74 F.3d 932 (9th Cir. 1996), 94-56355, Securities Investor Protection Corp. v. Vigman

Docket Nº:94-56355.
Citation:74 F.3d 932
Party Name:, RICO Bus.Disp.Guide 8967, 96 Cal. Daily Op. Serv. 439, 96 Daily Journal D.A.R. 743 SECURITIES INVESTOR PROTECTION CORPORATION, Plaintiff-Appellant, v. Seymour VIGMAN; Robert G. Holmes, Jr.; Aero Systems, Inc.; Martin Blumenthal; Nettie Vigman; Jay Dash; Harriett Dash, as personal representative of the Estate of Philip Dash; Jack A. Haber; Habers,
Case Date:January 23, 1996
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

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74 F.3d 932 (9th Cir. 1996)

, RICO Bus.Disp.Guide 8967,

96 Cal. Daily Op. Serv. 439,

96 Daily Journal D.A.R. 743



Seymour VIGMAN; Robert G. Holmes, Jr.; Aero Systems, Inc.;

Martin Blumenthal; Nettie Vigman; Jay Dash; Harriett

Dash, as personal representative of the Estate of Philip

Dash; Jack A. Haber; Habers, Inc.; Haberico Inc.;

Habers, Inc. Defined Benefit Pension Trust, Defendants-Appellees.

No. 94-56355.

United States Court of Appeals, Ninth Circuit

January 23, 1996

Argued and Submitted Dec. 12, 1995.

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G. Robert Blakey, Notre Dame Law School, Notre Dame, Indiana; Mark Riera, Shepard, Mullin, Richter & Hampton, Los Angeles, California, for plaintiff-appellant.

Jack I. Samet, Baker & Hostetler, Los Angeles, California, for defendant-appellee Robert G. Holmes, Jr.

Steven Gourley, Gourley & Burstein, Los Angeles, California, for defendants-appellees Jack A. Haber, Habers, Inc., Haberico Inc., Habers, Inc. Defined Benefit Pension Trust.

Appeal from the United States District Court for the Central District of California.

Before: FARRIS and RYMER, Circuit Judges, and SINGLETON, District Judge [*].

RYMER, Circuit Judge:

This appeal requires us to decide how many bites at the apple the Securities Investor Protection Corporation (SIPC) can take.

Asserting subrogation to the rights of nonpurchasing customers of two failed broker-dealers, SIPC brought securities 1 and RICO 2 claims against Robert G. Holmes, Jr., and a cast of dozens who were accused of manipulating the stock of companies in which they had an interest. Among other manipulative devices SIPC complained about was "parking." 3

After two unrelated trips to this circuit, 4 the district court granted summary judgment for Holmes on the ground that SIPC lacked standing as a purchaser or seller of securities, and had not shown a sufficient causal connection between Holmes's acts and the losses SIPC sought to recover. We reversed, Securities Investor Protection Corp. v. Vigman, 908 F.2d 1461 (9th Cir.1990) (Vigman III ), and then got reversed, Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992). The Supreme Court held that SIPC cannot recover from Holmes under RICO because the conspirators' conduct did not proximately cause the nonpurchasing customers' injury.

On remand, SIPC asked to go forward on a parking theory that it argued had been left open by a footnote in the United States Supreme Court's opinion in Holmes. The district court did not read the footnote as controlling or the Supreme Court as having mandated reconsideration of SIPC's RICO claim on a new theory of parking independent from the scheme to manipulate. As SIPC had not pursued any such theory in any court on appeal, the district court let stand its judgment to Holmes on the RICO claim under the law of the case.

We agree that the district court had no obligation to reopen its judgment to permit SIPC to proceed on a theory of causation that it had not developed before. We have jurisdiction under 28 U.S.C. Sec. 1291, and affirm.


As Vigman II, Vigman III and Holmes describe the facts in detail, we focus

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only on the procedural background that led the district court to conclude that under the law of the case, the summary judgment granted to Holmes stands.

In July 1981, SIPC sought a decree to protect the customers of First State Securities Corp. (FSSC) and Joseph Sebag, Inc. (Sebag), and two years later, brought this suit pursuant to the Securities Investor Protection Act (SIPA), 15 U.S.C. Secs. 78eee et seq., against various officers and directors (including Holmes) of six companies whose stock was allegedly manipulated, account holders at FSSC and Sebag, and insiders of FSSC and Sebag, for conspiracy in a fraudulent scheme that led to the demise of FSSC and Sebag. SIPC asserted subrogation rights to nonpurchasing customers' claims, while SIPC-appointed trustees stepped into the shoes of the broker-dealers and sued separately. Both alleged a scheme to manipulate securities in violation of Sec. 10 of the 1934 Act and Rule 10b-5, as well as RICO. As articulated by SIPC before Holmes, the scheme to manipulate comprised a number of deceptive trading practices and false statements, which artificially inflated the price of the manipulated securities. The scheme also included the "parking" of FSSC's and Sebag's inventory securities in their own customer accounts, which enabled the broker-dealer insiders to evade NASD's net capital requirements, conceal a net capital deficiency from SIPC, and keep FSSC and Sebag up and running so that the scheme could continue.

Holmes brought three motions for summary judgment in 1988, one on the RICO claim and two on SIPC's 10b-5 claims. Holmes argued that SIPC could not establish "purchaser-seller" standing or causation on any of its theories, including parking. The district court granted Holmes's motions on standing and causation grounds, holding among other things that the alleged parking transaction was not material to FSSC's financial position, and that Holmes's actions and his alleged parking transaction were not a cause of either FSSC's or Sebag's net capital deficiency.

SIPC appealed only the RICO judgment. It argued to this court that it need not have been a purchaser or seller of securities to have standing to bring a RICO claim based on predicate acts of securities fraud, and that it should not be required to show "loss causation" to support its RICO claim. As the district court had also concluded that there was a genuine issue as to whether Holmes participated in a conspiracy to manipulate the shares of the six companies, SIPC argued that even if a causal connection must be shown, it was error for the court to examine Holmes's conduct in isolation from the conduct of his coconspirators. We held that any plaintiff who is injured "by reason of" fraud in the sale of securities may sue under RICO, and that while SIPC has to establish a causal connection between the alleged predicate acts of securities fraud and the losses it seeks to recover, the district court erred in granting Holmes's motion for summary judgment based on a conclusion that his conduct alone did not proximately cause the injuries alleged.

The Supreme Court granted certiorari on whether SIPC had a right to sue under RICO. Finding causation to be "fairly included" within the question on which certiorari was granted, Holmes, 503 U.S. at 266, n. 12, 112 S.Ct. at 1317, n. 12, the Court held that proximate cause is required, assumed that Holmes would be responsible for the acts of his coconspirators, and concluded that the nonpurchasing customers, or SIPC in their stead, are not proper plaintiffs. As it stated: "In sum, subrogation to the rights of the manipulation conspiracy's secondary victims does, and should, run afoul of proximate-causation standards, and SIPC must wait on the outcome of the trustees' suit." Holmes, 503 U.S. at 274, 112 S.Ct. at 1321.

In footnote 19, however, the Court noted that SIPC had alleged in the courts below that Holmes's FSSC account had been used for parking manipulated stocks. Of this, it said:

But for the parking transactions, FSSC would allegedly have failed capital requirements sooner; would have been shut down by regulators; and would not have dragged Sebag with it in its demise. Thus, their customers would have been injured to a lesser extent. We do not rule out that,

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if, by engaging in the parking transactions, the conspirators committed mail fraud, wire fraud, or "fraud in the sale of securities," the broker-dealers' customers might be proximately injured by these offenses. However this may be, SIPC in its brief on the merits places exclusive reliance on a manipulation theory and is completely silent about the alleged parking scheme.

Id. at 272, n. 19, 112 S.Ct. at 1321, n. 19 (citations omitted).

SIPC has thereafter pinned its hopes on this footnote. First it asked us to review "issues that the Supreme Court left open." Without comment, we remanded to the district court "for further proceedings consistent with the opinion of the Supreme Court." Securities Investor Protection Corp. v. Vigman, 964 F.2d 924 (9th Cir.1992) (Vigman IV ). Back in the district court, SIPC moved to "confirm standing" to sue Holmes under RICO, arguing that the Supreme Court did not foreclose its RICO claim based on a parking scheme separate from the manipulation scheme. Holmes filed a cross-motion to reinstate summary judgment. 5

Acknowledging that the Court's mandate in light of footnote 19 is not as clear as it could be, the district court relied on the procedural history of this case to hold that SIPC's RICO claim is foreclosed. It pointed out that neither the district court, nor the court of appeals, nor the parties had construed SIPC's stock parking allegations as alleging a separate scheme. In any event, the district court stated, if SIPC had predicated its RICO claim on an alleged parking scheme separate from the scheme to manipulate, it could and should have raised it on appeal. Therefore, it concluded, because its grant of summary judgment was not challenged on appeal on a separate parking theory, under the law of the case the judgment granted to Holmes on SIPC's RICO claim stands.


SIPC argues that it has standing to sue Holmes for damages suffered as a result of Holmes's participation in the conspiracy to park...

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