## Facts

- Vanguard Environmental, Inc. was formed in 1991; its key asset was the TDS-10 device for measuring soil contamination.
- Summers invented the TDS-10; Summers and Parma were Vanguard “control persons,” with Parma involved in finances, management, and marketing.
- WellTech agreed to purchase 50% of Vanguard’s stock for $1.25 million; the transaction closed on February 5, 1992.
- Before closing, undisclosed adverse facts existed, including diversion of Vanguard funds by Summers, an EPA investigation of Summers known to Parma by October 15, 1991, and misrepresentations about TDS-10 capability and Vanguard’s finances (including overstated assets).
- WellTech discovered the misrepresentations after closing and sued on December 3, 1992, seeking rescission under the Texas Securities Act.
- WellTech paid the full purchase price, remained the holder of the stock, and tendered the stock back before judgment.
- After a bench trial, the trial court ordered rescission and required Summers and Parma to repay $1.25 million plus interest and attorneys’ fees; Summers and Parma appealed.

## Issues

1. Whether control-person defendants may be held jointly and severally liable under the Texas Securities Act when the controlled corporation is not joined as a defendant.
2. Whether rescission was available and properly granted where the buyer still held the securities and tendered them back before judgment.
3. Whether the court could rescind the stock purchase while leaving related loan arrangements in place as separate transactions.
4. Whether alleged newly discovered evidence or the absence of signed findings of fact required reversal or a new trial.

## Decision

- The court of appeals affirmed the judgment for WellTech.
- Control-person liability could be imposed jointly and severally without joining Vanguard, so long as control and an underlying securities-law violation were proved, subject to the statutory lack-of-knowledge defense.
- Rescission was properly granted because WellTech still owned the stock and tendered it, and its pleadings supported rescission.
- Partial rescission was permissible because the stock sale and loan arrangements were separable transactions.
- No reversible error was shown on the claims regarding newly discovered evidence or findings of fact.

## Legal Principles

- Under the Texas Securities Act, a control person may be jointly and severally liable for a controlled entity’s securities violation even if the controlled entity is not named as a defendant, unless the control person proves he did not know and, in the exercise of reasonable care, could not have known of the facts giving rise to liability.
- Rescission is an available remedy for securities fraud when the purchaser still owns the securities at the time of judgment and tenders them to restore the parties to the status quo.
- A court may grant partial rescission when the rescinded agreement is severable from other related agreements not requiring unwinding to accomplish equitable restoration.

## Conclusion

The appellate court upheld rescission of WellTech’s stock purchase and held Vanguard’s control persons jointly liable for securities fraud, ruling that the controlled corporation’s non-joinder did not bar control-person liability and that rescission, including partial rescission of a separable stock transaction, was proper where the purchaser retained and tendered the securities.


Summers v. WellTech, Inc., 935 S.W.2d 228 (Tex. App.—Houston [1st Dist.] 1996)