Binder v. Gillespie

Tom Gillespie, Marie Mullen Gillespie (defendants) and the company they formed—Aqua Vie Beverage Corporation (AVBC) (defendant)—were engaged in the flavored, noncarbonated water industry. After AVBC was formed in the summer of 1991, Cottell Bottling agreed to manufacture and Golden Brands agreed to distribute AVBC’s water product. Albert Binder (plaintiff) purchased 3,000 shares of AVBC at $4.00 a share in September 1991. The price of AVBC stock peaked a month later at $4.50 per share. In 1992, AVBC began producing bottled water. The chief of quality control for the company warned Tom and a consultant that the product formula was unstable and would turn brown approximately 60 days after being bottled. AVBC adjusted its product formula; however, AVBC bottled water continued to face problems with its shelf life. Ultimately, AVBC repurchased its water from Golden Brands. AVBC efforts to raise additional funds were unsuccessful, and the company failed to establish a distribution network for its product. In December 1993, Binder sold his AVBC shares for less than one dollar per share. In 1994, Binder filed suit on his own behalf and as a representative for a class of investors against the Gillespies, AVBC, and AVBC’s directors, officers, and accountants (defendants) alleging violations of federal and state securities laws. Binder’s claims on behalf of the class included factual allegations about reliance on both misrepresentations and omissions of material fact. The district court determined that unless a presumption of reliance was available, individual questions of reliance would overwhelm the questions common to all class members. The district court concluded that there was no presumption of reliance and that, subsequently, the class should be decertified. Binder appealed, arguing that there should be a presumption of reliance because the case involved both omissions of material fact and misrepresentations.