Wichita Fed. Sav. & Loan v. Landmark Group, Inc.

• Decision Date: 24 November 1987
• Docket Number: No. 86-1938-K.,86-1938-K.
• Parties: WICHITA FEDERAL SAVINGS AND LOAN ASSOCIATION, Plaintiff, v. LANDMARK GROUP, INC., a Texas Corporation; Landmark Government Securities, Inc., a Texas Corporation; Landmark Securities Corporation, a Texas Corporation; Landmark Investments, Inc., a Texas Corporation; Iowa Grain Company, an Illinois Corporation; Richard Emmett Tisdale; Wayne Winston Moran; Reba Ann Byrd; Steven Martin Kane; Francis Edwin Carpenter; William Benson Stewart; and Emily B. Spencer, Defendants.
• Court: U.S. District Court — District of Kansas

674 F. Supp. 321

WICHITA FEDERAL SAVINGS AND LOAN ASSOCIATION, Plaintiff, v. LANDMARK GROUP, INC., a Texas Corporation; Landmark Government Securities, Inc., a Texas Corporation; Landmark Securities Corporation, a Texas Corporation; Landmark Investments, Inc., a Texas Corporation; Iowa Grain Company, an Illinois Corporation; Richard Emmett Tisdale; Wayne Winston Moran; Reba Ann Byrd; Steven Martin Kane; Francis Edwin Carpenter; William Benson Stewart; and Emily B. Spencer, Defendants.

No. 86-1938-K.

United States District Court, D. Kansas.

November 24, 1987.

Alexander B. Mitchell of Klenda, Mitchell, Austerman & Zuercher, Wichita, Kan., for plaintiff.

Donald R. Newkirk, John T. Conlee & Daniel G. Clothier of Fleeson, Gooing, Coulson & Kitch, Wichita, Kan., and John Maroney, Brown, Maroney, Rose, Barber & Dye, Austin, Tex., for Texas defendants.

Mikel L. Stout of Foulston, Siefkin, Powers & Eberhardt, Wichita, Kan., and John K. Eggers of Ruberry, Phares, Abramson & Fox, Chicago, Ill., for defendant Iowa Grain Co.

MEMORANDUM AND ORDER

PATRICK F. KELLY, District Judge.

Pending before this court is a renewed motion to dismiss due to improper venue pursuant to 28 U.S.C. § 1406(a) and Fed.R. Civ.P. 12(b)(3), or for lack of personal jurisdiction pursuant to Rule 12(b)(2), and to dismiss Count VII of the amended complaint pursuant to Rule 12(b)(6), brought by the defendants, Landmark Group, Inc., Landmark Government Securities, Inc., Landmark Securities Corporation, Richard Tisdale, Wayne Moran, Reba Ann Byrd, Steven Kane, and Francis Carpenter (collectively the "Texas defendants"). On April 14, 1987, 657 F.Supp. 1182, this court entered an order finding plaintiff's original complaint failed to satisfy the requirements of Fed.R.Civ.P. 9(b), but granting leave to amend. Although the jurisdiction and venue issues were also before the court at that time, the court found that consideration of the issues would be premature. However, the court did state that in order to assert jurisdiction over the Texas defendants, the constitutional due process requirements must be satisfied even though these defendants were subject to nationwide service of process as authorized by 15 U.S.C. § 78aa and 18 U.S.C. § 1964(c). On April 30, 1987, plaintiff filed an amended complaint. On June 1, 1987, the Texas defendants renewed their motion to transfer, or in the alternative to dismiss.¹ This matter has now been fully briefed by the parties, and the court has determined that oral argument would not be of material assistance in the determination of this matter. (Local Rule 15(d).) For the reasons set forth herein, the court finds that it has personal jurisdiction over the nonresident defendants and that venue is proper in this district and will therefore deny defendants' motion to dismiss pursuant to Rule 12(b)(3) and 12(b)(2). Moreover, the court will deny defendants' 12(b)(6) motion to dismiss Count VII (18 U.S.C. § 1961 et seq. "RICO") as plaintiff has stated a claim for which relief can be granted.

This action arises out of plaintiff's investments in certain securities and commodities futures in which it incurred substantial losses. Plaintiff alleges that the defendants, acting as its broker, committed various fraudulent acts which violated federal and state laws.

The plaintiff, Wichita Federal Savings and Loan Association, is organized under the laws of the United States and has its principal place of business in Wichita, Kansas. Landmark Group, Inc. and its subsidiaries, Landmark Government Securities, Inc. and Landmark Securities Corporation, are incorporated under the laws of the State of Texas, and their principal place of business is in Austin, Texas. The individual defendants, Richard Emmett Tisdale, Wayne Winston Moran, Reba Ann Byrd, Steven Martin Kane, and Francis Edwin Carpenter, are agents and employees of Landmark. Iowa Grain Company, an Illinois corporation which acted as Landmark's clearing agent on the Chicago Board of Trade, is also named as a defendant, but has this day been dismissed by this court due to lack of personal jurisdiction.

According to the amended complaint, the events which gave rise to this lawsuit began in February of 1984, when plaintiff, through its president, Mr. Black, began investing in United States obligations through defendant Tisdale. At that time, Tisdale was associated with the brokerage firm of Liberty Government Securities in Boca Raton, Florida. In February of 1985, Liberty merged with Landmark, and Tisdale relocated in Landmark's Austin, Texas office. Tisdale continued thereafter to act as plaintiff's broker. Tisdale was a registered "associated person" (7 U.S.C. § 6k) with Landmark Securities Corporation and was its chief executive officer. The other individual defendants—Moran, Byrd, Kane and Carpenter—comprised the board of directors of Landmark Securities Corporation, and—according to the amended complaint — were fully aware of Tisdale's activities and acquiesced in the same.

Plaintiff first alleges that defendants defrauded plaintiff in violation of the Securities Act, 15 U.S.C. § 78j(b), and Rule 10b-5, in connection with plaintiff's investments in government securities. Plaintiff claims that in telephone conversations with defendant Tisdale, Tisdale intentionally misquoted the market price for the securities; would fill the plaintiff's order at a price higher than that quoted to Mr. Black and would keep the difference; would make unreasonable markups in these transactions; and would charge plaintiff a higher interest rate on repurchase agreements than actually available to Tisdale. According to plaintiff, all offers to purchase or sell were made via telephone by Tisdale in Texas to plaintiff in Kansas. Further, trade confirmations were sent by mail to plaintiff in Kansas, and the securities were sent to plaintiff in Kansas. Plaintiff, in turn, sent its payments through the mail from Kansas.

Plaintiff claims that this conduct was in violation of the Securities Act as defendant, "by means of manipulative, deceptive and fraudulent devices and contrivance, and by ... untrue statements of material facts and omissions of material facts ..." induced plaintiff to purchase and sell government securities to its detriment. (Amended Complaint, ¶ 25.) In Count II, plaintiff alleges these acts give rise to liability for common law fraud, and in Count III, plaintiff claims defendants, through these actions, breached their fiduciary duty owed to plaintiffs.

In Count IV, plaintiff contends that Landmark, as a "futures commission merchant" (7 U.S.C. § 2), willfully and fraudulently committed acts or omissions in the speculative buying or selling of commodity futures contracts in violation of 7 U.S.C. § 6b of the Commodity Exchange Act. Specifically, plaintiff alleges that between October, 1984 and February, 1985, Tisdale advised plaintiff to purchase 1,930 June 1985 Treasury Bond Contracts. This advice was allegedly given in response to plaintiff's query of how best to minimize its interest rate exposure, yet remain within the guidelines and regulations of the Federal Home Loan Bank Board. According to plaintiff, Tisdale was aware of plaintiff's concerns, the board's regulations, and the fact that plaintiff would rely totally on his expertise. Nevertheless, it is alleged that at no time did Tisdale, or anyone else from Landmark, explain to plaintiff that the purchase of these contracts was a commitment to "sell short" treasury bonds having a face value of $193 million, or that this exposed plaintiff to a risk of loss in excess of its net worth. Plaintiff further alleges that defendant knew, but did not reveal, that this type of investment did not protect against interest rate risk. Plaintiff contends that such an investment violated the board's policy, and had the board been informed it would have rejected the proposal.

Plaintiff further alleges that on February 27, 1985, defendant Tisdale executed a short sale of 1,930 commodity futures contracts on behalf of plaintiff, with a commission to defendants of $96,500.00. The contracts represented a commitment to sell June 1985 treasury bonds having a face value of $193 million, and this was of sufficient size to manipulate the national market price of the June 1985 futures contracts. On March 1, 1985, plaintiff closed its position in this commodities commitment with a profit of $416,709.60 and a commission to defendants of $97,500.00. Plaintiff contends that by profiting in this short sale, it was lulled into trusting defendant Tisdale's advice.

Thereafter, on March 25, 1985, Mr. Black, via telephone from New York City, authorized a short sale on behalf of plaintiff of 1,950 commodity futures contracts, representing a commitment to sell June 1985 treasury bonds having a face value of $195 million. Plaintiff alleges that it immediately began to accrue losses with respect to these contracts. Despite the volatility of plaintiff's position, defendant Tisdale did not advise Mr. Black to monitor its position or to consider a stop loss order. On June 21, 1985, Mr. Black learned that plaintiff had suffered substantial losses and closed out its remaining futures contracts, resulting in additional commissions being paid to defendants.

In Counts V and VI the plaintiff asserts claims for breach of fiduciary duty and common law fraud, respectively, based on the defendants' misrepresentations and omissions in regard to the commodity futures contracts.

Finally, plaintiff asserts that the defendants engaged in a pattern of racketeering activity through the use and means of wire and mail fraud and securities fraud in the purchase and sale of the securities and financial futures for plaintiff's account, in violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. (RICO).

Defendants have now renewed their motion to dismiss this action pursuant to 28 U.S.C. § 1406(a) and Fed.R.Civ.P. 12(b)(3) for improper venue, or...