Wielgos v. Commonwealth Edison Co.

892 F.2d 509 (7th Cir. 1989)

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Nature of the Case

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Facts

D is eligible to register its securities on Form S-3. D put three million shares of common stock on the shelf, using Rule 415. The succinct registration statement incorporated 176 pages of other filings, as Form S-3 permits. D sold the shares to the public on December 5, 1983, for the market price of $27.625. P bought 500 of these shares. D operates several nuclear reactors, and at the time of the shelf registration, it had five more under construction. None could operate without a license, which the Nuclear Regulatory Commission does not issue unless satisfied that the reactor is safe. From disasters and from better engineering knowledge, the NRC began to be more and more demanding, which postpones the operation of reactors under construction and increases their cost. One of the reactors under construction was being considered for an operating license. The Atomic Safety and Licensing Board (ASLB) did something it had never done before (and has not done since): it denied the application outright, implying that the reactor must be dismantled. The next market day D's stock dropped to $21.50, a loss to equity investors of about $ 1 billion - which reflected not only the write-off of the disapproved reactor but also the likely increase in the costs of completing the other four reactors. The NRC's appeal board reversed the ASLB in May 1984. Five months later the ASLB recommended that the NRC issue a license, which it did. Stock prices rebounded. The delays cost D more than $200 million. The State refused to allow D to recover the $200 million lost. P filed suit on behalf of all who purchased in the shelf offering, naming as defendants the issuer and its underwriters demanding $ 6.125 per share, the amount equity securities declined between purchase and suit. P claims that D had violated §11 of the Securities Act of 1933, 15 U.S.C. § 77k. The court found for D and P appealed.