Woods v. Homes & Structures of Pittsburg, Kansas
| Decision Date | 22 April 1980 |
| Docket Number | Civ. A. No. 75-62-C2. |
| Citation | 489 F. Supp. 1270 |
| Court | U.S. District Court — District of Kansas |
| Parties | Dean WOODS, and all other persons similarly situated, the City of Pittsburg, Kansas, Rensmeyer & Jones, a Kansas Partnership, Ernest Jones, Edwin A. Rensmeyer, and All Enterprises, Inc., Plaintiffs, v. HOMES AND STRUCTURES OF PITTSBURG, KANSAS, INC., a corporation; Bruce Shipley, Grant A. Murray, Nationwide Equipping Company, a corporation, Herbert Bost, Fred W. Rausch, Jr., F & M Bank and Trust Company, Alexander & Allen Inc., a corporation, H. Willima Alexander, R. J. Allen, Tom Preston and All Enterprises, Inc., John J. McQueen, Charles Menghini, Computer Consultants, and Joe Cox, Defendants. |
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Roger J. Nichols, Los Angeles, Cal., Leo L. McCormick, Los Altos, Cal., Larry Austin, Overland Park, Kan., J. Michael Rediker, Ritchie & Rediker, Birmingham, Ala., Michael E. Waldeck, Niewald, Risjord & Waldeck, Kansas City, Mo., John E. Shamberg, Richard W. Byrum, Schnider, Shamberg & May, Shawnee Mission, Kan., for plaintiffs.
Fred Rausch, Jr., Topeka, Kan., Donald L. Allegrucci, Pittsburg, Kan., Boone, Ellison & Smith, Tulsa, Okl., John A. Price, Weeks, Thomas, Lysaught, Bingham & Mustain, Kansas City, Kan., James Borthwick, Blackwell, Sanders, Matheny, Weary & Lombardi, Kansas City, Mo., N. Jack Brown, Boddington & Brown, Joseph McDowell, McDowell, Rice & Smith, Kansas City, Kan., Roger W. Penner, Griffin, Dysart, Taylor, Penner & Lay, Kansas City, Mo., R. W. Niederhauser, Caenen & Niederhauser, Chartered, Mission, Kan., George A. Lowe, Lowe, Terry & Roberts, Olathe, Kan., for defendants.
John J. McQueen, pro se.
TABLE OF CONTENTS
I INTRODUCTION .................................................... 1275
II ALLEGED VIOLATIONS OF FEDERAL SECURITIES LAWS ................... 1277
A. Rule 10b-5 and Section 10(b) of the 1934 Act ................. 1277
1. F & M Bank ................................................ 1277
2. City of Pittsburg ......................................... 1280
3. Rausch and Menghini ....................................... 1282
4. Computer Consultants and McQueen .......................... 1284
B. Section 17(a) of the 1933 Act ................................ 1284
C. Section 12(2) of the 1933 Act ................................ 1288
1. The Section 13 Statute of Limitations ..................... 1288
2. The 1933 Act Securities Exemption for Tax Exempt Bonds .... 1290
3. The Effect of a Guarantee on Municipal Bonds .............. 1292
II ALLEGED VIOLATIONS OF FEDERAL SECURITIES LAWS?€”Continued
C. Section 12(2) of the 1933 Act?€”Continued
4. Privity ..................................................... 1294
5. Notices of Claim, Pleading Conditions Precedent, Immunity and
the Tenth Amendment ....................................... 1295
III ALLEGED VIOLATIONS OF STATE LAW ................................... 1297
A. Propriety of Applying Kansas Law ............................... 1297
B. Pittsburg's General Defenses to the State Law Claims ........... 1298
C. Pittsburg's Motion for Summary Judgment on the Breach of Contract
Claim ........................................................ 1300
IV SUMMARY ........................................................... 1301
This action is presently before the court on motions to dismiss and for summary judgment filed by the defendants F & M Bank and Trust Company, Fred W. Rausch, Jr., Charles Menghini, City of Pittsburg, Computer Consultants, Inc., and John J. McQueen. We certified a plaintiff class in our order of July 16, 1979. The class is defined to include "all purchasers of the State of Kansas, County of Crawford, City of Pittsburg Industrial Development Revenue Bonds Series AA 1973." The definition excludes: (1) all defendants, (2) common stock shareholders of defendants, whether they acquired such stock before or after the issuance of the Pittsburg Bonds, (3) all persons who acted as issuers, underwriters or dealers in connection with the issuance of the Pittsburg Bonds, and (4) all employees of such issuers, underwriters or dealers who personally participated in such issuance. Notices were sent to the class members and the clerk's office reports that no requests for exclusion were received. Additionally, the court permitted Irwin Fiesler to intervene as a plaintiff in this action. Fiesler filed a complaint on November 19, 1979, that in large part tracks the third amended complaint of the plaintiff class that was submitted on March 15, 1978. Fiesler's complaint is not specifically at issue in the motions now before us.
The class complaint asserts the following claims:
The defendants specifically mentioned above have filed motions to dismiss or motions for summary judgment related to some or all of the plaintiffs' claims. Suggestions in support and in opposition, depositions, documentary exhibits and affidavits have been received. More often than not the defendants have adopted each other's motions and suggestions. While we may refer to the specific party that raises a particular ground, we have applied the grounds raised to all appropriate parties.
We have set out below facts that appear undisputed. We have taken a very conservative approach in stating these facts to provide a framework upon which the disputed details may be placed. Prior to trial we expect the parties to stipulate to undisputed facts. This will aid the court and jury immeasurably in understanding the basic events and concentrating on the areas of controversy.
This action arises out of the issuance and sale of some Pittsburg, Kansas industrial development bonds. On November 20, 1973, a bond ordinance prepared by Fred Rausch, bond counsel, was passed by the city governing body. The ordinance authorized and directed the issuance of $900,000 of the bonds. The bonds were issued to finance the construction of a manufacturing facility in Pittsburg. Homes & Structures of Pittsburg, Kansas, Inc., was to build modular home components at the facility. Homes & Structures entered into a lease and agreement with the City on or about November 27, 1973. The revenue from the lease of the land and manufacturing plant was to finance the payment of interest and principal to the bondholders. Herbert Bost, President of Homes & Structures, personally guaranteed the tenant company's rent. In addition, some people were led to believe that the underwriter's obligation to pick up the bonds and the payment of principal and interest on the bonds were guaranteed by a surety bond of Windsor Insurance Company, Ltd.
The underwriter who agreed to market the industrial development bonds was Alexander & Allen, Inc. (hereafter "A & A"), a corporation organized under and by virtue of the laws of the State of Florida, with its principal place of business in Florida. Pursuant to a September 28, 1973 investment banking or underwriting agreement, Homes & Structures and A & A agreed that A & A would "purchase or cause to be purchased said issue within 90 days of completion of same for a price not less than 80 cents per dollar. . . ." In fact, A & A received a 15% discount from the face value of the bonds.
The bond issue closed on December 6, 1973, at the F & M Bank and Trust Company in Tulsa, Oklahoma. At that time F & M signed an "acceptance of trust and duties of trustee and paying agent form" and executed a receipt for $900,000.00 of industrial revenue bonds. No money changed hands on December 6, 1973. Menghini, city attorney for Pittsburg, objected to the piecemeal delivery over a ninety-day period, the fifteen percent discount and the sale of the bonds without charging accrued interest; the bond counsel approved these practices. F & M arranged to deliver the bonds as needed to Barnett Bank of Florida which, in turn, would deliver the bonds to A & A upon payment of 85% of the face value. On December 11, 1973, F & M started sending bonds to the Barnett Bank for delivery to A & A. At the end of the ninety-day period some of the bonds had not been picked up. The final proceeds from the sale of all of the bonds were received by F & M on May 13, 1974.
In accordance with the bond ordinance requirements for the trustee and paying agent, F & M was to collect the proceeds of the sale of the bonds and: (1) pay into a principal and interest account the sum of $120,675.00 as capitalized interest; (2) immediately pay the purchase price of the land upon which the facility was to be constructed; (3) establish a construction fund with remaining proceeds to be used for constructing and equipping the manufacturing plant, warehouse and office; and (4) disburse the funds deposited in the construction fund upon written instructions from the project manager specifying the amounts to be disbursed and the persons to whom such disbursements were to be made. After the payment of the cost of purchasing the land and constructing the facility, warehouse and office, F & M was to transfer the remaining construction fund balance to the principal and interest account. In addition, all monies due under the lease and agreement from Homes & Structures were to be...
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