Securities Regulation-Applicability of Exchange Act Section 10(b) to Transaction Effected by Means of Intrastate Telephone Call

Plaintiff alleged that he had been defrauded in a sale of securities to the defendant. Plaintiff attempted to invoke section 10(b) of the Securities Exchange Act of 1984, which prohibits various fraudulent practices in securities trading. In order to state a cause of action under 10(b), it was necessary for plaintiff to allege that a means or instrumentality of interstate commerce had been used directly or indirectly in connection with the sale. The sale in this case had been effected through telephone conversations over wires located within the city of Philadelphia. However, the wires carrying the calls could be used for interstate as well as intrastate calls. On defendant’s motion for summary judgment, held, motion granted. The character of the telephone as an instrumentality of commerce should be determined by the use to which it is put, and Congress did not intend to include the use of a telephone for an intrastate call within the phrase “use of any means or instrumentality of interstate commerce.” Rosen v. Albern Color Research, Inc., 218 F. Supp. 473 (E.D. Pa. 1963). In a case decided within one week of the Rosen case, the opposite result was reached on similar facts, the court’s theory being that a telephone is by nature an instrumentality of interstate commerce; thus any use of the telephone satisfies the requirements of section 10(b). Nemitz v. Cunny, 221 F. Supp. 571 (N.D. Ill. 1963).