Holloway v. Peat, Marwick, Mitchell & Co.

Citation879 F.2d 772
Decision Date11 July 1989
Docket NumberNos. 87-1486,87-1490,s. 87-1486
CourtUnited States Courts of Appeals. United States Court of Appeals (10th Circuit)
Parties, Fed. Sec. L. Rep. P 94,511 W. David HOLLOWAY, M.D.; Lisa Holloway; Charles Woodard; Linda Woodard; Maxine Black, individually and as Trustee for James T. Black and Shellie Black; Porter-Strait Instrument Co., Inc., an Oklahoma corporation; Jeremy K. Bush; Shirley Bush; United Resources Building Company, Inc., an Oklahoma corporation; Hugh Hollowell; Marshall H. Udden; Mary F. Udden; Howard R. Cadwell; Doris G. Cadwell; William L. Akers; Norita L. Akers; Cal Acree; Betty K. Acree; Robert John Walpole; Bobbee C. Ray, individually and as Trustee for James F. Haning, II and Angela Jean Haning Revocable Trust and Victoria Nininger; Joy A. Donovan, as Trustee for James M. Donovan and John A. Donovan; R.H. Arnold; Marvelle McDaniel; Martha Hester Arnold; Claudette Howe; Fred E. Miller; Vera Miller; Beverly Joyce Miller; Ann McLoud; Joyce McClure; Charlotte A. Broad, individually and as Trustee for Russell M. Gawf and Megan D. Gawf; John E. Broad; John W. Broad; DeWayne Broad, for themselves and as representative parties of class, Plaintiffs/Appellees/Cross-Appellants, v. PEAT, MARWICK, MITCHELL & CO., a partnership; Sunbelt Bank & Trust Company, formerly Republic Bank & Trust Co., a State Bank Association; Wesley R. McKinney, individually; Phillips Breckinridge, Administrator of the Estate of Glenn F. Prichard, Deceased; RBI of Oklahoma, Inc., a Delaware corporation; R.R. Bastian, III; Hal W. Oswalt; Harold J. Born; William J. Doyle, Jr.; Horace H. Porter, M.D.; William W. Ramsey; Edward B. Wilcox; Altus E. Wilder, III; G. Larry Young; Orville J. Bertalot; Ted C. Bodley; Keith E. McNeal; Edward L. Taylor; Charles G. Wray; Ansil Ludwick, Jr.; Paul W. Anderson, Jr.; G. Richard Degen; Brown J. Akin, Jr.; Robert C. Bates; Richard G. Bell; Bob C. Lamirand; Douglas W. Dixon; Rodney Miller; Dan W. Allred; Timothy J. Sullivan; Dwight A. Pilgram; Roger H. Laubach; James D. Essig; Martha J. Cravens; Wilma F. Wood; Charles Schusterman; Richard Williford; Republic Bancorporation, In

Lawrence H. Eiger (Michael B. Hyman and Steven A. Kanner, of Much, Shelist, Freed, Denenberg, Ament & Eiger, P.C., Chicago, Ill., Steven E. Smith, of Steven E. Smith & Associates, Tulsa, Okl., Charles O. Hanson, Richard K. Holmes, and Stewart E. Field, of Hanson, Holmes, Field & Snider, of Tulsa, Okl., and Professor Joseph C. Long, of the University of Oklahoma, College of Law, Norman, Okl., with him on the briefs), of Much, Shelist, Freed, Denenberg, Ament & Eiger, P.C., Chicago, Ill., for plaintiffs/appellees/cross-appellants.

L.K. Smith (Kimberly A. Lambert, of Boone, Smith, Davis & Hurst, Tulsa, Okl., with him on the briefs), of Boone, Smith, Davis & Hurst, of Tulsa, Okl., for defendants/appellants/cross-appellees except Peat, Marwick, Mitchell & Co.

Graydon Dean Luthey, Jr. (Deryl L. Gotcher and Roy C. Breedlove, of Jones, Givens, Gotcher, Bogan & Hilborne, a Professional Corporation, Tulsa, Okl., and Anthony J. Costantini, Associate Gen. Counsel, of Peat, Marwick, Main & Co., of New York City, with him on the briefs), of Jones, Givens, Gotcher, Bogan & Hilborne, a Professional Corp., Tulsa, Okl., for defendants/appellants/cross-appellees Peat, Marwick, Mitchell & Co.

Daniel L. Goelzer, Gen. Counsel, Jacob H. Stillman, Associate Gen. Counsel, Rosalind C. Cohen, Asst. Gen. Counsel, and Batya Roth, Atty., of the S.E.C., Washington, D.C., amicus curiae.

Before McKAY, BARRETT, and TACHA, Circuit Judges.

TACHA, Circuit Judge.

The issue presented in this interlocutory appeal is whether certain instruments issued by three Oklahoma entities--Republic Bancorporation, Inc. (RBI), and its two nonbank subsidiaries, Republic Trust & Savings (RTS), a trust company, and Republic Financial Corporation (RFC), a finance company--are securities within the meaning of the federal securities laws. We hold that the instruments issued by RFC and RTS are securities. However, because material issues of fact remain regarding RBI's issuance of a note, we remand to the district court for further consideration of whether that note is a security. Therefore, we affirm in part, reverse in part, and remand.

I.

Until 1984 RBI was a bank holding company regulated by the Federal Reserve Board (FRB). In addition to controlling RTS and RFC, RBI also controlled a state-chartered bank, Republic Bank & Trust Company (RBT). In 1984 RBI effectively divested RBT pursuant to an order from the FRB, thereby becoming a nonbank holding company that was outside the scope of federal banking regulation. 1 After divesting the bank, RBI continued to control RTS and RFC. Soon after the divestiture, RBI, RTS, and RFC all filed for bankruptcy.

The plaintiffs in this case invested money with RTS and RFC and received in return "thrift certificates" and "passbook savings certificates." In addition, RBI reissued to one of the plaintiffs a promissory note that had originally been issued by its subsidiary bank. The plaintiffs allege that through issuing these instruments, the issuing entities and their accounting firm sold, or aided and abetted the sale of, securities in violation of the antifraud provisions of the federal securities laws.

The defendants filed motions to dismiss, arguing that the instruments are not securities within the meaning of the federal securities laws and that therefore the district court lacked subject matter jurisdiction. The district court converted the motions to dismiss to motions for partial summary judgment on the issue of subject matter jurisdiction, and directed the parties to conduct discovery and submit briefs on the issue of government regulation of the three organizations.

After examining the regulatory structure applicable to each of the issuing entities and considering the broad definition of securities under the federal securities laws, the district court held that the instruments issued by RTS were not securities, but that those instruments issued by RFC, and the note issued by RBI, were securities. The court therefore granted the defendants' motion for summary judgment with respect to the RTS instruments and the plaintiffs' motion for summary judgment as to the RBI and RFC instruments. Both the plaintiffs and the defendants appealed.

II.

When reviewing a grant of summary judgment, we must determine whether any genuine issue of material fact remains and, if not, whether the district court correctly applied the law. Franks v. Nimmo, 796 F.2d 1230, 1235 (10th Cir.1986). The district court correctly determined that only legal issues remain with regard to the instruments issued by RFC and RTS. Thus, we proceed to decide whether the court correctly determined whether those instruments, consisting of passbook savings certificates and thrift certificates, are securities. We employ a de novo standard of review for this question of law. See Carey v. United States Postal Serv., 812 F.2d 621, 623 (10th Cir.1987).

We first consider whether any of the instruments in question fall within the statutory definition of a security. The Securities Exchange Act of 1934 provides:

(a) Definitions

When used in this chapter, unless the context otherwise requires--

....

(10) The term "security" means any note, stock, treasury stock, bond, debenture, certificate of interest or participation in any profit-sharing agreement or in any oil, gas, or other mineral royalty or lease, any collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit, for a security, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or in general, any instrument commonly known as a "security"; or any certificate of interest or participation in, temporary or interim certificate for, receipt for, or warrant or right to subscribe to or purchase, any of the foregoing; but shall not include currency or any note, draft, bill of exchange, or banker's acceptance which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of which is likewise limited.

15 U.S.C. Sec. 78c(a)(10) (emphasis added). The definition of "security" in the Securities Act of 1933 is slightly different in that it also includes the term "evidence of indebtedness." See 15 U.S.C. Sec. 77b(1). Despite this difference, the Supreme Court has "consistently held that the definition of 'security' in the 1934 Act is essentially the same as the definition of 'security' in Sec. 2(1) of the Securities Act of 1933, 15 U.S.C. Sec. 77b(1)." Marine Bank v. Weaver, 455 U.S. 551, 555 n. 3, 102 S.Ct. 1220, 1223 n. 3, 71 L.Ed.2d 409 (1982); see also United Hous. Found., Inc. v. Forman, 421 U.S. 837, 847 n. 12, 95 S.Ct. 2051, 2057-58 n. 12, 44 L.Ed.2d 621 (1975) (definition of security in 1933 and 1934 Acts are "virtually identical").

When determining whether an instrument falls within the scope of the definitional statute, the Supreme Court has repeatedly stated that the definition of a security should be broadly construed because the federal securities laws are remedial legislation. 2 Id. at 847-48, 95 S.Ct. at 2057-2058; Tcherepnin v. Knight, 389 U.S. 332, 336, 88 S.Ct. 548, 553, 19 L.Ed.2d 564 (1967); SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 195, 84 S.Ct. 275, 284, 11 L.Ed.2d 237 (1963); see also Marine Bank, 455 U.S. at 555-56, 102 S.Ct. at 1223.

In providing [the definition of a security] Congress did not attempt to articulate the relevant economic criteria for [distin...

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