# Percy D. AYRES, Appellant, v. MERRILL LYNCH, PIERCE, FENNER & SMITH, INC. > Court of Appeals for the Third Circuit · June 28, 1976 · 538 F.2d 532 URL: https://www.frixlaw.com/law-library/cases/9462881 ## Case - **Full name:** Fed. SEC. L. Rep. P 95,643 Percy D. Ayres v. Merrill Lynch, Pierce, Fenner & Smith, Inc - **Court:** Court of Appeals for the Third Circuit - **Decided:** June 28, 1976 - **Citations:** 538 F.2d 532; 1976 U.S. App. LEXIS 8290 - **Precedential status:** Published - **Opinion:** Dissent by Stern - **Judges:** Van Dusen, Weis, Stern - **Cited by:** 66 later opinions in the Frix Law Library ## Citator (automated) - No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases. - Full citator and citing cases: https://www.frixlaw.com/law-library/cases/9462881 ## Opinion text STERN, District Judge (dissenting). Percy Ayres became a registered representative with Merrill Lynch in 1945. For the next 25 years he worked as a professional dealer in securities. At the time he' was hired, he agreed to submit to the jurisdiction of the New York Stock Exchange and to be bound by the rules of the Exchange and all amendments thereto. He reaffirmed that agreement in 1961, when he applied for Exchange approval to become the holder of Merrill Lynch non-voting common stock. Ayres purchased a total of 2,000 shares of Merrill Lynch in two separate transactions in January 1962 and December 1964. The total purchase price was $49,741.50. With each purchase Ayres executed a Stock Subscription Agreement under which Merrill Lynch reserved the absolute right at any time to repurchase any or all of Ayres’ stock on 90-days’ notice. As the majority notes, ante at 533, the option to repurchase was exercisable for any reason. Over the years Ayres’ stock split several times, and on the date of his retirement he held 8,000 shares. Merrill Lynch exercised its repurchase option when Ayres retired on or about October 1, 1970, and required Ayres to sell his stock to Merrill Lynch for $209,064.00. The gravamen of Ayres’ claim is his allegation that Merrill Lynch withheld from him the information that it was planning to go public. Ayres contends that if the corporation had informed him of the upcoming public offering he would have decided not to retire in the hope of realizing still greater appreciation of his stock. He claims that his decision not to retire would have caused Merrill Lynch not to exercise its admittedly absolute and unqualified right to repurchase. Thus, according to Ayres, Merrill Lynch withheld from him material information in connection with his sale of stock to Merrill Lynch, in violation of Rule 10b-5. I am unable to concur in the Court’s opinion. I cannot agree that this complaint states a claim under Rule 10b-5, and I therefore find the Court’s analysis of Wilko v. Swan, 346 U.S. 427 , 74 S.Ct. 182 , 98 L.Ed. 168 (1953), inapplicable. Congress intended, in enacting section 10(b), “to eliminate deceptive and unfair practices in security trading and to protect the public from inaccurate, incomplete and misleading information. The thrust of the Act and the decisions interpreting it is to give the investing public the opportunity to make knowing and intelligent decisions regarding the purchase or sale of securities.” Kahan v. Rosenstiel, 424 F.2d 161 ; 173 (3rd Cir. 1970). Cf. Ernst & Ernst v. Hochfelder, 425 U.S. 185 , 96 S.Ct. 1375 , 47 L.Ed.2d 668 , 44 U.S.L.W. 4451 , 4454 (1976). This Court held in Rochez Bros., Inc. v. Rhoades, 491 F.2d 402, 408 (3rd Cir. 1974): The test of the materiality of undisclosed or misrepresented facts is basically an objective one — i. e., whether “a reasonable man would attach importance [to *540 them] in determining his choice of action in the transaction in question.” List v. Fashion Park, Inc., 340 F.2d 457 (2nd Cir.), cert. denied, 382 U.S. 811 [ 86 S.Ct. 23 , 15 L.Ed.2d 60 ] (1965). The majority properly observes, ante at 537, n. 13, that no information can be material to the exercise of a party’s choice of action if that party has no choice to make. It is the majority’s view, however, that “this critical element of lack of choice on the plaintiff’s part is lacking” here. Ante, at 537. I cannot join in this assertion. No party contends that Merrill Lynch had anything less than an unfettered right to require Ayres to sell his stock at any time on 90-days’ notice. He had no right to refuse to sell. Merrill Lynch had an unconditional contractual right to buy at any time and for any reason. Thus, Ayres had no “choice of action” with regard to the sale of his stock to Merrill Lynch. I fail to see how he could have a right to any information before the sale, or how he could be prejudiced by the lack of such information. * To the extent that Ayres had any choice to make, it was not a decision to sell securities. The decision was whether to retire or not. This decision, and this alone, was what would have been influenced by the information which Ayres claims was withheld by Merrill Lynch. See Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 , 95 S.Ct. 1917 , 44 L.Ed.2d 539 (1975); Lahdy v. FDIC, 486 F.2d 139 (3rd Cir. 1973), cert. denied, 416 U.S. 960 , 94 S.Ct. 1979 , 40 L.Ed.2d 312 (1974). In my view any controversy concerning this decision is one “arising out of the employment or termination of employment” of Ayres with Merrill Lynch, and is governed by Exchange Rule 347(b). The assertion in the complaint that Ayres’ decision to retire amounted to a decision to sell his stock, because it influenced Merrill Lynch’s decision to exercise its option to repurchase, is well answered by the Second Circuit’s opinion in Ryan v. J. Walter Thompson Co., 453 F.2d 444 (2nd Cir. 1971), cert. denied, 406 U.S. 907 , 92 S.Ct. 1611 , 31 L.Ed.2d 817 (1972). In that case the court began with an observation equally apposite here: This case is another example of a trend we have observed with disturbing frequency, namely, the invocation of the salutary anti-fraud provisions of the federal securities laws in cases where those provisions are wholly inappropriate and wide of the Congressional mark. 453 F.2d at 445. The court held that an employee-stockholder’s lack of knowledge of his company’s plans to go public, under circumstances similar to those before us, could afford him no basis for relief under Rule 10b-5: With respect to the Rule 10b-5 claim, the District Court held that, since Ryan was obligated to sell his shares to JWT in January 1969, whatever he knew or did not know regarding JWT’s plans to go public was irrelevant. We agree. See Fershtman v. Schectman, 450 F.2d 1357, 1350 (2nd Cir. 1971). 452 F.2d at 447. Under the facts alleged in this'complaint, I would apply the Ryan rule and affirm. For the foregoing reasons, I respectfully dissent. The majority’s suggestion ante at 537, “that arguments can be made that Merrill Lynch’s option agreement, as exercised in this case, was invalid under either federal or state law and that the information Merrill Lynch failed to disclose was therefore material” is puzzling. No such claim appears on the face of the complaint. No such claim was ever made to the district court. No such claim has been made in brief or argument to this Court. --- Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9462881. Public record. Not legal advice.