Yesterday, I wrote about the Ninth Circuit’s recent decision allowing a plaintiff to amend his complaint to plead that a subsequent event (the filing of a registration statement) had caused his loss as a result of an exchange of shares in a merger that he had previously agreed to support. Hildes v. Arthur Andersen LLP, 2013 U.S. App. LEXIS 17177 (9th Cir., Aug. 9, 2013). This caused me to imagine the following dialogue:
Ajax: A sale of securities occurs when I agree to sell my shares, correct?
Odysseus No, you need to more than that.
Ajax: Why? Section 2(a)(3) of the Securities Act is quite clear.
Odysseus: Really, how so?
Ajax: It says “The term ‘sale’ shall include every contract of sale . . .”; Section 25017(a) of the California Corporations Code says the same thing.
Odysseus: Mighty Ajax, were you asleep when they covered SEC v. National Student Marketing Corp., [457 F. Supp. 682 (D. D.C. 1978)] in law school?
Ajax: I thought that case was about whether the SEC could get an injunction.
Odysseus: It was, but Judge Parker focused on whether the parties were irrevocably committed.
Ajax: You are a man of many twists and turns - so, an agreement to sell is a sale after all?
Odysseus: No, Judge Parker said there must be an irrevocable commitment.
Ajax: If I sign an agreement to vote for a merger and an irrevocable proxy, isn’t that a sufficient commitment?
Odysseus: Not according to the Ninth Circuit Court of Appeals, your commitment could still be contingent upon a number of conditions such approval of the merger by the other shareholders. [Hildes]
Ajax: What does that mean?
Odysseus: If the issuer lies in a registration statement to the other shareholders to win their approval, you could state a claim under the Securities Act.
Ajax: Even though I made my decision before the issuer lied?
Odysseus: According to the Ninth Circuit, you can state a claim because the issuer’s misstatements to the other shareholders caused your loss by allowing a condition to the merger to be fulfilled.
Ajax: I’m confused!
Odysseus: I’m out of here.
Ajax: Have a good trip home, give my regards to Penelope, and don’t forget your oar.
Odysseus: Don’t you forget your sword!