422 F.2d 221 (8th Cir. 1970), 19550, City Nat. Bank of Fort Smith, Arkansas v. Vanderboom
|Citation:||422 F.2d 221|
|Party Name:||The CITY NATIONAL BANK OF FORT SMITH, ARKANSAS, a National Banking Association, Appellee, v. Ilo VANDERBOOM, DeHaan Livestock & Grain Farms, Inc., a South DakotaCorporation, Andy D. DeHaan, Kenneth J. DeHaan and Lyle R. DeHaan, H. T.Ringling, James Nachtigal, and Robert Carter, Appellants.|
|Case Date:||February 20, 1970|
|Court:||United States Courts of Appeals, Court of Appeals for the Eighth Circuit|
Rehearing Denied March 20, 1970.
William M. Stocks, of Bethell, Stocks, Callaway & King, Fort Smith, Ark., on brief for appellants.
Don A. Smith, Fort Smith, Ark., for appellee; Thomas Harper, Fort Smith, Ark., on the brief.
Before MEHAFFY, GIBSON and HEANEY, Circuit Judges.
GIBSON, Circuit Judge.
The appellants, a group of investors from South Dakota, sought in the District Court to recover on individual counterclaims, hereinafter referred to as counterclaim, predicated on alleged fraudulent misrepresentations in the sale of corporate stock. The appellee's claims on bank loans were admitted. Appellants allege both common law fraud and fraud proscribed by Section 10(b) of the Securities Exchange Act of 1934 1 and Rule 10b-5 of the Securities and Exchange Commission. 2 The Honorable John E. Miller, Senior Judge, rendered summary judgment against appellants in an extensive and scholarly opinion reported in 290 F.Supp. 592 (W.D.Ark.1968).
In reviewing the trial court's grant of the bank's summary judgment motion our function is to determine whether a genuine issue of material fact exists and, if no such issue exists, whether on the substantive law the movant is entitled to judgment. Fed.R.Civ.P. 56. Where several possible inferences can be drawn from the facts contained in the affidavits, attached exhibits, pleadings, depositions, answers to interrogatories, and admissions on file, 'on summary judgment the inferences to be drawn from the underlying facts contained in such materials must be viewed in the light most favorable to the party opposing the motion.' United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962). This court recognizes that summary judgment is an extreme remedy and that it should not be entered except where the movant is entitled to its allowance beyond all doubt. Traylor v. Black, Sivalls & Bryson, Inc., 189 F.2d 213, 216 (8th Cir. 1951). The basic test was articulated by the Supreme Court in Poller v. Columbia Broadcasting System, 368 U.S. 464, 467, 82 S.Ct. 486, 7 L.Ed.2d 458 (1962):
'Summary judgment should be entered only when the pleadings, depositions, affidavits, and admissions filed in the case 'show that (except as to the amount of damages) there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.' Rule 56(c), Fed.Rules Civ.Proc., (28 U.S.C.A.) This rule authorizes summary judgment 'only where the moving party is entitled to judgment as a matter of law, where it is quite clear what the truth is, * * * (and where) no genuine issue remains for trial * * * (for) the purpose of the rule is not to cut litigants off from their right of trial by jury if they really have issues to try.' Sartor v. Arkansas Natural Gas Corp., 321 U.S. 620, 627, 64 S.Ct. 724, 88 L.Ed. 967 (1944)
The intricate factual situation of this case is set forth in Judge Miller's reported opinion and will not be repeated in full here. However, for purposes of convenience in discussing the issues it is necessary to summarize the background and the dispositive facts.
Maurice Markham and his brother-in-law Jimmy Willis entered the shell home business in Oklahoma in 1960 by forming Markham Homes, Inc. In 1965 Markham Homes was in need of shell home financing and Markham contacted Austin Gatlin of Mountainburg, Arkansas to assist him in this quest. Gatlin, who formerly owned a majority interest in Peoples Loan and Investment Company, an Arkansas corporation, advised setting up a similar financial institution in Arkansas. To secure the capital required to materialize this idea, Markham solicited the help of the defendants in this action, who were friends and acquaintances made by Markham during the years he practiced veterinary medicine in South Dakota (up to 1962). The South Dakota investors were persuaded and on August 10, 1965, in Mountainburg, Arkansas, they met with Gatlin, Markham and Willis and formed Investors Thrift Corporation (ITC), an Arkansas corporation. The South Dakota investors put up $150,000.00 at that time for which they were to be issued non-voting shares, with all of the voting stock to be held by Markham Homes. 3
Thinking that it would be easier to purchase a financial institution than to start one, Gatlin presented a letter on August 10th from Sam Sexton, Jr., one of the owners of American Home Builders, Inc. (AHB), offering to sell AHB for $500,000.00. AHB owned all of the stock of three construction companies and held voting control (68%) of Peoples Loan and Investment (PL&I), ostensibly the type of financial institution Markham Homes and ITC were looking for. Gatlin was quite familiar with PL&I as he had sold a majority of its voting stock to AHB, owned by Sexton, James Hall and Huey Smith, on July 1, 1964 for $500,000.00. To enable it to purchase the PL&I stock, AHB borrowed $700,000.00 from Texas Capital Corporation, with Sexton and Smith executing personal guarantees for the entire amount and Hall giving a personal guarantee for either $150,000.00 or $200,000.00.
An agreement for the sale of AHB dated September 2, 1965 was drawn up by Sexton with the sale price set at $200,000.00 plus assumption of the $700,000.00 loan from Texas Capital. ITC was unable to raise the funds in time to close on September 2, 1965 but after Markham made a trip to South Dakota where he successfully solicited funds from the ITC stockholders there, an option to buy contract was signed on September 9, 1965.
The option provided for payment of $150,000.00 to Sexton, Hall and Smith as a consideration for the option, which amount would also be applied on the purchase price if the option was exercised, and for forfeiture of that amount if the option was not exercised on or before January 10, 1966. Contingent upon the success of AHB, $100,000.00 of this payment was to be paid to Markham in the form of ITC stock as a commission for setting up the deal and was to be shared with Gatlin. The option contract also provided that Markham would take over immediately as general manager of AHB and that Gatlin would begin work on September 15th as a consultant to PL&I. If the investors chose to exercise the option, the contract required another payment of $157,500.00 to Sexton, Hall and Smith, payment of $300,000.00 to Texas Capital on or before January 10, 1966 and an additional payment of $400,000.00 to Texas Capital on or before June 30, 1966.
Investor Vanderboom traveled to Arkansas to visit and to examine the books of AHB and PL&I, but it appears that the South Dakota investors primarily relied on their agent Markham for an evaluation of AHB. Markham did check with officials of three Arkansas regulatory agencies (the State Bank Commissioner, the Securities Commissioner and the Insurance Commissioner), who informed him that PL&I was certified to operate and was conforming to all rules and regulations. Markham had CPA Jim Tuttle make a survey of AHB and PL&I and Tuttle advised him an audit of PL&I would take six months with available personnel and a minimum of three months no matter how many were employed.
After examining the financial statements of the South Dakota investors, Hall, who also was the vice-president of the City National Bank of Fort Smith, Arkansas, assured them that the bank would lend them some of the funds needed to carry out the purchase. So, on October 29, 1965, the South Dakota investors traveled to Fort Smith to obtain their loans from City National.
It is alleged that Hall had earlier represented to Markham that PL&I was worth at least a million dollars and that he made similar representations as to the financial soundness and profitability of both AHB and PL&I on October 29 to the South Dakota investors, in the presence of the president of City National, Ed Smoot. The affidavit of investor Andy DeHaan asserts that in answer to his question as to whether this was a good investment, Smoot advised him that it was. Smoot, however, denies the entire conversation and states that he knew only that the funds loaned would be invested in ITC, that he was totally unaware that the ultimate investment of the loan proceeds would be applied on the purchase of AHB. However, inasmuch as Hall's affidavit states that the bank officers did know of his interest in AHB and of his personal guarantee of the Texas Capital loan and Smoot himself acknowledged that Hall disqualified himself on the loan transaction because of his personal interest, it is fair to infer that Smoot was aware that ITC would use the funds to apply on the purchase of AHB.
On October 29, 1965, after approval by the bank's discount committee, Smoot represented the bank in making the following loans, secured by non-voting ITC stock and Markham's guarantee: (1) $15,000.00 to Vanderboom; (2) $90,000.00 to DeHaan Livestock; (3) $10,000.00 to Ringling; (4) $25,000.00 to Carter. Hall and Smoot were both on the 9-member discount committee which reviews all sizeable loans, as was Les...
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