act of 1933 provides civil liability for material misstatements and omissions in registration statements, while enumerating those persons against whom suit may be brought. Section 11(e) establishes the appropriate method for measuring damages caused by a § 11(a) violation, but disallows recovery of those damages proved by defendant to have resulted from a cause other than the misrepresentation.*fn4 This provision places the burden of affirmatively proving lack of causation on the defendant. At trial, the question of causation was submitted to the jury, and appellants, faced with an adverse jury verdict, now mount a host of arguments generally clustering around the contention that there was insufficient evidence to submit the causation question to the jury.*fn5
Signetics manufactures various types of integrated circuits using silicon semiconductor chips. Unlike most other producers in the industry, Signetics markets its products through distributors. Since the invention of integrated circuits in the early 1960's, the industry has been marked by rapid technological development, and it is extraordinarily volatile and fiercely competitive. By extensive testimony of the major defense witness, Otis Bradley, a securities analyst and an expert on semiconductor stocks, appellees proved that the period when appellants purchased their stock was "far and away the most tumultuous . . . ever experienced." Appendix at 1882a. Bradley testified with specificity as to the various economic and political factors that caused the acute market decline: high interest rates, inflation, the war in the Middle East, Watergate, Vice President Spiro Agnew's resignation, a large verdict against International Business Machines Corporation, the oil embargo and subsequent long lines at gasoline stations, closing of large automobile plants, President Nixon's resignation, United States-Soviet ...