Petition — Purer v. Jordan

B3 | Supreme Con u S.

FiLtoD

IN THE I JAN 12 1077

Supreme Court of the United States...

October Term, 1976

=" 96-965

PHILLIP PURER,

Plaintiff-A ppeilant,

vs.

Davip E. JoRDAN, FREDERIC B. TANKEL and ARTHUR

TOLL,

Defendants-A ppellees.

Petition for Writ of Certiorari to the United States

Court of Appeals for the Ninth Circuit.

WILLIAM J. CURRER, JR.,

707 Wilshire Boulevard, Suite 3281,

Los Angeles, Calif. 90017,

Counsel for Petitioner

Phillip Purer.

Parker & Son, Inc., Law Printers, Los Angeles. Phone 724-6622

|

SUBJECT INDEX

Page

Petition for Writ of Certiorari to the United States

Court of Appeals for the Ninth Circuit .............. l

Petition for Writ of Certiorari to the United States

Court of Appeals for the Ninth Circuit ................ 3

I

I orci hi ieetelemenphetlidesitidethicabeadangnteibicieniactal 3

II

I i 4

Il

TEETER A OP TO 4

IV

LRT ae Ee OO NON 5

Vv

Statement of Material Facts .................................. 6

A. The Decision of the Trial Court .............. 6

B. The Decision of the Court of Appeals ...... 7

C. Brief Statement of Facts ............................ s

D. Contentions of Respondents .................... 11

E. The Contentions of Petitioner .................. 12

VI

Argument in Support of Writ .............................. 13

A. A Definitive Opinion by This Court Is

Essential in the Securities Field _............... 13

B. The Court of Appeals Has Not Decided

ETERS ERAN Te ON 17

Page

C. The Court Refused to Apply California

AU instusiesbdensshciniheiteiaehditaiai dics iecelgintinet dia enlasiibaiedidainaens 19

Vil

SIRES Ree ae ars error C SAR PRO a ee aS 20

INDEX TO APPENDICES

Page

Appendix 1. Findings of Fact and Conclusions of

BD scicseiwisiosinciininideeenincidaaainintedianiasicienianis App. p. 1

Appendix 2. Memorandum .......................000.-..ccces. 19

Ee IY ehillasnssitisiiacsniatimiaeldendiciacinaiiiics 25

TABLE OF AUTHORITIES CITED

Cases Page

Barrow, Estate of, 27 Cal. App. 2d 402 (1938) .. 19

Binderun v. Pathe Exchange, 263 U.S. 291, 44 S.

Te SE IIIT . coischislipieneninscensiiataummsiniemantestailinatedeen 4

Burke v. Mission Bay Yacht Sales, 214 Cal. App.

SEIT. THEE ssceeaniiiidarttininciteelbiininsidialiantadnipiiaiaaatnesatiainibiidaas 19

Campbell v. Degenther, 97 F. Supp. 975 (1951) .. 16

Carlson Etc. v. Banducci, 257 Cal. App. 2d 212

TIED cdavcusdecmstinecsntereiinhdsedennpinidiaateiiniannnibiabion 19

Cox v. Klatte, 29 Cal. App. 2d 150 (1938) .... 19

Darwin v. Jess Hickey Oi! Corp., 153 F. Supp. 667

SITE «* scchailediiihciagebiatdinialesesnedteiteneeilibuiataliieieaisaiunbaaieaibiseiat 16

Garfield v. Strain, 320 F. 2d 116 (CCA 10, 1963)

a a le 17

Gilligan, Will & Co. v. SEC, 267 F. 2d 461 (CCA

is I Sieleldalaslai hadi cininndatianiebaliitinitenaniaiaiiieewiinies 17

Grant v. U.S. Electronics Corporation, 125 Cal.

ee en ee 19

Katz v. Amos etc., 441 F. 2d 1046 (CCA 2,

SESITED > qseceistbibcnibiauisitiacsondactpiesdioaitineianiaainitnininibapuiesitnisadan 17

Larson v. Tony’s Investments Inc., CCH Securities

Law Reporter § 92,324 (USDC Ala., 1968) .... 16

Lively v. Hirschfield, 308 F. Supp. 612 (USDC

i TO iia late 16

Meier v. Paul X. Smith Corporation, 205 Cal. App.

Be GOED cisniideernwissniitiintenicvnintmetaibiiin 19

Quinn etc. v. SEC, 452 F. 2d 943 (CCA 10, 1971)

iv.

Page

Securities and Exchange Commission v. Ralston Pu-

rina Co., 346 U.S. 119, 73 S.Ct. 981, 97 L.Ed.

BOBS CEGGS) ciciecscnsnccnescensiasivesetaaee 17

Securities and Exchange Commission v. Stephen W.

Murphy, Docket Number 76-2299 .................. 8

Superintendent Etc. v. Bankers, 92 S.Ct. 165, 404

CEG CITED vccocessscscostecnseunssinnniuiaieeenennan 19

United States v. Abrams, 357 F. 2d 539 (CCA 5,

SIP) ececcesevesnsssisnsavsinieengudaanmmmmmniaiaanaa 16, 17

Valueline Fund v. Marcus, CCH 1964-1966 De-

cisions 4 91,523 (Page 94,969 et seq.) (USDC

DUN WOU, FU) cccccscnssccsstecesieiesdananee 16

Vanderboom v. Sexton, 422 F. 2d 1233 (CCA 8,

| ee nei Te 4

Waiker v. Phillips, 205 Cal. App. 2d .... (1962) .. 19

Weidner v. Zieglar, 218 Cal. 345 (1933) _............ 19

White v. Kaiser Frazer Corporation, 10 Cal. App.

BE TIS COGBD) cnxcsctcnscepnesemmnnnaimesaiann 19

Regulations

Securities and Exchange Commission Regulations,

PROB. B96 .....0-.0.ccvssseosecenenessevenseingneiiinniilinnannnnnnnn 14

Reg. 146

Statutes

oe Se Se Re) eee 19

Cowes Come, Gee. BG eciccececcccscccnssenseenticueeee 19

United States Code Annotated, Title 15, Sec. 77d

C3 GB SCE) .nccrcecesscescncocnsssitionescnsuanssnniilelniiiiananll 5

United States Code Annotated, Title 15, Sec. 77b

EE

United States Code Annotated, Title 15, Sec. 77b

Se 5,

United States Code Annotated, Title 15, Sec. 77d

EEE SSC

SS -

United States Code Annotated, Title 15, Sec. 78)

ty NY licididieindbtalinidetnbescanientencceeed 4, 6, 12, 18,

United States Code Annotated, Title 15, Sec. 78j

gp Eee

United States Code Annotated, Title 28, Sec. 1254

na amariunndianmnunagscnesonneussooeses

United States Code Annotated, Title 28, Sec. 2102

ED. sabtinigusieusdnagenncess SE Ra

Supreme Court of the United States

October Term, 1976

a ee

PHILLIP PURER,

Plaintiff-A ppellant,

vs.

Davip E. JorDAN, FREDERIC B. TANKEL and ARTHUR

TOLL,

Defendants-A ppellees.

Petition for Writ of Certiorari to the United States

Court of Appeals for the Ninth Circuit.

The Clerk will enter my appearance as Counsel

for the Petitioner.

By WILLIAM J. CurReR, JR.,

Cvunsel for Petitioner

Phiilip Purer.

NOTE: This appearance must be signed by an indi-

vidual Member of the Bar of the Supreme Court

of the United States.

The Clerk is requested to notify counsel of action

of the Court by means of Collect Telegram.

= etetiiesandl

=

IN THE

Supreme Court of the United States

October Term, 1976

No. ........

PHILLIP PURER,

Plaintiff-A ppellant,

vs.

Davip E. JorDAN, FREDERIC B. TANKEL and ARTHUR

TOLL,

Defendants-A ppellees.

Petition for Writ of Certiorari to the United States

Court of Appeals for the Ninth Circuit.

To the Honorable Chief Justice and Associate Justices

of the Supreme Court of the United States of

America:

The petition of Phillip Purer for writ of certiorari

directed to the United States Court of Appeals for

the Ninth Circuit to review the judgment of that Court’

entered September 7, 1976, and a judgment denying

petition for rehearing entered November 1, 1976, re-

spectfully shows:

I

Opinions Below.

The decision (no opinion written) of the District

Court is attached hereto as Appendix 1. The opinion

of the United States Court of Appeals for the Ninth

Circuit filed September 7, 1976, is attached hereto

a =

as Appendix 2. Attached hereto as Appendix 3, is

the order of the United States Court of Appeals for

the Ninth Circuit entered November 1, 1976 denying

rehearing after the petition for rehearing and sugges-

tion of appropriateness of rehearing in bank had been

timely filed.

II

Jurisdiction.

The judgment of the Court of Appeals was entered

September 7, 1976. An order denying petition for

rehearing was entered November 1, 1976. The jurisdic-

tion of this Court is invoked under 28 USCA Section

1254 (1) and Section 2102 (c). Jurisdiction in the

trial Court was founded on 15 USCA § 78j and

the doctrine of pendent jurisdiction.

Vanderboom v. Sexton, 422 F. 2d 1233 (CCA

8, 1970);

Binderun v. Pathe Exchange, 265 U.S. 291,

44 S.Ct. 96 (1923).

Ill

Questions Presented.

A. How should the provisions of the Securities

Act of 1933 [15 USCA § 77d(1)] exempting persons

“other than an issuer, underwriter, or dealer.” be inter-

preted.

B. Who is an “underwriter” within the meaning

of the Securities Act of 1933.

C. How is the word “distribution” to be interpreted

within the meaning of Section 2(11) of the Securities

Act of 1933 [15 USCA § 77b(11)].

_

D. To what extent is there a private placement

market under the Securities Act of 1933 and the Securi-

ties Exchange Act of 1934.

E. What standards, if any, are the various Courts

of Appeals held to in their decisions and opinions.

F. Is a federal court bound to apply the applicable

law of the proper state in adjudicating the pendent

counts in a case where jurisdiction is founded upon

a federal question with pendent counts which are gov-

erned solely by state law.

G. Can a Court of Appeals fail to adjudicate the

federal questions on which jurisdiction is based where

that question was the governing question in the adjudi-

cation of the district court.

IV

Statutes Involved.

Whz-n referring to the Securities Act of 1933 and

the Securities Exchange Act of 1934 we will use the

United States Code designation first followed by a

section number in parentheses which will be taken

to mean either the Securities Act or the Securities

Exchange Act. Which is intended can be determined

by whether the reference to the United States Code

is section 77 [Securities Act] or section 78 [Securities

Exchange Act]. The statutes requiring interpretation

are:

15 USCA § 77e(§ 5);

15 USCA § 77d(1)(§ 4(1));

15 USCA § 77b(11)(§ 2(11));

15 USCA § 78j(§ 101).

_

V

Statement of Material Facts.

A. The Decision of the Trial Court.

In this case, petitioner (plaintiff below) counted

upon 15 USCA § 78} (§ 10b) in connection with

the sale of stock from petitioner Purer to respondents

Jordan, Tankel and Toll. Defendants’ defense was that

the transaction was the nonexempt sale of unregistered

securities and the trial court based its decision on

that theory. Thus, the conclusions of law [CR III

948-949, Appendix 1] provide:

“1. Plaintiffs attempt to sell the Purer VTR

shares, including the transaction which was the

subject matter of this proceeding, was an illegal

sale of unregistered securities in violation of Sec-

tion 5(a) of the Securities Act of 1933, 15 U.S.C.

§ 77(e) rendering any claim by Plaintiff herein

void and unenforceable.

“3. (sic) Plaintiff's attempt to sell the Purer

VTR shares including the transaction which is

the subject matter of this proceeding was not ex-

empt from the registration provisions of the Securi-

ties Act of 1933, Section 4(d)(1), 15 U.S.C.

§ 77(d)(1) as a transaction by any person other

than an issuer, underwriter or dealer.

“4. Plaintiff attempt to sell the Purer VTR

shares, including the transaction which is the sub-

ject of this proceeding, was a public offering of

said VTR shares, and was not exempt from the

registration provisions of the Securities Act of

1933, by reason of Section 4(d)(2), 5 U.S.C.

§ 77(d)(2).”

==

To arrive at these conclusions, the trial court relied

upon findings which in turn were based on evidence

which essentially showed that this was merely a sale

of certain shares by petitioner Purer (not the issuer)

to Messrs. Jordan, Tankel and Toll by means of a

local escrow handled by a local escrow holder. In

order to arrive at these legal conclusions and the findings

of fact it was necessary for the court to determine

what constituted a “public offering”; whether the sale

was a “public distribution” and whether this so-called

“distribution” was in accordance with a plan established

by the issuer. These decisions were in turn dependent

upon the statutes set out above and the interpretation

of those statutes.

B. The Decision of the Court of Appeals.

The Court of Appeals was faced with the proposition

that if it were to write an opinion supporting the

trial court it would have swept into the jurisdictional

arms of the Securities and Exchange Commission and

the federal courts every stock transaction in the United

States, however small, however large, whether between

individuals, merely transferring from one to another

a few shares of stock or a large block. In other words,

the Court of Appeals was faced with the question

of whether or not there is such a thing as a private

placement market. Put still another way, the Court

was faced with the question of whether the sale of

any shares from any person to any other person within

the United States is a “public” issue. The trial court

had so held. To reach the conclusions the United

States District Court for the Central District of Cali-

fornia reached, it was necessary for that Court to

hold that any transaction involving shares is a public

—

issue and subject to the provisions of the Act. The

extent and magnitude of this holding is evident from

the position taken by the Securities and Exchange

Commission in a case presently pending before the

Ninth Circuit entitled Securities and Exchange Commis-

sion v. Stephen W. Murphy, Docket Number 76-2299,

in which the same district judge in the United States

District Court for the Central District of California

essentially held in SEC sponsored litigation exactly

what he had held in this case, to wit: that there

is no private placement market. In spite of the impor-

tance of the matter presented to the Ninth Circuit,

the Court of Appeal: for the Ninth Circuit in this

case simply avoided the entire problem by refusing

to pass upon the securities law problems presented

by the case [ Appendix 2]. Instead, the Court of Appeals

purported to reach conclusions contrary to the law

of California and based on assumptions with respect

to the decision of the trial court which the Court

of Appeals was unable to make. Thus, it assumed

that it could decide to what extent the trial court

had relied upon its interpretation of the Securities Act

and the Securities Exchange Act in reaching its conclu-

sion. In fact, the Court did not write such a divisible

opinion. Had it done so, it could not have reached

the conclusion it reached.

C. Brief Statement of Facts.

On or about March 15, 1968, Phillip Purer, Ida

Purer and Ronald Purer (“Purers”’) were the owners

of all of the issued and outstanding shares of Ronald

Purer, Inc. Petitioner was the chief executive officer

[Admitted II CR: 475/15-19].

On March 15, 1968, Ronald Purer, Inc., and the

Purers entered into an agreement with VTR whereby

endie

Purers sold all of the issued and outstanding shares

of Ronald Purer, Inc., to VTR in exchange for 250,000

shares of VTR. Although the agreement of sale was

dated March 15, 1968, it was not performed until

November 19, 1968, when the transaction “closed”.

On November 19, 1968, Purers transferred all of their

shares in Ronald Purer, Inc., to VTR and petitioner

received for himself and R. Purer and I. Purer 200,000

of the 250,000 VTR shares. In February, 1969, appel-

lant received 50,000 shares, making a total of 250,000

VTR shares [Admitted II CR: 475/23-476/1].

On March 15, 1968, and at all times since, VTR

was a corporation, some of whose shares were regis-

tered pursuant to the Securities Act of 1933. Some

of the shares of VTR during the same period were

listed for trading and traded on the American Stock

Exchange with the exception that the shares were not

traded during the period when trading was suspended.

None of the shares issued to petitioner under the agree-

ment of March 15, 1968, as set forth above were

registered under the provisions of the Securities Act

of 1933 [Admitted II CR: 476/3-13].

Under the agreement between VTR and Purers,

VTR was obligated to register 100,000 shares of VTR

stock issued to Purers with the Securities and Exchange

Commission. On or about July 10, 1969, VTR and

Purers entered into an agreement under which Purers

agreed that only 50,000 shares of VTR stock owned

by them would be included in a July, 1969, registration

statement. VTR promised to file an additional regis-

tration statement for an additional 50,000 shares of

the stock of VTR held by Purers on or before April

30, 1970. The additional registration statement was

never filed. In July, 1969, VTR filed a registration

=—s

statement with the Securities and Exchange Commission

covering 550,000 shares of VTR stock including 50,000

shares of VTR stock issued to the Purers. That registra-

tion statement never became effective and was with-

drawn by VTR on January 5, 1970, pursuant to a

resolution unanimously adopted by the board of direc-

tors of VTR at a meeting at which petitioner, who

was then a director of VTR, was present | Admitted

II CR: 476/15-30}.

Prior to March 15, 1968, respondent Jordan intro-

duced petitioner to Frederic Gould, who was then presi-

dent of VTR. Upon the closing of the transaction

between VTR and the Purers, VTR issued to respondent

Jordan 5,000 of its shares [Admitted II CR: 477/1-

5]. Respondent Jordan helped negotiate the agreement

of March 15, 1968, by which Purers obtained 250,000

shares of VTR in exchange for all of the shares of

Ronald Purer, Inc. [R: 187/3-17].

On September 8, 1969, petitioner and respondent

Jordan entered into an agreement for the sale by peti-

tioner to respondent Jordan of 100,000 shares of VTR

stock. This agreement was in the form of escrow instruc-

tions to City National Bank in Los Angeles. The in-

structions and agreement of sale were amended several

times. One of the amendments reduced the number

of shares to be sold to 50,000 shares and another

provided that unless respondent Jordan deposited $75,-

000 in the escrow not later than 5:00 P.M., November

7, 1969, then and in that event the escrow was to

be terminated and the parties relieved of any further

obligation [ Admitted to CR: 477/7-12].

On November 7, 1969, respondent Jordan assigned

his rights under the agreement to respondents Tankel

enn

and Toll to the extent of 40,000 shares [Admitted

CR: 477/20-24]. In addition, respondent Jordan des-

ignated respondents Tankel and Toll as his nominees

in the escrow. After reading all of the papers in the

escrow, Messrs. Tankel and Toll deposited the $75,000

required by the agreements within minutes before the

deadline of November 7, 1969, at 5:00 P.M. [2 CR:

477/20-29; Tankell R: 159/29-160/17; Toll R: 145/

1-13]. Petitioner had no knowledge of this assignment,

did not know Messrs. Tankel and Toll and, on the

contrary, this transaction was strictly a private one

between Mr. Jordan and Messrs. Tankel and Toll.

The agreements between petitioner Purer and re-

spondent Jordan specifically provided that the assignees

of a party would be bound on the original agreement.

Because of the provisions of the agreement, the effect

of the assignment from respondent Jordan to respond-

ents Tankel and Toll was to add two buyers to the

purchase agreement [Joint Exhibit 2].

Petitioner deposited the shares required by the sales

agreement in the escrow but respondents except for

the $75,000 which they were required to deposit in

order to prevent the agreement being terminated, re-

fused to deposit the balance of the price. When the

market price of the shares dropped below the agreed

price, about six months later, respondents then sought

to avoid the agreement and recover their $75,000 back.

Petitioner commenced an action to enforce the agree-

ment.

D. Contentions cf Respondents.

In order to shorten this recitation of the facts and

background of this case, we will set out the contentions

here of the respondents because that really indicates

more than anything else the position of the respondents -

auf

and the trial court. Essentially the respondents simply

argued that the shares were unregistered and that there-

fore the agreements were void and that they should

be entitled to recover the $75,000 deposit or option

price however it may be viewed and escape without

any liability at all. The trial court adopted this theory

which, of course, points up the necessity of deciding

and the meaning of the statutory provisions involved.

In addition, the Court of Appeals attempted to justify

their refusal to consider the securities law findings

of the trial court by claiming that the contracts were

not enforceable. In that respect, however, the trial

court had failed to make appropriate findings and

the Court of Appeals simply ignored California law.

By simply ignoring California law the failure to find

of the trial court and refusing to consider the facts

as they appear in the record, the Court of Appeals

simply failed to decide this case. The inconsistency

of both courts is demonstrated by the fact that even

though there was a finding and conclusion that the

agreement were void and unenforceable nevertheless

the trial Court enforced the agreements to the extent

of allowing fees to respondent Jordan and the Court

of Appeals affirmed.

E. The Contentions of Petitioner.

From the beginning, the petitioner took the position

that there was a violation of 15 USCA § 78}j, §

10b for the reason that without the knowledge of peti-

tioner, respondents were not able to perform in the first

place so that all of the respondents had entered into

this contract without any intention of performing. This

is fraud as a matter of law in California. Although

the 10b arguments were ignored by both trial and

—=— =

appellate courts, the fact is that the 10b violation

is there and any fair reading of the transcript of

the clerk and the reporter will demonstrate that fact.

In addition, the petitioner has contended all along

that he did perform the contract and that since the

respondents not only had never performed but in ad-

dition the respondents had no intention of performing

there was no way that the court could make any

decision in favor of the respondents particularly for

attorneys’ fees since any determination favorable to

respondents would first require a finding that re-

spondents did and performed all promises and con-

ditions on their part to be performed before there

could be any obligation upon the part of respondents.

Thus we say that both the trial court and the appellate

court have failed to decide this case and to the extent

that there is a decision they have consciously refused

to follow California law which we believe to be a

violation of the principles laid down by this Court.

VI

Argument in Support of Writ.

A. A Definitive Opinion by This Court Is Essential in the

One of the major problems in the securities industry

and even with respect to private individuals is the

question of what is a public issue. It is almost impos-

sible to advise clients concerning the differential be-

tween a private issue or private placement and a public

issue. The circuit courts and the district courts both

have developed varying standards, some of which re-

quire a determination of the subjective intent of the

buyer. This requires an impossible burden of proof

on the part of a seller of securities and expands the

_— a

jurisdiction of the Securities and Exchange Commis-

sion beyond anything intended by Congress. This case

is an extreme example of a United States District

Court in effect determining that the Securities and

Exchange Commission has jurisdiction over private sales

of securities between two individuals both of them

businessmen and both of them well acquainted with

the securities market. The buyer assigned to two law-

yers, to wit: Messrs. Tankel and Toll who also were

engaged in practice in the securities field. To say

that this is an issue which was a public issue or

transfer in \iolation of the Securities Act is something

which most businessmen and securities dealers would

not even suspect until as here there was an attempt

to enforce the agreement, then the district court relied

upon the subjective intent or purpose of the buyers

to the exclusion of the seller and held that this was

a public issue and therefore a violation of the securities

law. In effect, plaintiff Purer was simply trapped since

no reasonable man would suspect such a determination.

The Securities and Exchange Commission has fostered

this kind of thinking with respect to the securities

laws since this gives the Securities and Exchange Com-

mission ever broadening ever widening jurisdiction

which it may or may not assert depending on what

it chooses to consider at the moment constitutes a

public issue or private placement. An examination of

SEC regulations such as Regulation 146 and Regulation

144 demonstrates that the SEC considers that it has

jurisdiction except in those instances where the person

“does not require the protection of the Act”. But in

the interpretation and decision making concerning what

action is to be filed and what action is not to be

filed, the SEC and many district courts simply rely

_— =

upon an impossible proof question, to wit: what was

the subjective state of mind of the buyer. In view

of this, it is not surprising to find that the cases

vary from time to time in the same district and even

in the same circuit. Different circuits do not necessarily

agree and the entire field of private placement vs.

public issue is an impossible no man’s land. In an

effort to overcome and to meet the subjective test

imposed by cases such as this one and cases in which

the SEC is a party, and since the SEC notoriously

is slow and unable to handle: the jurisdiction it already

has acquired, private placements are sought in which

the documents become ever longer and ever more in-

comprehensible. Some private placement memoranda

are hundreds of pages long with a requirement by

the issuer that the buyer must sign a document which

states that he has read the entire memorandum and

understands every word of it which, of course, is non-

sense. Surely there must be some way that the statutes

true intent, tenor and purpose can be announced and

stated definitively by this Court. We ask that this

Court grant the petition for certiorari in order that

we may argue in extenso the problems involved. To

another vice in the present situation is that the Secu-

rities and Exchange Commission can be completely ar-

bitrary and capricious in determining what case to

prosecute and what case to ignore, since it is held

to no definite statutory standard. To a petition such

as this we can only give the court a brief indication

of the importance of the question and the problems

involved. It is then up to this Court whether or not

it wishes to take this case as a vehicle for determining

the proper interpretation of the statutes involved.

ontifins

The problem here presented is who is an underwriter.

An underwriter is not exempt but an underwriter is

only one who buys with a view to “distribution” of

the securities. Thus, if the “underwriter” buys from

an issue with intent to distribute and the intent is

formulated at the time of the purchase, the later sale

by the underwriter is not exempt. The real purpose

of this is simply to prevent an issuer from evading the

law. We have no quarrel with this. But if the person

purchasing from the issuer merely engages in another

private sale which is also exempt, it would seem that

there is no point in attempting to fasten the liability

of the issuer on a person who has merely engaged

in another private placement. Some cases recognize

this proposition and interpret the word “distribution”

to mean “public distribution” in connection with 15

USCA § 77b(11), § 2(11).

Some of the cases which have attempted to interpret

the statutes on this subject follow:

United States v. Abrams, 357 F. 2d 539 (CCA

5, 1966);

Lively v. Hirschfield, 308 F. Supp. 612 (USDC

Colo., 1970);

Valueline Fund v. Marcus, CCH 1964-1966

Decisions 4 91,523 (Page 94,969 et seq.)

(USDC New York, 1965);

Campbell v. Degenther, 97 F. Supp. 975

(1951);

Larson v. Tony’s Investments Inc., CCH Securi-

ties Law Reporter § 92,324 (USDC Ala.,

1968);

Darwin v. Jess Hickey Oil Corp., 153 F. Supp.

667 (1957);

euiiiien

Garfield v. Strain, 320 F. 2d 116 (CCA 10,

1963);

Securities and Exchange Commission v. Ralston

Purina Co., 346 U.S. 119, 73 S.Ct. 981,

97 L.Ed. 1494 (1953).

Even these cases talk about one having the ability

to “fend for himself’ whatever that may really mean

and in addition they talk about access to information.

Again, if the standard of information available is the

same as that of a registration statement particularly

an $1 which is the argument usually made by parties

attempting to claim unregistered shares or public issue,

then there is no point in the entire private placement

market since it requires an Sl anyway. We suggest

that a rationalziation and complete dissertation by this

Court is essential to bring order out of chaos in the

private placement vs.. public issue field of securities.

Against the above cases are the following:

Quinn etc. v. SEC, 452 F.2d 943 (CCA

10, 1971);

Gilligan, Will & Co. v. SEC, 267 F. 2d 461

(CCA 2, 1959);.

United States v. Abrams, 357 F. 2d 539 (CCA

2, 1966);

Katz v. Amos etc., 441 F. 2d 1046 (CCA

2, 1969).

B. The Court of Appeals Has Not Decided This Case.

In recent years the Courts of Appeals, particularly

for the Ninth Circuit, has fallen into the habit of

writing the kind of cryptic opinions which we find

here. They have literally refused to follow any standard

in writing opinions which would be meaningful and

anit

which would decide the case. Here it is evident that

there should be an interpretation of the statute and

a determination that the trial court erred in holding

that the contracts here involved were void because

they violated the public issue vs. private placement

provisions of the Securities Act of 1933 and the Securi-

ties Exchange Act of 1934. In order to avoid the

probability that this Court might reverse the Court

of Appeals simply refused to decide the case at all

and so stated. In the statement, however, it refused

to consider whether or not there was a violation on

the part of the respondents of 15 USCA § 78j (§ 10b).

Thus, the court refused to determine whether or not

there had been a fraud on the part of the defendants

and it refused to determine whether or not this was

a private placement or a public issue. Two essential is-

sues are raised by the parties in this action. We suggest

to this Court that there should be some standard set

down by this Court of conduct to be met by the

Courts of Appeals. The Federal Rules of Civil Proce-

dure require adequate decisions by the district courts,

there is no reason why this Court should not require

adequate decisions by the Courts of Appeals for the

various circuits. This is a matter we would like to

brief in extenso for this Court and a matter which

should be reviewed with considerable care. We note

that the Court of Appeals not only refused to decide

the case but it refused to permit its opinion to be

published. The refusal to permit this kind of an opinion

to be published is quite understandable. The opinion

itself reveals that the case was not decided as it should

have been and what law is mentioned is a total violation

of California law.

On this ground alone the petition should be granted.

—19—

C. The Court Refused to Apply California Law.

Apparently the court recognized that it could not fol-

low California law without reversing the trial court. It

therefore has written a very brief and inadequate state-

ment concerning California law. The truth is that on

the ground of fraud alone, the court should have decided

this case in favoy of plaintiff. Since under California

law there is no question but that entry into a contract

with no intention to perform is fraud. The balance

of the dissertation by the Court of Appeals is completely

immaterial. It happens that that also is a violation

of 15 USCA § 78j, § 10b. The obligation of the

Court of Appeals to determine this case in favor of

petitioner under California law is demonstrated by the

following authorities:

Section 1642, Civil Code;

Meier v. Paul X. Smith Corporation, 205 Cal.

App. 2d 207 (1962);

Carlson Etc. v. Banducci, 257 Cal. App. 2¢

212 (1967);

White v. Kaiser Frazer Corporation, i-O Cal.

App. 2d 754 (1950);

Walker v. Phillips, 205 Cal. App. 2d (1962);

Weidner v. Zieglar, 218 Cal. 345 (1933);

15 USCA § 78), § 10b;

Superintendent Etc. v. Bankers, 92 S.Ct. 165,

404 U.S. 6 (1971);

1572 Civil Code;

Burke v. Mission Bay Yacht Sales, 214 Cal.

App. 2d 723;

Estate of Barrow, 27 Cal. App. 2d 402 (1938);

Cox vy. Klatte, 29 Cal. App. 2d 150 (1938);

Grant v. U.S. Electronics Corporation, 125 Cal.

App. 2d 193 (1953).

—20—

Because the court refused to follow the law of Cali-

fornia and also refused to determine the securities

issue, there should be a determination concerning

the pendent jurisdiction problem. If the federal court

is not even going to decide a question of federal

jurisdiction, then how can it possibly continue to deter-

mine the pendent issues? It would seem that under

these circumstances, pendent jurisdiction was lost.

vil

Conclusion.

In conclusion we urge the Court that the issues

we have stated require determinations by this Court

and suggest that the Court issue its writ of certioriari

to the Court of Appeals for the Ninth Circuit.

Respectfully submitted,

By WILLIAM J. CurreR, JR.,

Counsel for Petitioner

Phillip Purer.

wT

re oer ee

APPENDIX 1.

Findings of Fact and Conclusions of Law.

United States District Court, Central District of Cali-

fornia.

Philip Purer, Plaintiff, vs. David E. Jordan, Frederic

B. Tankel and Arthur Toll, Defendants. No. 70-511-

LTL.

Filed: November 30, 1973.

FINDINGS OF FACT

1. Plaintiff's First Cause of Action arises under

the Securities Exchange Act of 1934, the Second

Counterclaim of Defendants Tankel and Toll arises

under the Securities Act ef 1933 and the Third Counter-

claim of Defendants Tankel and Toll arises under

the Securities Exchange Act of 1934 and all other

claims and counterclaims are pendent to the federal

claims herein. The Court has subject matter jurisdiction

of this action and personal jurisdiction over plaintiff

and defendants Jordan, Tankel and Toll.

2. On March 15, 1968, plaintiff, his son, Ronald

Purer and his mother, Ida Purer, (hereinafter jointly

referred to as “Purers”) were the owners of all the

outstanding stock of Ronald Purer, Inc. Plaintiff was

the chief executive officer of Ronald Purer, Inc. The

audited statement of Ronald Purer, Inc. shows net

income before taxes for the year ending March 31,

1968 of $283,914 and after income taxes of $154,135.

3. On March 15, 1968, Ronald Purer, Inc. and

the Purers entered into an agreement, Defendants’ Ex-

hibits “A” and “B”, with VTR, Inc. (hereinafter VTR)

under which the Purers were to acquire a minimum

auliien

of 200,000 shares of VTR common stock in exchange

for all of the outstanding ‘stock of Ronald Purer, Inc.

Pursuant to said agreement, a total of 250,000 shares

of VTR stock was issued to the plaintiff, of which

100,000 shares was the property of Plaintiff, 100,000

shares the property of Ronald Purer and 50,000 shares

the property of Ida Purer. The closing of the trans-

action took place on November 19, 1968. Plaintiff

received 200,000 of the 250,000 shares at closing

and 50,000 in February, 1969. At all times hereafter,

Plaintiff, his mother and son are referred to jointly

as the “Purers” and the 250,000 shares of VTR stock

issued to them is referred to as the “Purer shares”.

4. On March 15, 1968, and at all times since,

VTR was a corporation some of whose stock was

registered pursuant to the Securities Exchange Act of

1933. None of the stock issued to Plaintiff was ever

registered pursuant to the provisions of the 1933 Act

of qualified under the provisions of Section 25111,

25112, or 25113 of the California Corporations Code.

5. On March 15, 1968, and at all times to April

17, 1970, some of the shares of VTR were listed for

trading on the American Stock Exchange and were

traded on said Exchange except for periods when trad-

ing was suspended.

6. Under the VTR-Purers agreement, Defendants’

Exhibits “A” and “B”, VTR was obligated to register

100,000 shares of the Purers’ stock with the Securities

and Exchange Commission. On or about July 10, 1969,

VTR and the Purers entered into an agreement, Defend-

ants’ Exhibit “C” under which the Purers agreed that

only 50,000 shares owned by them would be included

in a July, 1969 registration statement and VTR

a

promised to file an additional registration statement

for another 50,000 shares of the Purers by April 30,

1970. That additional registration statement was never

filed. In July, 1969, VTR filed a registration statement

with said Commission covering 550,000 shares of VTR

stock, including 50,000 shares of the Purers. That

registration statement never became effective and was

withdrawn by VTR on January 5, 1970, pursuant

to a resolution unanimously adopted by its Board of

Directors, a meeting at which Plaintiff, a Director

of VTR, was present.

7. Prior to March 15, 1968, defendant Jordan intro-

duced Plaintiff to Fredric Gould, President of VTR,

and as a result of the closing of the Plaintiff-VTR

transaction referred to in paragraph 3, Jordan received

5,000 shares of VTR stock from VTR.

8. On or about September 8, 1969, Plaintiff and

Defendant Jordan entered. into Joint Exhibit 1, under

which an escrow, No. 7002-HC, was established in

the City National Bank. Said document was thereafter

amended by Plaintiff and Defendant Jordan by Joint

Exhibits 2, 3, and 4 executed respectively on or about

September 12, 1969, October 14, 1969, and October

30, 1969.

9. Pursuant to Joint Exhibit 1, Plaintiff deposited

in escrow two certificates of VTR shares, Joint Exhibits

5 and 14, for 50,001 and 74,999 shares, respectively.

Subsequently, by agreement of the parties, the certificate

for 74,999 shares was returned to Plaintiff.

10. On November 7, 1969, Defendant Jordan and

Defendants Tankel and Toll entered into an agreement,

Joint Exhibit 8. Pursuant to said agreement, Defendants

Tankel and Toll provided $75,000 which was deposited

auilliins

into the escrow account on November 7, 1969. Joint

Exhibit 7 is a receipt for said $75,000 deposit.

11. On November 7, 1969, Joint Exhibit 6 was

delivered to the escrow agent, under which Defendant

Jordan designated Defendants Tankel and Toll his

nominees in the escrow “as to 40,000 shares of VTR,

Inc. only”.

12. On November 6, 1969, at a public press confer-

ence in Washington, D.C., Allan Ginsburg, A Vice

President and Director of VTR, made statements con-

cerning the business affairs of WTR describing the

business activities of VTR and its subsidiaries, which

statements were more favorable to the business pros-

pects of VTR than were warranted by the true facts.

These untrue statements included statements that

Prestige Structures, Inc., a subsidiary of VTR, planned

to build 70 modular homes per week or one per hour,

that Prestige planned to build or acquire six additional

plants over the next two years, that the capacity of

the only existing plant of Prestige had been sold out

through all of 1970 and that as of November 6, 1969,

Prestige had produced 125 units. The true facts were

that on November 6, 1969, Prestige did not have

the capability of producing 70 modular homes per

week and had no assurance such production capability

could be attained, that Prestige had entered into no

firm commitments to construct any other facility, that

Prestige had at that date made no sales and had

no building sales contracts and that Prestige at that

date had produced approximately 40 units or 20 proto-

type houses which were not for sale but were being

used for exhibition to prospective customers.

13. Defendants’ Exhibits “H” and “I” are press re-

leases issued by VTR on November 7, 1969 and Decem-

. eee ee

—_~=

ber 18, 1969, respectively, as a result of the statements

of Allan Ginsburg set forth in paragraph 12.

14. Asa result of the statements of Allan Ginsburg

set forth in Paragraph 12, trading in shares of VTR

was suspended on the American Stock Exchange on

November 11, 1969 and did not resume again until

December 22, 1969. The Securities and Exchange Com-

mission also filed suit against VTR, which suit was

settled by VTR before December 22, 1969.

15. On January 5, 1970, Defendants Tankel and

Toll wrote a letter to Defendant Jordan, Joint Exhibit

15, requesting a call from Jordan to discuss the situation

concerning the transaction with Plaintiff.

16. On January 5, 1970, VTR withdrew its pending

registration statement for 550,000 shares. On January

6, 1970, an article appeared in the Wall Street Journal,

Joint Exhibit 16, in which it was stated that VTR

would withdraw its then pending registration statement

for 550,000 shares and planned to merge with a com-

pany entitled Pacific Coast Properties, Inc.

17. On February 20, 1970, Plaintiff, by his attor-

ney, sent a letter, Joint Exhibit 9, to Defendants Jordan,

Tankel and Toll, and others, demanding the completion

of the escrow and the deposit therein of the sum

of $450,000.

18. On April 9, 1970, defendants Tankel and Toll

wrote a letter to Defendant Jordan, Joint Exhibit 10.

in which they notified Jordan that they elected to

terminate their agreement with Jordan dated November

7, 1969 (Joint Exhibit 8).

19. On April 15, 1970, Defendants Tankel and

Toll wrote Joint Exhibit 11 on behalf of themselves

enfin

and Defendant Jordan to the escrow officer of the

City National Bank stating that they elected to termi-

nate the escrow and requesting return of the $75,000

deposited therein because of the cancellation of the

registration of VTR stock referred to in Joint Exhibit 4.

20. On April 16, Plaintiff, by his attorney, wrote

Joint Exhibit 12 to the escrow officer of the City

National Bank objecting to the termination of the es-

crow and the return to Defendants Tankel and Toll

of the $75,000 therein.

21. On April 17, 1969,- the escrow officer sent

to the parties hereto Joint Exhibit 12 which are escrow

instructions to terminate the escrow. Plaintiff refused

to sign said instructions and the escrow agent declined

to terminate the escrow.

22. On or about May 19, 1970 and August 27,

1970, respectively, the parties hereto executed Joint

Exhibits 12 and 13. As a result thereof, on or about

August 27, 1970, a certificate for 74,999 shares of

VTR was released from escrow and returned to Plaintiff

and the $75,000 in escrow was paid jointly to Willard

Horwich, attorney for Plaintiff, and Defendant Tankel,

to be held by them until the termination of this action.

It is agreed by the parties that disposition of said

$75,000 shall be in accordance with the order of

this Court.

23. Between September 8, 1969 and April 17, 1970,

Plaintiff did not file with the Securities and Exchange

Commission any notice or report that he had sold

any shares of VTR stock.

24. Beginning in June of 1969, and continuing

throughout the remainder of the year 1969, Plaintiff

made use of the mails, telephones and the facilities

—_ =

of national stock brokerage firms F.1. Dupont, Glore,

Forgan & Co. and Robert Scott and Co. to offer

for sale shares of stock owned by the Purers. Plaintiff

offered the Purer shares for sale through at least five

individual securities brokers, James Brewer, Ted Call,

Jack Wolfe, Christopher Cole and Van Williams. Plain-

tiff further offered to sell the Purer shares to Defendant

Jordan and to other persons unknown to Plaintiff who

Defendant Jordan might interest in buying such

shares, and the transaction between Plaintiff and

Defendant Jordan embodied in Joint Exhibits 1, 2,

3 and 4 and the involvement of Defendants Tankel

and Toll! in said transaction resulted from such offer

of sale of VTR shares by Plaintiff.

25. Under the agreement by which the Purers ac-

quired their VTR shares, Purers were entitled to immedi-

ately sell 100,000 of the 250,000 shares acquired by

them without registration under the Securities Act of

1933 and VTR agreed to register under the Securities

Act an additional 100,000 shares of Purer shares at

VTR’s expense. The 100,000 shares which the Purers

were authorized to sell without registration were re-

quired by their agreement with VTR to be sold privately

and not publicly. Such a private sale could only be

effected upon an opinion of a New York law firm,

Goldfeld, Charak, Tolins and Lowenfels that such sale

was exempt from registration under the Securities Act

of 1933. Said law firm had represented the Purers

in their acquisition of VTR shares. The Purers never

received any such opinion from said law firm that

the transaction in which the Defendants herein are

involved or any other offer to sell VTR stock by

Plaintiff was exempt from registration.

enfin

26. Plaintiff individually was the owner of 100,000

shares of VTR stock, all of which Plaintiff offered

for sale in his transaction with Defendant Jordan. Had

such sale been completed under its original terms (Joint

Exhibit 1) Plaintiff would have disposed of all of

the VTR stock owned by him personally.

27. Between September 8, 1969 and November

11, 1969, the price of VTR shares traded on the

American Stock Exchange rose from fourteen dollars

per share to a high of thirty dollars per share. Trading

on the American Stock Exchange in VTR was sus-

pended from November 11, 1969 through December

21, 1969. On December 22, 1969 when trading re-

sumed, VTR stock closed at seventeen and five-eighths

and never again exceeded twenty dollars per share.

28. Plaintiff purchased his VTR shares from the

issuer thereof, VTR, with a view to the distribution

thereof. The Purers purchased their VTR shares from

the issuer thereof, VTR, with a view to the distribution

thereof. Plaintiff was attempting to dispose of a total

of 200,000 shares of VTR owned by the Purers, 100,-

000 of which were shares involved in Plaintiff's trans-

action with Defendant Jordan which is the subject

matter of this proceeding.

29. The shares of VTR which plaintiff was offering

for sale, including the shares involved in the transaction

between Plaintiff and Defendant Jordan which is the

subject matter of this proceeding were not registered

for sale under the provisions of the Securities Act

of 1933.

30. Defendants did not have information about

VTR or its business or financial affairs substantially

the equivalent of that information which would have

—o

been disclosed by a registration statement and pro-

spectus filed pursuant to the registration provisions of

the Securities Act of 1933 and the regulations promul-

gated thereunder.

31. Plaintiff offered to sell his VTR shares to

persons unknown to Plaintiff without regard to whether

such persons had knowledge of VTR, or its business

or financial affairs substantially the equivalent of that

information which would have been disclosed by a

registration statement and prospectus filed pursuant

to the Securities Act of 1933 and the regulations prom-

ulgated thereunder.

32. At the time of the agreement between Plaintiff

and Defendant Jordan for the disposition of Plaintiff's

stock herein (Joint Exhibit |) Plaintiff knew that

Defendant Jordan was not acting solely on Jordan’s

own account but would attempt to obtain other persons,

unknown to Plaintiff, to purchase Plaintiff's VTR stock.

33. It was the intention of Plaintiff and Defendant

Jordan that the transaction involved in this proceeding,

embodied in Joint Exhibits |, 2, 3 and 4, created

an option on the part of Jordan or his nominees

to purchase VTR shares from Plaintiff and that the

failure of Jordan or his nominees to purchase any

or all of the VTR shares shall be without liability,

except that Jordan shall bear the costs of escrow.

34. Plaintiff did not perform each and every prom-

ise, obligation and condition on his part to be performed

under his agreement with Defendant Jordan embodied

in Joint Exhibits 1, 2, 3 and 4 in that:

(a) Plaintiff did not deposit into the escrow an

instrument executed by the President of VTR and/or

Chairman of the Board of VTR acknowledging VTR’s

unifies

awareness that Plaintiff was selling shares of VTR

to Defendant Jordan, as required in Joint Exhibit 1;

(b) Plaintiff's representation that the VTR stock

which was the subject matter of the transaction was

freely transferable subject only to an investment letter

(Joint Exhibits 1 and 2) was false and the stock

was not so transferable in that:

(i) the stock certificate for 50,001 shares of VTR

(Joint Exhibit 5) which Plaintiff deposited into escrow

provided that “the shares have been acquired for invest-

ment and not with a view to, or for sale in connection

with any distribution thereof within the meaning of

the Securities Act of 1933 as amended and the rules

and regulations of the Securities and Exchange Commis-

sion and may not be sold or transferred except in

compliance with the Securities Act of 1933”. The at-

tempted disposition of Plaintiff's stock under Joint Ex-

hibits 1, 2, 3 and 4 was not in compliance with

the Securities Act of 1933.

(ii) under Plaintiff's agreement with VTR, Plaintiff

could not sell any of his VTR stock unless it was

registered pursuant to the Securities Act of 1933 or

unless the Plaintiff received an opinion from the law

firm of Goldfeld, Charak, Tolins and Lowenfels that the

sale of VTR stock by Plaintiff was exempt from registra-

tion under the Securities Act of 1933. Plaintiff did

not receive such an opinion from Goldfeld, Charak,

Tolins and Lowenfels and Piaintiff’s VTR stock was

never registered under the provisions of the Securities

Act of 1933.

(c) The condition of the escrow that the closing

take place ten days following the date that “the current

registration of 550,000 shares of VTR stock now pend-

—

unlit

ing becomes effective” was never met because said

registration never became effective.

35. It was the intention of the parties to Joint

Exhibits 1, 2, 3 and 4 that the escrow established

therein would close only if the then pending registration

of 550,000 shares of VTR stock became effective.

36. It was not impossible for the pending registra-

tion of 550,000 shares of VTR stock to become effec-

tive. The registration statement was withdrawn by the

voluntary decision of the Board of Directors of VTR

on January 5, 1970, pursuant to a resolution unanimous-

ly adopted at a meeting at which Plaintiff, a Director

of VTR, was present.

37. Plaintiff did not enter into any agreement di-

rectly or indirectly with Defendants Tankel and Toll.

38. It was not the intention of Defendants Jordan,

Tankel and Toll that Defendants Tankel and Toll

become a party to Defendant Jordan’s agreement with

Plaintiff (Joint Exhibits 1, 2, 3 and 4) or become

under any obligation to Plaintiff by reason of the

deposit of $75,000 into the escrow, the agreement

between Defendant Jordan and Defendants Tankel and

Toll (Joint Exhibit 8), the designation by Defendant

Jordan of Defendants Tankel and Toll as his nominee

for 40,000 shares of VTR (Joint Exhibit 6) or other-

wise.

39. At the time defendants Tankel and Toll be-

came involved in the transaction which is the subject

of this proceeding, they believed they had an option

to purchase shares of VTR stock and did not believe

they were obligated to purchase any shares of VTR

stock from Plaintiff.

naive

40. It was the belief of all Defendants in connection

with the transaction which is the subject of this proceed-

ing that failure of any of them to purchase VTR

shares from Plaintiff was without liability except for

costs of escrow and that it was a condition of the

transaction that a closing would take place only after

the then pending registration of 550,000 shares of

VTR became effective.

41. No defendant made any false statements to

Plaintiff or engaged in any device, scheme or artifice

to defraud or deceive the Plaintiff.

42. Defendants Tankel and Toll never stated to

Plaintiff that they intended to purchase any of his

shares of VIR. The first telephone conversation be-

tween Plaintiff and either Defendant Tankel or Defend-

ant Toll occurred on or about December 22, 1969,

the date trading in VTR stock resumed after being

suspended since November 11, 1969. Approximately

five to eight telephone conversations took place be-

tween Plaintiff and Defendants Tankel or Toll between

December 22, 1969 and the early part of February

1970. In the first of these conversations in December,

1969, said Defendants told Plaintiff they had not de-

cided whether they would exercise their rights under

their agreement with Defendant Jordan to obtain some

of Plaintiff's VTR stock. After the withdrawal of the

VTR registration on January 5, 1970, said Defend-

ants told Plaintiff they would not purchase his VIR

shares but that their transaction was only with De-

fendant Jordan and Defendants Tankei and Toll could

not themselves release the escrow or terminate the

transaction because Plaintiff's agreement was with De-

fendant Jordan. There is no evidence that Plaintiff

ee ee

cuttin

contacted or attempted to contact Defendant Jordan

during January or February, 1969.

43. Plaintiff on several occasions told Defendants

Tankel and Toll that they need not proceed with the

transaction. It was not until February, 1970, when

the price of VTR on the American Stock Exchange

went below fifteen dollars per share that Plaintiff first

demanded that Defendants proceed to close the escrow

and first asserted that Defendants were obligated to

proceed. Thereafter, there were no further conversations

between Plaintiff and Defendants Tankel and Toll.

44. After receipt by Defendants of a letter from

Plaintiff's attorney (Joint Exhibit 9) demanding that

Defendants close the escrow, Defendant Tankel advised

Plaintiff's attorney, Willard Horwich that Defendants

Tankel and Toll were not obligated to purchase any

stock from Plaintiff and would not close the escrow.

Tankel and Toll thereafter terminated their agreement

with Jordan (Joint Exhibit 10). Thereafter, all three

Defendants gave notice to terminate the escrow and

return Plaintiff's stock to Plaintiff and the $75,000

to Defendants Tankel and Toll (Joint Exhibit 11).

45. But for the objections of Plaintiff, the escrow

agent, City National Bank, would have terminated the

escrow on or about April 20, 1970 and returned the

$75,000 therein to Defendants Tankel and Toll and

the shares of VTR stock therein to Plaintiff.

46. Defendants Tankel and Toll borrowed the $75,-

000 deposited in escrow at an interest cost of ten

per cent per annum. By reason of the refusal of Plain-

tiff to consent to a termination of the escrow on

April 20, 1970, Defendants Tankel and Toll incurred

interest costs on the $75,000 deposited in escrow be-

Se

a

tween April 20, 1970 and March 31, 1973, a period

of 2 years, 11 2/3 months, in the amount of $22,084.

47. Pursuant to agreement between the parties to

this litigation, the $75,000 deposited into escrow was

transferred to an interest bearing account in August

1970 and to March 31, 1973 had earned interest

in the amouut of $9,210.03.

48. By reason of the refusal of Plaintiff to consent

to the termination of escrow, Defendants Tankel and

Toll suffered a net loss of $12,873.97 and continue

to suffer additional loss measured by the difference

between interest incurred by them of 10 per cent

per annum on $75,000 and the interest actually earned

on the $75,000 which was deposited into escrow.

49. Between September 8, 1969 and April 17,

1970, VTR shares were selling on the American Stock

Exchange at prices in excess of the true value thereof.

50. Plaintiff, a Director and substantial stockholder

of VTR, should reasonably have known:

(a) that the shares of VTR were selling above

their true value;

(b) information relating to the business affairs and

financial condition of VTR was not available to persons

other than insiders in VTR during the period September

8, 1969 to April 17, 1970;

(c) that VTR was in weak and unstable condition,

that Ronald Purer, Inc. was the only subsidiary of

VTR which provided VTR with a substantial and

usable net operating income, that the financial state-

ments of VTR were inaccurate, underestimating liabil-

ity and overstating the value of assets.

onlin

51. Plaintiff never advised any Defendant as to

facts relating to the business affairs, financial conditions

and price of stock set forth in the preceding paragraph,

nor did Plaintiff give any Defendants any other informa-

tion concerning the business affairs of VTR.

52. Defendants would not have become involved

in the transaction which is the subject matter of this

proceeding if they had known the true facts concerning

the business affairs, financial condition of VTR and

the market price of VTR stock.

CONCLUSIONS OF LAW

1. Plaintiff's attempt to sell the Purer VTR shares,

including the transaction which was the subject matter

of this proceeding, was an illegal sale of unregistered

securities in violation of Section 5(a) of the Securities

Act of 1933, 15 U.S.C. § 77(e) rendering any claim

by Plaintiff herein void and unenforceable.

3. Plaintiff's attempt to sell the Purer VTR shares

including the transaction which is the subject matter

of this proceeding was not exempt from the registration

provisions of the Securities Act of 1933, Section 4(d)

(1), 15 U.S.C. § 77(d)(1) as a transaction by any

person other than an issuer, underwriter or dealer.

4. Plaintiff's attempt to sell the Purer VTR shares,

including the transaction which is the subject of this

proceeding, was a public offering of said VTR shares,

and was not exempt from the registration provisions

of the Securities Act of 1933, by reason of Section

4(d)(2), 15 U.S.C. § 77(d)(2).

5. Plaintiff's attempt to sell the Purer VTR shares,

including the transaction which was the subject of

ontifine

this proceeding, was an illegal sale of unqualified secu-

rities in violation of Sections 25110 and 25130 of

the California Corporations Code rendering any claim

by Plaintiff herein void and unenforceable.

6. Plaintiff's attempt to sell the Purer VTR shares,

including the transaction which was the subject of

this proceeding, was not exempt from the qualifications

requirement of the California Corporations Code by

reason of Section 25104 thereof because the offers

and sale were effected through broker dealers in a

public offering.

7. The agreement between Plaintiff and Defendant

Jordan (Joint Exhibits 1, 2, 3 and 4) and the deposit

of $75,000 into escrow pursuant thereto gave Jordan

and his nominees, Defendants Tankel and Toll, an

option to purchase 50,000 VTR shares from Plaintiff

but did not create any obligation on the part of any

Defendant to complete the escrow. The failure of De-

fendants to purchase any or all of Plaintiffs VTR

shares was without liability on the part of Defendants

to the Plaintiff.

8. Plaintiff failed to perform all obligations on

his part to be performed necessary to closing of the

escrow.

9. The closing of the escrow and the completion

of any sale of Plaintiffs VTR stock to Defendants

was conditioned upon the happening of a condition

which never occurred, namely the becoming effective

of the then pending registration statement of VTR

stock. Such condition was material to the entire trans-

action and its failure relieved defendants of any obliga-

tion they may otherwise have had to complete any

purchase of VTR stock from Plaintiff.

eee eee er.

= =

10. The failure of the condition of the effectiveness

of the registration of VIR shares was not excused

by the doctrine of impossibility.

11. Defendants Tankel and Toll were under no

direct contractual obligation to Plaintiff.

12. Neither the agreement between Plaintiff and

Defendant Jordan (Joint Exhibits 1, 2, 3 and 4),

nor the Agreement between Defendant Jordan and De-

fendants Tankel and Toll (Joint Exhibit 8), nor the

deposit of $75,000 into escrow, nor the designation

by Defendant Jordan of Defendants Tankel and Toll

as Jordan’s nominee, nor any combination thereof,

created any contractual obligation on the part of De-

fendants Tankel and Toll to Plaintiff.

13. None of the Defendants herein breached any

agreement with Plaintiff pursuant to which any de-

fendant was obligated to purchase VTR shares from

Plaintiff.

14. Plaintiff is not entitled to recover the contract

price for VTR shares or damages for breach of con-

tract from Defendants.

15. None of the Defendants herein violated Rule

10b-5 of the Securities and Exchange Commission.

16. Plaintiff violated’ Rule 10b-5 of the Securities

and Exchange Commission. Plaintiff, as a director and

substantial stockholder of VTR was an insider and

was under a duty to make reasonable inquiries into

the affairs of VTR when offering to sell securities

in VTR and to reveal to his offerees the true financial

condition of VTR and other pertinent information avail-

able to ar insider but not to other persons. Plaintiff

failed to disclose to defendants information concerning

—1g—

the true financial condition of VTR and that the market

price of VTR shares on the American Stock Exchange

was in excess of the true value thereof, information

which a reasonable inquiry by plaintiff should have

revealed and which plaintiff should reasonably have

known.

17. The $75,000 held jointly by Willard Horwich

and defendant Tankel, as Trustees, subject to the order

of this Court, together with all interest earned or ac-

crued thereon, shall be paid to the defendants Tankel

and Toll.

18. Plaintiff wrongfully and without authority ob-

jected to the release from escrow of the $75,000 depos-

ited therein and thereby prevented the return of said

funds to defendants Tankel and Toll, to their damage.

19. Defendants Tankel and Toll are entitled to

recover damages from plaintiff determined by comput-

ing the interest obligation incurred by defendants Tan-

kel and Toll at a rate of ten per cent per annum

on $75,000 and deducting therefrom all interest actually

earned on said $75,000 for the period of April 20,

1970 to date of judgment hercin.

20. Defendant Jordan is entitled to recover reason-

able attorneys fees in connection with his defense of

plaintiff's claim for specific performance of the escrow

agreement pursuant to the provisions of paragraph 6

of Joint Exhibit 1.

21. Defendants shall recover their costs of suit

incurred herein.

DATED: November 29, 1973.

/s/ Lawrence T. Lydick

Lawrence T. Lydick

United States District Judge

— =

APPENDIX 2.

Memorandum.

United States Court of Appeals, for the Ninth Circuit.

Phillip Purer, Plaintiff-Appellant, vs. David E. Jor-

dan, Frederic B. Tankel and Arthur Toll, Defendants-

Appellees. No. 74-1829.

Appeal from the United States District Court for

the Central District of California.

Filed: Sept. 7, 1976.

BEFORE: DUNIWAY, CARTER and TRASK, Cir-

cuit Judges.

Appellant Purer appeals from the judgment of the

district court awarding appellees, Jordan, Tankel, and

Toll, certain monies that were formerly deposited in

escrow plus interest that had accrued. This action

stemmed from a proposed sale of certain unregistered

securities of VTR, Inc. (VTR).

In 1969, Purer and Jordan entered into an agreement

for the sale to Jordan of 100,000 shares of VTR

stock owned by Purer. The agreement was later amend-

ed apparently to involve only 50,000 shares. This stock

was not registered either under the Securities Act of

1933, 15 U.S.C. § 77f, or the California securities

laws. Pursuant to the agreement, Jordan with the fi-

nancial assistance of his nominees, Tankel and Toll,

deposited $75,000 in escrow. The escrow agreement

provided that escrow would close 10 days after a

registration statement of VTR stock that had been

submitted to the Securities and Exchange Commission

(SEC) became effective. However, in November 1969,

trading was suspended in VTR stock by the SEC

for certain untrue public statements made by a VTR

—20—

officer. Then, in January 1970, VTR’s board of direc-

tors, which included Purer, withdrew the registration

statement before it became effective. Appellees there-

after requested the termination of the escrow and the

return of the $75,000. Purer notified the escrow agent

of his opposition to the appellees’ request and then

commenced this suit.

Purer sought enforcement of the contract and dam-

ages. Appellees answered and raised certain defenses

to enforcement of the contract, as well as asserting

a counterclaim for the money deposited in escrow in-

cluding interest. The district court ruled in favor of

the appellees’ counterclaim and against Purer’s action

and also awarded attorney’s fees to Jordan in accord-

ance with the terms of the contract. This appeal ensued.

Jurisdiction in the district court was asserted by

appellant Purer under the Securities and Exchange

Act of 1934, 15 U.S.C. § 78aa; 28 U.S.C. § 1331

(federal question); 28 U.S.C. § 1337 (Commerce

Clause); and “the common law of California.” Jurisdic-

tion was not challenged, and we find that it exists

pursuant to 15 U.S.C. § 78aa. The jurisdiction of

the district court to hear the counterclaim of appellees

was also not challenged, but we find here that it

falls under 15 U.S.C. §§ 77v, 78aa.

Purer seeks a remedy for damages under SEC Rule

10b-5, 17 C.F.R. § 240.10b-5, and its statutory counter-

part, section 10(b) of the Securities and Exchange

Act of 1934, 15 U.S.C. § 78j(b). He alleges that

appellees used fraud in connection with the sale in

that they never intended to perform their contractual

obligations under the agreement. As the district court

found, however, Purer failed to prove that the appellees

committed any fraud in this transaction. C.T. at 945-

ee ee Dee er oe

amet te

DURintee Gero e we ~-~ =

50. Tankel and Toll raised $75,000 in one day, and

they assert that they would have raised the entire

sale price by the date for closing escrow. Their interest

in VTR stock waned only after the SEC suspended

trading and the registration statement was withdrawn.

Appellees Jordan, Tankel, and Toll raised a number

of issues in support of their counterclaim, including

substantial questions arising under the Securities Act

of 1933, 15 U.S.C. § 77/1, and the Securities and

Exchange Act of 1934, 15 U.S.C. § 78j, as well as

under the California securities laws. However, because

the basic principles of California contract law resolve

this dispute in favor of the counterclaim, we need

not consider the question involving the securities laws."

Initially, we agree with the district court that Purer

failed to comply with certain conditions of the escrow

agreement that had been agreed upon. One of the

express conditions of the agreement to be performed

by Purer was the deposit in escrow of an instrument

signed by a principal officer of VTR acknowledging

the sale of the stock from Purer to Jordan; this obliga-

tion was never accomplished. A more important and

express condition was the registration of VTR stock,

as the closing date of escrow was established at 10

days after the effective date of the registration statement

that had been submitted to the SEC. Since unregistered

stock would be less valuable tc the appellees, who

apparently were purchasing the stock with an eye for

1Of course, where there are two grounds in support of a

cause of action, one federal and one nonfederal, it is well-

ized that a federal court has power to retain and —

of the action on the nonfederal ground without even reaching

the federal ground. United Mine Workers v. Gibbs, 383 U.S.

715 (1966); Hurn v. Oursler, 289 U.S. 238, 246 (1933);

Siler v. Louisville & Nashville R.R., 213 U.S. 175, 191 (1909).

—- =

resale, the effectiveness of the registration statement

was made a condition precedent to closing of the

escrow. However, the board of directors of VTR, with

Purer in attendance as a board member, unanimously

decided to withdraw the registration statement. As a

result, appellees’ bargained-for registration of VTR

stock as a precondition to the close of escrow was

never obtained.

Therefore, the conditions of the escrow agreement

were not complied with, as they were required to

be. See, e.g., Love v. White, 56 Cal. 2d 192, 194,

363 P.2d 482, 484, 14 Cal. Rptr. 442, 444 (1961);

Los Angeles City High School District v. Quinn, 195

Cal. 377, 383, 234 P. 313, 315 (1925); 18 Cal.

Jur. 2d Rev., Escrows § 28, at 356 (2d ed. 1969).

As the district court ordered, when there is a failure

of performance in escrow, money deposited therein is

returnable to the depositors. Groves v. Prickett, 420

F.2d 1119, 1125 (9th Cir. 1970); Crooks v. State

Bar, 3 Cal. 3d 346, 357, 475 P.2d 872, 880, 90 Cal.

Rptr. 600, 608 (1970); 18 Cal. Jur. 2d Rev., supra,

§ 37, at 371.

The district court, in the alternative, also found

that the contract between Purer and Jordan was a

mere option and not a firm contract of sale. That

the parties intended to make only an option is clear

from the following language of an amendment to the

escrow agreement:

“Jordan or nominee may, at his option, purchase

50,000 of the 100,000 shares of VTR stock which

callin

are the subject of this escrow, which said shares

shall be registerable and which said 50,000 shares,

if elected to be purchased, shall be purchased

as a unit at and for a total purchase price of

$525,000 net cash to Purer.” (Emphasis added.)

This interpretation of the agreement is further bolstered

by the additional wording that:

“Failure of Jordan or nominee to purchase any

or all of said shares on or before the extended

closing date (as hereinafter set forth) shall be

without liability to either party except that Jordan

shall bear all costs of escrow.”

Purer, however, argues that even assuming that an

option existed, the option only applied to 50,000 of

the total of 100,000 shares originally placed in escrow,

with the remaining shares subject to a firm contract

of sale. This contention is not consistent with Purer’s

prior views. Purer himself alleged in his complaint

that the agreement had been amended to involve “only”

50,000 shares of VTR stock at a purchase price of

$525,000. C.T. at 26. Furthermore, prior to this action,

Purer’s attorney had demanded of appellees only $525,-

000—the price of the 50,000 optioned shares. Never-

theless, even if we accept Purer’s contention, the other

50,000 shares were not part of an enforceable contract

as certain conditions of the escrow agreement were

not performed by Purer. See discussion supra.

In addition, Purer maintains that if in fact an option

existed, the $75,000 paid into escrow constituted con-

sideration for the option in order to make it irrevocable,

aalittins

and thus the $75,000 would belong to Purer. However,

the $75,000 appears to be merely earnest money placed

in escrow to establish appellees’ good faith in the

transaction. For instance, the option clause was added

as an amendment on October 18, 1969, while the

agreement to deposit the money in escrow was not

subscribed to by the parties until October 30, 1969.

Thus, it would not appear that the money deposited

in escrow constituted a quid pro quo for the option.

For the foregoing reasons, the judgment of the district

court should be affirmed.

ena

—25—

APPENDIX 3.

Order.

United States Court of Appeals, for the Ninth Cir-

cuit.

Phillip Purer, Plaintiff-Appellant, vs. David E. Jor-

dan, Frederic B. Tankel and Arthur Toll, Defendants-

Appellees. No. 74-1829.

Filed: Nov. 1, 1976.

Before: DUNIWAY, CARTER and TRASK, Circuit

Judges.

The panel as constituted in the above case has

voted to deny the petition for rehearing. Judges Duni-

way and Trask have voted to reject the suggestion

for a rehearing en banc. Judge Carter recommends

against a rehearing en banc.

The full court has been advised of the suggestion

for an en banc hearing, and no judge of the court

has requested a vote on the suggestion for rehearing

en banc. Fed. R. App. P. 35(b).

The petition for rehearing is denied and the sugges-

tion for a rehearing en banc is rejected.