BROWN V. IVIE 661 F.2d 62 (5th Cir. 1981) CASE BRIEF

BROWN V. IVIE

661 F.2d 62 (5th Cir. 1981)

NATURE OF THE CASE: Brown (P) appealed the dismissal of P's securities fraud action for failure to state a cause of action.

FACTS: P, Ivie (D) and Lightsey (D) were each an officer, a director and a one-third shareholder in United Power Distributors, Inc. They entered into a 'buy-sell agreement' that required shareholders no longer employed with the corporation to sell their stock back to the corporation at book value. With the purchase price at book value, the agreement insured that a shareholder would receive less than fair market value for the stock. Ds decided to oust P and force him to sell his stock but realized the original buyback agreement was unenforceable. Ds then drafted a new agreement that required shareholders leaving the corporation to sell their shares back to the corporation at book value and to surrender possession of the stock certificates to a trustee. Ds happened to forget to tell P that they intended to oust him from the corporation and would be using the new agreement to obtain his stock at less than fair value. P signed and seven days later Ds terminated his employment and P was removed as officer and director. P refused to sell his stock and sued alleging a violation of Section 10(b) and Rule 10b-5 by fraudulently inducing him to enter into the new agreement. The court dismissed P's suit, concluding that the alleged fraud had not been made 'in connection with' the sale of a security as required by Rule 10b-5 and, alternatively, that the facts alleged by P involved an internal corporate dispute of the type not properly cognizable as a federal securities violation. P appealed.

ISSUE:

RULE OF LAW:

HOLDING AND DECISION:

LEGAL ANALYSIS:

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