Fed. Sec. L. Rep. P 95,605 Joe Ohashi, and v. Verit Industries, a Corporation, And

536 F.2d 849 Fed. Sec. L. Rep. P 95,605 Joe OHASHI, Plaintiff and Appellant, v. VERIT INDUSTRIES, a corporation, et al., Defendants and Appellees. No. 74-2027. United States Court of Appeals, Ninth Circuit. May 25, 1976. Ralph R. Scott (argued), Los Angeles, Cal., for appellant. Thomas M. Norminton (argued), Beverly Hills, Cal., for appellee. OPINION Before BARNES and HUFSTEDLER, Circuit Judges, and SKOPIL, * District Judge. HUFSTEDLER, Circuit Judge: 1 Ohashi appeals from the dismissal of his damage claims for failure to state a claim for relief under the federal securities laws (Securities Exchange Act of 1934, § 10(b), 15 U.S.C. § 78j(b), and SEC Rule 10b-5, 17 C.F.R. § 240 .10b-5) and for want of jurisdiction of the common law tort claims. The defendants are Verit Industries, a corporation ("Verit"); three of its directors and officers, Hagopian, Clabaugh, and Cobb; United States Stock Transfer Corporation ("Stock Transfer") and its president, Marshall. 2 The district court held that the Birnbaum rule (Birnbaum v. Newport Steel Corp. (2d Cir. 1952) 193 F.2d 461 ) barred relief under Section 10(b) and Rule 10b-5; with the demise of the federal claim, the pendent…

Ohashi appeals from the dismissal of his damage claims for failure to state a claim for relief under the federal securities laws (Securities Exchange Act of 1934, § 10(b), 15 U.S.C. § 78j(b), and SEC Rule 10b-5, 17 C.F.R. § 240 .10b-5) and for want of jurisdiction of the common law tort claims. The defendants are Verit Industries, a corporation (“Verit”); three of its directors and officers, Hagopian, Clabaugh, and Cobb; United States Stock Transfer Corporation (“Stock Transfer”) and its president, Marshall.

The district court held that the Birnbaum rule (Birnbaum v. Newport Steel Corp. (2d Cir. 1952) 193 F.2d 461 ) barred relief under Section 10(b) and Rule 10b-5; with the demise of the federal claim, the pendent state claims were also dismissed.

We agree with the district court’s disposition of all theories of federal securities relief, save one: Verit’s fraud was alleged to have impaired the consideration for the exchange of securities after the securities had been transferred to Ohashi, but while the contract was still executory. That alleged fraud was “in. connection with the purchase or sale of any securities” within the meaning of Section 10(b) and Rule 10b-5.…

(dissenting):

I must respectfully dissent.

The existence of a contractual relationship is crucial to plaintiff’s federal cause of action. As the majority recognizes, its decision is correct only if the 1968 exchange contract was still executory when the alleged fraud occurred. Clearly, an express agreement by Verit to remove the stock transfer restrictions would have rendered *855 the contract executory. But the contract contained no such agreement. The express terms of the contract had already been fully performed when the alleged fraud occurred. Even acknowledging that every contract contains an implied covenant of good faith and fair dealing, I do not believe that any implied duty sufficient to make the contract executory exists under the facts of this case.

I would affirm the decision of the district court.