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06/21/83 GARY WELSH AND MARK WELSH v. DEAN WITTER

June 21, 1983

GARY WELSH AND MARK WELSH, RESPONDENTS,
v.
DEAN WITTER REYNOLDS ORGANIZATION, INC. AND THOMAS W. CARPENTER, APPELLANTS. CONSOLIDATED WITH: STATE OF MISSOURI EX REL. DEAN WITTER REYNOLDS, INC. AND THOMAS W. CARPENTER, RELATOR,
v.
HONORABLE WILLIAM J. PETERS, JUDGE, DIVISION SIXTEEN, SIXTEENTH JUDICIAL CIRCUIT, RESPONDENT.



From the Circuit Court of Jackson County As to No. WD34266; Original Proceeding in Prohibition As to No. WD34302. Civil Appeal Judge William J. Peters.

Motion for Rehearing Overruled, Transfer Denied August 30, 1983.

Before Nugent, P.j., Shangler, Dixon, JJ.

The opinion of the court was delivered by: Dixon

These consolidated cases involve the defendants' appeal from a trial court ruling denying defendants' motion for compulsory arbitration under § 435.350 RSMo 1980, and consideration of the propriety of our issuance of the preliminary writ of prohibition prohibiting the trial court's order to defendants to provide discovery. The trial court's order denying arbitration is affirmed and the preliminary writ as modified is made absolute.

Shorn of the irrelevancies engrafted on the issue by the defendant the action of the trial court in denying arbitration is a simple one. If the plaintiffs' petition states a cause of action under the Securities Act of 1933, 15 U.S.C. Ch. 2A, the doctrine of Wilko v. Swan, 346 U.S. 427, 98 L.Ed. 168, 168 (1953), prohibits arbitration.

15 U.S.C. § 77v vests jurisdiction over litigation involving the Securities Act of 1933 in both the federal and state courts. 15 U.S.C. § 77 l creates a private cause of action for the violation of the provisions of that section. For the purpose of this case the relevant portion of that statute reads:

§ 77 l.

Any person who-

(2) offers or sells a security . . . by means of a prospectus or oral communication, which includes an untre statement of a material fact or omits to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading. . . .

shall be liable to the person purchasing such security from him, who may sue either at law or in equity in any court of competent jurisdiction, to recover the consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security, or for damages if he no longer owns the security.

The portion of the quoted language concerning the omission of material facts has been construed to include the failure to advise a purchaser of the "position" of the broker in the securities offered or sold. Chasins v. Smith Barney & Co., 438 F.2d 1167 (2d Cir. 1970). There is no necessity for extensive analysis and construction of the statutes on the basis of the allegations of the petition. Attempts at such construction and analysis are only theoretical exercises until the facts are fully developed. Engleman v. City of Dearborn, 544 S.W.2d 265, 268 (Mo. App. 1976). The test of pleadings in the posture of this or any other case in which inquiry focuses upon the cause of action stated is to determine if the pleadings, liberally construed and given reasonable intendment, invoke principles of substantive law entitling the pleader to relief. Crain v. Mo. State Employees Retirement System, 613 S.W.2d 912 (Mo. App. 1981).

The petition in this case pleads that the defendant sold or offered to sell securities of Storage Technology, Inc., in violation of federal law. The petition further pleads the Securities Act of 1933, 15 U.S.C. Ch. 2A, and asserts among the violations of that act that the laws and regulations were violated in connection with the information to be imparted to customers concerning the position of the broker in connection with a particular stock. This sufficiently pleads a cause of action under 15 U.S.C. § 77 l to withstand a motion to dismiss. The petition stated a cause of action under the Securities Act of 1933, the doctrine of Wilko v. Swan applies, and the trial court properly denied the motion for arbitration.

When the nature of the plaintiffs' cause of action is understood, the resolution of the issues posed by the writ of prohibition are likewise easily resolved. Our writ issued on the petition for writ, which asserted the burden to the defendants of the broad scope of the discovery ordered and a claim that some of the discovery impinged upon the attorney-client privilege.

The principal dispute concerning the discovery relates to the plaintiffs' request for disclosure of the defendant Dean Witter's records of the purchase and sale of the stock and options for stock of Storage Technology, Inc. When the objections were originally asserted, the objection simply asserted that the documents were "irrelevant" and that the request was "unduly burdensome, oppressive, and expensive." The court ordered discovery on October 20, 1982. Dean Witter on November 3rd filed a motion for reconsideration and attached employees' affidavits as to the extent of the records and the cost to effect discovery. This motion also raised for the first time the issue of ...


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