Thursday, November 21, 2013

Brown v. Ivie case brief

Brown v. Ivie case brief summary
661 F.2d 62 (1981)


CASE SYNOPSIS
Plaintiff shareholder and officer sought review of the decision of the United States District Court for the Northern District of Georgia, which dismissed plaintiff's suit against defendant officers alleging various violations of securities laws including § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C.S. § 78j(b), and Rule 10-b5, 17 C.F.R. § 240.10b-5.

CASE FACTS

  • Plaintiff officer and shareholder filed suit against defendant officers, alleging violations of federal securities laws, including Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C.S. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5. 
  • Plaintiff was a one-third shareholder in a closed corporation, with which he was employed, and defendants owned the remaining shares. 
  • Plaintiff alleged that an agreement requiring shareholders who were no longer employed with the corporation to sell their stock back to the corporation at book value was invalid and that defendants fraudulently induced plaintiff into entering into another agreement with similar provisions in order to obtain his stock at book value and to oust plaintiff from the corporation. 
  • The district court dismissed the suit, finding that the alleged fraud had not been made "in connection with" the sale of a security as required by Rule 10b-5 and that the suit involved a corporate dispute which was not cognizable as a federal securities violation. 

DISCUSSION
On review, the court reversed, holding that the complaint alleged a direct connection between the fraud and the sale of securities, which was within the scope of Rule 10b-5.

CONCLUSION
The appellate court reversed the order dismissing plaintiff shareholder and officer's suit, which alleged that defendant officers fraudulently induced him into signing a contract to sell his stock. Plaintiff's complaint properly alleged fraud in connection with the sale of securities in violation of the federal securities law, including the Securities Exchange Act of 1934.

Recommended Supplements for Corporations and Business Associations Law

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