# Appendix — Berkley v. Itoba Ltd.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1996
- **Citation:** 516 U.S. 1044

## Text

Al

UNITED STATES COURT OF APPEALS
For the Second Circuit
United States Court House
40 Foley Square
New York 10007

George Lange II]
Clerk

At a stated term of the United States Court of Appeals
lor the Second Circuit, held at the United States ( ourthouse
Foley Square, in the City of New York. on the 14th day of Juls
one thousand nine hundred and ninety-five

Itoba Limited

Plaintiff-Appellant,
v Dkt No: 94-7562

LEP Group PLC

Defendants-Appellees

A petition for rehearing containing a suggestion that the action
be reheard in banc having been filed herein by the appellees,
LEP GROUP PLC, WILLIAM R. BERKLEY. PETER R
GRANT and JOHN R. EAST.

Upon consideration by the panel that decided
the appeal, it is Ordered that said petition for
rehearing is DENIED.

lt is further noted that the suggestion for rehearing in banc has
been transmitted to the judges for the court in regular active

service and to any other judge that heard the appeal and that no
such judge has requested that a vote be taken thereon

FOR THE COURT

GEORGE LANGE III, CLERK
By: __/s/

Beth J. Meador Date
Administrative Attorney

[Order entered on July 14, 1995. ]

UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT

At a Stated Term of the United States Court of Appeals
for the Second Circuit, held at the U nited States Courthouse in
the City of New York. on the [5th day of May, one thousand
nine hundred and ninety-five

PRESENT: HON. WILFRED FEINBERG
HON. ELLSWORTH A. VAN GRAAFEILAND
HON. ROGER J. MINER.
Circuit Judges.

Docket #94-7562 SSS F
[TOBA LIMITED,

Plaintiff-Appellant,

_

LEP GROUP PLC., WILLIAM R. BERKLEY,
JOHN L. READ, PETER J. GRANT &
JOHN R. EAST,

Defendants-Appellees

-X

Appeal from the United States District Court for the
District of Connecticut

This cause came on to be heard on the transcript of
record from the United States District Court for the District of
Connecticut and was argued by counsel.

ON CONSIDERATION WHEREOF. it is now hereby
ORDERED, ADJUDGED and DECREED that the judgment of
Said district court be and it hereby is reversed and the matter

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remanded to the said district court for further proceedings
consistent with the opinion of this Court.

GEORGE LANGE III, Clerk

By: __/s/
Arthur M. Heller
Administrative Attorney

[Judgment entered on May 15, 1995]

AS

UNITED STATES COURT OF APPEALS
For the Second Circuit

No. 582 - August Term 1994
(Argued December 1, 1994 Decided May 15, 1995)

Docket No. 94-7562

LEP GROUP PLC, WILLIAM R. BERKLEY,
JOHN L. READ, PETER J. GRANT, JOHN R. EAST,

Defendants-Appellees

Before: FEINBERG, VAN GRAAFEILAND and MINER,

Appeal from a judgment of the United States District
Court for the District of Connecticut (E ginton, J.) dismissing
appellant's securities fraud action for lack of subject matter
jurisdiction.

Reversed and remanded.

MARK C. ZAUDERER. New
York, NY (James Robert
Pigott, Jr., Stein, Zauderer,
Ellenhorn, Frischer &
Sharp, New York, NY,
Richard F. Lawler, James
C. Riley, Whitman Breed
Abbott & Morgan,

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Greenwich, CT, of counsel),

for Plaintiff-Appellant.

JEFFREY E. GLEN, New
York, NY (Berwin
Leighton, New York, NY,
Mark B. Seiger, Halloran &
Sage, Hartford, CT, of
counsel), for Defendant-
Appellee LEP Group Plc.

WILLIAM MCGUINNESS,
New York, NY (Fried,
Frank, Harris, Shriver &
Jacobson, New York, NY,
of counsel), for Defendants-
Appellees William R.
Berkley and Peter J, Grant.

Alan H. McLean, Stamford,
CT (Neville, Shaver, Kelly
& McLean, Stamford, CT,
of counsel), for Defendant-
Appellee John R. East.

John L. Read, pro se.

VAN GRAAFEILAND, Circuit Judge:

Itoba Limited appeals from a judgment of the United
States District Court for the District of Connecticut (Eginton,
J.) dismissing its securities fraud action against Lep Group
PLC, William Berkley, John Read, Peter Grant and John East
for lack of subject matter jurisdiction. For the reasons stated
below, we reverse and remand for further proceedings.

The corporate defendant in this case, Lep Group PLC,
is a London-based holding company with some fifty
subsidiaries operating in thirty countries. It is a true
conglomerate, owning businesses in freight forwarding, home

iieemmeemenencmnameiiias mene are simaeni tea ere eel

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security systems, biotechnology, travel services, and real estate
speculation. Lep's “ordinary shares", the British equivalent of
common stock, are registered in the United Kingdom,
obligating the company to compiy with United Kingdom
securities laws. The primary trading market for Lep's ordinary
shares is the International Stock Exchange of the United
Kingdom and the Republic of Ireland Ltd. (the "London
Exchange").

To create a United States market for its ordinary
shares, Lep deposited 12,842,850 of its approximately 136
million shares in an American depository in 1988. The
depository in turn issued an American Depository Receipt
(ADR) for each five ordinary shares of Lep on deposit.
Because these ADRs trade in the form of American Depository
Shares (ADSs) on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ"), Lep is
subject to the reporting and disclosure requirements of United
States securities law.

A.D.T. Limited ("ADT") is a transnational holding
company based in Bermuda. Its shares are listed on the New
York Stock Exchange and approximately fifty percent of its
shareholders of record reside in the United States. Itoba, a
Channel Islands company, is a wholly-owned subsidiary of
ADT. ADT also is the corporate parent of A.D.T. Securities
Systems, Inc., a Delaware based firm and one of America's
largest suppliers of security and protection services.

In mulling over expansion plans for A.D.T. Securities
Systems, ADT considered the possible acquisition of one of
A.D.T. Securities Systems’ largest competitors in the American
security market, National Guardian. ADT already owned a
small interest in that corporation through shares it held of Lep,
the parent company of National Guardian. Because ownership
of Lep would lead to control of National Guardian. ADT
considered increasing its Lep holdings.

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At the same time, Canadian Pacific was interested in
expanding into the freight forwarding business and also was
pondering a sizable investment in Lep. Learning of their
mutual interest, the companies agreed to explore a joint
purchase of Lep. Canadian Pacific hired S.G. Warburg, a
London investment bank, to evaluate Lep's business operations.
Nicholas Wells, ADT's in-house financial analyst, was directed
by Michael Ashcroft, ADT's chairman, to perform a valuation
of Lep.

In December 1989, S.G. Warburg issued an extensive
report assessing Lep's prospects. The analysis in this report
was based on Lep’s U.K. annual reports, the Form 20-F that
Lep filed with the United States Securities and Exchange
Commission for the year ended December 31, 1988, Lep's
shareholder register, and broker reports. Shortly after the
Warburg report was issued, Canadian Pacific abandoned the
proposed joint venture.

ADT's interest, on the other hand, did not diminish.
Wells continued his examination of Lep, relying heavily on the
Warburg report. To supplement his research, he obtained from
Canadian Pacific a copy of Lep's Form 20-F for 1988. Wells
frequently discussed his analyses of these documents with
David Hammond, ADT's vice chairman and the person in
charge of acquisitions.

Based on Wells’ analyses and their own review of the
Warburg report, Hammond and Ashcroft decided to acquire
Lep. Soon thereafter, Hammond formulated a plan to increase
ADT's Lep holdings by making anonymous purchases on the
market through one of ADT's off-shore companies, in this case
Itoba. Hammond contacted the board members of Itoba and
recommended that they approve his purchase plan.

As expected, Itoba's board approved the plan. Itoba's
board then requested one of ADT's employees to commence
share purchases in Itoba's name; these purchases were made
according to Hammond's plan and paid for by ADT. During

Se

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the second half of 1990, Itoba executed a number of Significant
purchases on the London Exchange pursuant to the plan. By
November 1990, Itoba had acquired over 37 million Lep
ordinary shares for approximately $114 miliion

Before ADT could complete its planned acquisition
however, Lep disclosed a series of business reversals that
decimated its share value: Lep's stock price plummeted 97%
and the value of Itoba's Lep holdings declined by nearly $111
million. Lep wrote off approximately $522 million from its
books for the fiscal year ended December 31. 199]

Itoba sued Lep and its officers in the District of
Connecticut, asserting violations of sections 10(b) and 20 of the
Securities Exchange Act of 1934 (the "Act") and of Rule 10b-5
According to Itoba, the defendants were subject to liability
because they failed to disclose material matters in Statements
filed with the SEC Specifically, Itoba alleged that Lep made
high risk investments and engaged in speculative business
ventures without informing the investing public. Itoba claimed
that had these matters been properly disclosed, it would not
have purchased Lep's stock at artificially inflated prices

ltoba also asserted claims against Lep director William
Berkley for alleged violations of sections 10(b) and 12(2) of the
Act and of Rule 10b-5. Berkley, a United States citizen and a
resident of Connecticut, had sold a large block of Lep ordinary
Shares in the United States on the same day that Itoba
purchased a large block of shares in London. Itoba alleged that
had Berkley properly complied with his duty to disclose
material, nonpublic information before trading, it would not
have made that purchase

Defendants moved to dismiss Itoba's claims for lack of
subject matter jurisdiction, and Magistrate Judge Jean
Margolis, to whom the matter was referred for
recommendation and report, issued a report that recommended
dismissing Itoba's action on jurisdictional grounds. The district
court adopted the magistrate judge's recommendations in toto

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It dismissed Itoba's action on Fed. R. Civ. P. 12(b)(1)
grounds in a short-form order. This, we conclude, was error.

It is well recognized that the Securities Exchange Act is
Silent as to its extraterritorial application. See, e.g., Alfadda v.
Fenn, 935 F.2d 475, 478 (2d Cir.) (citing 15 U.S.C. § 78aa),
cert. denied, 501 U.S. 1005 (1991). However, in determining
whether Congress intended that the "precious resources of
United States courts" be devoted to a specific transnational
securities fraud claim, we are not without guidance. Two
jurisdictional tests have emerged under this Court's decisions:
the "conduct test", as announced in Leasco Data Processing
Equip. Corp. y- Maxwell, 468 F.2d 1326, 1336-37 (2d Cir.
1972), and the “effects test", as announced in Schoenbaum v.
Firstbrook, 405 F.2d 200, 206-09 (2d Cir.), rev'd with respect
to holding on merits, 405 F.2d 215 (2d Cir. 1968) (in banc),
cert. denied sub nom. Manley v, Schoenbaum, 395 U.S. 906

(1969). There is no requirement that these two tests be applied
separately and distinctly from each other. Indeed, an
admixture or combination of the two often gives a better picture
of whether there is sufficient United States involvement to
justify the exercise of jurisdiction by an American court. It is
in this manner that we address the issue of jurisdiction in the
instant case. Because we believe that the allegations are
sufficient to support jurisdiction, we reverse.

Under the conduct test, a federal court has subject
matter jurisdiction if (1) the defendant's activities in the United
States were more than "merely preparatory" to a securities
fraud conducted elsewhere, Bersch v. Drexel Firestone, Inc.,
519 F.2d 974, 987 (2d Cir.), cert. denied, 423 U.S. 1018
(1975), and (2) these activities or culpable failures to act within
the United States "directly caused" the claimed losses, Alfadda,
supra, 935 F.2d at 478. Inherent in the conduct test is the
principle that Congress does not want "'the United States to be
used as a base for manufacturing fraudulent security devices for
export, even when these are peddled only to foreigners."

Psimenos v. E.F. Hutton & Co., 722 F.2d 1041, 1045 (2d Cir.

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1983) (quoting [IT vy, Vencap, Lid., 519 F.2d lOO1, 1017 (2d
Cir. 1975))

rhe magistrate judge correctly stated the conduct test
when she said that Itoba must prove that Lep's United States
based activities directly caused Itoba's financial losses
However, whether she correctly applied the test is an entirely
different matter. [he magistrate Judge based her
recommendation to deny jurisdiction on the following findings

First, Itoba and ADT did not read the SEC
filing and rely on them: it was an investment
bank hired by ADT which had reviewed the
documents. And second, the SEC filings were
filed in connection with LEP's ADS's and
ADR's, not the ordinary shares purchased by
[toba, for which annual reports and press
releases were generated from England.

The magistrate judge's first finding -- that ADT and
[toba did not read and rely on the SEC filing in making their
purchase decision -- must be rejected in view of the
clearly-established fact that the executives of Itoba and ADT
based their investment decision on the Warburg report. The
analyses and conclusions in this report were predicated on
information found in the Form 20-F that Lep filed with the
SEC. Nicholas Wells, the ADT executive responsible for
assessing investment prospects, made the Warburg report the
centerpiece of his Lep valuation. Moreover. he not only relied
on the discussion of the SEC filing as contained in the Warburg
report, he also used his own copy of the 1988 Form 20-F to
formulate his purchase recommendations. According to the
affidavit of ADT's vice chairman. the decision to acquire Lep
was based upon these recommendations.

The fact that Itoba's board members did not read the
SEC filing is not of controlling significance. A party need not
personally have read a misleading financial report to establish
reliance; derivative reliance is a well-established basis for

liability in a Rule 10b-5 action. See, e.g., Austin v.
Loftsgaarden, 675 F.2d 168, 177-78 & n.19 (8th Cir. 1982),
appeal after remand, 768 F.2d 949 (8th Cir. 1985), rev'd on
other grounds sub nom. Randall v. Loftsgaarden, 478 U.S.
647 (1986); Garfinkel v. Memory Metals. Inc., 695 F. Supp.
1397, 1404 (D. Conn. 1988); Kronfeld v. Trans World
Airlines, Inc., 104 F.R.D. 50, 53-54 (S.D.N.Y. 1984); Walsh
v. Butcher & Sherrerd, 452 F. Supp. 80, 84 (E.D. Pa. 1978);
In re Ramada Inns Sec. Litig., 550 i*. Supp. 1127, 1131 (D.
Del. 1982). The acquisition plan that Itoba's directors
approved was formulated and funded by ADT, which in turn
relied on its financial officer's analysis of the Warburg report
and Lep's SEC filing. The contents of Lep's 1988 Form 20-F
were thus a "substantial" and "significant contributing cause” to
Itoba's purchase decision. There is no requirement, as
suggested by the magistrate judge's decision, that Itoba read
Lep's filing before it could rely on it.

The magistrate judge's second reason for denying the
jurisdiction, i.e., that the SEC filings were made in connection
with Lep's ADSs and ADRs, not its ordinary shares, is only
fifty percent correct and therefore is one hundred percent
wrong. The ADRs were simply a grouping into one security of
five ordinary shares. Inevitably, there was a direct linkage
between the prices of the ADRs representing five ordinary
shares and the prices of the single ordinary shares themselves.
If the ordinary share price fell on the London Exchange, the
market price of an ADR would decrease in similar manner, and
visa versa.

Finaliy, a Rule 10b-5 action is not barred because a
false and misleading statement in an SEC filing pertains to a
security that is not the security purchased. See In re Ames
Dep't Stores Inc. Stock Litig., 991 F.2d 953, 961-62 (2d Cir.
1993). So long as the fraudulent device employed is of the
type that would cause reasonable investors to rely thereon and,
so relying, cause them to purchase or sell the corporation's
securities, a Rule 10b-5 action may lie. See SEC v. Texas Gulf
Sulphur Co., 401 F.2d 833, 860 (2d Cir. 1968) (in banc), cert.

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denied, 394 U.S. 976 ( 1969). SEC filings generally are the
type of "devices" that a reasonable investor would rely on in
purchasing securities of the filing corporation. When these
United States filings include substantial misrepresentations,
they may be a predicate for subject matter jurisdiction. See

Psimenos, supra, 722 F.2d at 1045 (citing Leasco, supra, 468
F.2d at 1337).

The fact that the Lep ordinary shares were issued and
purchased in England does not change our conclusion. "The
conduct test does not center its inquiry on whether domestic
investors or markets are affected, but on the nature of conduct
within the United States as it relates to carrying out the alleged
fraudulent scheme... ." Psimenos, supra, 722 F.2d at 1045;

see Leasco, supra, 468 F.2d at 1337.

Moreover, the making of the allegedly false and
misleading filings with the SEC was not “merely preparatory to
the fraud." Although the magistrate judge refrained from
forthrightly Stating as much, she tiptoed around that statement
as follows:

It is beyond dispute that SEC filings and press
releases are the type of information on which
an investor relies in making his or her

investment decisions. Securities & Exchange
-» 401 F.2d

833, 862 (2d Cir 1968), Cert. denied sub nom.
‘n, 394

U.S. 976 (1969). Even beyond the issue of
whether the SEC filings were "merely
preparatory to the fraud," plaintiff cannot
demonstrate that the alleged acts within the
United States "directly caused [its] losses" for
two reasons.

She then propounded the two reasons we have rejected in the
preceding paragraphs and cited two cases whose application
here is questionable at best, ustri

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S.A., 808 F. Supp. 1143, 1153-55 (S.D.N.Y. 1992) and
Nathan Gordon Trust vy. Northgate Exploration, Lid., 148
F.R.D. 105, 107-08 (S.D.N.Y. 1993). In Koal Industries, a
Panamanian corporation acquired two Netherlands Antilles
corporations which owned interests in an Arkansas mining
company. The entire transaction took place in Switzerland and
the financing was obtained from outside the United States. The
only contact with the United States other than the location of
the mine was a telephone call seeking additional funds for the
acquisition. Northgate involved a motion for class
certification. The defendant was a Canadian corporation which
owned an interest in a gold mine located in northern Canada,
concerning which the defendant filed allegedly false SEC
statements. The proposed class was to consist of all persons
who purchased Northgate stock on the Toronto, Montreal,
London and New York Exchanges. The defendant requested
that the class be limited to those who purchased on the New
York Exchange, and the district court granted its request. In
contrast to the discretionary nature of the district court's class
certification ruling and the "fraud on the market" class issues of
Northgate, the instant case involves a single plaintiff asserting
direct individual fraud.

Appellees address the issue of "preparatory conduct”
more directly. They assert that the mere filing of a document
with the SEC should not trigger jurisdiction in United States
courts. In support of this contention, they point out that Lep's
financial statements were prepared in England and contend that
the act of filing alone should not confer subject matter
jurisdiction in the United States. They say further that the
filing was "incidental or preparatory conduct" in whatever
wrongdoing may have occurred. With respect to the first
contention, we hold that the situs of preparations for SEC
filings should not be determinative of jurisdictional questions.
Otherwise, the protection afforded by the Securities Exchange
Act could be circumvented simply by preparing SEC filings
outside the United States. We find no support in the Act for
such a result.

The second half of appellant's argument overlooks a
basic purpose of the securities law, which is fair disclosure of
material facts. A material fact that is undisclosed in an SEC
filing remains undisclosed absent public enlightenment. This
may bring into play a concomitant duty, i.e., the duty to
correct. See 2 Bromberg & Lowenfels, iti

investors.” Schoenbaum, Supra, 405 F.2d at 208. Here, we
have fraud occurring on an American exchange and persisting

The magistrate judge held that "if ADT were the
plaintiff, the ‘effects test' would be met, in that ADT's stock is
traded on the New York Stock Exchange and approximately
fifty percent (50%) of its shares are held in this country.” See

j , 871
F.2d 252, 262-63 (2d Cir.), , 890
F.2d 569 (2d Cir.), cert. dismissed, 492 U.S. 939 (1989):
» 107 F.2d 663, 666-67 (2d

Cir.), cert. denied, 463 U.S. 1215 (1983); Uni
» 148 F.2d 416, 443 (2d Cir. 1945);
§ 18(b),
cmt. d. We believe this reasoning applies with equal effect
where, although Itoba, ADT's wholly-owned subsidiary, was
the nominal purchaser and owner of the Lep stock, it was ADT

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which financed the deal and which, with its shareholders,
ultimately must bear the loss. This is not a case in which Lep's
acts "simply [had] an adverse affect [sic] on the American
economy or American investors generally." See Bersch, supra,
519 F.2d at 989. In short, we hold that a sufficient
combination of ingredients of the conduct and effects tests is
present in the instant case to justify the exercise of jurisdiction
by the district court. See generally Leasco, supra, 468 F.2d at
1338.

For some reason that is not clear to us, the magistrate
judge did not consider it necessary to address specifically
Itoba's causes of action against any of the individual
defendants. She simply recommended a blanket dismissal of
the complaint as to all defendants, which recommendation was
adopted without discussion by the district court. We find this
particularly troublesome with respect to the defendant Berkley.

On October 8, 1990, Berkley, a United States resident
and a Lep director, sold 7,300,000 ordinary shares of Lep to
his United States-based broker, New York & Foreign Securities
Corporation, which in turn sold these shares for its own
account on the London Exchange. Berkley received almost $24
million for his shares. That same day, Itoba purchased
7,500,000 shares on the London Exchange through its London-
based broker. Whether the close temporal relationship of these
two transactions is or is not coincidental presents an interesting
question. After executing this purchase, Itoba and ADT
executives learned that the shares they had acquired were
owned previously by Berkley. When Itoba brought the instant
action, it asserted a separate claim against Berkley based on
this Court's “disclose or abstain" rule, which imposes on
insiders a duty to disclose material information before trading
in their company's securities. See SEC y. Texas Gulf Sulphur
Co., supra, 401 F.2d at 848. In Shapiro v. Merrill Lynch. :
Pierce. Fenner & Smith, Inc., 495 F.2d 228, 237 (2d Cir.
1974), we held that an insider who fails to comply with his duty
to disclose or abstain can be held liable “not only to the
purchasers of the actual shares sold by [the insider,] but to all

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persons who during the same period purchased [the
corporation's] stock in the open market without knowledge of
the material inside information which was in the possession of
[the insider]."

Although we do not presently rule on the issue, it
would seem that Berkley's failure to disclose material,
nonpublic information prior to selling his Lep shares is the type
of behavior that falls under this Rule 10b-5 rubric. Because
antifraud provisions are designed to prevent corporate insiders
from taking unfair advantage of uninformed outsiders, Shapiro
y. Merrill Lynch, supra, 495 F.2d at 235 (citing Radiation

, 464 F.2d 876, 890 (2d Cir.
1972)), Berkley's alleged nondisclosure during a sales
transaction executed by two parties within the United States --
Berkley and his broker -- is the type of conduct that should
trigger jurisdiction. See Roth v. Fund of Funds, Ltd., 279 F.
Supp. 935, 936-37 (S.D.N.Y.), aff'd, 405 F.2d 421 (2d Cir.
1968), cert. denied, 394 U.S. 975 (1969).

Moreover, it is not clear that Itoba is disabled from
asserting its claim because it purchased its shares on a foreign
market -- the London Exchange. In :
Supra, we held that an inside trader is subject to liability to all
purchasers of his corporation's stock on the "open market."
495 F.2d at 237. Whether the "open market" encompasses
foreign exchanges is an issue we leave for remand.

We conclude that Itoba's claim against Berkley should
not have been incorporated without discussion into Itoba's
claim against the non-resident defendants and just as silently
dismissed.

CONCLUSION

Unlike some securities actions brought to recover
questionable damages on behalf of optimistically described
classes, we are met here with a single plaintiff which suffered
direct substantial losses. A plaintiff such as this should not be

Pe PS tn SD

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deprived of its day in an American court by a Rule 12(b)(1)
order based on erroneous facts and questionable law. We
conclude that the issues now before us best can be resolved by
a trial on the merits in which the facts relevant to jurisdiction
may be more fully developed. See Bersch, supra, 519 F.2d
992-93 (quoting Leasco, supra, 468 F.2d at 1330). We reverse
the judgment below and remand for such a trial.

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UNITED STATES DISTRICT COURT

DISTRICT OF CONNECTICUT

ITOBA LIMITED
v.

LEP GROUP pic, et al
CIVIL NO. 5:92cv556 (WWE)

CORRECTED

—IJUDGMENT _

This cause came on for consideration on plaintiff's
motion for order pursuant to Rule 60(a) or, in the alternative
pursuant to Rule 54(b) before the Honorable Warren W.
Eginton, Senior United States District Judge, and

The Court having considered the motion and all the
Papers submitted in connection therewith granted the motion
and further ordered judgment to enter in favor of defendant
John L. Read in addition to those defendants in whose favor
judgment has already entered, Fed. R. Civ. P. 60(a),

It is therefore ORDERED and ADJUDGED that the
judgment be and hereby is entered in favor of the defendants
Lep Group, John East, Peter Grant, William Berkley, and John
L. Read, in accordance with the court's order.

Dated at Bridgeport, Connecticut this 23rd day of May,
1994.

KEVIN F. ROWE, Clerk

By __/s/

Carol E. Cannady
Deputy in Charge

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UNITED STATES DISTRICT COURT

DISTRICT OF CONNECTICUT

ITOBA LIMITED
v.

LEP GROUP plc, et al
CIVIL NO. 5:92cv556 (WWE)

JUDGMENT

This cause came on for consideration of the defendants’
motions to dismiss before the Honorable Joan G. Margolis,
United States Magistrate Judge, having granted the motions to
dismiss, and

The Honorable Warren W. Eginton, Senior United
States District Judge, after de novo review, and over objection,
affirmed Magistrate Judge Margolis’ ruling,

It is ORDERED and ADJUDGED that judgment be
and is hereby entered in favor of the defendants Lep Group,
John East, Peter Grant, and William Berkley, in accordance
with the Court's ruling.

Dated at Bridgeport, Connecticut this 16th day of
March, 1994.

KEVIN F. ROWE, Clerk

By _/s/

Carol E. Cannady
Deputy in Charge

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[Memorandum Endorsement]

[Originally typed in margin of first page of U.S. Magistrate
Judge Joan Glazer Margolis's Recommended Ruling on
Motions to Dismiss]

3/14/94: After de novo review, and over objections,
the ruling of the Magistrate Judge is hereby AFFIRMED.

Ls/
Warren W. Eginton,
Senior U.S. District Judge

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF CONNECTICUT

x

ITOBA LIMITED 5:92 CV 00556 (WWE)
V.
LEP GROUP pic, ET AL. : DATE: FEBRUARY 4, 1994

x

RECOMMENDED RULING ON MOTIONS TO DISMISS

On September 22, 1992, plaintiff Itoba Limited
["Itoba"] commenced this securities action with respect to
allegedly fraudulent non-disclosure of facts in press releases
and filings with the Securities and Exchange Commission
["SEC"] made by the defendant LEP Group plc ["LEP"]. As
set forth in its complaint, Itoba is a corporation organized
under the laws of the States of Jersey, Channel Islands, with its
principal place of business in St. Helier, Jersey, Channel
Islands (48). Itoba is a wholly-owned subsidiary of ADT
Limited ["ADT"], a corporation organized under the laws of
Bermuda, with its principal place of business in Hamilton,
Bermuda (id.). Defendant LEP is a corporation organized
under the laws of England, with its registered office in Epsom,
Surrey, England (id. 410). The four additional defendants are
present or former directors of LEP -- William, R. Berkley (who
resides in Greenwich, Connecticut), John L. Read, Peter J.
Grant and John R. East.'

lThe action has been stayed as against defendant Read, a citizen of

England who filed an Individual Voluntary Arrangement under
British law. See Ruling on Pending Discovery Motions, filed
Apr. 5, 1993 (Dkt. #81), at 3-6.

A23

After jurisdictional discovery was completed, on May
24, 1993, defendants LEP, Berkley, Grant and East filed
motions to dismiss plaintiff's complaint on the grounds that this
court lacks subject matter jurisdiction or, in the alternative, that
the complaint should be dismissed under the doctrine of forum
non conveniens (Dkt. ##83-88).2 On June 28, 1993, plaintiff
filed its brief in opposition and four affidavits (Dkt. ##90-94) 3

2Defendant Berkley also filed an affidavit from his counsel, William
G. McGuiness (Dkt. #85), to which the following four exhibits were
attached: excerpts from the deposition of defendant Berkley, taken
on March 10, 1993 ("Berkley Dep. Tr."] (Exh. 1): excerpts from the
deposition of David B. Hammond, taken in London on
November 24-25, 1992 {"Hammond Dep. Tr.”] (Exh. 2); excerpts
from the deposition of David L. Crespel, taken on February 10,
1993 ["Crespel Dep.Tr."] (Exh. 3); and excerpts from the telephone
deposition of Peter W.S. Percival, taken on April 23, 1993
("Percival Dep. Tr."] (Exh. 4).

Attached to the motion of defendants LEP and East was an affidavit
from their attorney, Jeffrey E. Glen (Dkt. #87), to which nine
exhibits were attached: copy of LEP’s Form 6-K. filed with the
SEC on July 6, 1989 (Exh. 1); copy of LEP's Form 6-K, dated
October 12, 1989 (Exh. 2); copy of LEP’s Form 6-K, dated April
20, 1990 (Exh. 3); copy of LEP’s Form 20-F, dated June 29, 1990
(Exh. 4); additional excerpts from the Hammond deposition (Exh.
5); additional excerpts from the Crespel deposition (Exh. 6); excerpts
from the deposition of defendant East, taken on February 25, 1993
(Exh. 7); excerpts from the deposition of defendant Read, taken on
April 8, 1993 in Naples, Florida (Exh. 8): and additional excerpts
from the Percival deposition (Exh. 9).

+The first affidavit was prepared by Hammond ["Hammond Aff't”]
(Dkt. #91), to which three exhibits were attached: copy of ADT's
Form 20-F, filed with the SEC on May 21, 1992 (Exh. 1): copy of
ADTs Form 10-K, dated March 31, 1993 (Exh. 2): and copy of
LEP’s Schedule 13D, filed with the SEC on October 18, 1990
(Exh. 3).

The second affidavit was prepared by Itoba’s counsel, Mark C.
Zauderer (Dkt. #92), to which the following twelve exhibits were
footnote continued on next page

A24

On July 27, 1993, defendants LEP, East, Berkley and Grant
filed a reply brief (Dkt. #97). On August 10, 1993, plaintiff

footnote continued from previous page
attached: copy of plaintiff's complaint (Exh. 1); additional excerpts
from the Hammond deposition (Exh. 2); additional excerpts from the
Crespel deposition (Exh. 3); additional excerpts from the East
deposition (Exh. 4); additional excerpts from the Berkley deposition
(Exh. 5); additional excerpts from the Read deposition (Exh. 6);
additional excerpts from the Percival deposition (Exh. 7); copy of
LEP’s Annual Report for 1991 (Exh. 8); copy of “Text of Address"
given by David N. James, LEP’s Chairman, at the "Extraordinary
General Meeting and Annual General Meeting" held on August 24,
1992 (Exh. 9); copy of an article appearing in the London Daily
Telegraph on November 21, 1992 (Exh. 10); letter from plaintiff's
counsel to defense counsel, dated December 29, 1992 (Exh. 11); and
Statement of Ruth Markland, a British solicitor (Exh. 12).

The third affidavit was prepared by defendant Grant (Dkt. #93), to
which two charts were attached (Exh. 1), indicating LEP's price on
NASDAQ and on the London Stock Daily Exchange, from
December 1988 to December 1991.

The last affidavit was prepared by Nicholas Wells ["Wells Aff't"]
(Dkt. #94), to which the following two exhibits were attached: a
copy of the "Project Bavaria" report, dated December 1989 (Exh. 1);
and copy of LEP's Form 20-F, dated June 29, 1989 (Exh. 2).

4Three exhibits were attached: additional excerpts from the
Hammond deposition (Exh. A); additional excerpts from the Crespel
deposition (Exh. B); and an affidavit from defense counsel, Jeffrey
E. Glen, with an Opinion by Nicholas Underhill, another English
barrister (Exh. C).

A25

filed a surreply brief (Dkt. #99).5 On June 30, 1993, these
motions were referred to this Magistrate Judge (Dkt. #95).

For the reasons stated below, defendants’ motions are
granted.

I,

FACTUAL BACKGROUND®

The jurisdictional facts are as follows:

As previously indicated, Itoba, a corporation organized
under the laws of the States of Jersey, Channel Islands, is a
wholly-owned subsidiary of ADT, a Bermudian corporation.
ADT's primary business is providing electronic security
services and alarm systems for residential and commercial
property, and conducts an extensive security services business
in the United States through its wholly-owned subsidiary, ADT
Security Systems, a Delaware corporation (Hammond Aff't
113-4). ADT maintains executive offices in the United States,
its stock is traded on the New York Stock Exchange, and
approximately fifty percent (50%) of its shares are held in the
United States (id. 46). Itoba is one of ADT's approximately
twenty subsidiaries whose principal business is to hold
investments for ADT (id. 447-9: Crespel Dep. Tr. at 59).

As previously indicated, LEP is a British corporation.
"Ordinary Shares" of LEP’s stock are traded on the London

>Four additional exhibits were attached: additional excerpts from the
East deposition (Exh. 1); additional excerpts from the Percival
deposition (Exh. 2); additional excerpts from the Read deposition
(Exh. 3); and an opinion letter from Samuel Stamler and Ian Glick,
two more British barristers (Exh. 4).

The filings associated with these motions are nearly six inches thick.

®See note 8 infra.

:
{
i

A26

Stock Exchange; however, since September 30, 1988, LEP's
American Depository Shares ["ADS"] are traded on the
National Association of Securities Dealers Automatic Quotation
System ["NASDAQ"]; each ADS is evidenced by an American
Depository Receipt ["ADR"], which represents five Ordinary
Shares (Crespel Dep. Tr. at 100; Percival Dep. Tr. at 29, 61-
62; Berkley Dep. Tr. at 54; Dkt. #87, Exh. 4, at 12-13; Dkt:
#94, Exh. 2, at 14-16). It is in connection with the ADS's and
ADR's that LEP has made its filings with the SEC (see, e¢.g.,
Dkt. #87, Exhs. 1-4; Dkt. #91, Exh. 3; Dkt. #94, Exh. 2). At
issue in this litigation are LEP's filings, commencing in July
1989, of Form 6-K's and 29-F, which allegedly failed to
disclose significant financial problems; various items were
attached to such forms, including LEP's 1988 and 1989 Annual
Reports, as well as a press release bearing the dateline,
"Greenwich, Connecticut."

In spring 1990, ADT "recommended" to Itoba that the
subsidiary purchase LEP stock (Hammond Aff't 414; Wells
Aff't 4412-14; Hammond Dep. Tr. at 59-60, 70-71, 106-07,
215; Crespel Dep. Tr. at 66-68, 85-86).’? In reaching this
"recommendation," ADT had relied upon a report prepared by
an investment bank; this bank, in turn, had reviewed LEP's
recent U.K. annual reports and circular to shareholders and its
Form 20-F filed with the SEC (Wells Aff't 445-11, 14; Exh.
1). Executives at ADT, however, did not themselves review
the SEC filings (Crespel Dep. Tr. at 74), nor did any
executives at Itoba (id. at 68). Between June 4, 1990 and
November 23, 1990, Itoba acquired 37,267,830 shares of LEP

7ADT contends that it is common practice for a parent corporation to
acquire securities through a wholly-owned subsidiary, which practice
avoids early identification of the parent and minimizes disturbances
in the market which might affect the stock's trading price (Hammond
Aff't 413). However, ADT also conceded, at depositions, that the
transaction would have been subject to U.K. taxation if the decision
to purchase the stock had been made in England (Hammond Dep. Tr.
at 215-16; Crespel Dep. Tr. at 25-26, 60, 66).

A27

stock as they became available on the London stock market, for
an aggregate price of approximately $114 million (Hammond
Aff't 421). These shares were purchased through Shearson
Lehman's London office, which in turn dealt with other stock
brokerage firms, including two located in New York City
(Hammond Aff't 449, 17-18: Hammond Dep. Tr. at 162-68,
218-20; Berkley Dep. Tr. at 54-68).

In September 1991, LEP first disclosed that it was
facing financial problems; LEP ultimately wrote off $522
million in losses for that year (Hammond Aff't 420; Wells Aff't
416). As a result, the value of Itoba's shares fell to
approximately $2.26 million, resulting in a loss of $111 million
(Hammond Aff't 421).

Il.

DISCUSSION

Defendants filed this motion to dismiss pursuant to Rule
12(b)(1) of the Federal Rules of Civil Procedure, challenging
this court's subject matter jurisdiction over this cause of
action.8

8A threshold matter to be resolved is the appropriate standard of
review. There is no dispute that once a party challenges the district
court's subject matter jurisdiction, the burden of establishing such
jurisdiction rests on the party asserting jurisdiction. Wills v.
Ferrandino, 830 F. Supp. 116, 122 (D. Conn. 1993); Washton v.
ULS., 2:91 CV 121 (AHN), 1993 U.S. Dist. LEXIS 2863, at *6 n.1
(D. Conn. Feb. 12, 1993);

International, Inc., 775 F. Supp. 518, 522 (D. Conn. 1991). Thus,
plaintiff here bears the burden of establishing the court's jurisdiction.

There is similarly no dispute that in deciding a Rule 12(b)(1) motion
challenging the district court's jurisdiction, the court may look
beyond the complaint and rely on extrapleading materials. Hicks v,
Brophy, 3:93 CV 1595(JAC), 1993 U.S. Dist. LEXIS 18495, at *5
(D. Conn. Dec. 14, 1993); Wills, Supra, F. 830 Supp. at 122;

footnote continued on next page

A28

A. SUBJECT MATTER JURISDICTION

Both the Securities Act of 1933 and the Securities and
Exchange Act of 1934 are silent as to their extraterritorial
application, so that the federal courts have had to determine
"whether Congress would have wished the precious resources
of the United States courts" to be used in resolving disputes
between foreign entities in the area of securities fraud. Bersch
vy. Drexel Firestone, Inc., 519 F.2d 974, 985 (2d Cir.), cert.
denied sub nom. Bersch v. Arthur Andersen & Co., 423 U.S.
1018 (1975). To determine whether the district courts have
subject matter jurisdiction over these foreign transactions, the
Second Circuit has fashioned two principal tests: the "effects
test" and the "conduct test." Alfadda v. Fenn, 935 F.2d 475,
478 (2d Cir.), cert, denied, 112 S. Ct. 638 (1991). Only one
of the two tests must be satisfied in order for subject matter

footnote continued from previous page
Ensign-Bickford Co, v, ICI Explosives USA Inc., 817 F. Supp.
1018, 1023 (D. Conn. 1993); Washton, supra, 1993 U.S. Dist.
LEXIS 2863, at *6 n.l. The parties disagree as to how a court
should respond to conflicting affidavits, depositions, and documents.
Under such circumstances, courts have looked to the decisions which
have developed the standards for summary judgment under Rule 56
to “assist in resolving the problem encountered if the affidavits
submitted on a 12(b)(1) motion should reveal the existence of factual
problems.” Exchange National Bank of Chicago v. Touche Ross &
Co., 544 F.2d 1126, 1130-31 (2d Cir. 1976); cf. Washton, supra,
1993 U.S. Dist. LEXIS, at *6 n.1.

Looking to Rule 56 summary judgment standards, the court will
resolve all factual “ambiguities and inferences” in the light most
favorable to the party opposing the motion, in this case, plaintiff
Itoba. Matsushita Electric Industrial Co.. Lid. v. Zenith Radio
Corp., 475 U.S. 574, 587 (1986); Delaware & Hudson RY. Co. v.

Consolidated Rail Corp., 902 F.2d 174, 177 (2d Cir. 1990), cert.
denied, 111 S. Ct. 2041 (1991). Thus, for the purposes of

considering defendants’ motions to dismiss, the facts will be viewed
in the light most favorable to plaintiff. Leasco Data Processing
Equipment Corp, v. Maxwell, 468 F.2d 1326, 1330 (2d Cir. 1972).

A29

jurisdiction to be conferred on the district court in a securities
fraud action. Psimenos v. E.F. Hutton & Co., Inc., 722 F.2d
1041, 1045 (2d Cir. 1983).

1. “CONDUCT TEST"

In Alfadda, supra, the Second Circuit's described the
"conduct test" as follows: "a federal court has subject matter
jurisdiction if the defendant's conduct in the United States was
more than merely preparatory to the fraud, and particular acts
or culpable failures to act within the United States directly
caused losses to foreign investors abroad." 935 F.2d at 478
(citations omitted).

This test has been applied with varying results. For
example, in one of the earliest cases, Leasco Data Processing
Equipment Corp, v. Maxwell, 468 F.2d 1326, 1336-37 (2d
Cir. 1972), the action was commenced by American citizens
against (the now late) Robert Maxwell, a British citizen, with
respect to a British company's stock, traded solely on the
London Stock Exchange; subject matter jurisdiction was found
because "substantial misrepresentations were made in the
United States." The same conclusion more recently was
reached in Alfadda, supra, 935 F.2d at 478-79, where the
plaintiffs were all residents of Saudi Arabia or Bahrain, and the
corporate defendants were either Netherlands Antilles or
French companies. However, jurisdiction in this country was
appropriate in that the allegedly fraudulent activity, Le.,
negotiations and communications which diluted plaintiffs’
shares, all took place in the United States. See also Psimenos,
Supra, 722 F.2d at 1045-48 (subject matter jurisdiction found in
action brought by Greek citizen regarding purchases made
through defendant's Athens and Paris offices, where plaintiff
was induced by pamphlets prepared in the U.S. and where
transactions were consummated in New York).

The plaintiff-class in Bersch, supra, were thousands of
Shareholders, who primarily were citizens of Canada,
Australia, England, France, Germany, Switzerland and of

A30

several other European, Asian, African, and South American
countries, with some Americans. The action involved the stock
of a Canadian company, which had its main business office in
Switzerland; the underwriters included two large American
banking houses -- Drexel Firestone, Inc. and Smith, Barney &
Co -- and four foreign underwriting houses. The prospectuses,
which were printed abroad in English, French, and German,
and which were delivered to purchasers outside the United
States, specifically provided that these shares of stock were not
being offered in the U.S. In applying the “conduct test,” the
Second Circuit differentiated between three sets of plaintiffs:
(1) American residents, who could commence securities actions
here, without regard to whether the alleged acts of material
importance occurred in this country; (2) American residents
abroad, who were permitted to commence securities actions
here "if, but only if, [alleged] acts . . . of material importance
in the United States have significantly contributed [to their
losses]"; and (3) foreigners, who could commence such actions
here only if the "[alleged] acts . . . within the United States
directly caused [their financial losses]." 519 F.2d at 993.

There is no doubt that the factual circumstances here
present a closer picture than those presented in the above-
referenced Second Circuit decisions. However, it would
appear that plaintiff cannot prevail under the "conduct test"
under the facts of this case. It is beyond dispute that SEC
filings and press releases are the type of information on which
an investor relies in making his or her investment decisions.
Securities & Exchange Comm'n vy. Texas Gulf Sulphur Co.,
401 F.2d 833, 862 (2d Cir. 1968), cert. denied sub nom.
Coates v. Securities & Exchange Comm'n, 394 U.S. 976
(1969). Even beyond the issue of whether the SEC filings were
"merely preparatory to the fraud," plaintiff cannot demonstrate
that the alleged acts within the United States "directly caused
[its] losses" for two reasons. First, Itoba and ADT did not read
the SEC filings or rely upon them; it was an investment bank
hired by ADT which had reviewed these documents. And
second, the SEC filings were filed in connection with LEP's
ADS's and ADR'S, not the Ordinary Shares purchased by

A31

Itoba, for which annual reports and press releases were
generated from England.

This conclusion is consistent with two recent district
court opinions, Koal Industries Corp. v. Asland, S.A., 808 F.
Supp. 1143, 1153-55 (S.D.N.Y. 1992) and Nathan Gordon
Trust v. Northgate Exploration, Lid., 148 F.R.D. 105, 107-08
(S.D.N.Y. 1993). In Koal Industries, the plaintiffs, a
Panamanian corporation and nationals, acquired from
companies organized in Netherlands Antilles an interest in a
mining company located in Arkansas. The negotiations, the
drafting of the purchase agreement, and its execution all took
place in Switzerland; the financing was obtained from outside
the United States. The only contact with the United States.
other than the location of the mine, was a single telephone call
seeking additional funding; the district court characterized that
single telephone call as “at best, a preparatory act,” so that
subject matter jurisdiction was lacking. The underlying facts in
Nathan Gordon Trust are even closer to this case. The
defendant was a Canadian corporation whose stock was traded
on the New York, Toronto, Montreal, and London Stock
Exchanges; the alleged misrepresentations were authored
entirely in Canada, although they were attached to
documentation filed with the SEC here and to some extent
circulated in this country. Relying upon Alfadda, Supra, the
district court limited the class action to transactions made on
the New York Stock Exchange only:

The court rules that the relevant
"conduct" in the present case occurred in
Canada where the alleged misleading
information was authored. The mere filing of
reports with the SEC and the dissemination of
some materials to shareholders in the United
States were merely incidental to the authorship,
preparation and dissemination of the allegedly
false information, all of which occurred in
Canada. Accordingly, the court does not have

A32

subject matter jurisdiction over the claims
arising from transactions on foreign exchanges.

148 F.R.D. at 108.
a " "

The second test to be applied is the "effects test,"
which applies "where illegal activity abroad causes a
‘substantial effect’ within the United States." Alfadda, supra,
935 F.2d at 478 (citation omitted). As the Second Circuit
observed in Bersch,_supra, this test is not met "simply because
in the long run there was an adverse effect on this country's
general economic interests or on American security prices,” or
when the alleged acts "simply have an adverse [e]ffect on the
American economy or American investors generally.” 519 F.2d
at 989 (footnotes omitted).

Subject matter jurisdiction was found under the "effects
test" in Consolidated Gold Fields PLC vy, Minorco, S.A., 871
F.2d 252, 262-63 (2d Cir. 1989). The plaintiff there was a
British corporation, with numerous American subsidiaries; half
of its $2.4 billion in assets were located in this country.
Defendant was a Luxembourg corporation, largely controlled
by South African companies and individuals. The Second
Circuit found that the "effects test" had been satisfied, because
2.5% of plaintiff's shareholders were American, holding
approximately 5.3 million shares with a market value of
approximately $120 million.

In contrast, no subject matter jurisdiction was found in
Koal Industries, supra, where the plaintiff was not an American
investor, the defendants’ stock was neither registered nor listed
on a national securities exchange, and the only financial
damage was the demise of the Arkansas mine.

If the court were to focus solely upon Itoba, the only
named plaintiff, it is clear that the "effects test" would not be
satisfied. It is equally clear that if ADT were the plaintiff, the

A33

"effects test" would be met, in that ADT's stock is traded on
the New York Stock Exchange and approximately fifty percent
(50%) of its shares are held in this country.

Itoba argues that ADT's attributes ought to be
considered here, under the rationale of Leasco, supra. In that
case, the named plaintiff was Leasco Data Processing
Equipment Corporation ["Leasco"}, an American corporation,
which had negotiated to purchase more than five million shares
in Maxwell's company, Pergamon Press Limited, a British
company; such stock had been purchased with cash provided
by its wholly-owned subsidiary, Leasco International N.V.
["Leasco N.V."], a Netherlands Antilles corporation, and
Leasco had unconditionally guaranteed Leasco N.V.'s financial
obligations. 468 F.2d at 1332-33. Leasco also sent a letter to
the British company indicating that Leasco “has an interest" in
the shares of stock, and that such shares “are held on behalf of
Leasco...N.V." Id, at 1338. Among defendants’ arguments
to defeat subject matter jurisdiction was that the “purchaser” of
the stock was not an American company but a Netherlands
Antilles corporation. The Second Circuit disagreed:

It seems quite arguable from all this
that Leasco N.V. is holding the shares merely
as trustee for Leasco, which has the beneficial
interest and is bound to reimburse Leasco N.V.
for the latter's expenditures. If that were so,
defendants’ contention that the true purchaser
was a foreigner would be drained of force. But
even if Leasco N.V. is the beneficial owner, it
would be elevating form over substance to hold
that this entails a conclusion that the purchases
did not have a sufficient effect in the United
States to make § 10(b) apply. Whether Leasco
N.V. is merely a financial conduit, as plaintiffs
assert, or was planned to conduct an active
business, as some of the SEC filings indicate, it
was wholly-owned and its debt securities were
guaranteed by Leasco and were convertible

A34

with Leasco common stock. We see no need to
enter into the debate whether, as defendants
contend and plaintiffs deny, Leasco obtained
substantial tax and other advantages through the
incorporation of Leasco N.V. and the use of
the latter to acquire the Pergamon shares.

Id. at 1338.

The Leasco case is distinguishable for at least three
reasons. First, and most obvious, is the simple fact that the
named plaintiff in Leasco was Leasco, an American
corporation, and not its foreign subsidiary. Second, despite the
copious filings made by both sides, no evidence was submitted
here that ADT made any unconditional guaranties of Itoba's
obligations. And third, the written contract between Leasco
and Pergamon expressly provided that “at [Leasco's] election,"
the offer to purchase could be made "by a wholly-owned
subsidiary of Leasco or a wholly-owned subsidiary of such
subsidiary," and that Leasco "shall remain responsible for the
due performance" of the obligation to acquire the shares. The
Second Circuit thus concluded: “In acceding to this provision
the defendants themselves recognized that Leasco, the United
States company, remained at all times intimately involved in the
transaction; the foreign entity was accepted by both sides as the
alter ego of the American.” Id, at 1338. In the present action,
there were no similar negotiations between Itoba/ADT and
LEP, so that LEP could be deemed to have viewed Itoba and
ADT as being interchangeable.

In light of these distinguishing factors, this court is not
willing to disregard corporate formalities and treat Itoba and
ADT as functional equivalents.

B. FORUM NON CONVENIENS

Given the conclusion reached in Section II.A. supra,

there is no need to address the issue of forum non conveniens.

A35

CONCLUSION

For the reasons stated above, defendants’ motions to
dismiss (Dkt. ##83, 86, & 87) are granted.

See 28 U.S.C. § 636(b) (written objections to ruling
must be filed within ten days after service of same); F. R.
Civ. P. 6(a), 6(e) & 72; Rule 2 of the Local Rules for United
States Magistrate Judges, United States District Court for the
District of Connecticut; Small v. Secretary, H&HS, 892 F.2d
15, 16 (2d Cir. 1989) (failure to file timely objection to
Magistrate Judge's recommended ruling may preclude
further appeal to Second Circuit).

Dated at New Haven, Connecticut, this 4th day of
February, 1994.

ls/
Joan Glazer Margolis
U.S. Magistrate Judge

A36

Section 27 of the Securities Exchange Act of 1934, 15
U.S.C. § 78aa, provides:

The district courts of the United States,
and the United States courts of any Territory or
other place, subject to the jurisdiction of the
United States shall have exclusive jurisdiction
of violations of this chapter or the rules and
regulations thereunder, and of all suits in equity
and actions at law brought to enforce any
liability or duty created by this chapter or the
rules and regulations thereunder. Any criminal
proceeding may be brought in the district
wherein any act or transaction constituting the
violation occurred. Any suit or action to
enforce any liability or duty created by this
chapter or rules and regulations thereunder, or
to enjoin any violation of such chapter or rules
and regulations, may be brought in any such
district or in the district wherein the defendant
is found or is any inhabitant or transacts
business, and process in such cases may be
served in any other district of which the
defendant is an inhabitant or wherever the
defendant may be found. Judgments and
decrees so rendered shall be subject to review
as provided in sections 1254, 1291, and 1292
of Title 28. No costs shall be assessed for or
against the Commission in any proceeding
under this chapter brought by or against it in
the Supreme Court or such other courts.

Section 10(b) of the Securities Exchange Act of 1934,
15 U.S.C. 78j(b) provides:

It shall be unlawful for any person,
directly or indirectly, by the use of any means
or instrumentality of interstate commerce or of
the mails, or of any facility of any national
securities exchange--

= = =

A37

(b) To use or employ, in
connection with the purchase or sale of any
security registered on a national securities
exchange or any security not so registered, any
manipulative or deceptive device or contrivance
in contravention of such rules and regulations
as the Commission may prescribe as necessary
Or appropriate in the public interest or for the
protection of investors.

SEC Rule 10b-5, 17 CFR 240.10b-5, adopted pursuant
to Section 10(b) of the Securities Exchange Act, provides:

It shall be unlawful for any person,
directly or indirectly, by the use of any means
or instrumentality of interstate commerce, or of
the mails, or of any facility of any national
securities exchange,

(1) to employ any device, scheme,
or artifice to defraud,

(2) to make any untrue statement
of a material fact or to omit to state a material
fact necessary in order to make the statements
made, in the light of the circumstances under
which they were made, not misleading, or

(3) to engage in any act, practice,
or course of business which operates or would
operate as a fraud or deceit upon any person, in
connection with the purchase or sale of any
security.

Section 3 of the Securities Act of 1934, 15 U.S.C.
§ 78c(a)(17) provides:

(a) When used in this chapter,
unless the context otherwise requires--

(17) The term “interstate commerce"
means trade, commerce, transportation, or
communication among the several States, or
between any foreign country and any State, or
between any State and any place or ship outside
thereof. The term also includes intrastate use
of (A) any facility of a national securities
exchange or of a telephone or other interstate
means of communication, or (B) other interstate
instrumentality.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386012_2369%3A2. Public record. Not legal advice.