## Facts

- Boatel, Inc., a Minnesota manufacturer, was owned by James E. Klapmeier and other shareholders.
- Klapmeier negotiated a stock-for-stock transaction with Telecheck International, Inc., whose president, Harry M. Flagg, had a prior personal relationship with Klapmeier; George L. T. Kerr served as Telecheck’s secretary-director and attorney.
- On May 10, 1969, the parties agreed to a transaction effectively merging Boatel into Telecheck, with Boatel shareholders exchanging all Boatel stock for Telecheck stock.
- After the transaction, Boatel operated as Telecheck’s “Leisure Time” division, and Klapmeier served as its chief executive officer until Telecheck terminated him in February 1970.
- Later in 1970, the former Boatel shareholders sued Telecheck, Flagg, and Kerr seeking about $8 million for common-law fraud and federal securities-law violations arising from the merger.
- Plaintiffs alleged, among other theories, that Telecheck issued unregistered shares in violation of Securities Act of 1933 § 5 and sought relief including unwinding the transaction.
- Telecheck counterclaimed for more than $5 million, alleging warranty breaches and fraud by the former Boatel shareholders regarding Boatel’s assets and condition.
- After a jury trial in federal district court, the jury returned a verdict for plaintiffs for $857,632 against Telecheck, Flagg, and Kerr; the district court denied post-trial motions for judgment notwithstanding the verdict or a new trial.

## Issues

1. Whether Telecheck’s issuance of unregistered shares in the stock-for-stock merger constituted a § 5 “sale” requiring registration and, if so, whether an exemption (including a § 4(2) private offering) applied.
2. Whether substantial evidence supported the jury’s findings of common-law fraud and federal securities fraud against Telecheck, Flagg, and Kerr.
3. Whether alleged instructional, evidentiary, or damages errors required judgment as a matter of law or a new trial.

## Decision

- The Eighth Circuit affirmed the judgment for plaintiffs.
- The court held the record permitted the jury to treat the stock-for-stock issuance as a § 5 transaction requiring registration absent an applicable exemption.
- The court upheld the jury’s rejection of asserted exemptions, including a private-offering theory, based on the transaction’s context and the plaintiffs’ lack of insider-like protections.
- The court found substantial evidence supporting findings of material misrepresentations or omissions, reliance, and causation under both federal securities standards and Minnesota common-law fraud.
- The court concluded the jury instructions and trial rulings, viewed as a whole, were not prejudicially erroneous and that any mistakes were harmless.
- The court upheld the $857,632 damages award as supported by the evidence and not so excessive as to require appellate intervention.

## Legal Principles

- Issuing acquirer stock to target shareholders in a merger can constitute a “sale” or “offer” under the Securities Act, triggering § 5 registration absent an exemption.
- The § 4(2) private-offering exemption turns on the transaction’s facts, including whether offerees have access to the type of information registration would provide and whether circumstances resemble a limited, nonpublic placement.
- Appellate review of a jury’s fraud and securities-fraud findings focuses on whether substantial evidence supports the verdict; credibility and fact disputes are for the jury.
- Material misrepresentations or omissions in merger negotiations, coupled with reliance and loss causation, can support liability under federal securities antifraud law and state common-law fraud.
- Damages for merger-related securities violations and fraud may be based on the difference between what was received and what would have been received absent the wrongful conduct, plus losses fairly attributable to that conduct, if supported by evidence.

## Conclusion

The Eighth Circuit affirmed a jury verdict imposing liability for fraud and Securities Act § 5 violations arising from a stock-for-stock merger that used unregistered shares where the evidence allowed rejection of a private-offering exemption and supported findings of material misstatements, reliance, and non-speculative damages.


Klapmeier v. Telecheck Int’l, Inc., 482 F.2d 247 (8th Cir. 1973)