Fed. Sec. L. Rep. P 93,947 Dean Walling v. Beverly Enterprises, a California Corporation

Appellants (West Texas Shareholders), owners of all the shares of West Texas Medical Center, Inc. (West Texas), a Texas corporation, brought this action against Beverly Enterprises (Beverly), a California corporation, for alleged violations of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 781 (b), and SEC Rule 10b-5, 17 C.F.R. § 240 .10b-5, and for breach of contract. Federal jurisdiction is based solely on the securities law violations.

The district court held that West Texas Shareholders had failed to state a claim for relief under federal securities law and therefore dismissed the action for lack of subject matter jurisdiction. The validity of this ruling is the sole issue presented on appeal. We reverse.

The federal securities claim asserted by West Texas Shareholders arose from an agreement dated August 26, 1969, between Beverly and West Texas Shareholders, for an exchange of all of the common stock of West Texas for common stock of Beverly. The total value of the Beverly stock consideration, $2,700,000, was payable in one down payment and three annual installments. Each of the four payments was to have a fixed value of $675,000 and the number of shares…