with whom
BECKER, Circuit Judge, joins, concurring and dissenting.I concur in the judgment of the court insofar as it vacates the district court’s dismissal of appellants’ state law claims and remands those claims for' further proceedings. I dissent from that part of the court’s judgment that affirms the dismissal of appellants’ claim under section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b).
I.
This appeal comes to us from a grant of summary judgment in favor of appellees. Summary judgment was based on the district court’s decision in Pittsburgh Terminal Corp. v. Baltimore & Ohio R.R., 509 F.Supp. 1002 (W.D.Pa.1981). Plaintiffs in Pittsburgh Terminal held convertible debentures of the Baltimore & Ohio Railroad [B & O] on December 13,1977. They alleged that B & O’s failure to provide advance notice to its convertible debentureholders of a December 13, 1977 dividend of Mid-Allegheny Corporation [MAC] to B & O’s common stockholders violated Rule 10b-5, 17 C.F.R. § 240.10b-5 (1982). The district court held in Pittsburgh Terminal that B & O’s failure to provide advance notice of the December 13, 1977 dividend did not violate Rule 10b-5.
The Lowrys, class representatives in this case, purchased B & O convertible debentures after December 13, 1977. They claim that they hold their sellers’ claims by assignment. The Lowrys brought a class action against appellees under section 10(b) based on the same conduct that underlay the 10(b) claim in Pittsburgh Terminal.
Before Pittsburgh Terminal was resolved by bench trial, appellees moved for summary judgment in this case on two grounds: first, the Lowrys purchased after December 13, 1977 and thus lacked standing to assert any 10(b) claim arising out of B & O’s failure to provide advance notice of the MAC dividend; and, second, appellants were barred from asserting any such claim by the one year statute of limitations under Pennsylvania’s Blue Sky Law, Pa.Stat.Ann. tit. 70, § l-504(a) (Purdon Supp.1982).
The district court denied that motion, rejecting appellees’ first argument and deferring resolution of the second to trial on the merits. In rejecting appellees’ first argu-. ment, the district court determined that those persons who held convertible debentures on December 13,1977 held contractual rights to purchase the underlying common stock and thus had standing to assert a 10(b) claim under the rule of Birnbaum v. Newport Steel Corp., 193 F.2d 461 (2d Cir.), cert. denied, 343 U.S. 956, 72 S.Ct. 1051, 96 L.Ed. 1356 (1952). See Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 751, 95 S.Ct. 1917, 1932, 44 L.Ed.2d 539 (1975) (recognizing that “the holders of puts, calls, options and other contractual rights or duties to purchase or sell securities have been recognized as ‘purchasers’ or ‘sellers’ of securities for purposes of Rule 10b-5”).
The district court’s class certification in this case included within the class both those persons who had purchased debentures before December 13, 1977 and had converted after that date and those who, like the Lowrys, had purchased after December 13, 1977.1 However, in rejecting appellees’ standing argument, the district court did not determine whether the Lowrys, and other class members who had purchased after December 13, 1977, [Lowrys] *745had been assigned the 10(b) claims of their sellers, nor whether they could assert those claims as assignees.
After a bench trial, the district court held in Pittsburgh Terminal that B & O’s failure to make a timely disclosure of its December 13,1977 dividend had not been accompanied by the scienter required under Rule 10b-5 and dismissed the case. Whereupon, appellees in the present case made a second motion for summary judgment. They argued that because appellants’ 10(b) claim in this case was predicated on the same failure to disclose as the claim in Pittsburgh Terminal, the district court should dismiss appellants’ 10(b) claim on the ground that B & 0 had not acted with the scienter required by Rule 10b-5. The district court agreed and granted appellees’ second motion solely on the basis of its decision in Pittsburgh Terminal. Lowry v. Baltimore & Ohio R.R., No. 79-1504 (W.D.Pa. May 15, 1981).
Plaintiffs in both Pittsburgh Terminal and Lowry appealed. This court reversed the district court’s decision in Pittsburgh Terminal, holding that B & O had a duty to provide advance notice to its convertible debentureholders of the MAC dividend and that in failing to make such a disclosure, B & O had acted with the scienter required to support a claim under Rule 10b-5. Pittsburgh Terminal Corp. v. Baltimore & Ohio R.R., 680 F.2d 933 (3d Cir.1982), cert. denied, - U.S. -, 103 S.Ct. 476, 74 L.Ed.2d 621 (1982).
The appeal in this case presents two questions: first, whether a violation or Rule 10b-5 has been established; and, second, whether a claim arising out of any such violation has been automatically assigned to the Lowrys.
II.
I agree with this court’s opinion in Pittsburgh Terminal that Rule 10b-17,17 C.F.R. § 240.10b-17 (1982), imposed on B & O the duty to give advance notice to its convertible debentureholders of the dividend in MAC stock and that the breach of that duty could support a claim under Rule 10b-5. I also agree that in failing to provide such notice, B & O acted with the scienter required to support a violation of Rule 10b-5. Because I agree with the panel in Pittsburgh Terminal that B & O’s conduct violated Rule 10b-5,1 need not decide whether appellants may also rely on the panel’s judgment in Pittsburgh Terminal to collaterally estop appellees from relitigating that issue before this court sitting in banc.
Rule 10b-17 imposes a duty on the issuer of a publicly traded class of securities to give notice 10 days prior to the record date of any dividend or other distribution “relating to such class of securities.” Although the common stock on which the MAC dividend was declared was not a publicly traded class of securities at the time of the declaration, the convertible debentures were. Thus, the question is whether the MAC dividend related to the convertible debentures within the meaning of the rule. Because the term “relating to” is not defined in Rule 10b-17, we must determine its meaning from existing case law under section 10(b).
This court has held that the purchaser of a convertible debenture who purchases relying on material misrepresentations in the equity prospectus may state a claim under section 10(b). Kusner v. First Pennsylvania Corp., 531 F.2d 1234, 1238 (3d Cir.1976). As Kusner recognizes, the value of the conversion privilege is inextricably tied to the value of the underlying common stock. The value of the common stock, in turn, depends largely on the issuer’s dividend policy. B & O’s convertible debentureholders had a contractual right to purchase B & O common stock at a given price. To exercise their conversion options as informed investors, the bondholders had to know the value of the stock underlying that option. Thus, as both a practical matter and for purposes of section 10(b), I believe that the MAC dividend related to the publicly traded convertible debentures.
I believe that Rule 10b-17 imposed on B & O a duty of timely disclosure the breach of which is, in this case, sufficient to support a claim under Rule 10b-5. Thus, I need not decide whether the Indenture *746Agreement or B & O’s listing agreement with the New York Stock Exchange imposed similar duties.
HI.
As discussed above, the district court granted summary judgment in this case on the basis of its decision in Pittsburgh Terminal that B & O’s conduct did not violate Rule 10(b)-5. I believe, as did the majority of the panel in Pittsburgh Terminal, that the district court’s decision in Pittsburgh Terminal was incorrect. Thus, I would not affirm the district court’s dismissal of appellants’ 10(b) claim in this case on that basis. Appellees may nevertheless prevail against the Lowrys if this court determines that the Lowrys do not hold a valid assignment of any 10(b) claim arising out of B & O’s failure to provide advance notice of its MAC dividend. I turn now to that issue.
Because the district court held in this case that B & O’s failure to provide advance notice did not violate section 10(b), it never reached' the question whether any 10(b) claim had been assigned to those who purchased after December 13,1977. Normally, I would prefer to have the district court address the question of assignment on remand. However, the assignment issue has been fully briefed and argued before this court, and in the interest of judicial economy, I agree that we should resolve that issue now.
Both parties concede that the section 10(b) claim is assignable as a matter of federal law, and both relevant ease law and commentary indicate that this is so. See, e.g., Mills v. Sarjem Corp., 133 F.Supp. 753, 761-62 (D.N.J.1955); 3 Loss, Securities Regulation 1817-19 (2d Ed.1962). The Lowrys did not obtain an express assignment of their sellers’ claims. However, they claim that any 10(b) claim that had accrued to their sellers was automatically assigned to them as purchasers of the convertible debentures. If such a claim was not automatically assigned, the Lowrys may not prevail on the 10(b) claim they assert here. For the reasons set forth below, I believe that the 10(b) claim was automatically assigned whether federal or state law controls that issue.
If federal law controlled, it would of course be federal common law, and this court would have to determine its content. The content of federal common law may be supplied either by fashioning a nationwide federal rule or by adopting state law. United States v. Kimbell Foods, Inc., 440 U.S. 715, 728, 99 S.Ct. 1448, 1458, 59 L.Ed.2d 711 (1979). If this court determined that a uniform federal rule should supply the content of federal common law in this case, I believe that the rule would provide for automatic assignment of federal securities claims to the purchaser of the underlying security, absent an explicit reservation by the seller.
The primary purpose of section 10(b) and the rules promulgated thereunder is to protect investors from manipulative practices in the securities market and to deter such practices in the first instance. Often investors will sell their securities before any fraud or deception is discovered. They will then have little incentive to keep abreast of developments relating to their former investments and thus may never learn of any fraud or deceit. Assignment of a 10(b) claim places the claim with the person most likely to learn of its existence, thus increasing the remedial purposes of the statute and furthering its deterrence goals.
A rule of automatic assignment increases the transferability of 10(b) claims and is more likely to advance the policies underlying the federal statute than a rule requiring express assignment. Requiring express assignment in the current securities market would drastically inhibit the effective assignability of 10(b) claims. The vast majority of securities transactions takes place in a faceless market where buyers and sellers never meet and may never have the opportunity to negotiate an express assignment. Under a rule of automatic assignment, the claim is transferred on purchase to the party most likely to learn of its existence, again maximizing the prophylactic value of the federal statute.
*747If federal common law were supplied by adopting state law, or if state law controlled, the law of New York would provide the law in this case. Under that law, the 10(b) claim would be automatically assigned to the purchaser of the convertible debenture absent a contrary agreement. N.Y. [U.C.C.] Law § 8-301 (McKinney 1964)2; N.Y. [Gen.Oblig.] Law § 13-107 (McKinney 1978).3
Because I believe that, absent an express reservation, assignment of the 10(b) claim in this case is automatic under either federal or state law, I would hold only that the Lowrys obtained an automatic assignment of the federal claim when they purchased the convertible debentures.4 I would save for a subsequent case the question whether assignment of federal securities claims is controlled by federal or state law.5
IV.
At oral argument before the in banc court, appellees for the first time raised a New York champerty statute as an affirmative defense to the Lowrys’ claim that they held as assignees any claims arising out of B & O’s December 13, 1977 conduct. N.Y. [Jud.] Law § 489 (McKinney 1968).6 The parties agree that if federal law governs the question of assignment, the federal law will adopt and apply state law to determine whether the assignment of the federal claim is champertous. Martin v. Morgan Drive Away, Inc., 665 F.2d 598, 604-05 (5th Cir.), cert. dismissed, - U.S. -, 103 S.Ct. 5, 73 L.Ed.2d 1394 (1982) (holding that as a matter of federal law, the federal courts should look to state law to determine whether assignment of a federal antitrust claim is champertous). Thus, the validity of this defense does not depend on whether federal or state law governs the assignment question.
Because I believe that B & O’s conduct, under the facts of this case, violated Rule 10b-5 and that the 10(b) claim has been automatically assigned to the Lowrys, I would reverse and remand the district court’s dismissal of appellants’ 10(b) claim for further proceedings. I would prefer the parameters of the champerty issue to be addressed by the district court in the first instance. Thus, on remand I would have the district court determine, among other *748things, whether the champerty statute that appellees assert as an affirmative defense against the Lowrys governs the conduct at issue here.
V.
I concur in the judgment of the court insofar as it remands appellants’ state law claims. However, because I believe that appellants have stated a valid claim under section 10(b) of the federal securities law, I would remand appellants’ state law claims as pendant claims. Because I believe that the district court has pendant jurisdiction over appellants’ state law claims, I do not join in that part of the court’s judgment directing the district court to consider whether appellants may maintain those claims in diversity.
. Pittsburgh Terminal was not a class action, but defendants in that case, appellees here, stipulated that if the plaintiffs prevailed in Pittsburgh Terminal, they would provide to all “similarly situated” convertible debentureholders the same relief provided to the named plaintiffs. It seems that all those who held convertible debentures on December 13, 1977 are covered by appellees’ stipulation in Pittsburgh Terminal. Thus, to the extent that the class certification here includes within the class persons who held on December 13, 1977, it seems to sweep too broadly.
. Section 8-301 provides
(1) Upon delivery of a security the purchaser acquires the rights in the security which his transferor had or had actual authority to convey—
Under UCC § 1-102(3), the seller may expressly reserve any such rights. “The effect of provisions of this Act may be varied by agreement. ...”
. Section 13-107 provides
Unless expressly reserved in writing, a transfer of any bond shall vest in the transferee all claims or demands of the transferrer, whether or not such claims or demands are known to exist, (a) for damages or rescission against the obligor on such bond, (b) for damages against the trustee or depositary under any indenture under which such bond was issued or outstanding, and (c) for damages against any guarantor of the obligation of such obligor, trustee or depositary.
. To the extent that Independent Investor Protection League v. Saunders, 64 F.R.D. 564 (E.D.Pa.1974), holds to the contrary, I believe that it is incorrect.
I would hold only that assignment of the 10(b) claim in this case was automatic. I would not decide here whether such a claim would be automatically assigned to a subsequent purchaser if the seller had brought an action on the claim before the sale and that claim was still pending at the time of the sale.
. Because I believe that the federal common-law rule of assignment would be the same in this case whether this court adopted state law or fashioned a uniform federal rule, I would not determine here which is preferable. See United States v. Kimbell Foods, Inc., 440 U.S. 715, 727-29, 99 S.Ct. 1448, 1457-1459, 59 L.Ed.2d 711 (1979) (articulating the factors to be considered in determining whether to adopt state law or to fashion a nationwide federal rule as the federal common law).
. That law provides
No person or co-partnership, engaged directly or indirectly in the business of collection and adjustment of claims, and no corporation or association, directly or indirectly ... shall solicit, buy or take an assignment of ... a bond, promissory note, bill or change, book debt, or other thing in action, or any claim or demand, with the intent and for the purpose of bringing an action or proceeding thereon. .. .
N.Y. [Jud.] Law § 489 (McKinney 1968).