## Facts

- Stuart E. Haynes, Jr. and Stuart E. Haynes, Sr. alleged that they consulted Thomas V. Blanton, Jr., a registered representative at Anderson & Strudwick, Inc., about purchasing Shoney’s, Inc. stock and placed specific orders in September 1978.
- In October 1978 transaction confirmations, plaintiffs allegedly learned Blanton bought Shoney’s shares in excess of instructions and also bought, without authorization, C.H.B. Foods, Inc. shares for both plaintiffs and Sierracin Corporation shares for Haynes Sr.
- Plaintiffs alleged Blanton placed their transactions in margin accounts without authorization and extended credit without required disclosure of credit terms, asserting violations of SEC Rule 10b-16.
- Plaintiffs alleged Blanton misrepresented that C.H.B. Foods would be taken over by General Foods Corporation and that the takeover was “imminent,” inducing purchase or retention of C.H.B. stock; the alleged takeover did not occur and the investment declined.
- Plaintiffs asserted federal claims under Securities Act § 17(a), Exchange Act § 10(b), and SEC Rules 10b-5 and 10b-16, plus pendent state claims by Haynes Sr. for conversion and breach of contract.
- Plaintiffs sought to hold Anderson & Strudwick liable for Blanton’s alleged federal securities violations under both respondeat superior and federal “controlling person” liability theories.
- Blanton filed a counterclaim for defamation against Haynes Jr., based on alleged statements to third parties about Blanton’s conduct.
- The court addressed motions to dismiss under Rules 12(b)(1) and 12(b)(6) and a Rule 12(b)(6) motion to dismiss the defamation counterclaim, assuming the complaint’s allegations were true for purposes of the motions.

## Issues

1. Whether Anderson & Strudwick’s potential secondary liability for Blanton’s alleged federal securities violations must be analyzed under the federal “controlling person” provisions rather than common-law respondeat superior.
2. Whether the complaint adequately pleaded scienter to state a private damages claim under Exchange Act § 10(b) and Rule 10b-5.
3. Whether a private right of action may be maintained for violations of SEC Rule 10b-16 concerning margin credit disclosures.
4. Whether Blanton’s defamation counterclaim stated a plausible claim for relief.

## Decision

- The court held that the broker-dealer’s potential liability for the representative’s alleged federal securities violations must proceed, if at all, under the federal controlling-person provisions, not respondeat superior.
- The court found the § 10(b)/Rule 10b-5 allegations insufficient as pleaded on scienter and required plaintiffs to amend to allege the requisite mental state.
- The court denied dismissal of the Rule 10b-16 claim on the ground that no private right of action exists, permitting that claim to proceed at the pleading stage.
- The court denied Haynes Jr.’s motion to dismiss Blanton’s defamation counterclaim.

## Legal Principles

- In federal securities actions against broker-dealers for employees’ misconduct, the federal controlling-person provisions may supply the governing standard for secondary liability, displacing reliance on common-law respondeat superior in that context.
- A private damages claim under Exchange Act § 10(b) and Rule 10b-5 requires pleading scienter—intent to deceive, manipulate, or defraud, or at least knowing or reckless misconduct; negligence is insufficient.
- Claims predicated on nondisclosure of margin credit terms under SEC Rule 10b-16 may proceed on the premise that an implied private right of action is available, at least where dismissal is sought solely on the absence of such a right.
- A defamation pleading is sufficient where it alleges a defamatory statement about the claimant, publication to third parties, and resulting harm, leaving defenses such as truth or privilege for later stages.

## Conclusion

The court limited the broker-dealer’s potential secondary liability to the federal controlling-person framework, required repleading to allege scienter for the Rule 10b-5 claim, allowed the Rule 10b-16 margin-disclosure theory to continue, and sustained the registered representative’s defamation counterclaim past the pleading stage.


Haynes v. Anderson & Strudwick, Inc., 508 F. Supp. 1303 (E.D. Va. 1981)