Fed. Sec. L. Rep. P 96,233 Paul J. Robinson v. Leonard J. Heilman

The central issue on this appeal is whether Ernst & Ernst v. Hochfelder, 425 U.S. 185 , 96 S.Ct. 1375 , 47 L.Ed.2d 668 (1976) requires reversal of a judgment in favor of the plaintiffs in this federal securities litigation. The plaintiffs attempt to avoid the impact of Hochfelder , which came down after judgment was rendered, on two grounds: (1) defendant’s failure to except to a jury instruction which permitted the jury to impose liability for negligence prevents his raising the issue on appeal, under Rule 51 (F.R.Civ.Proc.), and (2) Hochfelder should not be applied to persons like defendant, who are direct participants in making the representations upon which a Section 10(b) — Rule 10b-5 action is based. We reject both contentions.

The three plaintiffs each owned one-third of all the issued and outstanding stock of Frey Industrial Supply Company (“Frey”). Plaintiff Robinson, who was president of Frey, was the only plaintiff who was active in the management of Frey and in the merger transactions with Nova-Tech, Inc. (“Nova”). Nova’s acquisition of Frey began in September, 1968, with a meeting between Robinson and defendant Heilman, who was president and chief executive officer…