Ah Moo v. A.G. Becker Paribas, Inc.

• Decision Date: 15 September 1988
• Docket Number: No. 87-2248,87-2248
• Citation: 857 F.2d 615
• Parties: Blue Sky L. Rep. P 72,902 Earl W. AH MOO, Plaintiff-Appellee, v. A.G. BECKER PARIBAS, INC., a/k/a Paribas North America, Inc., Defendant- Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 615

857 F.2d 615

Blue Sky L. Rep. P 72,902

Earl W. AH MOO, Plaintiff-Appellee, v. A.G. BECKER PARIBAS, INC., a/k/a Paribas North America Inc., Defendant- Appellant.

No. 87-2248.

United States Court of Appeals Ninth Circuit.

Argued and Submitted May 12, 1988.

Decided Sept. 15, 1988.

John Rapp, Honolulu, Hawaii, for defendant-appellant.

Sherman S. Hee, Gerald C. Yoshida, Terry D. Carlone, Hee, Yoshida & Carlone, Honolulu, Hawaii, for plaintiff-appellee.

Appeal from the United States District Court for the District of Hawaii.

Before PREGERSON, BOOCHEVER and BEEZER, Circuit Judges.

BEEZER, Circuit Judge:

A.G. Becker Paribas, Inc. ("Becker") appeals judgment for Earl W. Ah Moo ("Ah Moo") on misrepresentation, breach of contract, and violation of Hawaii's Uniform Securities Act, Title 26, Haw.Rev.Stat. Sec. 485-1 to Sec. 485-25 (1985). This action arises out of the sale of securities totalling $27,500 by Becker's vice president and salesman, as well as out of Becker's failure to register, pursuant to Hawaii law, either its authorized salesman or the securities sold to Ah Moo.

I

Becker is a Delaware corporation doing business in California, Illinois, and New York. Steven Brennan, a securities broker for ten years prior to meeting Earl Ah Moo, was Becker's vice president and authorized salesman.

In 1980, Brennan met Ah Moo. In December 1981, at an event in Hawaii, Brennan offered Ah Moo "some investments that [Ah Moo] might be very interested in." Ah Moo was aware, at that time, that Brennan was the vice president of Becker. Brennan told Ah Moo he would provide details relating to the transaction upon return to California.

Two weeks later, Brennan telephoned Ah Moo from Brennan's office at Becker in California and asked Ah Moo if he would be interested in a $27,500 investment with a $15,000 profit potential over a one month period, at the risk of losing only $5,000. Brennan neither identified the proposed stock nor informed Ah Moo that the stock was traded "over-the-counter."

On December 28, 1981, Ah Moo telephoned Brennan from Hawaii to confirm his investment of $27,500 in the recommended (still unidentified) stock, on condition that any possible loss would not exceed $5,000. The district court found that:

Brennan agreed[,] on behalf of Becker to limit ... Ah Moo's loss as aforesaid.... [I]n reasonable reliance upon that agreement and Brennan's actual and apparent authority to bind Becker to that agreement, ... Ah Moo sent a check from Honolulu, Hawaii[,] made payable to Becker in the amount of $27,500.

The district court found that Ah Moo "would not have invested the $27,500 if Brennan had not promised to limit ... Ah Moo's loss as aforesaid." The court noted that, "Brennan also admitted that he knew ... Ah Moo would never have made the investment if ... Ah Moo had known he could lose all of the $27,500...."

Ah Moo's money was invested in Energy Reserves Group, Inc. stock. Brennan relied on the advice of Becker's stock analyst in that choice.

Sometime after Becker's authorized salesman and Ah Moo entered into this agreement and after Ah Moo had purchased the stock, Ah Moo received an undated document entitled "Margin Agreement/Loan Consent." Brennan sent the document to Ah Moo without explanation. Signing the undated document, Ah Moo returned it to Brennan.

On January 8, 1982, Ah Moo telephoned Brennan seeking information about his investment. Brennan neither spoke with Ah Moo nor returned Ah Moo's telephone call.

On January 16, 1982, Ah Moo received a telex message informing him that there had been "a margin call" on his investment. Again, Ah Moo telephoned Brennan to "find out what was going on." Brennan told Ah Moo "not to worry," and that Brennan would "take care of it."

During January and February, 1982, Ah Moo received additional telex messages from Becker indicating that his investment was being "sold on margin". Ah Moo telephoned Brennan, who "continued to reassure Ah Moo ... not to worry about his stock...."

On February 19, 1982, Brennan purchased, without Ah Moo's authorization, Tipperary Corporation stock with Ah Moo's money. This purchase was executed on advice from Becker's over-the-counter trader.

On March 8, 1982, Brennan purchased National Semiconductor Corporation stock with Ah Moo's money, again without his authorization.

At no time did Becker secure written authorization to purchase additional stock with Ah Moo's money, following authorization of the Energy Reserves Group stock purchase. The aforementioned securities were not registered under Haw.Rev.Stat. Secs. 485-8, 9, or 10 at any time between December 18, 1981 and March 23, 1982.

Becker did not register Brennan, its authorized salesman, pursuant to Haw.Rev.Stat. Sec. 485-14(h) and (i), at any time before or during this period. ¹

The district court found that Becker had "failed to supervise Brennan's management of Ah Moo's ... account with Becker...." and that Ah Moo had "relied exclusively upon the recommendations of Becker ... rather than [on] his own expertise."

Becker was a registered securities "dealer," pursuant to Haw.Rev.Stat. Sec. 485-14(b) and (c), at all times during the foregoing transactions.

On October 26, 1982, after Ah Moo's investment had been sold by Becker, Ah Moo requested restitution. Becker refused.

Ah Moo filed suit in federal court against Becker pursuant to 28 U.S.C. Sec. 1322, under Hawaii law.

On September 29, 1986, the district court ordered rescission, assessing special damages in the amount of $27,500 (the amount of Ah Moo's investment), interest in the amount of $6,260.86 and attorney's fees in the amount of $38,975.66, pursuant to Haw.Rev.Stat. Sec. 485-20.

The district court concluded that Becker had breached the agreement with Ah Moo, negotiated by Becker's vice president and authorized salesman, to limit Ah Moo's losses to $5,000. In the alternative, the court found that a mutual mistake of fact regarding Brennan's ability to limit Ah Moo's losses, combined with Brennan's failure to disclose the stock traded, rendered the initial stock transaction void. Finally, the court concluded that Becker violated Haw.Rev.Stat. Sec. 485-8 by offering to sell and by selling unregistered securities, and that Becker violated Haw.Rev.Stat. Sec. 485-14(a) by failing to register its authorized salesman, permitting rescission under Haw.Rev.Stat. Sec. 485-20. ²

Becker's motion for a new trial was denied on May 4, 1987. Appeal was timely taken. We have jurisdiction under 28 U.S.C. Sec. 1291.

II

Becker claims that it was denied an adequate opportunity for discovery on the non-registration claims, due to the brevity of Ah Moo's complaint. It claims that an affidavit is inadmissible as proof of non-registration. Finally, it claims that Hawaii law should not have been applied. These claims are without merit.

A

Becker argues that it was denied timely notice of Ah Moo's claims, under Haw.Rev.Stat. Secs. 485-8 and 485-10, ³ that unregistered securities were sold to Ah Moo by Becker's unregistered salesman. On appeal, Becker asserts that the relevant securities are exempt as "isolated non-issuer transactions" pursuant to section 485-6(1), and as "recognized securities" pursuant to section 485-6(2).

We conclude that Becker had timely and specific notice of the non-registration claims prior to trial, and that Becker was not prejudiced in the presentation of its defense.

We review the district court's discovery ruling for abuse of discretion. Hatch v. Reliance Ins. Co., 758 F.2d 409, 416 (9th Cir.), cert. denied, 474 U.S. 1021, 106 S.Ct. 571, 88 L.Ed.2d 555 (1985). We also review the denial of a motion for new trial under the abuse of discretion standard. Robins v. Harum, 773 F.2d 1004, 1006 (9th Cir.1985).

Fed.R.Civ.P. 8(a)(2) requires that a complaint be "a short and plain statement of the claim showing that the pleader is entitled to relief." The Supreme Court, in Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 103, 2 L.Ed.2d 80 (1957), held that the complaint need not include more than "fair notice of what the plaintiff's claim is and the ground upon which it rests."

The complaint here alleged facts supporting an unlawful sale of securities by Becker to Ah Moo and alleged that "aforesaid acts and conduct of defendants constitute fraudulent and other prohibited practices within the meaning of Chapter 485 of the Hawaii Revised Statutes."

Upon receiving the complaint, Becker declined to move for a more definite statement under Fed.R.Civ.P. 12(e). Becker also declined to move for judgment on the pleadings under Fed.R.Civ.P. 12(c), for further discovery under Fed.R.Civ.P. 26-37, or for summary judgment under Fed.R.Civ.P. 56. Becker was entitled to make each of these motions. See Daves v. Hawaiian Dredging Co., 114 F.Supp. 643, 645 (D.Haw.1953). That it did not, suggests a cognizance of the foregoing facts.

Nevertheless, the district court found that Becker was on notice as to each of Ah Moo's specific "non-registration" claims "approximately one month before the July 22, 1986 trial," and Ah Moo "filed and served [a] ... Trial Memorandum Re: Hawaii's Blue Sky Laws[,] informing defendant in writing of Ah Moo's non-registration claim [on July 2, 1986]."

If the original complaint lacked specificity, this memorandum certainly must have put Becker on notice as to the full extent of the non-registration claims. Defendant Becker's trial memorandum, filed sixteen days prior to trial, specifically addressed the merits of the non-registration claims.

Fed.R.Civ.P. 15(b) states clearly:

[W]hen issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings [and] ... failure so to amend does not affect the result of the trial of these issues. ⁴

In this case, the district court did not find any prejudice resulting to defendant-Becker from Ah Moo's failure to formally amend the pleadings prior to...