Escott v. BarChris Construction Co.
United States District Court for the Southern District of New York
283 F.Supp. 643 (S.D.N.Y. 1968)
BarChris Construction Co. (BarChris) (defendant) was in the business of constructing bowling alleys. In order to finance its operations, BarChris sold debentures to the investors (plaintiffs). However, around that time BarChris began to experience financial difficulties and the registration statement of the debentures contained various false statements and omissions. Some of these falsities and omission were minor (e.g. 1960 sales and operating income levels were off by a small amount). However, some of the falsities and omissions were more serious, including a statement on the balance sheet that the ratio of current assets to liabilities was 1.9 to 1, when in actuality it was 1.6 to 1. The plaintiffs brought suit on account of the false statements and omissions in the registration statement against numerous individuals, including BarChris’s founders, CFO, attorney, accountant, and some directors, including those that drafted the registration statement. Each of these individuals either did not question the truthfulness of the balance sheet or if they did, they accepted the answers without verifying their accuracy. The defendants filed motions to dismiss the complaints.
Rule of Law
Holding and Reasoning (McLean, J.)