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Brown v. Ivie

United States Court of Appeals for the Fifth Circuit
661 F.2d 62 (1981)


L.M. Brown (plaintiff), Ivie, and Lightsey (defendants) were all one-third stockholders in United Power Distributors, Inc. The parties agreed in 1976 that any shareholder who was not employed by the company would sell all shares back for book value, which was less than fair value. The stock certificates were never endorsed as required by the contract, and consequently the agreement was not enforceable. In 1979, the defendants decided to oust Brown. Because the 1976 agreement was invalid, they told Brown a new agreement was needed so that the corporation could purchase additional insurance. Brown signed, and the defendants fired Brown a week later. When the defendants tried to force Brown to sell his shares back at book value, Brown sued for violations under the Securities Exchange Act of 1934 (SEA), 15 U.S.C. § 10(b) and Securities and Exchange Commission (SEC) Rule 10b-5. The district court dismissed the complaint on the grounds that the deception was not done “in connection with” a securities sale or was part of an internal dispute and dismissed the counterclaims. Brown appealed to the United States Court of Appeals for the Fifth Circuit.

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