Zweig v. Hearst Corporation

594 F.2d 1261 (1979)

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Zweig v. Hearst Corporation

United States Court of Appeals for the Ninth Circuit
594 F.2d 1261 (1979)

Facts

Alex Campbell (defendant) was a financial columnist for a newspaper owned by the Hearst Corporation (defendant). Campbell wrote a highly favorable column about a small local company American Systems, Inc. (ASI). Campbell’s column included false and misleading information he received from ASI directors, H. W. Jamieson and E. L. Oesterle (defendants). Campbell did not know this information was false, but he did not verify the ASI-provided information or otherwise conduct any independent research. Before his column was published, Campbell bought ASI stock from the company at a discount. Campbell did not publicly disclose his financial interest in ASI, nor did he disclose that ASI intended to use his column in future marketing efforts. ASI’s stock price increased more than 25 percent the day Campbell’s column was published, and Campbell sold a significant number of his ASI shares that day. Richard Zweig and Muriel Bruno (plaintiffs) each owned one third of Reading Guidance Center (RDC), a company that ASI was in the process of acquiring for ASI stock worth $1.9 million based on the market price on a specified day. Zweig and Bruno sued Campbell, Hearst, Jamieson, and Oesterle, alleging that, among other things, they violated (or in Hearst’s case was responsible for violations of) § 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission (SEC) Rule 10b-5. Specifically, Zweig and Bruno argued that they received less ASI stock for their RDC interests because Campbell’s column artificially inflated ASI’s stock price. The district court granted summary judgment to Hearst, holding that it was not responsible for Campbell’s conduct. During the trial, the district court dismissed Zweig and Bruno’s claims against Campbell, holding, among other things, that he had no duty to disclose his personal interest in ASI to his readers. Zweig and Bruno appealed.

Rule of Law

Issue

Holding and Reasoning (Goodwin, J.)

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