Buford White Lumber Co. Profit Sharing & Savings Plan & Trust v. Octagon Properties, Ltd.

ORDER

Before the Court is the motion of Defendant Andrews Davis Legg Bixler Milsten & *1557 Murrah, Inc. to dismiss Plaintiffs’ Amended Complaint pursuant to Rule 9(b) and 12(b)(6), F.R.Civ.P.

In the Amended Complaint, Plaintiffs allege that Defendant prepared a series of prospectuses, offering circulars and related documents relating to the sale of limited partnerships and stock in Octagon Properties, Ltd. with the purpose and intent that they would be relied upon by potential investors such as the Plaintiffs. See Amended Complaint at If 64. See also id. at ¶ 77. Plaintiffs specifically allege that Defendant prepared a “February, 1986, stock offering document” which included false and misleading statements, all of which related to the financial condition of Octagon Properties, Ltd. Id. at 65-66. Plaintiffs allege that Defendant by the exercise of due diligence either knew or should have known that statements in the offering document were false and misleading, id. at ¶ 66, and that Defendant made no effort to verify the accuracy of information concerning the financial condition of Octagon Properties, Ltd. or to require inclusion in the offering document of “independent data” concerning Octagon’s financial condition. See id. at U 67. Rather, Plaintiffs allege that Defendant “accepted unquestionably and uncritically the information supplied by Dennis Lowder and Octagon Properties.” Id. Plaintiffs further allege that Defendant had an obligation to the public and to Plaintiffs under federal and state securities laws to register the securities and to exercise due diligence to assure that statements and representations in “said documents” were true and accurate but that Defendant breached these duties. Id. at ¶ 68. Had Defendant “exercised due diligence, provided the required registration statements, and assured that all necessary information was obtained, ... was correct, and was disclosed,” id. at ¶ 70, Plaintiffs aver that they wouldn’t have invested what they did with Octagon Properties and would “not have lost their investments.” Id. Additionally, Plaintiffs allege that Defendant acted either with knowledge of the misstatements or “with such reckless disregard ... as amounts in law to malicious, intentional and knowing conduct, due to their failure to exercise due diligence to inquire into the true circumstances.” Id. at 1173. See also id. at ¶ 77. Plaintiffs allege that they relied on Defendant’s misrepresentations to their detriment and damage. Id. at H 77. Plaintiffs further allege that Defendant is a seller of securities, id. at ¶ 75, and that it received from Octagon in excess of $42,000.00 for its services in preparing offering documents, id. at 1171, an amount Plaintiffs allege exceeds “fair compensation for the degree of inquiry conducted.” Id.

I. Violations of Sections 12(1) and 12(2) of the Securities Act of 1933, 15 U.S.C. § 771

A. Primary Liability

In support of its motion to dismiss Plaintiffs’ Section 12(1) and Section 12(2) claims, Defendant first asserts that Plaintiffs have not alleged, nor could they allege, that Defendant “sold” or “solicited” the sale of securities to Plaintiff within the contemplation of Pinter v. Dahl, 486 U.S. 622, 108 S.Ct. 2063, 100 L.Ed.2d 658 (1988).

In Pinter v. Dahl, the United States Supreme Court rejected the “substantial factor” test for primary liability under Section 12(1) and held that the class of Defendants subject to primary liability under Section 12(1) of the Securities Act of 1933 is limited to 1) those who pass title to the security to a buyer for value; and 2) those who successfully solicit the purchase of a security, “motivated at least in part by desire to serve ... [their] own financial interests or those of the securities owner.” 486 U.S. at 640-652 & 647, 108 S.Ct. at 2075-2081 & 2078, 100 L.Ed.2d at 678-685 & 682.

Plaintiffs in response first assert that the Pinter decision’s application is limited to defining those who may be primarily liable for violations of Section 12(1). While the Pinter case expressly addressed Section 12(1) only and its holding is limited to who may be primarily liable under that section, the reasoning of the Pinter decision is equally applicable to Section 12(2) inasmuch as Section 12(2), like Section 12(1), applies to persons who “offer” and *1558 “sell” securities and the same definitions of those terms, see 15 U.S.C. § 77b(3), which the Supreme Court construed in Pinter, apply to both subsections (1) and (2) of Section 12. Accord Abell v. Potomac Insurance Co., 858 F.2d 1104, 1113-115 (5th Cir.1988), petition for cert. filed March 13, 1989.

The Court therefore examines Plaintiffs’ allegations that Defendant offered and sold securities in violation of Sections 12(1) and 12(2) in light of the teaching of Pinter v. Dahl. Plaintiffs first allege that Defendant “is a seller of securities, within the meaning of 15 U.S.C. § 111 if) ... in that it was a substantial factor in causing said sales to take place, and aided and abetted the conspiracy previously described____” Amended Complaint at ¶ 75. Plaintiffs also allege that as a seller, Defendant prepared at least one prospectus, for the February 1986 stock offering (and possibly others, see id. at If If 76), and that by preparing the offering of securities, Defendant “obtained money for itself, and for Octagon Properties.” Id. at If 78.

Plaintiffs’ allegations of a motive of financial gain for itself or the issuer satisfy that aspect of the Pinter definition of an offeror or seller. Thus, the sole question presented by Plaintiffs allegations and Defendant’s Pinter-based argument is whether a law firm which prepares an offering document, motivated at least in part by a desire to obtain financial benefit for itself and/or the issuer can, without more, be a “solicitor” of a purchase or offer to purchase.

Upon a careful examination of the Supreme Court’s description of the terms “solicit” and “solicitation,” as well as its stated rationale for rejecting the “substantial factor” test, the Court is persuaded that it may not. First, a law firm which prepared an offering memorandum is not one which would “commonly be said, and would be thought by the buyer, to be among those ‘from’ whom the buyer ‘purchased’.. ..” 486 U.S. at 643, 108 S.Ct. at 2077, 100 L.Ed.2d at 680. Secondly, mere preparation of an offering memorandum is not actively “directed at producing the sale,” 486 U.S. at 646, 108 S.Ct. at 2078, 100 L.Ed.2d at 682; rather, such activity may more properly be characterized as a condition necessary to a sale, or as an activity without which there would be no sale, satisfying a mere “but for” causation test. See e.g., Davis v. Avco Financial Services, Inc., 739 F.2d 1057, 1067 (6th Cir.1984), cert. denied, 470 U.S. 1005, 105 S.Ct. 1359, 84 L.Ed.2d 381 (1985) (overruled on other grounds in Pinter v. Dahl, see 486 U.S. at 649 n. 25, 108 S.Ct. at 2080 n. 25, 100 L.Ed.2d at 683 n. 25). A law firm which does no more than prepare an offering memorandum is not “persuading” or “urging” a person to purchase and thus is not “soliciting” a purchase as contemplated by the Supreme Court in Pinter v. Dahl. See 486 U.S. at 646, 108 S.Ct. at 2078, 100 L.Ed.2d at 682. While it is true that a preparer of an offering memorandum may be “well positioned to control the flow of information to a potential purchaser” and may be said to “disseminate material information to investors,” id. (emphasis added), it is apparent that the relationship between a law firm which prepared an offering document and a plaintiff purchaser is not that of a seller or solicitor and purchaser as contemplated by the Supreme Court:

The “purchase from” requirement of § 12 focuses on the defendant’s relationship with the plaintiff-purchaser. The substantial-factor test, on the other hand, focuses on the defendant’s degree of involvement in the securities transaction and its surrounding circumstances. Thus, although the substantial-factor test undoubtedly embraces persons who pass title and who solicit the purchase of unregistered securities as statutory sellers, the test would also extend § 12(1) liability to participants only remotely related to the relevant aspects of the sales transaction. Indeed, it might expose securities professionals, such as accountants and lawyers, whose involvement is only the performance of their professional services, to § 12(1) strict liability for rescission. The buyer does not, in any meaningful sense, “purchas[e] the security” from such a person. *1559 486 U.S. at 651, 108 S.Ct. at 2081, 100 L.Ed.2d at 684-85 (footnote omitted).

In the face of the foregoing language, it must be concluded that a law firm which is alleged to have prepared an offering memorandum but not to have any personal contact with the plaintiff purchasers at best merely assists in another’s solicitation efforts or participates in soliciting a purchase, neither of which relationships with the plaintiff purchasers are sufficient to render the law firm a statutory seller. See 486 U.S. at 651 n. 27, 108 S.Ct. at 2081 n. 27, 100 L.Ed.2d at 685 n. 27.

B. Statutes of Limitations

Defendant asserts that Plaintiffs’ Section 12(1) and 12(2) claims are barred by the applicable one-year and two-year statutes of limitations, respectively, 15 U.S.C. § 77m inasmuch as the sales of securities which are the subject of this action took place “sometime in early 1986 and Plaintiffs did not institute suit until September 20, 1988.” Defendant also maintains that Plaintiffs’ allegations concerning discovery are insufficient to toll the statute of limitations for Section 12(2).

Plaintiffs maintain that allegations in their Amended Complaint together with affidavits attached to their Complaint contain sufficient factual basis for tolling both statutes of limitations until March of 1988.

The one-year limitation period governing section 12(1) claims, 15 U.S.C. § 77m, is not subject to a discovery rule or equitable tolling. McCullough v. Leede Oil & Gas, Inc., 617 F.Supp. 384, 387 (W.D.Okla.1985). Accordingly, the Court examines Plaintiffs’ pleading to determine whether Plaintiffs have alleged a “violation” of section 12(1) within one year prior to the date suit was filed, see 15 U.S.C. § 77m, so as to satisfy their burden of affirmatively pleading compliance with the statute of limitations. See, e.g., Toombs v. Leone, 777 F.2d 465, 468 (9th Cir.1985); Cook v. Avien, Inc., 573 F.2d 685, 691 (1st Cir.1978). To the extent Plaintiffs rely on the offer of unregistered securities by mailing of the offering memorandum for the 1986 stock offering in Octagon Properties, Inc., see Petition (now Complaint) at 11 2 and Amended Complaint at Ml 64-68, as the “violation,” Plaintiffs’ § 12(1) claims are barred by the statute of limitations. Plaintiffs allege that this offer occurred in February of 1986, more than one year prior to the date suit was filed. Moreover, the offering memorandum, which is attached to Plaintiffs’ Amended Complaint as Exhibit “I,” itself shows that Plaintiffs’ claims for § 12(1) violations based upon the offer are-barred by the one-year statute of limitations. The offering memorandum, dated February 28, 1986, states that the offer expires May 31, 1986 unless extended by the issuer and in no event later than August 31,1986. See Exhibit “I” to Amended Complaint at p. ii & Exh. C. To the extent Plaintiffs rely on the sales or deliveries of the securities as the “violation(s),” Plaintiffs have failed to allege when these sales or deliveries occurred, see Petition at MI 2 & 3, and thus have failed to show that their claims were brought within the one-year limitations period.

The one year limitations period applicable to Section 12(2) claims does not begin to run until discovery of the untruth or omission or until such time as discovery should have been made by the exercise of reasonable diligence, whichever first occurs. See 15 U.S.C. § 77m. Compliance with this statute must be affirmatively alleged. See, e.g., Gale v. Great Southwestern Exploration Co., 599 F.Supp. 55, 57 (M.D.Okla.1984); In re Longhorn Securities Litigation, 573 F.Supp. 255, 266 (W.D.Okla.1983); Woods v. Homes and Structures of Pittsburg, Kansas, Inc., 489 F.Supp. 1270, 1290 (D.Kan.1980). Plaintiffs have alleged that “[ejvents involved herein which occurred more than two years ago each were not known by or disclosed to Plaintiffs until either 1988 or in some instances late in 1987, and could not reasonably have been discovered by them previously.” Petition (now Complaint) at 11 8. While it is at best inartful to refer to omissions in connection with the sale of securities as “events,” when all reasonable inferences which may be drawn from this allegation are entertained in Plaintiffs’ favor, the Court concludes that this averment *1560 is sufficient, though minimally so, to satisfy Plaintiffs’ burden of pleading compliance with the applicable one-year limitations period. The Court cannot say that Plaintiffs can prove no facts entitling them to relief on these claims. Neither this Court nor any judge in this district nor the Tenth Circuit has, to this Court’s knowledge, ever adopted or employed the stringent three-part test for the sufficiency of allegations of discovery, see Conley v. First Jersey Securities, Inc., 543 F.Supp. 368 (D.Del.1982); Kroungold, v. Triester, 407 F.Supp. 414 (E.D.Pa.1975), urged by Defendant and the Court declines to now adopt it.

II. Violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) and S.E.C. Rule 10b-5, 17 C.F.R. 240.10b-5

A. Primary Liability

Defendant challenges Plaintiffs’ claim against it for a primary violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5, on the ground that Defendant had no duty to disclose the alleged misrepresentations or omissions of Octagon Properties, Ltd. to the Plaintiffs. Defendant points out that absent a duty to disclose, silence cannot be fraudulent, citing Windon Third Oil and Gas Drilling Partnership v. Federal Deposit Insurance Corp., 805 F.2d 342, 347 (10th Cir.1986), cert. denied, 480 U.S. 947, 107 S.Ct. 1605, 94 L.Ed.2d 791 (1987), and then asserts that professionals such as law firms and accountants have no duty to disclose the fraud of their clients, citing numerous cases.

Plaintiffs do not disagree with Defendant’s characterization of what their Complaint alleges regarding the manner in which Defendant is alleged to have violated Section 10(b) and Rule 10b-5. Rather, Plaintiffs assert that Defendant had a host of duties to Plaintiffs giving rise to a duty to disclose. The Court will examine these asserted duties in turn.

First, Plaintiffs allege and argue that Defendant was performing legal services for the limited partnerships in which Plaintiffs were limited partners {see Petition, now Complaint at 11 5a & H lv and Amended Complaint at ¶¶ 64 & 65) and therefore was necessarily performing legal services for each of the limited partners and thus had duties to them. Plaintiffs extract this argument from state statutes providing that a limited partnership is a type of partnership, see Okla.Stat. title 54 § 142, and that a limited partner has the same rights as a general partner to have true and full information concerning the partnership, see Okla.Stat. tit. 54, § 151(a)(2) and from a California case holding that upon formation of a general partnership, the general partners were joint clients of a law firm. * Plaintiffs assert that this principle of an attorney’s duty is also supported by cases holding that an attorney advising a fiduciary about an employee’s benefit plan necessarily represents not just the fiduciary personally, but the employee beneficiaries as well, see Washington-Baltimore Newspaper Guild, Local 35 v. Washington Star Co., 543 F.Supp. 906 (D.D.C.1982); that an attorney representing an unincorporated association represents each member thereof, citing Philadelphia Housing Authority v. American Radiator & Standard Sanitary Corp., 294 F.Supp. 1148 (E.D.Pa.1969); Schwartz v. Broadcast Music, 16 F.R.D. 31 (S.D.N.Y.1954); and that an attorney for a trustee necessarily is obligated toward the beneficiaries of that trust. Riggs National Bank of Washington, D. C. v. Zimmer, 355 A.2d 709 (Del.Ch.1976).

Defendant replies that a lawyer representing a partnership or other legal entity does not become counsel for the individual partners, owners or investors, citing a number of cases from other jurisdiction. De *1561 fendant observes that this principle comports with the Oklahoma Rules of Professional Conduct, Okla.Stat. title 5, Ch. 1, App. 3-A, Rule 1.13 (Supp.1988) and the former Code of Professional Responsibility, Okla.Stat. title 5, Ch. 1, App. 3, EC 5-18. ** Further, Defendant maintains that two cases support the specific proposition that an attorney for a partnership or for a general partnership does not assume obligations to the limited partners. Defendants cite Mursau Corp. v. Florida Penn Oil & Gas, Inc., 638 F.Supp. 259 (W.D.Pa.1986), aff 'd, 813 F.2d 398 (3rd Cir.1987) and Hackett v. Village Court Associates, 602 F.Supp. 856 (E.D.Wis.1985).

First, the California case cited by Plaintiffs was ordered not published and as such has little or no persuasive value. See Rule 976, Cal. Rules of Ct.

Secondly, the offering memorandum which is attached to the Amended Complaint shows that Defendant’s role in preparing it was as counsel to Octagon Properties, Ltd. in its corporate capacity (rather than in its capacity as general partner to the partnerships) and not as counsel to the partnerships. .Thus, any inference that Defendant was acting as counsel to the limited partners in its role in preparation of the offering memorandum for the exchange offer is not justified in fact and would require an inference that Defendant was acting as counsel both to the seller and the purchasers (and vice versa) in an exchange transaction, in a potential direct conflict-of-interest situation. See Okla. Stat. title 5, Ch. 1, App. 3, DR 5-105. Such an inference is also inconsistent with the Offering Memorandum’s suggestion that “[ojfferees should consult their own advisors prior to exchanging any interest,” Offering Memorandum at p. 3. Accord Mursau Corp. v. Florida Penn Oil & Gas, Inc., 638 F.Supp. at 262-63.

Thirdly, the provision of the Uniform Limited Partnership Act which Plaintiffs cite does create informational rights in limited partners from which a correlative duty on the part of general partners to provide the same information which such general partner is entitled to receive from another general partner, see 6 U.L.A., Uniform Limited Partnership Act § 10(l)(b), codified at Okla.Stat. title 54, § 151(a)(2) and 6 U.L.A., Uniform Partnership Act § 20, codified at Okla.Stat. title 54, § 220, may be inferred, but in the Court’s opinion, this statute cannot fairly be interpreted to impose duties on third persons. An interpretation of this statute which would impose a duty on an attorney for a general partner to disclose all information obtained from such general partner pertaining to “things affecting the partnership” while in a confidential attorney-client relationship with the general partner would severely undermine the attorney-client privilege and could well make it impossible for a general partner to obtain legal advice about matters in which the general partner’s interests may conflict with the limited partners’ interests.

Moreover, even if the statute were to be construed to create in third parties such as an attorney the duty to provide limited partners the same information that they provide to general partners, such a construction would not aid the Plaintiffs herein. The Offering memorandum shows that Defendant did not provide Octagon Properties, Ltd., general partner of the partnerships, or for that matter anyone, any information about Octagon Properties, Ltd.’s financial condition:

The historical and Pro Forma financial statements of OCTAGON and the Partnerships contained in this Offering Circular have been prepared by OCTAGON, are unaudited and the content thereof is the sole responsibility of OCTAGON.

The Exchange Values are based upon estimates made solely by Octagon, not based on independent appraisals, of the values of the properties and interests. *1562 Offering Memorandum, Exhibit “I” to Amended Complaint at p. (viii) (unnumbered) (emphasis added).

See also id. at p. 3 & 47.

Next, Plaintiffs argue that Oklahoma law imposes a special duty upon attorneys involved with securities, without regard to privity or an attorney-client relationship and without regard to securities statutes, citing Bradford Securities Processing Services, Inc. v. Plaza Bank and Trust, 653 P.2d 188 (Okla.1982). Plaintiffs assert that the Bradford case is an extension of the liability of professionals without regard to privity when it is foreseeable that their negligent performance of professional services will injure others which Plaintiffs assert the Oklahoma Supreme Court recognized in Keel v. Titan Construction Corp., 639 P.2d 1228 (1982).

As Defendant points out, however, the Bradford case is factually distinguishable in that it involved affirmative representations by a lawyer in the form of a signed opinion letter. Under these circumstances it was foreseeable to the attorney that his opinion would be relied upon by purchasers of the bonds to their injury and because this was foreseeable, the attorney had a duty to use ordinary care to prevent injury. See 653 P.2d at 190-191. Thus, the Oklahoma Supreme Court recognized a common law cause of action for negligent misrepresentation in the defined circumstances. However, a cause of action for negligent misrepresentations does not apply to omissions. See Restatement (Second) of Torts § 552 (1977) (Information Negligently Supplied for the Guidance of Others); Comment 6, Restatement (Second) of Torts § 525 (defining misrepresentation). Compare with Restatement (Second) of Torts § 551 (Liability for Nondisclosure, requiring existence of a duty). In the instant case Defendant asserts and Plaintiffs agree that the claim against Defendant is for its failure to disclose misrepresentations and omissions of Octagon Properties, Ltd.

Even if this Court were to import the Bradford definition of duty to this nondisclosure case, the Court would be compelled to conclude that no duty existed. An ordinarily prudent person in Defendant’s position could not reasonably foresee that the Plaintiffs or persons in their position would rely upon Defendant to disclose misrepresentations or omissions in the financial statements of the issuer and would thus suffer injury as a result of such nondisclosure in view of the circumstances of the case. The Offering Memorandum not only stated that the financial statements were prepared by Octagon and were its sole responsibility, but it also stated as follows:

Thorough analysis of this Exchange Offer requires a review and verification by an Offeree’s tax, legal and business advisors and may require review by consultants, including appraisers. Counsel to the Company is not experienced in reviewing and verifying such economic factors nor has it attempted to do so. Offerees should consult their own advisors prior to exchanging any interests.

Offering Memorandum Exhibit “I” to Amended Complaint, at p. 3.

The validity of the issuance of the Common and Preferred Stock offered hereby will be passed upon for the Company and the matters in connection with Federal income tax law and tax consequences to the offerees have been passed upon by the firm of Andrews Davis Legg Bixler Milsten & Murrah, Inc., 500 West Main, Oklahoma City, Oklahoma 73102.

Id. at p. 47.

The financial statements of OCTAGON as of September 30, 1985, do not conform with the requirements of Regulation S-X of the Securities Act of 1933, as amended, and are unaudited. No representation is made that the financial statements of OCTAGON are in accordance with *1563 generally accepted accounting principles. Id.

In the face of these disclaimers and disclosure of the limited undertaking of Defendant with respect to information or matters disclosed in the offering memorandum, it would be unforeseeable as a matter of law to a prudent law firm in Defendant’s position that potential purchasers, including Plaintiffs, would rely upon Defendant’s nondisclosure of any misrepresentations or omissions in the financial statements of Octagon as a representation by Defendant that the statements were accurate by reason of which Plaintiffs might be harmed. So too was it unforeseeable as a matter of law to a person in Defendant’s position that persons similarly situated to Plaintiffs would understand that Defendant was furnishing financial statements of Octagon Properties, Inc. for the guidance of such persons in their business transactions. The Offering Memorandum states that the financial statements were prepared by and were the sole responsibility of Octagon. In short, Defendant did not undertake to prepare, evaluate the accuracy of, or opine upon the accuracy of financial statements furnished by Octagon and said so. It could not, therefore, have foreseen that persons in Plaintiffs’ position would nevertheless expect Defendant to disclose any misrepresentations or omissions in Octagon’s financial statements. “The particulars in which the recipient of information supplied by another is entitled to expect the exercise of care and competence depend on the character of the information that is supplied.” Comment e, Restatement (Second) of Torts § 552. Accord, Abell v. Potomac Insurance Co., 858 F.2d at 1124 n. 20, 1124-1133 (“In general, the law recognizes ... suits [by third parties against lawyers] only if the non-client plaintiff can prove that the attorney prepared specific legal documents that represent explicitly the legal opinion of the attorney preparing them, for the benefit of the plaintiff,” noting that this rule adopted by a growing number of states reflects the increasing influence of § 552).

Other arguments made by the Plaintiffs are equally unavailing. Plaintiffs attempt to extract a duty to disclose from an attorney’s ethical obligation not to “[k]nowingly make a false statement of law or fact.” Okla.Stat. title 5, ch. 1, App. 3, DR 7-102(a)(5). This imposes upon attorneys a duty not to make affirmative misrepresentations of law or fact but does not impose upon them an affirmative duty to disclose others’, including their clients’, misrepresentations or omissions. Plaintiffs invoke an attorney’s obligation to exercise due diligence: 1

The duty of the lawyer includes the obligation to exercise due diligence, including a reasonable inquiry, in connection with responsibilities he has voluntarily undertaken. A lawyer has no privilege to assist the issuer circulate statements which he knows or should know to be false simply because they were furnished to him by his client.

Felts v. National Account Systems Association, Inc., 469 F.Supp. 54, 67 (N.D.Miss.1978) (emphasis added). 2

Citing Escott v. BarChris Construction Corp., 283 F.Supp. 643 (S.D.N.Y.1968), Plaintiffs allude to a duty on the part of attorneys to make “a reasonable independent investigation to detect and correct false or misleading materials.” Felts v. National Account Systems Association, Inc., 469 F.Supp. at 67, citing Escott v. BarChris Construction Corp., 283 F.Supp. 643.

*1564 The BarChris case dealt exclusively with the civil liability of various defendants under Section 11(a) of the Securities Act of 1933, 15 U.S.C. § 77k(a), for an allegedly false registration statement. The issue of whether the underwriters’ counsel and a director’s counsel had made reasonable investigations of the truth of statements in the prospectus was addressed only in the context of whether the underwriters and the director had met their statutory affirmative defense (of a reasonable ground to believe and actual belief of the truth of the statéments and that there was no material omission, after reasonable investigation see 15 U.S.C. § 77k(b)(3)) by reliance on their counsel’s investigations, which were inadequate or non-existent. See 283 F.Supp. at 697. Plaintiffs have hot alleged a Section 11 violation. Any duties of an attorney implicit under that section or the discharge of which is necessary to establish an attorney’s affirmative defense to an action under that section are not pertinent to Plaintiffs’ claims. See Ernst & Ernst v. Hochfelder, 425 U.S. at 207-08 & n. 26, 96 S.Ct. at 1387-88 & n. 26, 47 L.Ed.2d at 685 & n. 26. Accord, Dirks v. S.E.C., 463 U.S. 646, 653-64, 103 S.Ct. 3255, 3260-61, 77 L.Ed.2d 911, 921-28 (1983); Chiarella v. United States, 445 U.S. 222, 227-35, 100 S.Ct. 1108, 1114-18, 63 L.Ed.2d 348, 356-61 (1980); Barker v. Henderson, Franklin, Starnes & Holt, 797 F.2d 490, 496 (7th Cir.1986) (a duty of disclosure necessary to impose liability under Section 10(b) for nondisclosure must come from a fiduciary relation outside securities law).

Securities and Exchange Commission v. Frank, 388 F.2d 486 (2nd Cir.1968) was an appeal from an order issuing a temporary injunction against an attorney in connection with a civil enforcement action by the SEC alleging violations of Section 17(a) of the Securities Act of 1933 and of Section 10(b) of the Securities Exchange Act of 1934. The court’s statements therein are dictum, given the disposition of the appeal, and in any event appear directed at the attorney’s potential liability for aiding and abetting his client’s fraud rather than a duty to disclose it. Moreover, to the extent a mere failure to exercise due care to discover the fraud of another may have supported injunctive relief in SEC actions in the Second Circuit before Aaron v. S.E.C., 446 U.S. 680, 100 S.Ct. 1945, 64 L.Ed.2d 611 (1980), that is no longer the case.

In the Felts case the court relied on the Frank and BarChris cases to conclude that an attorney had a special duty of diligent investigation and disclosure which he voluntarily assumed with respect to the purchasers of the securities inasmuch as it was foreseeable and known to him that the purchasers would rely upon him. See 469 F.Supp. at 67-68. In the present case, Defendant did not sign or certify the Offering Memorandum or the financial statements contained therein or undertake to opine on or evaluate the accuracy of the financial statements. Thus, there was no voluntary assumption of a special duty of investigation and disclosure and it was unforeseeable as a matter of law that Plaintiffs would rely upon Defendant’s failure to comment as an assertion of the accuracy of the financial statements.

It is also to be noted that the court in the Felts case concluded that the attorney was liable as an aider and abettor, participant, controlling person and co-conspirator of the issue for violations of federal and state securities laws and common law fraud. See 469 F.Supp. at 66-68. The court did not consider whether the atto