856 F.2d 52 (8th Cir. 1988), 87-1726, Arthur Young & Co. v. Reves
|Docket Nº:||87-1726, 87-1727, 88-1014, 87-1803 and 87-2533.|
|Citation:||856 F.2d 52|
|Party Name:||Blue Sky , Blue Sky , ARTHUR YOUNG & CO., Appellant, v. Bob REVES; Robert H. Gibbs; & Frances Graham, Appellees. Thomas E. ROBERTSON, Jr., As Trustee of the Farmer's Co-Op of Arkansas and Oklahoma, Inc., and as representative of a class of members, depositors, and equity security holders, who are similarly situated to him; Bob Reves; Frances Graham|
|Case Date:||September 02, 1988|
|Court:||United States Courts of Appeals, Court of Appeals for the Eighth Circuit|
Submitted May 9, 1988.
Opinion on Denial of Rehearing and Rehearing En Banc Dec. 2, 1988.
John Matson, New York City, for appellant.
Robert R. Cloar, Ft. Smith, Ark., for Renes et al.
Gary M. Elden, Chicago, Ill., for appellee.
Before FAGG and MAGILL, Circuit Judges, and SNEED, [*] Senior Circuit Judge.
MAGILL, Circuit Judge.
This case arose out of the bankruptcy of the Farmer's Cooperative of Arkansas and Oklahoma, Inc. (Co-op). A class comprised of the holders of demand notes (Class) issued by the Co-op obtained a $6.1 million judgment against the Co-op's independent auditors, Arthur Young & Co. (Arthur Young). 1 The judgment followed a jury verdict that Arthur Young violated section 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. Sec. 78j(b) (Federal Act) and section 67-1256 of the Arkansas Securities Act, Ark.Stat.Ann. Sec. 67-1256 (Arkansas Act) (recodified at Ark.Code Ann. Sec. 23-42-106 (1987)), in connection with the sale of demand notes by the Co-op.
Arthur Young appeals the district court's (1) denial of its motion for a new trial or judgment n.o.v.; (2) award of costs to the Trustee and the Class; (3) award of attorney's fees to Class counsel; (4) calculation of pre- and post-judgment interest; and (5) denial of its petition for costs against the Trustee and the Class.
The Class cross-appeals, claiming that the district court erred in crediting settlement proceeds against the jury verdict against Arthur Young, and in granting summary judgment in favor of Arthur Young on the Class' claim under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. Secs. 1961-1968.
The Trustee cross-appeals the dismissal of his breach of contract claim.
Because we believe that the demand notes at issue are not "securities" for purposes of either the federal or Arkansas security acts, we reverse the denial of Arthur Young's motion for j.n.o.v. Furthermore, we deny the Class' and Trustee's cross-appeals.
In light of our disposition, only a brief recitation of the facts is necessary. Prior to retaining the services of Arthur Young in 1981, the Co-op had, for the most part, operated a traditional farmer's cooperative in northwest Arkansas and northeast Oklahoma. One of its financing methods, however, was not traditional, and it provides the focus for this lawsuit.
The Co-op was a membership organization for the farmers it served; it charged only a nominal membership fee. The Co-op obtained some of its operating funds not from traditional borrowing sources such as banks, but rather from the sale of promissory notes (demand notes) to its members. The practice involved the payment of money to the Co-op by a member in exchange for a promissory note payable on demand, at a rate of interest higher than could be obtained from area banks or savings and loans. The rate of interest changed periodically, based on market conditions, and those changes were announced in the Co-op's newsletter. The sale of the demand notes was an ongoing activity, and no financial information regarding the Co-op was disclosed to the members at the time of sale except for a statement of the Co-op's total assets, which was released by the Co-op periodically. All members of the Class held demand notes.
Arthur Young was engaged by the Co-op to audit and report on its 1981 and 1982 financial statements. Neither the Co-op's management nor its board of directors disseminated the audited financial statements to either the Co-op's members or its demand noteholders. The only dissemination of financial information by the Co-op occurred at...
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