Robertson v. White
| Decision Date | 10 June 1986 |
| Docket Number | 85-2096,85-2155 and 85-2259.,No. 85-2044,85-2044 |
| Parties | Thomas E. ROBERTSON, Jr., As Trustee of the Farmer's Co-Op of Arkansas and Oklahoma, Inc.; Bob Reves; Frances Graham; Robert H. Gibbs, Individually; Robert H. Gibbs, as natural guardian of his minor children, Thomas A. Gibbs and Robert H. Gibbs, Jr.; and Robert H. Gibbs, as Trustee of the Muskogee Internal Medicine Group Profit Sharing Funds; and Bob Reves; Frances Graham; and Robert H. Gibbs as Class and Subclass Representatives, Plaintiffs. v. Jack E. WHITE; J.E.W., Inc.; Valley Feeds, Inc.; Gene Kuykendall and Fred Kuykendall, individually and d/b/a Kuykendall & Kuykendall a partnership; Oran Moody, Jr. and Michael O. Moody, individually and d/b/a Moody and Moody, a partnership; Arthur Young & Company; Harry C. Erwin; Billy Joe Cabaniss, Jr.; Joseph F. Drozal, Jr.; Charles M. Hanson; Hal Brewer; Truman O. Boatright; Hugh Winfrey, Jr.; M.V. Creech; Charles Bane; E.H. Pritchett, Jr.; Robert Plunkett; Ralph McClure; Jimmy Don Gooch; Jerry Metzger; W.J. Rimmer; Don Sebo; Joe Wayne Harris; James Willis; Dan Ray Core; Harold Davis; Jay Freeman; Jay Neal, Jr.; George Wagnon; Raymond (Jack) Clark; Carl Creekmore and Morril H. Harriman, Jr., individually and d/b/a Creekmore & Harriman, a partnership; E.J. Ball, Kenneth R. Mourton, and Stephen E. Adams, individually and d/b/a Ball, Mourton & Adams, a partnership; Kirit Goradia; Eddie Joe Smith; and John Does 1-20, Defendants. |
| Court | U.S. District Court — Western District of Arkansas |
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Gary M. Elden, John R. McCambridge, Kevin Waite, Christopher J. Doherty, Isham, Lincoln & Beale, Chicago, Ill., for plaintiff Thomas E. Robertson, Jr.
Robert R. Cloar, Fort Smith, Ark., for intervening plaintiffs Bob Reves; Frances Graham; Robert H. Gibbs, as Natural Guardian of His Minor Children, Thomas A. Gibbs and Robert H. Gibbs, Jr.; and Robert H. Gibbs, as Trustee of the Muskogee Internal Medicine Group Profit Sharing Funds; and Bob Reves; Frances Graham; and Robert H. Gibbs as Class and Subclass Representatives.
Carl Liggio, John Matson, New York City, for Arthur Young & Co., Harry C. Erwin, Billy Joe Cabaniss, Jr., Joseph F. Drozal, Jr. and Charles M. Hanson.
James M. Roy, Jr., Roy & Lambert, Springdale, Ark., Michael H. Mashburn, Fayetteville, Ark., for Arthur Young & Co.
Fred H. Harrison, University of Arkansas, Little Rock, Ark., for W.J. Rimmer.
Fines F. Batchelor, Jr., Van Buren, Ark., for Truman O. Boatright, Hugh Winfrey, Jr., Jimmy Don Gooch, Ralph McClure, Joe Wayne Harris, James Willis, Dan Ray Core, Harold Davis and Jay Freeman.
Carl Creekmore, Morril H. Harriman, Jr., Van Buren, Ark., for Carl Creekmore and Morril H. Harriman, Jr., Ind. and d/b/a Creekmore & Harriman, a partnership.
Jerry Lee Canfield, Daily, West, Core, Coffman & Canfield, Fort Smith, Ark., for Citizens Bank & Trust Co.
Robert L. Jones, III, Jones, Gilbreath, Jackson & Moll, Fort Smith, Ark., for Gene Kuykendall and Fred Kuykendall, Ind. and d/b/a Kuykendall & Kuykendall, a partnership.
Thomas B. Pryor, Pryor, Robinson and Barry, Fort Smith, Ark., for Oran Moody, Jr. and Michael O. Moody, Ind. and d/b/a Moody and Moody, a partnership.
Eddie N. Christian, Christian & Beland, Fort Smith, Ark., for Jack E. White, J.E.W., Inc. and Valley Feeds, Inc.
Jim Jones, Sallisaw, Okl., for M.V. Creech, Charles Bane and Jerry Metzger.
Jerry D. Pruitt, Pruitt & Hodnett, Fort Smith, Ark., for Hal Brewer, Don Sebo and E.H. Pritchett, Jr.
Kenneth R. Mourton, Ball, Mourton and Adams, Fayetteville, Ark., for Ball, Mourton & Adams, A Partnership.
Mark A. Grober, Sandlin, Payne & Grober, Muskogee, Okl., for Robert Plunkett.
S. Walton Maurras, Harper, Young, Smith & Maurras, Fort Smith, Ark., for George Wagnon, Raymond (Jack) Clark, Eddie Joe Smith, Waldo Price and J.O. McClure.
Ronald D. Harrison, Harrison and Hewett, Fort Smith, Ark., for Kirit Goradia.
James B. Blair, Springdale, Ark., for E.J. Ball, Kenneth R. Mourton and Stephen E. Adams, Ind. and d/b/a Ball, Mourton & Adams.
James A. Arnold, II, Shaw, Ledbetter, Hornberger, Cogbill & Arnold, Fort Smith, Ark., for Jay Neal, Jr.
Gary D. Corum, Wilson, Engstrom, Corum & Dudley, Little Rock, Ark., for Harry Erwin.
E.E. Maglothin, Jr., Putman & Maglothin, Fayetteville, Ark., for Ball, Mourton & Adams.
The plaintiff class, holders of demand notes issued by the Farmers Co-op of Arkansas and Oklahoma, Inc., has moved for summary judgment on its state securities law claims against certain Co-op directors and employees. The class alleges that the Co-op demand note program constituted a sale of "securities" as that term is defined in the Arkansas Securities Act. Ark.Stat. Ann. §§ 67-1235 et seq. (1980 Repl.). The class maintains that inasmuch as these demand notes were neither registered during the period April 8, 1980, to October 28, 1983, nor validly exempt from registration, the sales were unlawful. They filed this motion to rescind the purchases of unregistered demand notes, and to recover the consideration paid plus six percent (6%) interest as provided by law. Ark.Stat.Ann. § 67-1256(a)(2) (1980 Repl.).
The district court referred this question to the magistrate pursuant to a pre-trial referral order previously entered in June, 1985. On March 27, 1986, the magistrate issued his proposed findings and recommendations. He found that the demand notes were securities under the Arkansas Securities Law, and that Jack White, the Co-op's general manager during part of the period, performed the functions of a corporate president, and was therefore liable under Ark.Stat.Ann. § 67-1256(b). The magistrate believed that Kirit Goradia, the Co-op office manager, raised a material issue of fact as to whether he performed the duties of a corporate officer, or "materially aided" the sale of the notes. He therefore denied summary judgment against Goradia.
With respect to the Co-op's directors, the magistrate found that they were persons explicitly made liable under the statute, without regard to whether they aided a sale or performed executive duties. Ark. Stat.Ann. § 67-1256(b). He found, however, that the directors' affidavits made out a submissible case that they did not know, and in the exercise of reasonable care could not have known of the existence of facts by virtue of which the liability is said to exist.
All parties filed timely objections to the magistrate's proposed findings and recommendations. In addition, the court has reviewed an amicus filing from Arthur Young & Co., which wished to advise the court of its position that the Co-op demand notes are not "securities." Arthur Young believes that a ruling unfavorable to the defendants may foreclose argument on a cognate issue under the federal acts. The court does not believe that its resolution of state law questions necessarily settles the federal securities issue. The court has devoted considerable attention to the legislative history of the Arkansas Securities Act of 1959. This history, in several particulars, is distinct from that of the Securities Act of 1933, and of the Securities Exchange Act of 1934. Whether those differences are so critical as to mandate a different result, the court reserves for further argument on another day, although federal precedents will necessarily be discussed in this opinion.
The parties have closely argued the question whether the Co-op's demand notes are "securities" subject to regulation by the Arkansas Securities Act. Ark.Stats.Ann. §§ 67-1235 et seq. The Act provides:
The magistrate found that the instruments issued by the Co-op were "notes" or "evidences of indebtedness" included within the definition of "security" set forth in the statute. The Eighth Circuit, however, has held that not every note is a security for purposes of either the Arkansas or the federal securities acts. See Union National Bank v. Farmers Bank, 786 F.2d 881 (8th Cir.1986).
The United States Supreme Court, in dicta, has also questioned whether all notes should be treated as securities under federal law. Landreth Timber Co. v. Landreth, ___ U.S. ___, 105 S.Ct. 2297, 2306, 85 L.Ed.2d 692 (1985). While we are only concerned with the Arkansas Securities Act, we must acknowledge that Arkansas's definition of "security" is borrowed from that of the Securities Act of 1933, 15 U.S.C. § 77b. Distinctive features of the Arkansas Act impel us to the conclusion that demand notes issued by a farmers' cooperative are securities, and that these particular features, combined with state and federal court interpretations of relevant sections of the Act, allow our conclusion to stand alone.
Nevertheless, Kansas State Bank v. Citizens Bank, 737 F.2d 1490, 1495-96 (8th Cir.1984), urges that even in state Blue Sky Law cases, some attention be paid to federal precedents, and we shall do so. We believe, however, that our analysis of the Arkansas act permits us to conclude, as a matter of summary judgment, that the demand notes are securities. We hope that our opinion offers "a carefully reasoned ruling on a question of state law" sufficient to satisfy the Kansas State Bank court's concern on this point. Id. at 1496.
Our opinion will therefore proceed to analyze the question on the basis of the Arkansas Securities Act, its history, development, and interpretation in both the state and federal courts. Secondary sources will include not only a learned commentary on the state court's interpretations of the securities laws, but also an article specifically cited by the state...
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