Staren v. American Nat. Bank & Trust Co. of Chicago

• Decision Date: 03 February 1976
• Docket Number: No. 74--2086,74--2086
• Citation: 529 F.2d 1257
• Parties: John STAREN and David Henner, Plaintiffs-Appellants, v. AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, a corporation, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1257

529 F.2d 1257

John STAREN and David Henner, Plaintiffs-Appellants, v. AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, a corporation, et al., Defendants-Appellees.

No. 74--2086.

United States Court of Appeals Seventh Circuit.

Argued Nov. 3, 1975.

Decided Feb. 3, 1976.

Peter J. Barack, Paul E. Slater, Howard R. Slater, Bradley D. Steinberg, Chicago, Ill., for plaintiffs-appellants.

William D. Maddux, Bruce A. Hubbard, Jay Erens, Anthony M. Anzalone, Keith C. McDole, Chicago, Ill., for defendants-appellees.

Before HASTINGS, Senior Circuit Judge, and PELL and BAUER ^*, Circuit Judges.

HASTINGS, Senior Circuit Judge.

We are concerned here with challenges to the granting of summary judgment and the dismissal of an amended complaint. This case arose out of an action brought by John Staren and David Henner against the American National Bank and Trust Company of Chicago, a corporation (American), Thorne United, Inc., a corporation, and other defendants, alleging violations of federal and state securities laws, and certain statutory and common law rules of the State of Illinois, in the sale to plaintiffs of securities of Thorne United, Inc. ¹

After defendant American answered plaintiffs' complaint, it filed a motion for summary judgment. Based upon the depositions and memoranda filed in support of and in opposition thereto, the trial court granted the motion for summary judgment on the ground that these plaintiffs were not the purchasers of the securities in question but that a third party, Staren and Company, Inc., was the purchaser.

Thereafter, plaintiffs moved for reconsideration of the summary judgment decision. While this motion was pending, the trial court routinely granted plaintiffs leave to file an amended complaint adding Staren and Company, Inc., as a party plaintiff.

The trial court dismissed the amended complaint on the grounds that it was a new and separate action and was barred by the applicable statute of limitations. Subsequently, the trial court denied plaintiffs' motion for reconsideration of the summary judgment on the ground that there was no genuine issue as to the material fact that Staren and Company, Inc., was the purchaser of the Thorne United securities, but only an issue concerning the conclusions made by the court that under the undisputed facts and applicable law, Staren and Company, Inc., and not the individual plaintiffs, purchased the securities.

Plaintiffs have appealed from these decisions of the trial court. The validity of the decisions essentially represents the issues to be considered here. Staren and Company, Inc., did not file a notice of appeal.

I.

Staren and Company, Inc., a corporation, was engaged in the commodities business. It was organized and controlled by plaintiff John Staren, its president and a shareholder. Plaintiff David Henner was associated with John Staren in the purchase of the securities here in question. Both plaintiffs were customers of defendant American before March 23, 1970, the date of the purchase of the Thorne United, Inc., securities. Prior to March 23, 1970, both plaintiffs had received investment advice on various other securities from Neil Kraak, then a vice president in the trust department of American.

During the week before March 23, 1970, Kraak made oral and written representations to plaintiffs concerning the purchase of $150,000 of the Thorne United securities which resulted in the purchase of these securities. At the same time, Kraak advised plaintiffs to establish, and he did then establish, a custodian account at American to facilitate the purchase of these securities by plaintiffs. A custodian agreement dated March 23, 1970, for account No. 36--29572 was thus completed and signed by Kraak and plaintiff Staren. The next day, March 24, 1970, Kraak filled out a new account worksheet for account No. 36--29572, naming plaintiff Staren individually as the beneficiary of the account.

The securities of Thorne United were paid for by a March 24, 1970, bank draft for $150,000 on the individual custodian account of Staren, No. 36--29572. The draft named Thorne United, Inc., as the payee for the purchase of the securities. On March 30, 1970, Kraak confirmed the purchase by letter to plaintiffs Staren and Henner (and two others not here involved) and acknowledged receipt of payments of $75,000 from each plaintiff for 3,750 units of Thorne United securities for each of them. This letter further stated that the securities would be held at American 'in account 36--29672 (sic), John F. Staren.' Each plaintiff was asked to sign a copy of the letter as a receipt and an acknowledgment of the terms of the purchase of the securities.

At the time of the purchase, plaintiff Henner financed both $75,000 purchases as an accommodation to Staren. At that time Henner was in Jamaica, and he had L. D. Schreiber & Co., Inc., a commodities brokerage house, draw a check on his account with them for $150,000, payable to the order of Staren and Company, Inc., under date of March 23, 1970. This check was deposited that day by Staren and Company, Inc., in its account at American. In turn, Staren and Company prepared a check on March 23 1970, for $150,000 payable to American. This Staren and Company check for $150,000 was subsequently credited by American to John F. Staren's individual custodian account No. 36--29572.

It may also be noted here that on March 23, 1970, a demand note for $75,000, payable to the order of David Henner, was executed by 'Staren & Co., Inc., John F. Staren, Pres.' This note was subsequently repaid by John Staren by transferring the money to Henner's trading account at Siegel Trading Company.

On or about April 9, 1970, after the March 23, 1970, purchase of the Thorne United securities, it was decided to hold these securities in a corporate custodian account. The individual custodian account of John F. Staren, No. 36--29572, was thus changed to a corporate custodian account in the name of Staren and Company by crossing out the individual name of Staren and replacing it with the corporate name. There appear to be some contradictory reasons given for this change which shall be mentioned later.

It is undisputed that Staren and Henner were commodity brokers customarily dealing together in investments and satisfying their accounts in an informal manner that would best suit their convenience and purposes. Further, it is clear that, prior to the instant litigation, both plaintiffs had been friends of Kraak and had had investment dealings with American through him over a period of years.

The crux of the dispute leading to this appeal was whether Staren and Henner individually purchased the Thorne United securities in question or whether the corporation, Staren and Company, Inc., was the purchaser.

We treat the two issues of (1) whether there exists a genuine issue of material fact as to whether the individual plaintiffs were the purchasers of the securities; and (2) whether the trial court erred in denying plaintiffs leave to amend their complaint by substituting Staren and Company as a corporate party plaintiff.

II.

It is apparent from the statement of facts that there is a somewhat confusing interplay between the references in the record to both the individual plaintiffs, and to Staren and Company, Inc., as the purchaser. We need not further elaborate on this, since the foregoing narrative sets it out.

However, defendant American aptly points out that Staren, in his deposition, acknowledged that 'Staren and Company invested in Thorne United out of its own corporate funds.' Staren also admitted that the reason the custodian account was changed from his personal name to the company name was because '(t)he company was the one who made the investment, not myself individually.' Further, Staren conceded that the Thorne United securities were listed on the records of Staren and Company as an asset of the company 'because it was company funds which purchased the stock.' American used this in part as the basis for its motion for summary judgment on October 17, 1973.

The record, however, shows a different version in the affidavits of Staren and Henner filed in opposition to the motion for summary judgment. Staren swore that 'I purchased Thorne United, Inc. securities for my own purposes with my own funds * * *.' Henner swore that 'Mr. Staren and I * * * each decided to invest $75,000 * * * in Thorne United securities.'

It is elementary, of course, that summary judgment procedure flows from Rule 56, Federal Rules of Civil Procedure, 28 U.S.C., and in particular from subsection (c), which requires a showing 'that 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.'

In considering the application of summary judgment as it relates to a choice of inferences to be drawn from the subsidiary facts contained in the affidavits, attached exhibits and depositions submitted to the trial court, the Supreme Court, in United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962), stated: '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. A study of the record in this light leads us to believe that inferences contrary to those drawn by the trial court might be permissible.' Accordingly, the Court held that the materials submitted to the district court raised a genuine issue as to the ultimate facts material to the issue at hand and that the lower court improperly granted summary judgment. ²

In summary judgment procedure the trial court should not weigh the evidence of the plaintiffs against that of the defendants. That is the function of the fact finder at trial. As the Supreme Court stated in Sartor v. Arkansas Natural Gas Corp., 321 U.S. 620, 628, 64 S.Ct. 724, 729, 88 L.Ed. 967 (1944): 'It may well be that the...