Ackerberg v. Johnson

Court of Appeals for the Eighth Circuit
892 F.2d 1328 (1989)

ELI5:

Rule of Law:

Under Section 4(1) of the Securities Act of 1933, a seller is not an "underwriter" and is exempt from registration requirements if they did not acquire securities with a view to distribution and the resale is a private transaction to a sophisticated offeree who does not need the Act's protections. Additionally, pre-dispute agreements to arbitrate claims arising under the 1933 Act are enforceable, and a party does not waive the right to arbitrate by litigating when controlling precedent made a motion to compel arbitration futile.

Facts:

Norman J. Ackerberg was a sophisticated investor with a net worth exceeding $1,000,000 and significant experience in financial matters.
Clark E. Johnson, Jr. was the chairman, a founder, and the largest individual stockholder of Vertimag Systems Corporation, having acquired his shares in 1979 or 1980.
In late 1983, Ackerberg became interested in investing in a private placement by Vertimag and was given a 99-page private placement memorandum containing detailed information about the company.
In March 1984, Ackerberg purchased 16,500 unregistered shares of Vertimag stock for $99,000, acquiring 12,500 shares directly from Johnson.
Prior to the purchase, Ackerberg signed a subscription agreement representing that he had access to complete information, could bear the economic risk of the investment, and understood the shares were unregistered and not readily transferable.

Procedural Posture:

Norman J. Ackerberg filed a nine-count complaint against Clark E. Johnson, Jr., Piper, Jaffray & Hopwood, Inc. (PJH), and several PJH employees in U.S. District Court.
The district court ordered Ackerberg's claims against the PJH defendants under the 1934 Act, RICO, and state law to arbitration.
The district court denied Johnson's motion to dismiss the Securities Act of 1933 claims, finding he had not proven entitlement to an exemption.
The district court denied the PJH defendants' motion to compel arbitration of the 1933 Act claims, relying on the then-controlling precedent of Wilko v. Swan.
The district court granted summary judgment for Ackerberg on his Section 12(1) claim against all defendants.
Johnson and the PJH defendants appealed the summary judgment order and the denial of arbitration to the U.S. Court of Appeals for the Eighth Circuit.

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Issue:

Does the Securities Act of 1933 exempt from registration a private resale of restricted securities by a company affiliate to a sophisticated investor, and are claims arising under the Act subject to a pre-dispute compulsory arbitration agreement?

Opinions:

Majority - Judge Beam

Yes, such a transaction is exempt and such claims are arbitrable. First, the court held that defendant Clark Johnson's sale to Ackerberg was exempt from registration under Section 4(1) of the 1933 Act. This exemption applies to transactions by any person other than an issuer, underwriter, or dealer. Johnson was not an issuer or dealer. He was also not an 'underwriter' because he did not purchase the securities 'with a view to distribution' nor sell them 'in connection with a distribution.' Johnson held the securities for four years, negating any intent to distribute. Furthermore, 'distribution' is synonymous with 'public offering.' Citing SEC v. Ralston Purina, the court found there was no public offering because the sale was to Ackerberg, a sophisticated investor who could 'fend for himself' and did not need the protections of the Act. Second, the court held that the 1933 Act claims against the PJH defendants were arbitrable. The Supreme Court’s decision in Rodriguez De Quijas v. Shearson/American Express, Inc. expressly overruled Wilko v. Swan, which had previously barred arbitration of 1933 Act claims. The court also found the PJH defendants had not waived their right to arbitrate by litigating because any earlier motion to compel would have been futile under Wilko. They timely filed their motion after a change in the law made it viable.

Analysis:

This decision is significant for its clear application of the so-called 'Section 4(1½)' exemption for private resales of restricted securities. It affirms that the analysis hinges on whether the transaction constitutes a 'distribution' by examining the sophistication and access to information of the offeree, following the 'Ralston Purina' standard. This provides crucial guidance for affiliates and holders of restricted stock seeking liquidity without registration. The ruling on arbitration confirms the sea change in securities litigation after 'Rodriguez De Quijas,' solidifying the enforceability of arbitration clauses for 1933 Act claims and limiting the circumstances under which waiver can be found when there is an intervening change in the law.

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