502 F.2d 834 (10th Cir. 1974), 73-1781-73-1784, In re Four Seasons Securities Laws Litigation
|Citation:||502 F.2d 834|
|Party Name:||In re FOUR SEASONS SECURITIES LAWS LITIGATION. ARTHUR ANDERSEN & CO. et al., Appellants, v. STATE OF OHIO, Appellee.|
|Case Date:||August 13, 1974|
|Court:||United States Courts of Appeals, Court of Appeals for the Tenth Circuit|
Argued May 16, 1974.
Certiorari Denied Nov. 25, 1974, See
95 S.Ct. 516.
William G. Paul and Harry A. Woods, Jr., of Crowe, Dunlevy, Thweatt, Swinford, Johnson & Burdick, Oklahoma City, Okl. (Wilson & McIlvaine by Charles W. Boand and George W. Thompson, Chicago, Ill. of counsel on the brief for appellant Arthur Andersen & Co.); (Michael H. Rauch and Alan J. Russo, of Fried, Frank, Harris, Shriver & Jacobson, New York City, on the brief for appellant Gordon H. McCollum); (Breed, Abbott & Morgan, Thomas W. Kelly and Richard W. Lyon, New York City, of counsel on the brief for appellants Walston & Co., Inc., Montgomery Co., and Glenn R. Miller) for appellants Arthur Andersen & Co., Gordon H. McCollum, Walston & Co., Inc., Montgomery Co., and Glenn R. Miller.
Robert B. McCaw, Washington, D.C. (Arthur F. Mathews, of Wilmer, Cutler & Pickering, Washington, D.C., with him on the brief), for appellant Jack L. Clark.
Richard F. Stevens, Sp. counsel to Atty. Gen., Cleveland, Ohio (William J. Brown, Atty. Gen. of Ohio, Ronald B. Brown, Asst. Atty. Gen., of counsel, Wayne C. Dabb, Jr., of Baker, Hostetler & Patterson, Cleveland, Ohio, on the brief), for appellee.
Before LEWIS, Chief Judge, and McWILLIAMS and BARRETT, Circuit Judges.
LEWIS, Chief Judge.
This appeal probes the interrelationship between Rule 23 class actions and Rule 60 relief from judgments. It follows the granting of such relief to the state of Ohio after the judgment on a class-action settlement and arises as yet another offshoot of the complex litigational network that has been constructed around securities issued or guaranteed by Four Seasons Nursing Centers of America, Inc. or Four Seasons Equity Corporation. 1 The transactions relevant here involve $4,000,000 in loans made by Ohio to Four Seasons Nursing Centers of America. The facts surrounding the execution of these loans are set out in Ohio v. Four Seasons Nursing Centers of America, 10 Cir., 465 F.2d 25, at 26, 27 as follows:
In early 1970, Mr. Jack L. Clark, the president of Four Seasons, received information that a Mr. Ronald R. Howard of Los Angeles, California, was in a position to assist Four Seasons in borrowing needed funds for continued operation and expansion. Howard and Clark conferred in Oklahoma City for the purpose of consummating an agreement for the procurement of funds. It was anticipated that Four Seasons would borrow between $20,000,000 and $24,000,000 from the State of Ohio. Howard contacted Crofters, Inc., a Columbus, Ohio, investment firm. Mr. Harry A. Groban, the executive vice president of Crofters, requested a credit rating on Four Seasons from the National Credit Office, a division of Dun and Bradstreet. An employee of the National
Credit Office procured the latest annual report of Four Seasons, as well as other statements and bank information concerning that corporation from Mr. John Mee, a vice president of and attorney for Four Seasons. Based on this material, the National Credit Office gave Four Seasons a rating of 'prime' for commercial paper. This information was communicated by letter to Groban; Groban in turn furnished the information to Mr. Robert F. Gardner, Deputy Treasurer of the State of Ohio.
Groban advised Mee that funds would be available to Four Seasons from the State of Ohio. Thereafter, Mr. Alex Russell, an officer of Four Seasons, went to Columbus, Ohio, to secure the funds. On March 9, 1970, Russell consummated a loan of $3,000,000 for Four Seasons with the State of Ohio through Gardner and in the presence of Groban. The loan was evidenced by two promissory notes of Four Seasons, one for $2,000,000 payable in 120 days and another for $1,000,000 due in two years. The $2,000,000 note was made on the basis of 120 days with the understanding that when due the note would be renewed for a period of two years. A second loan for $1,000,000 was advanced on March 23, 1970; a note for $1,000,000 payable in two years to the State of Ohio was executed on that date.
Ohio subsequently sought reclamation of these funds against the Trustee in the Chapter X reorganization proceedings of the Four Seasons companies. It charged, inter alia, that Four Seasons had intentionally made material and fraudulent misrepresentations concerning its financial condition to the National Credit Office in order to obtain a prime rating, and that Ohio's loans had been made in reliance on this rating. The trial court found neither fraud nor misrepresentation, In re Four Seasons Nursing Centers of America, W.D.Okl., 329 F.Supp. 647, and was upheld on appeal. The appellate court also found Ohio's constructive trust argument unpersuasive and held that the evidence concerning procurement of the funds did not establish noncompliance with the applicable Ohio statute. Ohio v. Four Seasons Nursing Centers of America, 10 Cir., 465 F.2d 25.
Ohio filed three appeals from orders in the Chapter X proceedings. It was particularly opposed to those portions of successive plans of reorganization which resulted in one-third of the stock in the reorganized corporation (Anta) going to 'Class G Creditor Stockholders.' Ohio was designated a 'Class C Creditor' (general unsecured creditor) and was permitted under the amended plan to receive one share of Anta stock for each $7 principal amount of allowed claims.
On May 21, 1971 ten actions-- seven of which claimed to have been brought on behalf of all purchasers of stock of the Four Seasons companies who suffered a loss-- were brought in or transferred to the Western District of Oklahoma and were assigned to Judge Thomsen by the Judicial Panel on Multidistrict Litigation for coordinated or consolidated pretrial proceedings under 28 U.S.C. 1407. In re Four Seasons Securities Law Litigation, Jud.Pan.Mult.Lit., 328 F.Supp. 221. Numerous other cases were subsequently transferred. All together 40 individuals, partnerships, and corporations were named as defendants in one or more of the actions, which sought to be treated as class actions. In one or more of the complaints, claims were asserted against some or all of the defendants under 5, 11, 12, and 17(a) of the Securities Act of 1933, under 9, 10(b), and 20 of the Securities and Exchange Act of 1934, and under Rule 10b-5 of the SEC. The litigation proceeded as M.D.L. 55.
Meanwhile, in March 1972 the state of Ohio, through the office of the Attorney General, filed three suits:
(1) State of Ohio v. Crofters, Inc., et al., Civil Action No. 72-81, in the United States District Court for the Southern District of Ohio, Western
Division. Among the several groups of defendants in that case were Clark, Gray, Mee, Andrews and McCollum, defendants in some of the M.D.L. 55 cases. The complaint includes eleven claims:
First Claim-- 17(a) of the Securities Act, 15 U.S.C. 77q(a).
Third Claim-- 15(a)(1) of the Exchange Act, 15 U.S.C. 78o(a)(1).
Fourth Claim-- 17(b) of the Securities Act, 15 U.S.C. 77q(b).
Sixth Claim-- 15(c)(1) of the Exchange Act, 15 U.S.C. 78o(c)(1), Rule 15cl-2, 17 C.F.R. 240.17cl-2; 15(c)(2) of the Exchange Act, 15 U.S.C. 78o(c)(2).
Seventh Claim-- 1707.44(B)(4), 1707.43, Ohio Revised Code.
Eighth Claim-- 1707.44(G), 1707.43, Ohio Revised Code.
Ninth Claim-- 1707.14, 1707.44(A), and 1707.43, Ohio Revised Code.
Tenth Claim-- 1707.41, Ohio Revised Code.
Eleventh Claim-- Common Law Fraud.
Some of these statutory bases are the same as those in one or more of the M.D.L. 55 class actions; some are not.
Clark filed a counterclaim against Ohio in this case, third-party claims against Walston & Co. and Arthur Andersen & Co., and various cross-claims.
(2) State of Ohio v. Herbert, et al., in the Court of Common Pleas of Franklin County, Ohio.
This is an action against the Treasurer of the State, another official, and the sureties on their bonds, alleging violation of certain Ohio statutes and of the officials' duties. All of the defendants in State of Ohio v. Crofters, Inc., et al., have been brought into that case as third-party defendants.
(3) Shaul, Director of Commerce of the State of Ohio v. Crofters, Inc., et al., in the Court of Common Pleas of Franklin County, Ohio. Clark, Gray, Mee, Andrews, and McCollum are also defendants in that case, which is based on alleged violations of the Ohio Code, and seeks injunctive relief.
Negotiations took place in the spring and summer of 1972 which were aimed at the settlement of various claims, including those in the M.D.L. 55 actions, the actions of the Trustee of the debtor estates against many of the M.D.L. 55 defendants and the appeals of Ohio in the Chapter X proceedings. Various attorneys for the state of Ohio were aware of these negotiations and participated in one or more of the discussions, but no one moved to have State of Ohio v. Crofters, Inc., in the Southern District of Ohio, transferred to...
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