Appeal from the grant of summary judgment by the United States District Court for the Southern District of New York, Sofaer, J., in favor of all defendants on section 11 of the Securities Act of 1933 claims and in favor of issuer of the securities on section 12 claim. Also appeal from court's refusal to certify a defendant class and cross-appeal from denial of underwriters' summary judgment motion on section 12(2) claims. The court issued a Fed. R. Civ. P. 54(b) certificate as to issues determined in defendants' motion for summary judgment. Held: class certification appeal and the underwriters' section 12(c) appeal dismissed for lack of appellate jurisdiction. Judgment on plaintiffs' section 11 and section 12(2) claims affirmed. Remanded for further proceedings.
Before: VAN GRAAFEILAND, MESKILL and NEWMAN, Circuit Judges.
Plaintiffs Morris and Susan Akerman and Dr. Lawrence Kuhn appeal from an order of the United States District Court for the Southern District of New York, Sofaer, J., granting summary judgment disposing of their claims under section 11 of the Securities Act of 1933 (Act) against defendants Oryx Communications, Inc. ("Oryx" or "issuer"), Moore & Schley, Cameron & Co., Robertson Securities Corp. and Laidlaw, Adams & Peck (underwriters), and disposing of their claims under section 12(2) of the Act as against the issuer. The Akermans also appeal from the district court's refusal to certify a defendant class of underwriters with respect to the remaining section 12(2) claims. The underwriters cross-appeal from the district court's denial of their motion for summary judgment against the Akerman's section 12(2) claims. The district court directed the entry of a final judgment and issued a Fed. R. Civ. P. 54(b) certificate as to the claims determined on defendants' motions for summary judgment.
We affirm the judgment on the plaintiffs' section 11 and section 12(2) claims and dismiss the plaintiffs' class certification and the underwriters section 12(2) appeals for lack of appellate jurisdiction and remand to the district court for further proceedings.
This case arises out of a June 30, 1981, initial public offering of securities by Oryx, a company planning to enter the business of manufacturing and marketing abroad video cassettes and video discs of feature films for home entertainment. Oryx filed a registration statement and an accompanying prospectus dated June 30, 1981, with the Securities and Exchange Commission (SEC) for a firm commitment offering of 700,000 units. Each unit sold for $4.75 and consisted of one share of common stock and one warrant to purchase an additional share of stock for $5.75 at a later date.
The prospectus contained an erroneous pro forma unaudited financial statement relating to the eight month period ending March 31, 1981. It reported net sales of $931,301, net income of $211,815, and earnings of seven cents per share. Oryx, however, had incorrectly posted a substantial transaction by its subsidiary to March instead of April when Oryx actually received the subject sale's revenues. The prospectus, therefore, overstated earnings for the eight month period. Net sales in that period actually totaled $766,301, net income $94,529, and earnings per share three cents.
Oryx's price had declined to four dollars per unit by October 12, 1981, the day before Oryx revealed the prospectus misstatement to the SEC. J. App. at 154. The unit price had further declined to $3.25 by November 9, 1981, the day before Oryx disclosed the misstatement to the public. J. App. at 140. After public disclosure, the price of Oryx rose and reached $3.50 by November 25, 1981, the day this suit commenced. J. App. at 140.
Plaintiffs allege that the prospectus error rendered Oryx liable for the stock price decline pursuant to sections 11 and 12(2) of the Securities Act of 1933. In July 1982, Oryx moved for summary judgment on the grounds, inter alia, that the misstatement was not material for purposes of establishing liability under section 11 and that the misstatement had not actually caused the price decline for purposes of damages under section 11. Oryx also moved for summary judgment on the section 12(2) claims, again arguing that the error was immaterial and also that plaintiffs lacked "privity," as required under section 12(2), to maintain a suit against Oryx as an issuer because the offering was made pursuant to a "firm commitment underwriting." In December 1982, plaintiffs brought the underwriters into the suit. The underwriters subsequently moved for summary judgment, making substantially the same arguments as had Oryx.
The district court held that the plaintiffs had established materiality "as a theoretical matter" for purposes of establishing liability under sections 11(a) and 12(2). Akerman v. Oryx Communications, Inc., 609 F. Supp. 363, 366-68 (S.D.N.Y. 1984). The court, however, granted summary judgment to all of the defendants with respect to section 11 because defendants had established that the prospectus error did not actually result in any part of the stock price decline and they thereby prevailed pursuant to the affirmative defense set out in that section. Id. at 372.
The district court also granted summary judgment to Oryx with respect to section 12(2), holding that plaintiffs lacked the privity required to maintain an action against Oryx as the issuer, not the immediate seller of the securities in question. Having ruled that the prospectus error was material, however, the court permitted the Akermans to proceed against their immediate sellers (the underwriters) under section 12(2). Id. at 374. Finally, the district court denied the Akermans' request to certify a defendant class of underwriters under this section because the Akermans had failed to demonstrate the requisite privity with respect to each defendant. Id. at 376.
Denial of summary judgment does not constitute a disposition on the merits; the dispute remains to be resolved at trial. See Pacific Union Conference of Seventh-Day Adventists v. Marshall, 434 U.S. 1305, 1306, 54 L. Ed. 2d 17, 98 S. Ct. 2 (1977) (denial of summary judgment not final judgment); Meyer v. Stern, 599 F. Supp. 295, 296-97 (D. Colo. 1984) (same). Rule 54(b) "does not relax the finality required of each decision . . . to render it appealable." Sears, Roebuck & Co. v. Mackey, 351 U.S. 427, 435, 100 L. Ed. 1297, 76 S. Ct. 895 (1956). See 10 Wright, Miller & Kane, Federal Practice and Procedure: Civil 2d § 2656, at 50 (1983) (certification under Rule 54(b) requires finality). Therefore, even though the district court certified for immediate appeal, pursuant to Fed. R. Civ. P. 54(b), "the issues ...