Plaintiff, the minority shareholder of a privately owned corporation, sued the majority shareholder and the corporation alleging violations of federal and state law claims in connection with a Buy-Sell Agreement (the Agreement) through which he obtained the right to sell his stock to the corporation at a fair market value price and his sale of such stock.
Defendants moved to dismiss plaintiff’s cause of action under section 12(2) of the Securities Act of 1933, alleging that the majority shareholder concealed material information about the value of the corporation in the Agreement. After ruling that Section 12(2) imposes liability based upon misstatements contained in a prospectus, the Court dismissed the claim, ruling that the Agreement was not a “prospectus” under Section 12(2) because it did not “solicit the public to acquire securities.”
The Court also dismissed the plaintiff’s claim under section 10(b) of the Securities Exchange Act of 1934, which was based upon, among other things, plaintiff’s allegation that the majority shareholder had no intention of honoring certain terms of the Agreement when he entered into it and that the defendants “dissuaded” him from reviewing corporate records and from engaging an independent appraiser. The Court ruled that plaintiff failed to allege with particularity facts satisfying the scienter element of his claim and which met the requirements of the Private Securities Litigation Reform Act . Further, the Court found that the complaint failed to sufficiently allege the specific information that defendants had allegedly concealed and why such information was material. (Willer v. Civil Contractors & Engineers Inc., 2007 WL 3232493 (N.D.Ill. Oct. 30, 2007))