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Cert Memo - IHBB 1969 Term Timely VANDERBOOW V CITY NAT'L...

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Unformatted text preview: IHBB 1969 Term Timely VANDERBOOW V. CITY NAT'L BANK BF FORT SMITH, ARK. Cert. to 8 Cir. (Mehaffy, Gibson, Heaney)(per curiam) (Miller). This was a suit by the bank on notes of the respective petrs, a group of South Dakota investors. The petrs lnxnknxntain counterclaimed alleging common law fraud and violations of SEC rule 10(b)(5). Judge Miller entered a summary judgment for the ba1k. The petrs had invested in Investors Thrift Corporation (iTC) which was created to provide financing for Markham Homes, Inc., a shell home business formed by Maurice Markham. Markham Homes nu took the voting stock of iTC and petrs, the non-voting stock. iTC entered an 333 option agreement to purchase American Home Builders, Inc. (AHB) which controlled 3 construction companies and Peoples Loan and Investment (PLfiI). The petrs received loans from the bank to carry out this purchase. Allegedly James Hall, one of the owners of AHB and also a vice-president of the bank made representations as to the financial soundness of both AHB and PL&I. It turned out that AHB was insolvent. Petrs alleged that the failure of the bank to warn them of the condition of these companies violated Rule lOb-S.endxxnnxeflxth The Eighth Circuit held that petrs lacked standing to sue since they were not themselves purchasers of AHB, but rather only some of the shareholders of the purchaser, iTC. Further the court held that the bank's alleged misrepresentations were not "in connection with the purchase or sale of any security" and hence could not be violative of ti Rule lOb-S. The court held that the alleged misrepresentation Was not "in connection with the purchase or sale of any security“, since a reasonable investor in these circumstances would not have relied upon it. The ocurt upheld dismissal of the Jurisdictionaily pendent common law fraud claim. Petition: It is argued that the caurt erred in finding that a reasonable investor would not have been misled without remanfling to the district court for development of facts. Also it is argued that dismissal of the jurisdictionally pendente common law claim was erroneous. theuxsinnx Response: It is argued that the court below acted properly. 1 don’t think it is necessary to go man into more detail. Discussion: The Court has not as yet granted cert in a case involving the right If to bring a private action for damages under Rule iOb-S. Because of the standing questions aid the doubtfuiness of the petrs' lax: claims, I think that this would be a poor case to choose. DEny. x3 [-3 6 5:” xi» :5”- ‘i “‘7- :6 5' DEE 6/12/1970 ...
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