DocketNumber： 129, 130, Dockets 79-7364, 7380
Judges： Meskill, Kearse, Dooling
Filed Date： 4/21/1980
Status： Precedential
Modified Date： 10/18/2024
Marbury Management, Inc., (“Marbury”) and Harry Bader sued Alfred Kohn and Wood, Walker & Co., the brokerage house that employed Kohn, for losses incurred on securities purchased through Wood, Walker allegedly on the faith of Kohn’s representations that he was a “lawfully licensed registered representative,” authorized to transact buy and sell orders on behalf of Wood, Walker.
Judge Gagliardi reasoned: a trainee at a brokerage firm can accept buy or sell orders by phone only under the supervision of a broker and cannot recommend the purchase of a security outside the brokerage office; moreover, the qualifications and expertise of a security salesman are particularly significant criteria in evaluating any information as inherently speculative as future earnings predictions; and a reasonable investor would consider the total mix of information that he received significantly altered if he learned that the investment advice was being furnished to him by a trainee in the field rather than by a specialist. Judge Gagliardi concluded that the important circumstance was that the terms “broker” and “specialist” themselves connote a level of competence to the reasonable investor. Thus, he held Kohn liable to plaintiffs under § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b). Inferentially Judge Gagliardi found that Kohn’s misstatements of his status not only induced the purchase of the securities involved but their retention as investments as well, until it became evident that Kohn was not, as his business card asserted, a “security analyst” and “portfolio management specialist” associated with Wood, Walker, but simply a trainee. Since both plaintiffs learned the true facts about Kohn’s status on about January 28, 1970, Judge Gagliardi computed the damage award to each plaintiff by taking the difference between the price each plaintiff paid for the securities and either the selling price of the securities, if sold before January 28, 1970, or the value within a reasonable time after that date, if the securities were still held on that date.
Judge Gagliardi dismissed the plaintiffs’ claims against Wood, Walker on the ground of plaintiffs’ failure to prove that Wood, Walker participated in the fraudulent manipulation or intended to deceive plaintiffs; treating plaintiffs as basing their claims against Wood, Walker solely on the theory that the firm aided and abetted Kohn’s fraud, the court found that the evidence supported neither a finding of conscious wrongful participation by the firm nor a legally equivalent recklessness but at best a finding of negligence in supervision.
Judge Gagliardi’s findings of fact are not clearly erroneous. The cross-appeals of defendant-appellant Kohn from the judgment against him and of plaintiffs-appellants from the judgment exonerating Wood, Walker from liability raise questions of law that are hardly novel but are not free from difficulty in application. It is concluded that the judgment against appellant Kohn must be affirmed and that in favor of Wood, Walker reversed.
Here the claim and finding are that Kohn’s statements by their nature induced both the purchase and the retention of the securities, the expertise implicit in Kohn’s supposed status overcoming plaintiffs’ misgivings prompted by the market behavior of the securities.
As Judge Weinfeld observed in Miller v. Schweickart, 413 F.Supp. 1062, 1067 (S.D.N.Y.1970):
Proximate cause, of course, is a concept borrowed from the law of torts, and generally requires that one’s wrongful conduct play a “substantial” or “essential” part in bringing about the damage sustained by another.
The generalization is that only the loss that might reasonably be expected to result from action or inaction in reliance on a fraudulent misrepresentation is legally, that is, proximately, caused by the misrepresentation. Restatement (Second) of Torts § 548A (1977). See Levine v. Seilon, 439 F.2d 328, 333-34 (2d Cir. 1971). Oleck v. Fischer, Fed.Sec.L.Rep. (CCH) H 96,898, at 95,702-03 (S.D.N.Y.1979), aff’d 623 F.2d 791 (2d Cir. 1980), in effect requires that the damage complained of be one of the foreseeable consequences of the misrepresentation. The case for Marbury and Bader is that, since the misrepresentation was such as to induce both their purchases and their holding of the securities, their holding and its duration determined the extent of their losses. As in Schlick v. Penn-Dixie Cement Corp., 507 F.2d 374, 380-81 (2d Cir. 1974), cert. denied, 421 U.S. 976, 95 S.Ct. 1976, 44 L.Ed.2d 467 (1975), the claim is that the misrepresentation was the agency both of transaction causation and of loss causation.
Liability for representations having the effects of Kohn’s representation was famil
cannot in such case shelter themselves under the statement that they did not make the representations, i. e., commit the fraud with the motive or for the purpose of inducing the plaintiff to sell his stock. They intended to deceive the plaintiff and they were induced thereto by other causes, yet the natural, proximate and direct result of such deception they knew or had reasonable ground for believing would be this sale, although its accomplishment was not the particular purpose of their fraud. In such case their liability would seem to be plain.
Id. at 588, 38 N.E. at 719. So in David v. Belmont, 291 Mass. 450, 197 N.E. 83 (1935), plaintiff had retained stock of a certain company and bought additional shares of the same stock in reliance on certain representations made by defendant which were false. The court said:
Presumably [plaintiff] continued to hold the stock after the purchase in reliance on the representations. The fraud was therefore continuing in its effect until such time as the plaintiff discovered the falsity of the representations. A loss which he suffered would manifestly be the difference in the then value of the stock and the price which he paid for it.
Id. at 454, 197 N.E. at 85. Similarly in Cartwright v. Hughes, 226 Ala. 464, 147 So. 399 (1933), the plaintiff bought stock of the defendants’ bank on their representation that it was “a good investment,” that the bank was solvent, and that its assets were “good clean assets.” The bank ceased to function and its stock became worthless. The issue in the appellate court was the appropriate measure of damages. Agreeing that the ordinary rule measures damages by the difference between value at the time of the fraud and what the value would have been had the representations been true (the so-called “warranty” measure of damages), the court said:
The question of time is not often involved, but in such a transaction as this in 4 Sutherland on Damages, § 1172, at p. 4409, it is said that “the value of the stock sold is not uniformly fixed as of the time of the sale, especially if the purchase was made as an investment. The fraud in such a case has been considered operative until the purchaser learned of it; that is regarded as the time when his cause of action arose.”
Id. at 467, 147 So. at 401.
The proposition that fraudulent representations may induce the retention of securities as an investment and entail liability for the damages flowing from retention was given a more general form in Continental Insurance Co. v. Mercadante, 222 A.D. 181, 225 N.Y.S. 488 (1st Dept. 1927). The court there said:
Where the damage is caused by inducing plaintiff’s inaction, it is necessarily more difficult to allege or prove causation than in those cases where active conduct is induced. Indeed, in all fraud cases, the element of proximate cause is more impalpable than in negligence cases because we are dealing with the plaintiff’s state of mind. The defendants cannot, therefore, require the same exact proof of causation.
Id. at 186, 225 N.Y.S. at 494. See to the same effect Hotaling v. A.B. Leach & Co., 247 N.Y. 84, 93, 159 N.E. 870, 873 (1928) (“As long as the fraud continued to operate and to induce the continued holding of the bond, all loss flowing naturally from that fraud may be regarded as its proximate
Although the theory of plaintiffs’ case relates their damages to the inaction of retaining the securities on the faith of their belief in Kohn’s assertion of his status, the claim is nevertheless one within Section 10(b) and Rule 10b-5 because the representation relied upon was made in connection with the purchase of securities, and both Marbury and Bader sue as purchasers of securities. Cf. Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 731, 755, 95 S.Ct. 1917, 1924, 1934, 44 L.Ed.2d 539 (1975) (private damage action under Rule 10b-5 is confined to actual purchasers or sellers of securities). The case is not one in which nothing has been shown except an- inducement to hold as in Parsons v. Hornblower & Weeks-Hemphill, Noyes, 447 F.Supp. 482, 487 (M.D.N.C.1977), aff’d, 571 F.2d 203 (4th Cir. 1978), if that case is a correct reading of Blue Chip. Nor is this case similar to Hayden v. Walston & Co., 528 F.2d 901 (9th Cir. 1975): there the plaintiffs had purchased securities through a salesman who was not a duly licensed registered representative, but did not show that the salesman’s nondisclosure of his status rendered his other statements misleading within the meaning of Rule 10b-5, and there was, evidently, no claim or proof that he held himself out to be a duly registered representative. The second ground of suit rejected in the Hayden case, that a private right of action could be predicated on the violation of the National Association of Securities Dealers rules, has not been relied upon in this case, and was not a ground of decision in the district court.
It follows from what has been said that the judgment against defendant-appellant Kohn must be affirmed.
2. Marbury and Bader have appealed from the judgment in favor of Wood, Walker. Judge Gagliardi considered the case against Wood, Walker as one in which plaintiffs sought recovery against Wood, Walker only “as an aider and abettor of Kohn’s securities law violations.” Judge Gagliardi found that the evidence did not show that Wood, Walker intended to deceive plaintiffs, or knew of Kohn’s violations, or provided substantial assistance to Kohn in violating the securities law, but at most showed only negligence on Wood, Walker’s part. Applying the standard of Rolf v. Blyth, Eastman Dillon & Co., 570 F.2d 38, 44 — 48 (2d Cir.), cert. denied, 439 U.S. 1039, 99 S.Ct. 642, 58 L.Ed.2d 698 (1978), the district court held that plaintiffs
(a) Marbury and Bader have in this court again argued that Wood, Walker is liable because the evidence shows that it did aid and abet Kohn’s commission of the fraud. If Kohn and Wood, Walker are regarded as distinct actors liable for each other’s acts only to the extent of their conscious and intentional complicity in them, and the “aiding and abetting” theory requires that approach, Judge Gagliardi’s conclusion is unassailable on the evidence. The circumstances on which plaintiffs rely to show that Wood, Walker should be held liable as an “aider and abettor” may suggest inadequate supervision and lax control but they do not show that the firm was guilty of “knowing or intentional misconduct” or of equivalently reckless misconduct. See generally Ernst & Ernst v. Hochfelder, 425 U.S. 185, 197, 200-201, 96 S.Ct. 1375, 1382, 1384, 47 L.Ed.2d 668 (1976); Edwards & Hanly v. Wells Fargo Securities Clearance Corp., 602 F.2d 475, 483-85 (2d Cir. 1979), cert. denied, 444 U.S. 1045, 100 S.Ct. 734, 62 L.Ed.2d 731 (1980); Rolf v. Blyth, Eastman Dillon & Co., supra, 570 F.2d at 44-48.
(b) A threshold question on this aspect of plaintiffs’ appeal relates to plaintiffs’ right to argue that the court should have considered the respondeat superior and controlling person contentions. The district judge took the view, 470 F.Supp. at 515 n.ll, that plaintiffs had not alleged that Wood, Walker was liable either as a controlling person or as a principal under the respondeat superior doctrine, and that, in consequence, the court did not need to consider Wood, Walker’s liabilities on either of those theories. In the opinion, id. at 515, the court said that plaintiffs’ position, as expressed at the trial and in their post-trial memorandum of law, indicated that they sought recovery against Wood, Walker as an aider and abettor of Kohn’s violations.
While plaintiffs have not denominated their argument in this court and in the district court a respondeat superior argument, and the complaint did not contain the traditional allegation that Kohn made the representations relied upon in the course of his employment with Wood, Walker, the evidence upon which plaintiffs rely in this court, as in the district court, and the allegations of fact made in the complaint are alike completely descriptive of the transactions and of the roles of the actors in them, and they are the evidence and allegations relevant to a determination of the respondeat superior issue, and inevitably, of the Section 20(a) issue. Plaintiffs’ counsel argued the respondeat superior issue orally at the trial, and the bare failure to reiterate it in the closing brief in the district court cannot. be considered an abandonment of the point.
The way in which the ease was tried, and the shift in the emphasis of argument on the motion to dismiss arising from the introduction of Ernst & Ernst into the discussion may explain Judge Gagliardi’s taking the position that he had to consider only the aider and abettor analysis, but the record evidence tending to support the plaintiffs’ claim on the other two grounds was before the court, and, on the whole of that evidence, the three theories of liability— aider and abettor, controlling person, and respondeat superior — equally presented themselves for resolution. There was evidence of Kohn’s hiring, his compensation, his authority to accept orders over the telephone at the firm’s Bronx office, the execution by Wood, Walker of the orders Kohn obtained from plaintiffs, the fact that Wood, Walker received the brokerage commission on all the transactions, the extent to which and the circumstances in which
It was then error not to pass on the respondeat superior and Section 20(a) issues which lurked in the record, unless resort to respondeat superior is precluded by Section 20(a) and the district court’s rejection of the claim that Wood, Walker aided and abetted Kohn’s violations implies a finding that Wood, Walker has a “good faith” defense under Section 20(a). That section provides in relevant part:
Every person who, directly or indirectly, controls any person liable under any provision of this chapter or of any rule or regulation thereunder shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action.
This court has avoided explicit “resolution of the rather thorny controlling personrespondeat superior issue,” Rolf v. Blyth, Eastman Dillon & Co., supra, 570 F.2d at 48 n.19. SEC v. Management Dynamics, Inc., 515 F.2d 801, 812-13 (2d Cir. 1975), reasoned, in the light of the legislative history, that the “controlling person” provision of Section 20(a) was not intended to supplant the application of agency principles in securities cases, and that it was enacted to expand rather than to restrict the scope of liability under the securities laws;
The cases in this court are not, however, to that effect. Moerman v. Zipco, Inc., 422 F.2d 871 (1970), affirming on the district court opinion, 302 F.Supp. 439 (E.D.N.Y. 1969), approved the imposition of liability on a corporation and its controlling directors under Section 20(a); but nothing in the district court opinion considered normal agency principles, or treated Section 20(a) as supplanting the doctrine of respondeat superior. The en banc decision in Lanza v. Drexel & Co., 479 F.2d 1277, 1299 (2d Cir. 1973), declined to impose Rule 10b-5 liability, through Section 20(a), on an outside director of BarChris Corporation for fraud perpetrated by other officials of the corporation in inducing the plaintiffs to exchange stock in their thriving company for shares of BarChris stock that soon became worthless. The Lanza case did not present any occasion for considering respondeat superior; only if the court had held that the director was in guilty complicity with the officials of the corporation who had perpetrated the fraud would the court have had to decide whether the investment banking firm of which the defendant director was an employee was liable on a respondeat superior or Section 20(a) theory for its employee’s delinquency. 479 F.2d at 1319-20 (opinion of Judge Hays, dissenting in part). The district court in Gordon v. Burr, 366 F.Supp. 156, 167-168 (S.D.N.Y.1973), adopted the view that Section 20(a) and not respondeat superior is the appropriate standard for determining secondary liability of a brokerage firm under the ’34 Act, but this court, reversing the district court’s imposition of Section 20(a) liability on a brokerage house by reason of the fraud of one of its stock salesmen, did not comment on the rationale of the decision in the court below; it said only that if the brokerage house was liable it must be “derivatively — as a ‘controlling person’ of [the salesman] within the meaning of § 20(a) of the 1934 Act.” Gordon v. Burr, 506 F.2d 1080, 1085 (2d Cir. 1974). The court cited SEC v. Lum’s Inc., 365 F.Supp. 1046, 1064-65 (S.D.N.Y.1973), which rejected the respondeat superior approach, with evident approval, but the part of the Lum’s opinion cited deals principally with the standard of culpability required for Section 20(a) liability, and that was the point on which this court cited it. Moreover this court has in Management Dynamics, supra, 515 F.2d at 813, stated that Gordon v. Burr does not dictate a result contrary to the application of agency principles to hold brokerage firms liable for acts of their employee; Geon Industries, supra, 531 F.2d at 54, states that this court has, in Management Dynamics, held the Lum’s view — that a brokerage house could be liable for its employee’s securities frauds only as a controlling person under Section 20(a) —to be erroneous. In Edwards & Hanly v. Wells Fargo Securities Clearance Corp., 458 F.Supp. 1110 (S.D.N.Y.1978), the court held that a defendant was liable for its president’s Rule 10b-5 frauds both on the respondeat superior and on the Section 20(a) theories, but the judgment was reversed because the evidence was insufficient to support a finding that the individual wrongdoer had aided and abetted the fraud
Cases in other circuits are not in agreement about the relation of respondeat superior to Section 20(a) liability. The Eighth Circuit, in Myzel v. Fields, 386 F.2d 718, 737-739 (8th Cir. 1967), imposed Section 20(a) liability in a Rule 10b-5 case in which, on the evidence, the liability of the allegedly controlling persons was governed “neither by principles of agency nor conspiracy,” but the court assumed that common law principles of agency would apply to impose liability on a principal for an agent’s deceit committed in the business he was appointed to carry out.
The Sixth Circuit, in Armstrong, Jones & Co. v. SEC, 421 F.2d 359, 362 (6th Cir.), cert. denied, 398 U.S. 958 (1970), held, adopting the position of the Securities Exchange Commission, that sanctions may be imposed on a broker-dealer for the wilful violations of its agents under the doctrine of respondeat superior; the court did not refer to Section 20(a). In Holloway v. Howerdd, 536 F.2d 690, 694-95 (6th Cir. 1976), the Sixth Circuit, following what it took to be the lead of the Second, Fourth, Fifth and Seventh Circuits, went farther in holding that the controlling person provisions, Section 15 of the ’33 Act and Section 20(a) of the ’34 Act, were not intended to preempt the operation of the doctrine of respondeat superior in eases involving unlawful activities of a brokerage firm’s employees. It imposed damage liability on the firm in favor of those customers of the firm who were ignorant of the limitations on the authority of the wrongdoing employee. The court relied on what had been said in Management Dynamics, supra, 515 F.2d at 812, to the effect that the controlling person provisions were intended to expand, rather than restrict, the scope of liability under the securities laws.
The Fourth Circuit, in Johns Hopkins University v. Hutton, 422 F.2d 1124 (4th Cir. 1970), cert. denied, 416 U.S. 916, 94 S.Ct. 1623, 40 L.Ed.2d 118 (1974), a case brought under § 12(2) of the ’33 Act, 15 U.S.C. § 771(2), held a brokerage house liable “under familiar [agency] principles, for the tortious representations of its agent”; although the partners of the defendant brokerage house were personally blameless, they had clothed their departmental manager with actual and apparent authority to provide the purchaser of the security with information about its yield, the manager acted within the scope of his employment in offering the security to the purchaser, and the firm received compensation based on the manager’s sales effort. The court held that Section 15 of the ’33 Act, 15 U.S.C. § 77o, which imposes a controlling person liability parallel to that imposed by Section 20(a) of the ’34 Act, was not intended to insulate a brokerage house from the misdeeds of its employees.
The Fifth Circuit in Lewis v. Walston & Co., 487 F.2d 617 (5th Cir. 1973), applied agency principles in imposing liability on a brokerage firm in a suit under Section 12(1) of the ’33 Act for an employee’s sale of unregistered stock to plaintiffs, notwithstanding that the brokerage house never received a commission or other benefit from the transactions, did not deal in unregistered securities in the course of its own business, and did not perform any of its usual brokerage functions in the completion of the sales transactions. Later, in a case in which liability under Rule 10b-5 could have been imposed only under Section 20(a) if the evidence had warranted it, the Fifth Circuit, under the mistaken impression that Gordon v. Burr, supra, had committed this circuit to the view that Section 20(a) was “the exclusive way to hold someone secondarily liable” in Rule 10b-5 cases, stated that such an approach might be unnecessarily restrictive to the securities acts but that it did not need to resolve that question in the case before it. Woodward v. Metro Bank of Dallas, 522 F.2d 84, 94 n.22 (5th Cir. 1975). The Seventh Circuit in a “churning” case, Fey v. Walston & Co., 493 F.2d 1036, 1052-53 (7th Cir. 1974), held a brokerage house liable for the conduct of
The earliest of the cases usually cited for the proposition that Section 20(a) of the ’34 Act supplanted the doctrine of respondeat superior in securities cases, Kamen & Co. v. Paul H. Aschkar & Co., 382 F.2d 689, 697 (9th Cir. 1967), does not elaborate the point, and Hecht v. Harris, Upham & Co., 430 F.2d 1202, 1210 (9th Cir. 1970), which imposed liability in a churning case, did so under Section 20(a) on the basis that the brokerage house had failed to maintain adequate internal controls, and that its failure of diligence constituted failure to act in good faith; the court did not refer to the doctrine of respondeat superior. Later, in Zweig v. Hearst Corp., 521 F.2d 1129, 1132-33 (9th Cir.), cert. denied, 423 U.S. 1025, 96 5. Ct. 469, 46 L.Ed.2d 399 (1975), the court interpreted its earlier decision in Kamen as holding that Section 20(a) is to be applied to determine an employing corporation’s liability and as rejecting the contention that “the more stringent doctrine of respondeat superior remained effective to establish vicarious liability.” The court did not explain the basis for its conclusion. Most recently, in Christoffel v. E. F. Hutton & Co., 588 F.2d 665, 667 (9th Cir. 1978), the court, in a single sentence, and, again, without discussion, stated that it was “the established law of [the 9th] Circuit that section 20(a) supplants vicarious liability of an employer for the acts of an employee applying the respondeat superior doctrine.”
The Third Circuit, in Rochez Brothers, Inc. v. Rhoades, 527 F.2d 880, 884-886 (3rd Cir. 1975), concluded in what is, it may be, elaborate dictum, that, in the light of the legislative history and of earlier cases, “the principles of agency, i. e., respondeat superi- or, are inappropriate to impose secondary liability in a securities violation case.” Id. at 884. The court put its conclusion essentially on the ground that the defense furnished by the closing language of Section 20(a)—
. unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action—
established a standard of conscious culpability that was inconsistent with the imposition of an essentially secondary liability on respondeat- superior grounds.
Different considerations control the application of respondeat superior principles. Here the concern is simply with scope or course of employment and whether the acts of the employee Kohn can fairly be considered to be within the scope of his employment. See Restatement (Second) of Agency §§ 228, 229, 257, 258, 261, 262, 265. The evidence of record in the present case presents substantial issues of credibility and interpretation, but it indicates, if taken at face value, that Kohn at all times acted as an employee of Wood, Walker, and accounted to Wood, Walker for the transactions. The evidence contains no indication that he profited by any of the transactions other than by reason of his compensation from Wood, Walker as one of its employees. Whatever the specific limitations on his authority as between him and his employer, the evidence, again, indicates, although with some uncertainty, that it was his function as a trainee to be an intermediary in the making of transactions in securities, but that there were certain limitations on the manner in which he was to carry on his activities. Kohn’s deviant conduct, while it may have induced the purchase of securities that would not otherwise have been purchased, did not appear, on the record made at the trial, to mark any deviation from Kohn’s services to his employer. Arguably, what he did was done in Wood, Walker’s service, though it was done badly and contrary to the practices of the industry and the standing instructions of the firm. The record on the respondeat superior issue more than sufficed to require the trier of the fact to dispose of the issue on the merits.
Where respondeat superior principles are applied, the special good faith defense afforded by the last clause of Section 20(a) is unavailable. Quite apart from the fact that that conclusion was clearly adumbrated in SEC v. Management Dynamics, supra, 515 F.2d at 812-13, and has become settled law in other circuits, there is no warrant for believing that Section 20(a) was intended to narrow the remedies of the customers of brokerage houses or to create a novel defense in cases otherwise governed by traditional agency principles. On the contrary Section 28(a), 15 U.S.C. § 78bb, specifically enacts that the rights and remedies provided by the ’34 Act shall be in addition to any and all rights and remedies that may exist at law or in equity, and Section 16 of the ’33 Act, 15 U.S.C. § 77p, similarly provides that the rights and remedies of the ’33 Act are additional to pre-existing remedies.
The judgment against defendant Kohn is affirmed and the judgment in favor of Wood, Walker & Co. is reversed, and a new trial of the claims of Marbury Management and Harry Bader against Wood, Walker & Co. is granted.
. Harvey Jaffe was also a plaintiff but at the close of plaintiffs’ case the action was discontinued as to him with prejudice and without costs, and the judgment stated that he was not entitled to relief. Jaffe has not appealed. The New York Stock Exchange, originally joined as a defendant, was dismissed from the action before trial.
. Marbury’s representative, asked why they had held one of the securities so long, answered that Kohn told them to do it, that it was going to go up; that Kohn had advised them to hold the other securities as well; and that Marbury continued to rely on Kohn’s advice and to hold onto the securities until they learned that he was not a licensed and registered representative. (See 67a, 70a, 73a, 80a 81a, and 84a-85a.) Bader’s testimony, while less detailed and pointed, leads to the same ultimate finding. (See 93a-94a, 97a-99a, 106a, 113a, and 1 Mall 6a).
. The majority and dissenting opinions do not differ in recognition of the basic principles of proximate causation, in agreement that those principles apply to the torts of fraud and deceit, and that the critical issue is their application to those of Kohn’s statements that Judge Gagliardi found to be untruthful and affective of the action of Marbury and Bader. Kohn, it is agreed, is liable only for the damages that his misrepresentations proximately caused. The dissenting opinion rejects what the majority opinion considered Judge Gagliardi’s implicit finding that Kohn’s representations, unrelated to the intrinsic characteristics of the stocks bought, induced both the purchase and the retention of the stocks on which the damages were computed. That is implicit in Judge Gagliardi’s analysis of the representations and their culpable untruth, the period over which he found the untruth affective of plaintiff’s conduct (that is, until Kohn’s true status was disclosed), the measure of damages he employed, and his explicit reliance on Clark v. John Lamilla Investors, Inc. and Harris v. American Investment Co. The majority opinion neither refuses to give effect to the traditional and acknowledged standard of causation, nor does it repudiate it, or refuse to abide by it. Differentiating transaction causation from loss causation can be a helpful analytical procedure only so long as it does not become a new rule effectively limiting recovery for fraudulently induced securities transactions to instances of fraudulent representations about the value characteristics of the securities dealt in. So concise a theory of liability for fraud would be too accommodative of many common types of fraud, such as the misrepresentation of a collateral fact that induces a transaction.
. Generally a complaint that gives full notice of the circumstances giving rise to the plaintiffs claim for relief need not also correctly plead the legal theory or theories and statutory basis supporting the claim. Rohler v. TRW, Inc., 576 F.2d 1260, 1264 (7th Cir. 1978); Hostrop v. Board of Junior College District No. 515, 523 F.2d 569, 581 (8th Cir. 1975), cert. denied, 425 U.S. 963, 96 S.Ct. 1748, 48 L.Ed.2d 208 (1976); Bramlet v. Wilson, 495 F.2d 714, 716 (8th Cir. 1974); Siegelman v. Cunard White Star Ltd., 221 F.2d 189, 196 (2d Cir. 1955); cf. New York State Waterways Assn. v. Diamond, 469 F.2d 419, 421 (2d Cir. 1972) (court’s duty to read pleading liberally to determine whether facts alleged justify taking jurisdiction on grounds other than those most artistically pleaded).
. Management Dynamics discussed Section 15 of the Securities Act of 1933, 15 U.S.C. § 77o, as well as Section 20(a), Section 15 originally made controlling persons liable under Securities Act Section 11 (imposing liability for untrue or misleading statements in a registration statement on issuer, underwriter and others involved with the registration statement) and Section 12 (imposing liability on sellers of unregistered securities or of securities sold by means of untrue or misleading statements) jointly and severally with the controlled person to anyone to whom the controlled person was liable. The Act which enacted the ’34 Act amended Section 15 of the ’33 Act by adding at the end “unless the controlling person had no knowledge of or reasonable ground to believe in the existence of the facts by reason of which the liability of the controlled person is alleged to exist.”
. Before turning to the question of the appropriate standards of secondary liability the court seems to have decided, in, agreement with the district court’s factual finding, that a traditional agency analysis would not have resulted in a judgment against the wrongdoing individual’s corporate employer; the wrongdoing employee was president, a director, and a 50% stockholder of the employing corporation, and he bought 50% of the corporation’s stock from the corporation’s executive vice-president without disclosing that there were in the wind two possible buyers for all the company’s stock. 527 •F.2d at 883 84.
. Rochez Brothers noted that the relationship before it was not of the type that prevails in the broker-dealer cases where a stringent duty to supervise employees exists. 527 F.2d at 886. Duralite indicated that whatever the merit of imposing respondeat superior liability in a broker-agent relationship, the circumstances in the Duralite case were different and required a different result. For references to the effect of the presence of a fiduciary relationship, see Edwards & Hanly v. Wells Fargo Securities Clearance Corp., supra, 602 F.2d at 485; Rolf v. Blyth, Eastman Dillon & Co., supra, 570 F.2d at 47.