Commercial Division Blog
Defendants Who Are Not Statutory Sellers Not Liable for Section 12 Claims Even Though They Were Primary Beneficiaries of Stock Sale
On April 22, 2020, Justice Schecter of the New York County Commercial Division issued a decision in International Union of Operating Engr. Benefit Funds of E. Pa. and Del. v. Camping World Holdings, Inc., 2020 NY Slip Op. 31560(U), holding that defendants who are not statutory sellers are not liable for Section 12 claims event though they were the primary beneficiaries of the sale of stock, explaining:
Section 12(a)(2) only imposes liability on one who offers or sells a security. It requires that a defendant be more than a mere participant in a securities transaction. A defendant must be a statutory seller--one who either actually passes title to the purchaser for value or who successfully solicits the purchase of securities motivated at least in part by a desire to serve his own financial interests or those of the securities owner.
In this case, the section 12 claims are asserted only against the LLC Defendants. It is undisputed that the LLC Defendants never passed title of the shares to plaintiff because the underwriters purchased all 6,700,000 shares before such shares were offered to investors. Plaintiffs contention that the LLC Defendants received the majority of the $271 million in proceeds generated by the Offering does not satisfy the requirement that actual title pass between the parties and value be exchanged between them. Plaintiff contends that the LLC Defendants are nonetheless statutory sellers based on solicitation because they sold and assisted in the sale of Camping World's stock by means of the prospectus, promoted the sale of Camping World's common stock, and were motivated by a desire to serve their financial interests. While plaintiff pleads the requisite motive, missing are any facts demonstrating what the LLC Defendants actually did to solicit the purchase here. Plaintiff recites solicitous words but they are not tethered to any facts laying out the LLC Defendants' conduct that constitutes selling, assisting or promoting in regard to the plaintiff or the relevant offering.
Because plaintiff fails to allege facts plausibly rendering the LLC Defendants statutory sellers, the section 12(a)(2) claims are dismissed without prejudice to proper amendment based on non-conclusory solicitation allegations.
(Internal quotations and citations omitted) (emphasis added).
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