Plaintiffs sued an individual defendant in whose company they had invested, alleging violations of the Securities Exchange Act of 1934, breach of the investment contract, and common law fraud based upon defendant’s failure to disclose ongoing litigation at the time plaintiffs purchased their stock from the defendant for $1,050,000. Following trial, the jury returned a verdict in plaintiffs’ favor on the breach of contract claim but against plaintiffs on their securities fraud and common law fraud claims. Further, on the contract claim the jury awarded no damages to plaintiffs but did find that plaintiffs were entitled to rescind their stock purchase agreement with the defendant.  

Both parties moved to overturn the verdict, with the defendant arguing that the jury’s finding of no damages suggested that the jury did not find a breach of contract and the plaintiffs arguing that the court should “harmonize” the rescission component of the verdict by ordering the defendant to return the $1,050,000 stock purchase price to plaintiffs.  

The court rejected the motions. After reviewing the evidence relating to the fraud claim, the court found that despite plaintiffs’ testimony that had they known of the ongoing litigation they would not have made the decision to invest, other evidence suggested that plaintiffs did know of the litigation prior to investing. Based upon this evidence the court found that the jury could have both reasonably rejected plaintiffs’ fraud claims and, while finding a technical breach of contract, declined to award any damages for the breach.  

Turning to the jury’s rescission award, after labeling rescission an “equitable remedy,” the court stated that it would treat the verdict on rescission as advisory. The court ruled that rescission of the stock purchase agreement would only be warranted if the plaintiffs had been defrauded and had made a prompt demand for rescission upon discovering the fraud. However, because the jury rejected the fraud claim, the court held that there was no basis upon which it could order rescission, stating that “without proof of an underlying harm [i.e., fraud], the jury’s advice on a [rescission] remedy is immaterial.” (Stafford Investments, LLC v. Vito, 2009 WL 1362513 (E.D. Pa. May 14, 2009))