Gould v. Ruefenacht

RESPONDENT: Ruefenacht
LOCATION: We’ll Do Club

DOCKET NO.: 84-165
DECIDED BY: Burger Court (1981-1986)
LOWER COURT: United States Court of Appeals for the Third Circuit

CITATION: 471 US 701 (1985)
ARGUED: Mar 26, 1985
DECIDED: May 28, 1985

Daniel L. Goelzer - on behalf of the SEC as amicus curiae in support of respondents
Peter Steven Pearlman - on behalf of the respondents
Robert C. Epstein - on behalf of the petitioner

Facts of the case


Media for Gould v. Ruefenacht

Audio Transcription for Oral Argument - March 26, 1985 in Gould v. Ruefenacht

Warren E. Burger:

We will hear arguments next in Gould against Ruefenacht.

Mr. Epstein, you may proceed whenever you are ready.

Robert C. Epstein:

Thank you, Mr. Chief Justice, and may it please the Court, it is our contention that Mr. Ruefenacht's right to veto every major company decision is joint management of the Continental business in which he repeatedly referred to himself as a partner and the fact that this was an entirely private transaction unique between two individuals which in no sense involved a public capital market, that these collective factors require the conclusion that in substance this was the purchase of a one-half interest in a business, and that the transfer of stock was merely incidental to the transaction.

We submit that the federal securities laws were never meant to cover this kind of a transaction, and that Mr. Ruefenacht's claims of fraud belong in state court.

As authority for our position, Your Honors, we rely fundamentally upon the legislative history of the federal securities laws.

Now, it is true, as was pointed out this morning, that the legislative history does not specifically address the sale of business situation, and indeed both factions in the current judicial debate acknowledge that Congress never specifically considered the sale of business question.

However, the legislative history is replete with an unmistakeable Congressional emphasis upon the goals that the securities laws do seek to achieve.

Those goals, reaffirmed in the legislative history as recently as 1982, and as expressed by this Court in Forman fundamentally were to protect the integrity of public capital markets and to protect investors dealing in those markets.

Now, the legislative history also indicates that these goals emerged from a Congressional recognition that the dispersion of corporate ownership had led to abuses in the capital markets where people who ran corporations were taking advantage of people who owned corporations.

Most importantly, Your Honors, it was recognized by Congress that the effects of such abuses transcend the individual's loss, but rather chill investment and capital formation generally.

It was also recognized by Congress that such abuses could be perpetrated because the owners of corporations did not have managerial control over the operations of those corporations.

The owners held the symbols of ownership but had no ability effectively to influence the destiny of their investment or to influence the operations or the profitability of the corporation.

There is nothing, not one word in the legislative history about protecting someone like Mr. Max Ruefenacht, who engaged in a purely private transaction, unique, as I said, between two individuals which indeed involved stock which could not have been publicly traded because it did not have a common or equivalent value to most people.

Byron R. White:

Well, this argument would lead to just saying that there isn't any private sale of stock that was reached by the securities law.

Robert C. Epstein:

No, Your Honor, that is not our position.

Byron R. White:

Well, it sounds like it so far.

Robert C. Epstein:

Well, it is not our position--

Byron R. White:

A purely private transaction?

Robert C. Epstein:

--We are a purely private transaction.

Byron R. White:

Well, so are thousands of others that are covered, I suppose.

Robert C. Epstein:

Well, that may be so, Your Honor.

May I point out that where the context is a public context involving either an organized exchange or a public solicitation, such as was involved in Howey and other cases, in our view, that goes so much to the heart of what Congress was talking about when it passed the securities laws that there ought to be coverage.

Where you are dealing, however, in an entirely private context, the inquiry has to be a little deeper.

That is not to say that private transactions will necessarily not be covered, but the inquiry is into the economic realities of those transactions.

And if I may at this point, in further answer to your question, Your Honor--

Byron R. White:

Well, if I just buy some shares of General Motors from some other person and he misrepresents, is that exempt from the securities laws?

Robert C. Epstein:

--I don't believe so, Your Honor, because--

Byron R. White:

I can't imagine anything more private.

Robert C. Epstein:

--Well, except for the fact, Your Honor, that there is an important public element there, and that public element is--

Byron R. White:

Well, what if the stock isn't registered?