Arst v. Stifel, Nicolaus & Co., Inc.

• Decision Date: 11 June 1996
• Docket Number: No. 95-3005,95-3005
• Citation: 86 F.3d 973
• Parties: , Fed. Sec. L. Rep. P 99,247 Rodger M. ARST, Plaintiff-Appellant, v. STIFEL, NICOLAUS & COMPANY, INC., and Odis E. Shoaf, Jr., Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 973

86 F.3d 973

65 USLW 2044, Fed. Sec. L. Rep. P 99,247

Rodger M. ARST, Plaintiff-Appellant, v. STIFEL, NICOLAUS & COMPANY, INC., and Odis E. Shoaf, Jr. Defendants-Appellees.

No. 95-3005.

United States Court of Appeals Tenth Circuit.

June 11, 1996.

Joe Rebein of Shook, Hardy & Bacon, P.C., Kansas City, Missouri (Barbara A. Harmon and Brett D. Leopold of Shook, Hardy & Bacon, P.C. of Overland Park, Kansas, and Kurt A. Harper of Sherwood & Harper, Wichita, Kansas, with him on the brief), for Plaintiff-Appellant.

Reggie C. Giffin of Morrison & Hecker, Kansas City, Missouri (John C. Nettels, Jr. of Morrison & Hecker, Wichita, Kansas, and James A. Walker of Triplett, Woolf & Garretson, L.L.P., Wichita, Kansas, with him on the brief), for Defendants-Appellees.

Before BRORBY and McWILLIAMS, Circuit Judges, and KERN, District Judge. ^*

KERN, District Judge.

In this appeal we are asked to consider whether the district court properly granted Defendants' motion for summary judgment. Plaintiff-Appellant Rodger M. Arst ("Arst") sued Defendants-Appellees Stifel, Nicolaus & Company, Inc. ("Stifel Co.") and Odis E. Shoaf, Jr. ("Shoaf"), asserting claims under Kansas common law for breach of fiduciary duty and claims under the Kansas Securities Act, Kan. Stat. Ann. § 17-253 (1994), and the Securities Exchange Act of 1934, 15 U.S.C. § 78(j) (1981). We affirm the District Court's grant of summary judgment in part and reverse in part and remand for further proceedings.

I. Facts.

In 1990, Physician Corporation of America (PCA) engaged Stifel Co. to act as an accommodating broker for PCA shares. Stifel Co. was to put together buyers and sellers of PCA stock on an unsolicited basis, charging both parties a commission. Stifel would not make recommendations concerning the stock, nor make a market in the stock. (Although PCA had originally asked Stifel Co. to serve as a market maker, Stifel Co. had declined.) PCA advised its shareholders by mail that it had made arrangements with Stifel Co. to accommodate the purchase and sale of PCA stock and that shareholders should contact Odis Shoaf, a senior vice president of Stifel Co., if they wanted to buy or sell shares. On various occasions since 1990, Mr. Shoaf purchased PCA shares for himself and family without revealing to the shareholders that he was the purchaser. Stifel Co. had instructed Shoaf not to disclose his purchases to PCA shareholders because Stifel Co. wanted to remain a neutral go-between and was concerned that Shoaf's purchases could be construed as recommendations. Shoaf asserts that he paid the same amount as other buyers of the PCA shares minus his regular commission.

Appellant Arst purchased 37,500 shares of PCA stock for $2.00 in the 1980s, before Stifel Co. was engaged as an accommodating broker. Around August 1992, Arst contemplated selling his PCA shares. Arst called Shoaf on August 17 to inquire about the price of the stock and the market for the shares. Shoaf apparently told Arst some unfavorable facts and opinions about PCA's strength and future as a company. Shoaf did not mention rumors circulating about PCA's plans to go public--rumors that Shoaf apparently had mentioned to other people. There is no evidence that Shoaf was privy to inside information.

On August 18, 1992, Arst authorized Shoaf to sell all of his 37,500 PCA shares at $4.625 per share--the going price. Shoaf sold some of Arst's shares to third parties and, without telling Arst, bought 10,110 shares for himself and his family on August 19. Shoaf testified that at the time Arst commissioned Shoaf to sell the shares, Shoaf did not know whether he or his family would purchase any of the shares. Prior to closing the transaction, Arst signed a nonsolicitation letter that stated that Shoaf had not solicited the sale and that Arst agreed not to hold Stifel Co. or Shoaf responsible for any damages or other liability arising out of the transaction. At the conclusion of the transaction in August 1992, Stifel Co. sent Arst a confirmation slip that stated the names of the buyers of his shares would be furnished upon written request. At the time of the closing, Arst did not inquire who had bought his shares.

In November 1992, PCA announced its plans to go public. In December, PCA stock split four for three, and in March 1993, PCA made a public offering at $15.25 per share. In April 1993, Arst sent Shoaf and Stifel Co. a written request for the names of the purchasers of his stock. Defendants refused to disclose the names. Arst then filed suit in state court against Stifel Co. and Shoaf, who removed the case to federal court. Defendants ultimately revealed the names of the purchasers of Arst's shares after being compelled by court order.

Arst brought claims against Shoaf and Stifel Co. under Kansas common law for breach of fiduciary duty and claims under the Kansas Securities Act, Kan.Stat.Ann. § 17-253, the Securities Exchange Act of 1934, 15 U.S.C. § 78(j), and SEC Rules 10b-5 and 10b10(a)(7)(i). Defendants filed a motion for summary judgment. The District Court granted Defendants' motion, holding that SEC Rule 10b-10(a)(7)(i) did not provide a private cause of action and that Defendants did not have the requisite fiduciary duty to support liability under the remainder of Plaintiff's claims. Arst now appeals the district court's order.

II. Discussion.

We review the district court's grant of summary judgment de novo, applying the same standard as the district court under Fed.R.Civ.P. 56(c). Universal Money Centers. v. American Tel. & Tel. Co., 22 F.3d 1527, 1529 (10th Cir.), cert. denied, --- U.S. ----, 115 S.Ct. 655, 130 L.Ed.2d 558 (1994). Summary judgment is appropriate if "there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). We examine the factual record and reasonable inferences therefrom in the light most favorable to the nonmoving party. Id. If there is no genuine issue of material fact in dispute, we must determine whether the district court correctly applied the law. Applied Genetics Intern. v. First Affiliated Securities, 912 F.2d 1238, 1241 (10th Cir.1990).

A. Cause of Action under Rule 10b-10(a)(7)(i). Arst brought a claim under SEC Rule 10b-10(a)(7)(i), 17 C.F.R. § 240.10b10(a)(7)(i), for Defendants' failure to disclose the names of the buyers of his stock. The rule provides in relevant part:

Rule 10b-10. Confirmation of Transactions

(a) It shall be unlawful for any broker or dealer to effect for or with the account of a customer any transaction in, or to induce the purchase or sale by such customer of, any security ... unless such broker or dealer, at or before completion of such transaction, gives or sends to such customer written notification disclosing:

. . . . .

(7) If he is acting as agent for such customer, for some other person, or for both such customer and some other person,

(i) The name of the other person from whom the security was purchased, or to whom it was sold, for such customer or the fact that such information will be furnished upon written request of such customer....

Defendants complied with their initial obligations under the Rule by informing Arst at the completion of the transaction that the names of the buyers of his shares would be furnished upon written request; however, when Arst subsequently made such a written request eight months later, Defendants refused to furnish the names until compelled by court order.

Rule 10b-10(a)(7)(i), which was promulgated by the SEC pursuant to § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78(j), does not expressly provide for a private cause of action for a violation of its terms. "Absent an express grant of a private cause of action, a mere proscription of behavior does not justify an inference of a private cause of action for its violation; instead, there must be some evidence that Congress intended one." Coosewoon v. Meridian Oil Co., 25 F.3d 920, 929 (10th Cir.1994) (interpreting the Federal Oil and Gas Royalty Management Act) (quoting Pullman v. Chorney, 712 F.2d 447, 449 (10th Cir.1983)) (citing Transamerica Mortgage Advisors, Inc. (TAMA) v. Lewis, 444 U.S. 11, 100 S.Ct. 242, 62 L.Ed.2d 146 (1979)). The Supreme Court has stated that in determining the scope of conduct prohibited by § 10(b) of the Exchange Act, the statute under which Rule 10b-10(a)(7)(i) was promulgated, the text of the statute controls the court's decision. Central Bank v. First Interstate Bank, 511 U.S. 164, ----, 114 S.Ct. 1439, 1446, 128 L.Ed.2d 119 (1994). The Court admonished that although a private plaintiff may bring suit against violators of § 10(b), a private plaintiff may not bring a suit under an SEC regulation promulgated pursuant to § 10(b) for acts not prohibited by the text of § 10(b). Id. The Court explained, "To the contrary, our cases considering the scope of conduct prohibited by § 10(b) in private suits have emphasized adherence to the statutory language, 'the starting point in every case involving construction of a statute.' " Id. (citing Ernst & Ernst v. Hochfelder, 425 U.S. 185, 197, 96 S.Ct. 1375, 1382-83, 47 L.Ed.2d 668 (1976)).

In the instant case, the critical language in § 10(b) is "in connection with." Section 10(b) makes it unlawful for any person

(b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.

15 U.S.C. § 78(j)(b) (1981) (emphasis added).

This court has construed "in connection with" to require a causal connection between the allegedly deceptive act or omission and the alleged injury. See Westinghouse Credit Corp. v. Bader & Dufty, 627 F.2d 221, 223 (10th Cir.1980); Vincent v....