Burgess v. Premier Corp.
| Citation | 727 F.2d 826 |
| Decision Date | 05 March 1984 |
| Docket Number | Nos. 82-3064,82-3090,s. 82-3064 |
| Parties | Blue Sky L. Rep. P 71,936, Fed. Sec. L. Rep. P 99,699, 15 Fed. R. Evid. Serv. 241 Ernest M. BURGESS, Edward H. Morgan, Clarence C. Pearson, John S. Tytus, and Lucius D. Hill, Plaintiffs-Appellees, v. PREMIER CORPORATION, a Delaware corporation, William L. Brittain, Robert M. Bohlen, C. Gerald Haarer, and Herman L. Schrock, Louis Rosen and R.A. Lile, substituted for W.E. Darby, Defendants-Appellants. Ernest M. BURGESS, Edward H. Morgan, Clarence C. Pearson, John S. Tytus, and Lucius D. Hill, Plaintiffs-Appellants, v. PREMIER CORPORATION, a Delaware corporation, William L. Brittain, Robert M. Bohlen, C. Gerald Haarer, and Herman L. Schrock, Louis Rosen and R.A. Lile, substituted for W.E. Darby, Defendants-Appellees. |
| Court | United States Courts of Appeals. United States Court of Appeals (9th Circuit) |
Ron J. Perey, James A. Smith, Jr., Mark Roellig, Perey & Smith, Seattle, Wash., for plaintiffs-appellees.
Theodore J. Collins, Perkins, Coie, Stone, Olsen & Williams, Seattle, Wash., James L. Magee and Bob M. Schwartz, Sax & MacIver, Seattle, Wash., Leonard L. Scott Eichenbaum, Scott, Miller Crockett, Darr & Hawk, Little Rock, Ark., for defendants-appellants.
Appeal from the United States District Court for the Western District of Washington.
Before GOODWIN, WALLACE and REINHARDT, Circuit Judges.
Premier et al., alleging numerous errors, appeal a jury award of damages for state and federal securities law violations and common law fraud. Premier et al. also allege that attorney fees were incorrectly awarded to plaintiffs. Plaintiffs cross-appeal seeking prejudgment interest.
Five doctors from the Seattle, Washington area purchased tax shelter investments in cattle herds from Premier, a Delaware corporation formed in 1969. Premier sold cows to investors; the investors then entered into management contracts with Premier. High income investors were able to benefit from tax shelter features of the investments. Premier represented to investors that its cattle were of superior quality.
Premier first became registered with the Securities and Exchange Commission in June 1971. A second registration with a related prospectus took effect in June 1972. The doctors purchased their investments between 1971 and 1973 under one or both of the 1971 and 1972 registration statements and prospectuses. Each doctor claimed extensive tax deductions for the purchase, maintenance, and depreciation of his herd. After losing money for several years on their investments, four of the doctors sold their herds back to Premier, and one disposed of his herd on the open market. Each sold at a substantial loss. The doctors' herds were liquidated between 1975 and 1978.
In 1978 the five doctors filed this action against Premier and directors Bohlen, Brittain, Haarer (also officers), Schrock, and Darby. Darby never was an officer or employee of Premier. He resigned effective July 1, 1971, because of poor health, and died in 1979. Executors were appointed and substituted in this litigation.
The doctors claimed that Premier et al. violated federal and state securities laws and Washington's consumer protection law and committed common law fraud and negligent misrepresentation by failing to disclose the stocking of herds with low quality animals at inflated book values, failing to disclose director Darby's offer to resign, circulating unrealistic cash flow projections, failing to disclose certain acquisitions, and engaging in stock transactions contrary to the company's and investors' best interests.
Trial began in June 1981. Defense motions for summary judgment and directed verdict on the grounds that the actions were barred by applicable statutes of limitations or that the doctors had signed releases were denied by the trial judge. The jury returned special verdicts finding all named defendants liable on all claims, except that Schrock and Darby were not found liable on the Washington Consumer Protection Act claim. The doctors were awarded damages and attorney fees.
Doctors filed this action on June 21, 1978. Under applicable statutes of limitation, Premier et al. moved for summary judgment on the ground that there was no disputing that the doctors had actual or constructive notice of their fraud claims more than three years before filing this action; i.e., before June 21, 1975. 1
Summary judgment was properly denied because there was a genuine issue of material fact as to when the doctors knew or had notice of their claim. Subsequently, the issue of the statute of limitations was submitted to the jury pursuant to instruction number 38. 2 The jury necessarily found that the statute of limitations had not barred the action when it affirmatively answered a general question finding Premier et al. liable. To emphasize the importance of the time-bar question to the jury, either party could have had a special verdict question directly addressing the statute of limitations. However, under Fed.R.Civ.P. 49(a) a party waives its right to demand submission of a special verdict question on an issue unless it objects to the failure to submit the special question before the jury retires. 9 Wright and Miller, Federal Practice and Procedure: Civil Sec. 2507. Premier et al. did not so object.
When Premier repurchased the cattle herds from the doctors, each doctor filed a document releasing Premier from all claims. Premier moved for summary judgment and later for a directed verdict on the ground that the releases were sufficient to exonerate Premier from all claims made by the doctors. The motions were properly denied.
The intent of the releases, their application to known and unknown facts, and the disclosures and promises surrounding the releases were all questions addressed to the jury under Washington law and federal securities law.
A release is valid for purposes of federal securities claims only if the doctors had "actual knowledge" that such claims existed. Royal Air Properties, Inc. v. Smith, 333 F.2d 568 (9th Cir.1964). Since each doctor indicated by affidavit and trial testimony that he did not know of any claims he could have raised until after he signed the release, there was a material issue of fact for the jury. Thus, the motion for summary judgment was properly denied. Because a reasonable juror could have concluded that the doctors actually were unaware of their claims, the motion for directed verdict was also properly denied.
While there are no cases on releases of claims under the Washington Securities Act, Washington courts would apply the "actual knowledge" test because the state Act provides that it is to be coordinated with related federal law. RCW 21.20.900. Washington's anti-waiver provision is very similar to the federal anti-waiver provision. Cf. RCW 21.20.430(5) with 15 U.S.C. Sec. 78cc(a). Because Royal Air Properties, supra, provides the relevant federal law for Washington state, the motions for summary judgment and directed verdict were properly denied.
Under Washington law, a release is valid unless there was fraud, misrepresentation, or overreaching in its procurement. Metropolitan Life Insurance Company v. Ritz, 70 Wash.2d 317, 422 P.2d 780, 783 (1967).
Doctors alleged that Premier et al. stocked at least some of the herds with inferior cows. Upon repurchase, Premier et al. allowed doctors to assume that the low repurchase price offered was due to market decline rather than inferior quality. These releases were a condition of the repurchase. Thus, a jury question existed as to whether the releases were fraudulently obtained, and summary judgment was therefore inappropriate. Because a reasonable jury could have believed that the releases were fraudulently procured, a directed verdict was also inappropriate on these claims.
Schrock and Darby moved for directed verdicts on the grounds that there was insufficient evidence to establish the scienter required for violation of Sec. 10(b) of the Securities Act of 1934, 15 U.S.C. Sec. 78j, and S.E.C. Rule 10b-5, 17 C.F.R. Sec. 240.10b-5, and that their lack of involvement with Premier precludes any derivative liability as controlling persons. The district court should have granted these motions.
Scienter is a necessary element of a violation of Sec. 10(b) and Rule 10b-5. Aaron v. SEC, 446 U.S. 680, 695, 100 S.Ct. 1945, 1955, 64 L.Ed.2d 611 (1980). The scienter requirement encompasses knowing or reckless conduct, Kiernan v. Homeland, Inc., 611 F.2d 785, 787 (9th Cir.1980) (citing Nelson v. Serwold, 576 F.2d 1332, 1337 (9th Cir.), cert. denied, 439 U.S. 970, 99 S.Ct. 464, 58 L.Ed.2d 431 (1978)), but not negligence. Aaron, 446 U.S. at 690, 100 S.Ct. at 1952 (citing Ernst & Ernst v. Hochfelder, 425 U.S. 185, 194, 197-99, 96 S.Ct. 1375, 1381, 1383-84, 47 L.Ed.2d 668 (1976)). A person possesses the requisite scienter if the person either deliberately misrepresents or omits material information, or acts recklessly, i.e., if the person
"had reasonable grounds to believe material facts existed that were misstated or omitted, but nonetheless failed to obtain and disclose such facts although they could have done so without extraordinary effort." Kiernan v. Homeland, Inc., 611 F.2d at 788.
A controlling person is liable for the acts of another if the controlling person "acted in bad faith and directly or indirectly induced the conduct constituting a violation or cause of action." Strong v. France, 474 F.2d 747, 752 (9th Cir.1973). This court has indicated that there can be no liability if the controlling person "was not a participant in ... activities which are claimed to violate the securities laws." Christoffel v. E.F. Hutton & Co. Inc., 588 F.2d 665, 669 (9th Cir.1978). A director ...
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...upward to compensate for the loss of use of the funds over the years as well as for the effects of inflation. See Burgess v. Premier Corp., 727 F.2d 826, 841 (9th Cir.1984). The Court concludes that the upward adjustment should be based on the yield on 52-week U.S. Treasury Bills. Such an a......
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...is insufficient to make them control persons. Directors are not automatically liable as controlling persons. Burgess v. Premier Corp., 727 F.2d 826, 832 (9th Cir.1984) (citations omitted). While an individual's status as a director is "sort of a red light" of control, Arthur Children's Trus......
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Published Writings
...or otherwise relied upon by the expert witness during the course of his or her direct examination. Burgess v. Premier Corporation , 727 F.2d 826 (9th Cir. 1984); Lewandowski v. Preferred Risk Mutual Ins. Co ., 33 Wis.2d 69, 146 N.W.2d 505 (1966). Kace v. Liang , 472 Mass. 630, 36 N.E.3d 121......
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Pretrial preparation
...may be admitted on the direct examination of your expert for the truth of the matters contained in the text. Burgess v. Premier Corp. , 727 F.2d 826, 834 (9th Cir. 1984). • In rare situations, you may have the learned treatise admitted for its truth as an exhibit through cross-examination. ......
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Published writings
...or otherwise relied upon by the expert witness during the course of his or her direct examination. Burgess v. Premier Corporation , 727 F.2d 826 (9th Cir. 1984); Lewandowski v. Preferred Risk Mutual Ins. Co ., 33 Wis.2d 69, 146 N.W.2d 505 (1966). Kace v. Liang , 472 Mass. 630, 36 N.E.3d 121......
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Published writings
...or otherwise relied upon by the expert witness during the course of his or her direct examination. Burgess v. Premier Corporation , 727 F.2d 826 (9th Cir. 1984); Lewandowski v. Preferred Risk Mutual Ins. Co ., 33 Wis.2d 69, 146 N.W.2d 505 (1966). Kace v. Liang , 472 Mass. 630, 36 N.E.3d 121......