Westlake v. Abrams

• Decision Date: 27 May 1983
• Docket Number: No. C78-555A.,C78-555A.
• Parties: Robert G. WESTLAKE, Individually, and on behalf of all other persons similarly situated, Plaintiff, v. Alan ABRAMS, a/k/a James A. Carr and Charles P. LeMieux III, doing business under the firm name of "Lloyd, Carr & Co.," James A. Brien, John Cosulich, Thomas Labus, Charles J. Hecht, George E. Bushnell, Jr., Noel A. Gage and Mark E. Reizen, Individually and as Co-Partners doing business under the firm name of "Bushnell, Gage & Reizen," Daniel J. Henry, Lynn H. Shecter, Frank J. Post, Robert Waldheim, Charles A. Wathen, Michael D. Shuster and Ralph R. Zolla, individually and as representatives of all other persons similarly situated, Defendants.
• Court: U.S. District Court — Northern District of Georgia

565 F. Supp. 1330

Robert G. WESTLAKE, Individually, and on behalf of all other persons similarly situated, Plaintiff, v. Alan ABRAMS, a/k/a James A. Carr and Charles P. LeMieux III, doing business under the firm name of "Lloyd, Carr & Co.," James A. Brien, John Cosulich, Thomas Labus, Charles J. Hecht, George E. Bushnell, Jr., Noel A. Gage and Mark E. Reizen, Individually and as Co-Partners doing business under the firm name of "Bushnell, Gage & Reizen," Daniel J. Henry, Lynn H. Shecter, Frank J. Post, Robert Waldheim, Charles A. Wathen, Michael D. Shuster and Ralph R. Zolla, individually and as representatives of all other persons similarly situated, Defendants.

No. C78-555A.

United States District Court, N.D. Georgia, Atlanta Division.

May 27, 1983.

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Scheer & Elsner, Atlanta, Ga., Hoffman & Hertzig, Coral Gables, Fla., for plaintiff.

Frank J. Post, pro se.

Arthur H. Rice, Leibowitz & Rice, Miami, Fla., for Charles P. LeMieux III.

James E. Brien, pro se.

Michael D. Shuster, pro se.

John L. Taylor, Jr., McDaniel, Chorey & Taylor, Atlanta, Ga., for Charles A. Wathen.

Charles J. Hecht, pro se, Jeffrey M. Smith, Trotter, Bondurant, Miller & Hishon, Atlanta, Ga., for Charles J. Hecht.

Robert E. McLaughlin, Sandra C. Steele, Gilman, McLaughlin & Hanrahan, Boston, Mass., for receiver, Walter H. McLaughlin.

Kirk M. McAlpin, Robert Thornton, Ralph Levy, Michael C. Russ, J. Kevin Buster, King & Spalding, Atlanta, Ga., for Gage, Bushnell, Reizen and Shecter.

Charles M. Kidd, Woodrow Vaughan, Jr., Kidd & Vaughan, Bruce H. Beerman, Warren C. Fortson, Smith, Cohen, Ringel, Kohler & Martin, Atlanta, Ga., for Daniel J. Henry.

J. Marbury Rainer, Parker, Hudson & Rainer, Atlanta, Ga., for Charles E. McDonnell.

ORDER

MOYE, Chief Judge.

This action was brought by a purchaser of two commodity futures options from Lloyd, Carr & Co. (hereinafter Lloyd, Carr) under the Securities Act of 1933, 15 U.S.C. § 77a et seq. (hereinafter the Securities Act); the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq. (hereinafter the Exchange Act); the rules and regulations promulgated thereunder by the Securities and Exchange Commission (SEC); the Commodity Exchange Act, 7 U.S.C. § 1 et seq., as amended by the Commodity Futures Trading Commission (CFTC) Act of 1974; the rules and regulations promulgated thereunder by the CFTC; and the common law. The case is currently before the Court on plaintiff Westlake's motion to vacate and/or reconsider this Court's May 15, 1981, order denying class action. Also before the Court are motion of Bushnell, Gage & Reizen; Mr. Bushnell; Mr. Gage; Mr. Reizen; Ms. Shecter; and Mr. Henry (the aforesaid defendants will be collectively referred to herein as either "the defendants" or the firm of "Bushnell, Gage & Reizen") for summary judgment.

FACTUAL AND PROCEDURAL BACKGROUND

The complaint, filed March 30, 1978, alleges that the plaintiff purchased on October 14, 1977, and October 31, 1977, from defendant Lloyd, Carr, a commodity futures option broker, certain interests denominated "commodity futures options." The plaintiff contends that these interests constituted securities within the meaning of section 2(1) of the Securities Act and section 3(a)(10) of the Exchange Act.¹ In addition, the plaintiff claims that Lloyd, Carr did not properly register alleged securities with the SEC as required by section 5 of the Securities Act. It is further alleged that the sale of the aforesaid securities involved fraudulent and misleading statements by Lloyd, Carr to investors within the meaning of sections 12 and 17(a) of the Securities Act and section 10(b) of the Exchange Act and Rule 10b-5 of the SEC rules promulgated thereunder.

In the alternative the plaintiff argues that if the interests which he purchased are not considered securities, then Lloyd, Carr violated the Commodity Exchange Act, as amended, by selling interests in commodity futures options without being properly registered with the CFTC as a futures commission merchant as required by Rule 32.3 of the CFTC and by selling commodity futures options not preceded or accompanied by a disclosure statement meeting the requirements of Rule 32.5 of the CFTC. The plaintiff further alleges that the sale by the defendants of the aforesaid commodity futures options were in violation of section 405 of the CFTC Act of 1974 and Rule 32.9 of the CFTC. Finally, the plaintiff alleges that the activities of the defendants herein amounted to common law fraud and deceit.

The plaintiff seeks to recover actual and punitive damages for himself and for a class of similarly situated purchasers for losses resulting from their purchases, with interest thereon, together with the costs of this suit and reasonable attorney's fees.²

The defendants, whose motions for summary judgment are now before the Court for consideration, were members of the law firm of Busnell, Gage & Reizen and were named as defendants because the plaintiff alleges that they acted as general counsel for Lloyd, Carr and were, by virtue of and through their activities as general counsel, "controlling persons" of Lloyd, Carr within the meaning of section 15 of the Securities Act and Section 20 of the Exchange Act, and in addition were "aiders and abettors" in the illegal acts, practices, and course of business allegedly pursued by Lloyd, Carr.

Originally, defendant Gage moved to dismiss and for summary judgment on May 30, 1978. On July 18, 1979, the Court entered an order denying defendant Gage's motion to dismiss but granting his motion for summary judgment. In denying defendant Gage's motion to dismiss, the Court held that the allegations contained in the plaintiff's complaint were sufficient to withstand a motion to dismiss as to the questions of whether the plaintiff's interest in commodity futures options were securities and whether the complaint pled fraud with sufficient particularity. The Court reserved judgment on the issue of whether an implied private cause of action was created under the Commodity Exchange Act, as amended. In granting defendant's motion for summary judgment, the Court held that defendant Gage could not be found legally culpable for the allegedly unlawful activity of Lloyd, Carr.

Subsequently, the plaintiff moved the Court to vacate or reconsider its order granting defendant Gage's motion for summary judgment, urging that he had not had sufficient opportunity to conduct discovery in order to demonstrate defendant Gage's involvement in the activities upon which liability could be based. On September 14, 1979, this Court vacated its order of July 18, 1979, in order to allow the plaintiff time for further discovery so that he might attempt to establish a factual basis to overcome defendant Gage's motion for summary judgment.

Following the Court's order vacating summary judgment, both the plaintiff and defendant Gage conducted substantial discovery, including the depositions or sworn statements of defendant Gage, plaintiff Westlake, and Frank Post, former staff counsel to Lloyd, Carr. In addition, documents in defendant Gage's law offices in Southfield, Michigan, were examined. The plaintiff and defendant Gage briefed the issues in light of the additional discovery and the Clerk resubmitted defendant Gage's motion for summary judgment to this Court for determination.

By order dated November 26, 1980, published at 504 F.Supp. 337 (N.D.Ga.1980), the Court denied Gage's motion for summary judgment. Therein, the Court determined that a genuine issue existed as to whether defendant Gage was a "controlling person" of Lloyd, Carr under the federal securities laws. Id. at 350. In addition, the Court determined that there was a genuine issue remaining as to whether the plaintiff's investment constituted a security under the federal securities laws.³ Id. at 342. Furthermore, the Court held that Rule 10b-5 of the SEC rules promulgated under section 10(b) of the Exchange Act was inapplicable to the case at bar. Id. at 346. Further, the Court found that sections 12 and 15 of the Securities Act and section 20(a) of the Exchange Act were not applicable to defendant Gage because no jury could reasonably find that defendant Gage caused the plaintiff to purchase the two commodity futures options at issue. Id. at 347. As a consequence of finding defendant Gage not liable to the plaintiff under section 12 of the Securities Act, the Court dismissed any action against defendant Gage as an aider and abettor with respect to Lloyd, Carr's violation of section 12. Id. at 347-48.

Subsequently, in an order dated December 23, 1980, this Court granted the plaintiff's motion for leave to file an amended complaint naming additional parties. On February 24, 1981, the plaintiff filed his amended complaint naming as additional defendants: the law firm of Bushnell, Gage & Reizen; Mr. Bushnell, Jr.; Mr. Reizen; Ms. Shecter; and Mr. Henry. The aforementioned additional defendants were all members of the law firm Bushnell, Gage & Reizen and occupy the same position in relation to the plaintiff in this suit as does defendant Gage. Therefore, the previous rulings by this Court are equally applicable to the additional defendants named above.

The plaintiff submitted a motion for class certification on July 13, 1979, pursuant to Fed.R.Civ.P. 23. Upon consideration of the briefs filed by the parties, the Court focused its attention on the issue of whether this case presents questions of law or fact common to the class as required by Rule 23(a)(2) and, if such common questions are presented, whether they predominate over any questions affecting only individual members as required by Rule 23(b)(3). In denying class certification on May 14, 1981, the Court found that the plaintiff failed to meet his burden under Rule 23(a)(2) and 23(b)(3) because each of several thousand plaintiffs would have to prove that he relied significantly on the advice of an...