Pioneer Ins. Co. v. Gelt

• Decision Date: 03 August 1977
• Docket Number: Nos. 76-1392 and 77-1262,s. 76-1392 and 77-1262
• Citation: 558 F.2d 1303
• Parties: 22 UCC Rep.Serv. 733 PIONEER INSURANCE COMPANY, a corporation, Appellee, v. Harry GELT, Appellant (two cases).
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1303

558 F.2d 1303

22 UCC Rep.Serv. 733

PIONEER INSURANCE COMPANY, a corporation, Appellee, v. Harry GELT, Appellant (two cases).

Nos. 76-1392 and 77-1262.

United States Court of Appeals Eighth Circuit.

Submitted April 13, 1977.

Decided July 5, 1977.

Rehearing Denied Aug. 3, 1977.

John P. Morris, Tempe, Ariz. (argued), and Herbert J. Friedman, Lincoln, Neb., on brief, for appellant.

Norman Krivosha (argued), and Bernard Wishnow, Lincoln, Neb., on brief, for appellee.

Before LAY, WEBSTER and HENLEY, Circuit Judges.

HENLEY, Circuit Judge.

Appellee, Pioneer Insurance Company (Pioneer), a Nebraska corporation, brought this action against Harry Gelt, a citizen of Arizona, to recover judgment on a note in the principal sum of $97,200.00 executed by Gelt in favor of Pioneer on or about September 21, 1972. The note was in renewal of an earlier note in the sum of $90,000.00 which had been executed by Gelt in favor of Educators Security Insurance Company (Educators), which was later merged into Pioneer. The second note included accrued interest on the first note.

The suit was filed in the District Court of Lancaster County, Nebraska, and service was had in Arizona under the provisions of the Nebraska long-arm statute. Neb.Rev.Stat. §§ 25-535 et seq. The defendant removed the case on the ground of diversity of citizenship, and moved to dismiss the complaint for lack of in personam jurisdiction. That motion was denied without opinion by a visiting judge.

Gelt then answered and denied liability. He also filed a counterclaim against Pioneer and in connection therewith pleaded as a set-off the amount of money that Pioneer was undertaking to recover from him. In addition Gelt filed a third party complaint against Roger D. Sack alleging that if defendant should be held liable to Pioneer, he was entitled to judgment over against Sack on the basis of an alleged agreement on the part of Sack to hold him harmless with respect to the note in suit.

In April, 1976 the case was tried on the merits before Chief United States District Judge Warren K. Urbom without a jury. On April 14, 1976 Judge Urbom filed detailed findings of fact and conclusions of law and entered judgment. The judgment awarded Pioneer $132,037.01, which was the principal amount of the note sued upon, plus accrued interest; it dismissed defendant's counterclaim; and it awarded the defendant judgment over against Sack. A motion for a new trial as provided by Fed.R.Civ.P. 59 was filed, considered and overruled, and a notice of appeal was timely filed. That appeal has been docketed as No. 76-1392.

In late 1976 Gelt filed a motion for relief from judgment under Fed.R.Civ.P. 60(b)(2)(3) and (6), alleging that he had newly discovered evidence which warranted vacation of the judgment and that the judgment had been obtained by fraud. The district court permitted the original record to be supplemented, and on February 27, 1977 filed a memorandum opinion and entered an order denying the motion. Defendant appealed from that order, and the appeal was docketed as No. 77-1262. The two appeals were consolidated and argued together.

In No. 76-1392 the defendant argues, first, that the district court erred in refusing to dismiss the complaint for lack of personal jurisdiction. Alternatively, the defendant contends that even if jurisdiction of his person was present, the district court erred in awarding judgment against him on the merits, and in dismissing his counterclaim. In No. 77-1262 the defendant argues that the district court abused its discretion in denying his Rule 60(b) motion.

The basic facts of the case may be summarized as follows:

The case involves a number of persons and corporations including three Nebraska life insurance companies. In addition to Pioneer, which has been mentioned, those companies were Superior Benefit Life Insurance Company (Superior Benefit) and Educators Security Insurance Company (Educators). Controlling stock in all of those companies was owned by a holding company, Superior Equity Corporation (Superior Equity), which is a Delaware corporation with its principal place of business in Lincoln, Nebraska. Roger D. Sack, who resided in Nebraska until 1974, owned a majority of the stock in Security Equity and was President of that company and of all three of the insurance companies. He was also a member of the Board of Directors of each of the four corporations. Sack and the defendant, Gelt, were close personal friends.

In late 1970 Sack became interested in acquiring a controlling interest in an Iowa corporation known as Iowa Business Investment Company (IBIC) and merging it into Superior Equity. The reason for Sack's interest was that IBIC had liquid assets which would be beneficial to the Sack insurance company combine.

The majority of the stock in IBIC was owned by Richard C. Gaffney, a citizen of Iowa. Gaffney's stock ownership amounted to 100,000 shares. In late 1970 or early 1971 Sack discussed with Gaffney a merger of the two corporations. Gaffney was not interested in a merger, but he was interested in selling his stock, and Sack was willing to buy it for $3.00 per share.

Sack's contemplated merger of Superior Equity and IBIC would require the approval of the Securities & Exchange Commission, and since both Sack and Gaffney considered themselves to be "insiders" within the meaning of federal securities regulations, they felt that the sale of the IBIC stock by Gaffney to Sack would have to be concealed by the use of "front men."

It was decided that Donald F. Zimmer would appear as the ostensible seller of the stock, and Sack induced his friend Gelt to become the ostensible buyer. Gelt was assured by Sack that the former would not be exposed to any risk of financial loss as a result of the transaction, and that he would be permitted to share in the profits expected to be derived from the stock acquisition and following merger.

In February, 1971 Zimmer as seller and Gelt as buyer entered into a written contract in Arizona, which contract had been prepared at the instance of Gaffney. The contract involved the use of an Arizona bank as an escrow agent.

The contract provided for the sale of the stock for $300,000.00. Of that sum $50,000.00 was to be paid over in cash to the escrow agent at the time of the contract; the balance of $250,000.00 was to be evidenced by three promissory notes executed by Gelt. The first of those notes was in the sum of $37,000.00, and it was due and payable on July 1, 1971; the other two notes were each in the sum of $106,500.00 falling due respectively on July 1, 1972 and July 1, 1973. It was stipulated that payment of each of the two $106,500.00 notes was to be unconditionally guaranteed by a commercial bank.

The escrow agreement was supposed to be closed on July 1, 1971. At that time Zimmer was supposed to deliver the stock certificates to the escrow agent and the agent was to pay over to Zimmer the $50,000.00 in cash in the hands of the agent and the $37,000.00 evidenced by the first note, assuming that the agent had by that time received payment of that note; and the escrow agent was also supposed to deliver the two $106,500.00 notes to Zimmer. The agent was to receive a fee of $2500.00 for its services.

It was agreed the shares were not to be transferred immediately on the books of IBIC, and it was agreed that pending such transfer the seller would vote the stock in accordance with the wishes of the buyer.

The initial $50,000.00 was paid over to the escrow agent by Gelt out of his own funds. Gelt also executed the $37,000.00 note and the two $106,500.00 notes which, at the instance of Sack, had been guaranteed by the York State Bank of York, Nebraska, which was controlled by Sack and his father.

It was understood that money would have to be borrowed from some source or sources to pay off the Gelt-Zimmer notes mentioned in the agreement, and Sack advised Gelt that the former would arrange the financing. As indicated, Gelt was assured that he would be saved harmless in connection with the over-all transaction.

By September 21, 1971 the $37,000.00 note called for by the contract was due or perhaps past due. On or about that date Sack caused Educators to make a $90,000.00 loan to Gelt. A note in that amount was prepared in Nebraska which showed Gelt as maker and Educators as payee; there were no other parties to the instrument. The note was mailed to Gelt in Arizona and was executed by him in that state; he then mailed the note back to Sack in Nebraska. Sack then caused Educators to transmit out of its own funds in Nebraska to Gelt in Arizona the face amount of the note. Gelt used the proceeds of that loan to pay off the $37,000.00 note and apparently to reimburse himself for the $50,000.00 that he had paid over to the escrow agent originally.

After September 21, 1971, Superior Benefit and Educators were merged into Pioneer. By September 21, 1972 no part of the 1971 note payable to Educators had been paid, and on September 21, 1972 Sack caused a renewal note in favor of Pioneer to be prepared and mailed to Gelt in Arizona; Gelt executed that note which was in the sum of $97,200.00, including accrued interest, and mailed it back to Nebraska. That is the note in suit here.

The $106,500.00 note that fell due on July 1, 1972 was retired out of the proceeds of a loan made to Gelt at the instance of Sack by the National Bank of Commerce Trust & Savings Association of Lincoln, Nebraska, which note was guaranteed by Sack and his wife. The $106,500.00 note that fell due on July 1, 1973 was paid off by the York State Bank which had guaranteed its payment originally.

In due course IBIC was merged into Superior Equity, and the shares of IBIC were converted into Superior Equity shares. The merger was of immediate benefit to Superior Equity and presumably was of benefit to the insurance companies owned by it, but the benefit was temporary. Superior Equity fell upon evil days and is no longer a...