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Keywords

plaintiffdefendantappealtrialcorporation

plaintiffdefendantliabilitystatuteappealtrialcorporation

Related Cases

Kerbs v. Fall River Industries, Inc., 502 F.2d 731, Fed. Sec. L. Rep. P 94,788

Facts

The plaintiff, Jack L. Kerbs, was induced by defendants Glen Dial and Marlin Thompson to enter into a loan agreement using a stock certificate from Fall River Industries as collateral. The stock certificate turned out to be forged, and the defendants misrepresented its validity. Kerbs lost $6,200 as a result of this fraudulent scheme, which involved communications and actions by the defendants that constituted a violation of securities laws.

The complaint included the following allegations: that one Dial and Thompson met with plaintiff on two occasions during the latter months of 1971 and early months of 1972, and that at said meetings they induced plaintiff to enter into an agreement whereby plaintiff would obtain a loan from the Utah State Employee's Credit Union in the amount of $10,000.

Issue

Did the defendants engage in fraudulent conduct in violation of Section 10 of the Securities Exchange Act of 1934 and Rule 10b-5, and can the corporation be held liable for the actions of its president?

Defendants appeal contending (a) that the evidence adduced at trial was insufficient to support the trial court's findings of fact, and (b) that such evidence, in any event, failed to establish any of the elements required to make out a case under Section 10 and Rule 10b-5.

Rule

Under Section 10(b) of the Securities Exchange Act and Rule 10b-5, it is unlawful to use any manipulative or deceptive device in connection with the purchase or sale of any security, and a principal can be held liable for the fraudulent acts of its agent if the agent was acting within the scope of their authority.

It is now well established that a violation of the provisions of § 10(b) gives rise to a private cause of action.

Analysis

The court found sufficient evidence to support the trial court's findings that Thompson and Fall River Industries participated in the fraudulent scheme. The court noted that Thompson's presence and actions during the meetings with Kerbs indicated his complicity in the fraud, and that the corporation could be held liable for Thompson's actions as he was acting within the scope of his authority as president.

The totality of facts and circumstances herein indicates, as the trial court found, that Thompson was a knowing participant in the fraudulent scheme against Kerbs; such participation constitutes conduct proscribed by § 10 and Rule 10b— 5, and as such, is sufficient to establish liability under the statute and the rule.

Conclusion

The Court of Appeals affirmed the judgment against Thompson and Fall River Industries for their participation in the fraud, while reversing the judgment against Securities Transfer due to lack of evidence linking them to the fraudulent scheme.

Accordingly, we hold that Fall River Industries is liable to plaintiff because Thompson, its president, acting within the scope of his apparent authority as principal officer and agent of the corporation, engaged in conduct which violated the provisions of § 10 of the Act and Rule 10b— 5.

Who won?

Jack L. Kerbs prevailed against Marlin H. Thompson and Fall River Industries, as the court found them liable for their fraudulent actions in connection with the sale of the forged stock certificate.

The trial court concluded that all of the defendants, and each of them, engaged in acts which operated as a fraud or deceit upon plaintiff in connection with the purchase or sale of a security.

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