757 F.Supp. 1365 (S.D.Fla. 1991), 90-0429, AmeriFirst Bank v. Bomar

Docket Nº:90-0429-CIV.
Citation:757 F.Supp. 1365
Party Name:AMERIFIRST BANK, a Federal Savings Bank, and AmeriFirst Development Corporation, Plaintiffs, v. Thomas R. BOMAR, Carlos Garcia-Velez, Robert W. Benner, Richard M. Hattler, Richard A. Davenport, William W. Cole, Jr., James C. Carr, Deloitte & Touche, and Ernst & Young, Defendants.
Case Date:January 17, 1991
Court:United States District Courts, 11th Circuit, Southern District of Florida

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757 F.Supp. 1365 (S.D.Fla. 1991)

AMERIFIRST BANK, a Federal Savings Bank, and AmeriFirst Development Corporation, Plaintiffs,


Thomas R. BOMAR, Carlos Garcia-Velez, Robert W. Benner, Richard M. Hattler, Richard A. Davenport, William W. Cole, Jr., James C. Carr, Deloitte & Touche, and Ernst & Young, Defendants.

No. 90-0429-CIV.

United States District Court, S.D. Florida.

Jan. 17, 1991

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Andrew N. Bollmer, Washington, D.C., Hugo L. Black, Jr., Miami, Fla., for plaintiffs and counter-defendants Teti & Brody.

Aubrey V. Kendall, Miami, Fla., Thomas J. O'Connell, Carl D. Liggio, New York City, for defendant Ernst & Young.

David C. Pollack, Robert W. Turken, Alex P. Rosenthal, Miami, Fla., for defendants Carr and Cole.

Bruce W. Greer, Laura Besvinick, Valerie Shea, Miami, Fla., for defendant Deloitte & Touche.

Richard M. Hattler, Miami, Fla., for defendant Hattler.

Don Beverly, West Palm Beach, Fla., for defendant Davenport.


HOEVELER, District Judge.

THIS CAUSE comes before the Court on Defendants' motions to dismiss the Amended Complaint filed by AmeriFirst Bank ("AmeriFirst"), a federally chartered savings

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and loan, and AmeriFirst Development Corporation ("ADCO"), a wholly owned service corporation subsidiary of AmeriFirst. Defendants move to dismiss on several grounds. First, they argue that the Court does not have subject matter jurisdiction over the claims asserted under Rule 12(b)(1) and Rule 25(c) of the Federal Rules of Civil Procedure. Second, several of Defendants urge that various counts of the Amended Complaint fail to state a cause of action under Rule 12(b)(6) of the Federal Rules of Civil Procedure. Finally, Defendants claim that Plaintiffs have not plead fraud with sufficient particularity to satisfy Rule 9(b) of the Federal Rules of Civil Procedure. Finding that the Court lacks subject matter jurisdiction over Counts VI-IX, XI, XII, XX, and XXII, these Counts are dismissed without prejudice. However, the motions to dismiss Counts I-V, X, XIII-XIX, XXI and XXIII are denied.


The origin of the current action is five separate class actions filed on behalf of AmeriFirst's shareholders in November and December of 1989 and January of 1990 against AmeriFirst, its former managers and Deloitte & Touche ("Deloitte") (the successor of the Bank's former outside accounting firm). The class actions allege violations of the federal securities laws 1 in connection with the issuance of false and misleading statements to AmeriFirst's shareholders and the public.

In December, 1989, the shareholders agreed to settle their claims against AmeriFirst. The settlement agreement requires AmeriFirst to bring suit against its officers, directors, and outside accountants. The agreement further provides that the Class will assign AmeriFirst an undivided twenty (20) percent interest in the securities claims it alleges in the class action, after recovery of certain litigation expenses and excluding recovery from a certain insurance policy and, in exchange, AmeriFirst is to assign the Class an undivided twenty-five (25) percent interest in its claims, after recovery of specified amounts. In the event that any of the claims are not assignable, the agreement states that the Class will pay AmeriFirst twenty (20) percent of its recovery and AmeriFirst will pay the Class twenty-five (25) percent of its recovery from the assigned claims.

As consented to in the settlement agreement, AmeriFirst and ADCO filed a complaint in February 1990 against their former officers and directors, 2 Deloitte, Ernst & Young ("Ernst") (successor of the former outside auditor of ADCO), and James Carr, a Florida builder, alleging certain breaches of fiduciary duty. After Court approval of the settlement terms, including the cross-assignment provision mentioned above, on April 17, 1990, the plaintiffs amended their complaint to include violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Each of the defendants has moved to dismiss the Amended Complaint on the grounds that the Court lacks subject matter jurisdiction under Rule 12(b)(1) of the Federal Rules of Civil Procedure. In support of their motions, Defendants argue that the Court cannot assert jurisdiction over the federal securities claims, because the claims are invalidly assigned as a matter of law and because the assignment is champertous and collusive, in violation of 28 U.S.C. § 1359. 3 They

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further assert that the Court lacks subject matter jurisdiction over the breach of fiduciary duty claims as there is no federal common law governing these state law claims. 4 Defendants Bomar, Garcia, Benner, Hattler, and Carr also move to dismiss the Amended Complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a cause of action for which relief can be granted and under Rule 9(b) of the Federal Rules Civil Procedure for failure to plead fraud and damages with sufficient particularity.


I. Subject Matter Jurisdiction

A. Validity of the Assignment of the Rule 10b-5 Claims

Defendants argue that assignment of the federal securities claims to Amerifirst is invalid as a matter of law. The essence of their argument is that, in order to assert a 10b-5 claim, one must be an actual purchaser or seller of a security who relied to his detriment upon specific misrepresentations or omissions when he bought or sold the security. Since AmeriFirst is neither a purchaser nor seller who relied on the allegedly fraudulent misrepresentations or omissions of the defendants, the defendants conclude that AmeriFirst does not have standing under Blue Chip Stamps v. Manor Drugstores, 421 U.S. 723, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975), to assert a Rule 10b-5 claim.

Defendants are correct in their assertion that in order to have standing under § 10(b), a plaintiff must have been a purchaser or seller, and must have been personally defrauded. Blue Chip Stamps v. Manor Drug Stores, supra; Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 92 S.Ct. 1456, 31 L.Ed.2d 741 (1972). However, as Plaintiffs point out, standing to sue and assignability are distinct issues. Standing requirements define those persons who are entitled to sue for some cognizable injury. A party with standing to sue, however, generally has the power to assign his claim to one who would otherwise lack the requisite standing. Nonassignability is the exception. Liberty Mutual Insurance Co. v. Davis, 412 F.2d 475, 484 (5th Cir.1969). Consequently, standing is not necessarily a requirement to bringing a claim which a plaintiff has been assigned. See e.g., Spiller v. Atchison, T. & S.F. Ry. Co., 253 U.S. 117, 40 S.Ct. 466, 64 L.Ed. 810 (1920) (court held that plaintiff who had been assigned claims under the Interstate Commerce Act could sue despite language in the Act that only "injured" persons had standing); In re Fine Paper Litigation, 632 F.2d 1081 (3rd Cir.1980) (court upheld the validity of a partial assignment of federal antitrust claims, stating such assignment does not circumvent the standing requirement of Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977)).

The majority of courts considering whether federal securities claims asserted under § 10(b) are automatically assignable

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have held that they are not. 5 See, e.g., In re Nucorp Energy Securities Litigation, 772 F.2d 1486, 1490 (9th Cir.1985); Soderberg v. Gens, 652 F.Supp. 560, 564 (N.D.Ill.1987); In re Saxon Securities Litigation, 644 F.Supp. 465, 470-72 (S.D.N.Y.1985); Rose v. Arkansas Valley Environmental & Utility Authority, 562 F.Supp. 1180, 1189 (W.D.Mo.1983); Independent Investor Protective League v. Saunders, 64 F.R.D. 564, 572 (E.D.Pa.1974). But see, Hooper v. Mountain States Sec. Corp., 282 F.2d 195, 206-07 (5th Cir.1960) (corporation's Rule 10b-5 claim survived corporation's bankruptcy and passed to bankruptcy trustee); Mills v. Sarjem Corp., 133 F.Supp. 753, 761 (D.N.J.1955) (since actions under the Securities Exchange Act of 1934 are remedial in nature and are not penal, decedent's § 10(b) claim survived his death and passed to his executors). Because a § 10(b) claim is personal to the one actually defrauded, these courts have found it inappropriate to permit a claim to travel with the security. As stated by the court in In re Saxon, a rule recognizing automatic assignment "would remove the remedy from those to whom the statute provides it ... by gratuitously giving it to those who were not defrauded and have suffered no injury under the securities law." In re Saxon, 644 F.2d at 472. The concern of depriving an injured party of the right to seek a remedy does not arise, however, when the party voluntarily and expressly assigns the securities claim to another. In re National Smelting of New Jersey, Inc., 722 F.Supp. 152, 176 (D.N.J.1989); Lowry v. Baltimore & Ohio R.R. Co., 707 F.2d 721 (3d Cir.) (en banc), cert. denied, 464 U.S. 893, 104 S.Ct. 238, 78 L.Ed.2d 229 (1983). In this situation, the victim of fraud willingly relinquishes his statutory cause of action. Thus, unless the assignment of a Rule 10b-5 claim otherwise contravenes the policy considerations behind the standing requirements of Blue Chip and its progeny, there is no reason why a party who has been injured by the purchase or sale of a security in violation of Rule 10b-5 should not be entitled to expressly assign his claim in accordance with the general rule that claims are legally assignable. 6

In Blue Chip the Supreme Court held that a party who abstained from purchasing a security because of a seller's misrepresentations could not...

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