908 F.2d 1461 (9th Cir. 1990), 89-55094, Securities Investor Protection Corp. v. Vigman

Docket Nº:89-55094, 89-55128.
Citation:908 F.2d 1461
Party Name:RICO Bus.Disp.Guide 7524 SECURITIES INVESTOR PROTECTION CORPORATION, Plaintiff-Appellant, v. Seymour VIGMAN, et al., Defendants, and Robert G. Holmes, Jr., Defendant-Appellee. Eugene W. BELL, Trustee for the liquidation of Joseph Sebag Incorporated (
Case Date:August 03, 1990
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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Page 1461

908 F.2d 1461 (9th Cir. 1990)

RICO Bus.Disp.Guide 7524

SECURITIES INVESTOR PROTECTION CORPORATION, Plaintiff-Appellant,

v.

Seymour VIGMAN, et al., Defendants,

and

Robert G. Holmes, Jr., Defendant-Appellee.

Eugene W. BELL, Trustee for the liquidation of Joseph Sebag

Incorporated ("Bell"); Laurence A. Schroeder, Successor

Trustee for the Liquidation of First State Securities

Corporation ("Schroeder"), Plaintiffs-Appellants,

v.

Seymour VIGMAN, et al., Defendants,

and

Robert G. Holmes, Jr., Defendant-Appellee.

Nos. 89-55094, 89-55128.

United States Court of Appeals, Ninth Circuit

August 3, 1990

Argued and Submitted March 6, 1990.

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G. Robert Blakey, Notre Dame Law School, Notre Dame, Ind., Stephen C. Taylor, Sheppard, Mullin, Richter & Hampton, Los Angeles, Cal., and C. Edward Simpson, Jones, Bell, Simpson & Abbott, Los Angeles, Cal., for plaintiffs-appellants.

Jack I. Samet, Buchalter, Nemer, Fields & Younger, Los Angeles, Cal., for defendant-appellee.

Daniel L. Goelzer, Gen. Counsel, Paul Gonson, Solicitor, Jacob H. Stillman, Assoc. Gen. Counsel, Thomas L. Riesenberg, Asst. Gen. Counsel, Lucinda O. McConathy, Senior Sp. Counsel, Robert L. McCloskey, Securities and Exchange Com'n, Washington, D.C., for amicus curiae.

Appeal from the United States District Court for the Central District of California.

Before SCHROEDER, THOMPSON and TROTT, Circuit Judges.

DAVID R. THOMPSON, Circuit Judge:

The district court granted summary judgment in favor of defendant Holmes in this suit brought by the Securities Investor Protection Corporation ("the SIPC") and trustees of defunct stock brokerage firms. The SIPC and the trustees sued to recover losses allegedly sustained as a result of a conspiracy to manipulate the prices of stocks of publicly traded corporations. The district court concluded that the SIPC did not have standing to assert a claim under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Secs. 1961-68 ("RICO"), when that claim was based on alleged securities violations under section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. 1 The district court also determined that the defendant Holmes' acts viewed separately from those of the other alleged coconspirators were not the proximate cause of the losses sustained. We have jurisdiction under Fed.R.Civ.P. 54(b) and 28 U.S.C. Sec. 1291 and we reverse.

FACTS

In 1970, Congress established the SIPC pursuant to the Securities Investor Protection Act, codified as amended at 15 U.S.C. Sec. 78aaa-78lll. The SIPC was created in the wake of the collapse of numerous brokerage houses. It was created to provide greater protection to customers of brokers and dealers and members of national securities exchanges.

The SIPC is a nonprofit corporation. Its membership consists of most registered brokers and dealers. 15 U.S.C. Sec. 78ccc(a). It has the power "to sue and be sued, complain and defend, in its corporate name and through its own counsel, in any State, Federal, or other court." 15 U.S.C. Sec. 78ccc(b)(1). The SIPC also has the power to apply for a protective decree from a court of competent jurisdiction and to seek the appointment of a trustee for the liquidation of a broker-dealer member's business when a broker-dealer member fails or

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is in danger of failing to meet obligations to customers. 15 U.S.C. Sec. 78eee.

In late July 1981, the SIPC instituted liquidation proceedings against two securities brokerages, First State Securities Corp. ("FSSC") and Joseph Sebag, Inc. ("Sebag"). John L. Britton was appointed trustee for the liquidation of FSSC, 2 and Eugene W. Bell was appointed trustee for the liquidation of Sebag (collectively, "the trustees"). In the process of liquidating the brokerages, the SIPC alleges it had to disburse nearly $13 million to meet customers' claims for which the brokerages' assets were insufficient.

In July 1983, the SIPC and the trustees filed an action in federal district court against seventy-five defendants, alleging securities fraud in violation of section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; a conspiracy under RICO; common law fraud; and breach of fiduciary duty. The SIPC and the trustees alleged in their complaint that from 1964 through July 1981 the defendants engaged in a scheme to manipulate the stock of six companies traded in the over-the-counter market, 3 and that the defendants used FSSC and Sebag as vehicles in furtherance of this scheme. The defendants are officers and directors of the six companies and former principals and employees of FSSC and Sebag.

The SIPC and the trustees allege that the defendants misrepresented the six companies' prospects through statements by company officials, press releases, and financial statements. An illusion of active markets in the six stocks was allegedly maintained by misleading transactions in the defendants' accounts, in the brokerages' proprietary accounts, and in the accounts of unsuspecting customers. When the alleged scheme was uncovered, the prices of the stocks fell drastically. Because FSSC and Sebag held large amounts of the stocks in their proprietary accounts, they incurred heavy losses, leading to the liquidation proceedings.

The present appeal is the third to reach this court in this litigation. In Securities Investor Protection Corp. v. Vigman, 764 F.2d 1309 (9th Cir.1985), the district court dismissed four defendants for lack of personal jurisdiction and improper venue. As to lack of personal jurisdiction, we reversed the dismissal of one defendant and remanded the dismissal of another for further consideration. Id. at 1316. We also remanded for further proceedings the district court's dismissal of these two defendants on the ground of improper venue. Id. at 1318. In Securities Investor Protection Corp. v. Vigman, 803 F.2d 1513, 1519-20 (9th Cir.1986), we reversed the dismissal of the SIPC's 10-b5 claims.

Robert G. Holmes, Jr., the only defendant involved in this appeal, is the founder, the chief executive officer, the president, and a major shareholder of Aero Systems, Inc. ("Aero"), one of the six companies whose stock was allegedly manipulated. Holmes also was a shareholder in Bunnington Corp. ("Bunnington"), another one of the six companies, during the period of the alleged manipulation. The SIPC and the trustees allege that Holmes participated in a conspiracy with certain other defendants to manipulate the price of Aero and Bunnington stock. They allege that Holmes issued false and misleading press releases and other public statements regarding a new product Aero was marketing to inflate artificially the price of Aero's stock. Further, they assert that Holmes helped other defendants manipulate the price of Bunnington's stock by purchasing large blocks of Bunnington stock and then selling in small lots, thus creating the appearance of an active trading market. Finally, the plaintiffs allege that Holmes helped conceal FSSC's poor financial position by allowing FSSC to "park" 4 shares of Bunnington stock in Holmes' trading account.

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Holmes moved for summary judgment, asserting that the SIPC lacked standing to assert a RICO claim because the SIPC was not a purchaser or seller of securities. Holmes also contended that any conduct he engaged in did not cause the losses which the SIPC and the trustees sustained.

The district court granted Holmes' motion for summary judgment. The district court concluded that genuine issues of material fact existed as to the elements of the RICO claim, including whether Holmes conspired to violate RICO, but it concluded that the SIPC did not meet the purchaser-seller requirement for standing to assert a RICO claim predicated upon violations of section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.

The district court also concluded that a genuine issue of material fact existed as to whether Holmes' acts, upon which the RICO claim was based, were the actual cause of the losses to the SIPC and the trustees, but that there was no genuine issue for trial to dispute the fact that Holmes' acts were not the proximate cause of the losses. The district court reached its proximate cause conclusion by isolating Holmes' acts from the acts of other members of the alleged conspiracy, and by applying a "loss causation" requirement to the RICO claim.

DISCUSSION

This court reviews de novo a grant of summary judgment, viewing the evidence in the light most favorable to the party against whom it was granted. Franklin v. Murphy, 745 F.2d 1221, 1235 (9th Cir.1984). Summary judgment is proper 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). Entry of summary judgment is mandated "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986).

  1. Purchaser-Seller Standing Limitation

    The SIPC argues that it need not have been a purchaser or seller of securities to have standing to bring a RICO claim based on predicate acts of securities fraud. 5 The SIPC urges us not to apply to its RICO claim the purchaser-seller standing limitation applicable to a Rule 10b-5 claim. See Birnbaum v. Newport Steel Corp., 193 F.2d 461, 463-64 (2d Cir.), cert. denied, 343 U.S. 956, 72 S.Ct. 1051, 96 L.Ed. 1356 (1952).

    In Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975), a 10b-5 case, the Supreme Court adopted the Birnbaum rule. It held that, to bring a Rule 10b-5 private damages action, a plaintiff must be a purchaser or seller of securities....

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