Phillips v. Kaplus

• Decision Date: 02 July 1985
• Docket Number: No. 84-5316,84-5316
• Parties: Blue Sky L. Rep. P 72,258, 2 Fed.R.Serv.3d 1360 Gene E. PHILLIPS, et al., Plaintiffs-Appellees, v. Alan C. KAPLUS and the Johnson Collection, Inc., Defendants-Appellants.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 807

764 F.2d 807

Blue Sky L. Rep. P 72,258, 2 Fed.R.Serv.3d 1360

Gene E. PHILLIPS, et al., Plaintiffs-Appellees, v. Alan C. KAPLUS and the Johnson Collection, Inc.,

Defendants-Appellants.

No. 84-5316.

United States Court of Appeals, Eleventh Circuit.

July 2, 1985.

Lapidus & Stettin, P.A., Richard L. Lapidus, Robert P. Frankel, Miami, Fla., for defendants-appellants.

Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A., Edward I. Cutler, Tampa, Fla., Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A., Tallahassee, Fla., for plaintiffs-appellees.

Appeal from the United States District Court for the Southern District of Florida.

Before RONEY, and TJOFLAT, Circuit Judges, and BROWN ^*, Senior Circuit Judge.

JOHN R. BROWN, Circuit Judge:

The case before us involves a dispute between joint venture partners: Alan C. Kaplus, defendant-appellant, and Gene E. Phillips, et al., plaintiffs-appellees. The suit arose as a result of alleged fraud and misrepresentations on the part of Kaplus in connection with his purchase from plaintiffs of their interest in a joint venture partnership for development of real estate. The court below determined that Kaplus had defrauded his partners in purchasing their interest. The court also awarded plaintiffs attorneys fees under the Florida Securities Act. The questions presented for our review are whether the district court correctly tried the case without a jury, and whether the district court correctly held that defendants' failure to disclose material facts to plaintiffs in connection with the transaction in issue constituted fraud in connection with the purchase or sale of a security under federal or Florida state securities law.

For the reasons stated below, we affirm the district court's denial of a jury trial. However, we believe that the transactions in question did not involve a security; therefore, we reverse that portion of the district court's decision awarding plaintiffs' attorneys' fees under the Florida state securities laws, F.S. Sec. 517.211(6).

I. Facts

The individual plaintiffs in this diversity action, Gene E. Phillips and William S. Friedman, ¹ formed a corporation called Syntek of Florida, Inc. (Syntek). In 1980, the individual plaintiffs, Syntek, and defendant, Alan C. Kaplus (Kaplus) ² entered into a joint venture partnership--Biscayne Centre Associates (Biscayne). Biscayne acquired title to two blocks of land on Biscayne Boulevard in Miami, Florida, with plans to construct one or more office buildings on the property. Syntek was designated as the managing partner, but Kaplus was in charge of overseeing the project, as well as identifying prospective tenants for the buildings.

After some investigation, Kaplus reported to his partners that the leasing prospects for the proposed building were dim, although Kaplus did mention the remote possibility of a lease with Storer Broadcasting Corp. (now Storer Communications). Plaintiffs contend, and the trial court found, that Kaplus painted a pessimistic picture regarding the prospect of a lease with Storer when, in fact, Kaplus and Storer were engaged in serious negotiations for the terms of a lease agreement, including an option to purchase on the part of Storer. Kaplus advised that, in light of the poor prospects for the planned office complex, he had located a New Jersey investor (The Johnson Collection, Inc.) which was interested in purchasing the entire project. Plaintiffs agreed to sell their interest to the New Jersey investors, ignorant of the fact that the Storer lease had virtually been finalized. Kaplus later told Phillips that the prospective purchaser (the Johnson Collection) wanted Kaplus to retain a "minority interest" in Biscayne so that he could manage the property.

The Johnson Collection, the purchaser of plaintiffs' interest, was a corporation which had been formed by a New Jersey lawyer named Larry Cole. Unknown to plaintiffs, Cole was a friend of defendant Kaplus, and had in fact agreed to use the Johnson Collection to purchase plaintiffs' interest in Biscayne, and then to transfer that interest to Kaplus. ³ In this way, Kaplus hoped to obtain full ownership of the Biscayne enterprise, without letting his partners know that he was buying them out. In early 1981, the deal was completed, and plaintiffs sold their interest in Biscayne to the Johnson Collection.

In late November of 1981, plaintiffs first became aware of the facts which had been withheld by the defendants regarding the Storer transaction and Kaplus' interest in the Johnson Collection. Plaintiffs instituted this action, which was tried before the court without a jury. The trial court held that Kaplus failed to make a full disclosure to plaintiffs of the extent of his interest in the ostensible purchaser, the Johnson Collection, thereby committing a breach of fidelity due to plaintiffs as his joint venturers. The trial court further held that Kaplus' actions constituted common law fraud, entitling plaintiffs to an order rescinding the sale of their interest in Biscayne Center Associates, and restoring their ownership interest in the joint venture partnership as they existed prior to their sale of their interests to Kaplus. The trial court further stated that upon rescission, plaintiffs are entitled to an order declaring that the joint venture be dissolved, that an accounting be conducted by the parties incidental thereto under the supervision of the Court, and that a lien be impressed upon Kaplus' interest in the joint venture or the proceeds thereof, for all of his obligations found due in the accounting.

II. Right to a Jury Trial

We first consider the lower court's decision to conduct a bench trial on plaintiffs' claims. Defendants maintain that the pleadings below raised legal issues, and that the Court's trial of plaintiffs' claims denied defendants' their Seventh Amendment right to a trial by a jury. We thus examine the pleadings below, and the nature of the issues presented therein.

Counts I and II of plaintiffs' original complaint sought rescission of their sale-purchase transaction with the defendants due to violation of federal and Florida securities laws. Both counts initially asked for damages in the alternative; however, plaintiffs subsequently withdrew all claims for damages.

The prayer in Count III, based on diversity jurisdiction, originally sought injunctive relief, the declaration of a trust, and the imposition of a lien upon defendants' interest in the venture. It was amended before an answer was filed to include a request for the remedy of common law rescission. Count IV, also based on diversity jurisdiction, sought dissolution of the partnership, an accounting incidental thereto, and the imposition of a lien. Plaintiffs later added a fifth count to the complaint seeking rescission under New York's securities law.

Defendants timely filed an Answer, containing affirmative defenses and counterclaims. The first two counts of defendants' counterclaim sounded in tort, seeking damages for slander and interference with Kaplus' business. The third count of the counterclaim sought damages in connection with another venture in which plaintiffs and defendants were mutually involved. The final paragraph of the counterclaim contained defendants' request for a jury trial, and read as follows:

WHEREFORE, being injured, Counter Plaintiff, Alan Kaplus, demands compensation and punitive damages of the plaintiffs and Syntek Corporation and requests trial by jury of all issues so triable.

Kaplus later filed an Amended Counterclaim and then a Second Amended Counterclaim, dropping the third count of the original counterclaim, and adding a claim for rescission of the parties' original joint venture partnership agreement. Plaintiffs, having dropped their claims for damages, asserted that the only legal issues remaining in the case were defendants' counterclaims sounding in tort. Since these counterclaims were not directly related to the claims in plaintiffs' complaint, and since trial of the issues presented in plaintiffs' complaint would not affect the disposition of the tort claims, plaintiffs asked the Court to separate the issues, trying the equitable issues presented in their complaint first without a jury, then the legal issues raised in the counterclaim before a jury. The district court granted plaintiffs' requests and informed the parties of its intention to try first the plaintiffs' claims without a jury. Subsequently, Kaplus himself dismissed the second amended counterclaim. ⁴ Defendants still maintain, however, that plaintiffs' claims raised legal issues entitling them to a trial by a jury in accordance with their request.

A. Waiver

Plaintiffs, attempting to head defendants off at the pass, first assert that, regardless of the presence of any legal issue in the complaint, defendants failed properly to request a jury trial for those issues, as required by F.R.Civ.P. 38. ⁵ Plaintiffs contend that, by attaching their jury demand to the counterclaim, defendants waived their right to a jury trial on issues set out in the complaint.

On our reading of the pleadings, plaintiffs' assertion of waiver is incorrect. Kaplus' demand for a jury trial was not confined to the counterclaim; it specifically requested "trial by jury of all issues so triable." If a defendant's demand for a jury trial does not specify particular issues which the defendant wishes to be tried by a jury, such a request has the effect of demanding a jury trial of "all issues so triable." F.R.Civ.P. 38(c). Kaplus' demand for a jury trial, albeit following the counterclaim, timely satisfied Rule 38(b) demand requirements, and gave plaintiffs notice that defendant sought trial by jury on all issues so triable presented in the pleadings.

B. Nature of the Issues

We turn now to defendants' contention that they were entitled to a jury trial on the issues presented in this case. The Seventh Amendment preserves the right to trial by jury in suits in...