Questions of Fact Preclude Dismissal of Section 12 Claim on the Ground that Defendants Were Not Statutory Sellers

On May 14, 2021, Justice Borrok of the New York County Commercial Division issued a decision in Erie County Employees' Retirement Sys. v. NN, Inc., 2021 NY Slip Op. 50423(U), holding that questions of fact precluded dismissal of Section 12 claim on the ground that the defendants were not statutory sellers, explaining:

Section 12(a)(2) of the 1933 Act imposes liability under similar circumstances to that of Section 11 against certain statutory sellers for misstatements or omissions in a prospectus. The defendants argue that amended complaint insufficiently alleges that they were statutory sellers under Section 12. The definition of a statutory seller is not limited to the person who directly passes title to the securities but also includes persons who solicited the purchase of securities to serve its own or the securities' owner's interests. Whether the defendants may qualify as statutory sellers is generally a question of fact that cannot be properly decided on the pleadings.

The amended complaint alleges that the defendants: (i) participated in the promotion and sale of NN common stock to investors at various events; (ii) did so to promote their own financial interests and those of the company; (iii) drafted and disseminated the SPO documents; and (iv) signed the Registration Statement. This is sufficient to ground liability under Section 12.

For the avoidance of doubt, Labourers' Pension Fund of Central & Eastern Canada v CVS Health Corp. does not compel a different result. In Labourers' Pension Fund, the Appellate Division held that individual defendants cannot be deemed statutory sellers merely because they reviewed, approved, and signed the registration statement. The allegations set forth in the amended complaint, however, are not so limited. In the amended complaint, the plaintiffs allege that the individual defendants solicited the investing public to purchase NN securities pursuant to the SPO by attending road shows and other events to meet with investors and promote NN stock. Thus, the individual defendants may qualify as statutory sellers because they successfully solicited the purchase of the securities at issue here. If the allegations in the amended complaint are proven to be true, the individual defendants did more than just sign the requisite paperwork. Therefore, the motion must be denied at this stage of the pleadings.

(Internal quotations and citations omitted).

We have substantial experience in litigation regarding securities, both in state and federal court. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client need help regarding a claim related to stocks, bonds or other financial instruments.