Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Sunday, February 25, 2007

Eleventh Circuit: Section 11 Really Does Have a Reliance Requirement

APA Excelsior III v. Premiere Technologies, 2007 WL 286258 (11th Cir.(2/2/07).   The 11th Circuit affirmed a district court's dismissal of a complaint filed under 33 Act section 11 brought by investors who were 30% shareholders in a corporation that merged with defendant corporation. The stock issued pursuant to the merger was registered under section 11, and the registration statement allegedly contained false and misleading statements.  Finding that plaintiffs were sophisticated investors who had not exercised their due diligence rights in any meaningful way, the court said could not show reasonable reliance on the registration statement.  Since section 11 does not require a showing of reliance (except in one narrow instance, not applicable here), the court looked at legislative history to interpret section 11 as setting forth a presumption of reliance (and not a strict liability statute) and further found the presumption was rebutted in this instance because of its "pre-registration commitment theory."

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