## Facts

- Seven churches financed construction projects by issuing negotiable bearer-form church bonds to a contractor, who was to sell the bonds and remit proceeds to the churches as needed for construction.
- The contractor sold bonds at a discount to National Plan, Inc., a firm that regularly bought and sometimes resold church bonds for profit.
- The contractor failed to remit proceeds to the churches, leaving them unpaid for certain bonds that National acquired and, in some instances, transferred onward.
- The churches sued seeking return of bonds still held by National and damages for bonds transferred to innocent purchasers; they also asserted conspiracy-type theories against National and its president/owner, Robert H. Knox.
- National intervened and sought a declaratory judgment that it was a holder in due course and that the bonds remained valid obligations of the churches.
- National was not registered as a broker-dealer under the Securities Exchange Act of 1934 despite conducting regular bond purchase-and-resale activity.

## Issues

1. Whether National’s regular purchasing and reselling of church bonds made it a broker-dealer required to register under Exchange Act § 15(a)(1).
2. Whether National’s failure to register made its bond-purchase contracts void or voidable under Exchange Act § 29(b), permitting rescission and related relief to the churches.
3. Whether the district court properly (a) severed claims and entered a partial final judgment and (b) denied a jury trial.
4. Whether the churches proved a conspiracy or related wrongdoing by National and Knox.

## Decision

- Affirmed the district court on severance, appealability, denial of jury trial, and adverse findings on conspiracy and related factual claims.
- Reversed the district court on securities-law analysis, holding National’s activities placed it within the broker-dealer registration requirement of § 15(a)(1).
- Held that contracts made in violation of § 15(a)(1) could be voidable under § 29(b) at the instance of parties within the statute’s protected class.
- Remanded for further proceedings to apply the correct legal standard and determine transaction-specific remedies (including rescission and damages).

## Legal Principles

- A person or firm regularly engaged in purchasing and distributing securities for profit may qualify as a broker-dealer under the Exchange Act, even when dealing in specialized instruments such as church bonds.
- Exchange Act § 15(a)(1) broker-dealer registration is an investor-protection requirement; courts should not treat nonregistration as a merely technical defect when evaluating statutory remedies.
- Under Exchange Act § 29(b), a contract made or performed in violation of the Act (including a dealer’s failure to register when required) may be voidable by a party within the class the statute is designed to protect.
- Trial-management decisions such as severance under Rule 42(b) and partial final judgment under Rule 54(b) are reviewed for abuse of discretion.

## Conclusion

The Fifth Circuit largely left the district court’s procedural and fact findings intact but held that National’s unregistered dealer activity triggered Exchange Act regulation, making the bond-purchase contracts potentially voidable under § 29(b), and remanded to determine the proper relief for the churches under the correct securities-law framework.


Eastside Church of Christ v. National Plan, Inc., 391 F.2d 357 (5th Cir. 1968)