G & M, INC. v. Newbern
| Decision Date | 09 October 1973 |
| Docket Number | No. 71-2561,72-1287.,71-2561 |
| Citation | 488 F.2d 742 |
| Parties | G & M, INC., a corporation, Plaintiff-Appellee, v. R. B. NEWBERN, Defendant-Appellant (two cases). |
| Court | U.S. Court of Appeals — Ninth Circuit |
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Jack H. Cairns (argued), Portland, Ore., Nels Peterson, of Peterson, Chaivoe & Peterson, Portland, Ore., for defendant-appellant in No. 71-2561.
Bruce M. Hall (argued), Kenneth M. Novack, Gerard K. Drummond, of Rives, Bonyhadi & Hall, Portland, Ore., Robert E. Heaton, of Short, Cressman, & Cable, Seattle, Wash., for plaintiff-appellee in No. 71-2561.
David M. Brown (argued), Robert Sarno, of Fleishman, McDaniel, Brown & Weston, Hollywood, Cal., for defendant-appellant in No. 72-1287.
Robert C. Bonner, Asst. U. S. Atty. (argued), William D. Keller, U. S. Atty., Eric A. Nobles, Asst. U. S. Atty., Los Angeles, Cal., for plaintiff-appellee in No. 72-1287.
Before DUNIWAY, ELY, and WRIGHT, Circuit Judges.
These appeals arise from the same case, and were heard together, although they were separately briefed.
This is an appeal from a final judgment. We affirm.
In March of 1968, plaintiff-appellee G & M, Inc. purchased about 104,000 shares of the stock of Gas-Ice Corp. from defendant-appellant R. B. Newbern (about 21,000 shares), his wife (about 49,000 shares), his son (about 12,000 shares) and an associate (about 21,000 shares). Gas-Ice was in the business of producing liquid carbon dioxide and dry ice. The purchase price of the stock was $2.87 a share. G & M paid $.47 a share as a down payment and was to pay the remaining $2.40 over a ten-year period. In addition to these shares, there were about 46,000 publicly owned shares outstanding. G & M also purchased most of these, paying $2.87 per share, and eventually owned more than 98% of the stock of Gas-Ice. The total purchase price was $423,870.30. In addition, G & M agreed that Gas-Ice would lease from Mr. and Mrs. Newbern a storage facility, which they owned, known as the "tank farm," at a rental of $1,200 a month for ten years, with an option to purchase at the end of five years for $90,000, or at the end of ten years for $60,000.
G & M made the purchase in reliance on Newbern's representations as to the general physical and financial condition of Gas-Ice and the tank farm. Most of these representations proved false. G & M then brought this action against Newbern for damages, alleging violations of the securities laws, 15 U.S.C. § 78j and Rule 10b-5, and breach of contractual warranties. A jury returned a general verdict of $160,000 in favor of G & M.
Newbern makes a number of arguments. We consider them seriatim.
1. Newbern had told G & M that the tank farm was under no prior lease. In fact Gas-Ice had in 1965 leased the tank farm from the Newberns for ten years at $600 per month. This is one of the misrepresentations alleged by G & M.
Newbern argues that the district court was precluded by collateral estoppel from considering the fraud as to the lease because of a decision of the Oregon Circuit Court (since affirmed by the Oregon Supreme Court). In that case Gas-Ice was plaintiff and Newbern was defendant. Gas-Ice claimed that Newbern had breached his fiduciary duty to Gas-Ice when he was an officer of that corporation by having Gas-Ice enter into the 1965 and 1968 leases of the tank farm. The basis of the complaint was that Newbern was aware that a permit for the facility had never been issued by the state Chief Boiler Inspector because of structural defects, and that the facility was liable to being shut down at any time, as it was in fact in June of 1970. Gas-Ice sought, inter-alia, cancellation of the 1968 lease. The state court, while finding that plaintiff had been constructively evicted from the facility when it was shut down, declined to treat the lease as void ab initio.
Newbern argues that G & M is estopped by that judgment from relying upon his fraudulent representations about the two leases in this case. The issue in this case is the misrepresentations about the lease, as part of the larger picture of misrepresentations involved in the contract. While G & M is in such a relationship with Gas-Ice that collateral might apply in an otherwise proper case, the issues involved in the two cases are not sufficiently similar to bring that doctrine into play. See Bahler v. Fletcher, 1970, 257 Or. 1, 474 P.2d 329; Schwartz v. Pub. Admin., 1969, 24 N.Y. 2d 65, 298 N.Y.S.2d 955, 246 N.E.2d 725.
2. Newbern argues that the district court erred in its instruction about the proper measure of damages for violations of the securities laws. The jury found that plaintiff's damages were $160,000, or $1.08 per share for the approximately 148,000 shares that plaintiff purchased. Newbern's claim is that if he is liable, it is only for the $1.08 per share for the 21,000 shares that he himself sold to G & M.
We disagree. A plaintiff who is induced to buy or sell stock as a result of misrepresentations made by someone not a party to the sale may sue that person for damages incurred as a result of the sale. See, e. g., Brennan v. Midwestern United Life Ins. Co., N.D.Ind., 1966, 259 F.Supp. 673, 682; New Park Mining Co. v. Cranmer, S.D.N.Y., 1963, 225 F.Supp. 261, 266; Freed v. Szabo Food Service, Inc., CCH Sec. L. Rptr., ¶ 91,317 (1961-64 Transfer Binder, N.D.Ill., Jan. 14, 1964). See generally 2 Bromberg, Securities Laws Fraud-Sec. Rule 10b-5, § 8.5 at 208.10 (1971), and cases cited therein.
3. Newbern argues that the court's instructions on damages under the breach of warranties count were in error, because they did not limit Newbern's liability to damages resulting from the sale of his shares alone. Again we disagree. The contract for the sale of 104,000 shares provided that the sellers were jointly and severally liable. Thus Newbern by the terms of the contract itself is liable for damages resulting from breaches of warranty as to the 104,000 shares. Further, the contract provided that G & M was to purchase as many of the other outstanding shares in Gas-Ice as it could. The damages incurred by plaintiff as to these remaining shares, therefore, were clearly foreseeable by Newbern, and a natural consequence of Newbern's conduct. See, e. g., Restatement, Contracts, § 330.
4. Newbern argues that the court should have had the jury return a special verdict, not a general one. He says that because elements of the two claims — violation of the securities laws and breach of contractual warranties — differed, the jury might have found a violation under one claim and assessed damages under another, and because a general verdict was returned, we do not know whether they did or not. The damages, however, would have been the same under either theory. The district court may, in its discretion, refuse to require that the jury return a special verdict. There was no abuse of discretion here. See Rule 49, F.R.Civ.P.; 5A Moore, Federal Practice, ¶ 49.031 (2d ed. 1971).
5. Newbern argues that the court erred in not giving Newbern's requested instructions concerning his representations to G & M as to Gas-Ice's future earnings. Before G & M decided to purchase the stock, Newbern had told G & M that Gas-Ice's earnings for that year would be about $155,000; the actual earnings totaled some $43,000. Newbern's position is that his statement was mere expression of opinion, and not actionable.
Under the securities law a reasoned and justified statement of opinion, one with a sound factual or historical basis, is not actionable. Here, however, considering the gross disparity between prediction and fact, and also considering Newbern's other misrepresentations and failures to disclose, which were relevant to the accuracy of his prediction, we have no difficulty in finding this "prediction" to be actionable. See, e. g., 1 Bromberg, supra, § 5.3 at 97; § 7.2(1) at 147-48; and cases cited therein.
6. Newbern's other arguments go to the question of the amount of damages that should have been awarded. We do not consider his arguments in detail because it is clear to us that there was ample evidence to support the verdict for $160,000.
On December 3, 1971, the judge issued an order in response to G & M's Rule 37(c) motion for expenses incurred as a result of Newbern's failure to admit. Newbern attacks this order on the ground that the district court was without jurisdiction to make it. We agree.
The relevant events occurred as follows:
1) On April 21, 1971, judgment was entered.
2) On July 7, 1971, Newbern filed a timely notice of appeal.
3) On July 16, 1971, G & M filed its Rule 37(c) motion.
4) On August 2, 1971, the court heard the motion.
5) On December 3, 1971, the court issued an order granting the motion in part.
The order provided:
The court's action in entertaining the motion and making its order does not fall within any of the exceptions to the rule. The order is not "in aid of the...
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