Allyn v. Wortman
| Decision Date | 09 April 1998 |
| Docket Number | No. 96-CA-00646-SCT.,96-CA-00646-SCT. |
| Court | Mississippi Supreme Court |
| Parties | D. Lancy ALLYN, M.D.; Daryl Behrens; Richard Brown; Charlotte Brown; E. Lee Butler, Individually and as Trustee of the E. Lee Butler, P.A., Profit Sharing Trust; Elizabeth Butler; James Casto; Guy E. Evans; Opal Herrin; J. Myron Lord, M.D.; Shane Moore; Stephen Patterson; J. Raul Salas, M.D., as Trustee of the J. Raul Salas, M.D., Inc. Defined Benefit Pension Trust v. William C. WORTMAN; Richard J. Lawrence; Thomas A. Lettero; Charles A. Brewer; Robert K. Gray; James S. Mush; Renate Schiff; Jack R. Crawford; John H. Harvey; John G. Kinnard & Company, Inc.; Thomas Joseph Mulvaney; Daniel Raymond Sass; Lee Scott Felicetta; Francis William Braun; Arthur Jude Kearney; Thomas Edgar Moore; Robert Sheldon Spong; K. Edward Elverud; and Patrick M. Sidders. |
T. Jackson Lyons, Jackson, MS; Michael Hartung, Jackson, MS, for Appellants.
Richard L. Jones, Alex A. Alston, Jr., Alston Rutherford & Van Slyke, Jackson, MS; David W. Clark, Lake Tindall, Jackson, MS, for Appellees.
EN BANC.
MILLS, Justice, for the Court:
STATEMENT OF THE CASE
¶ 1. On September 26, 1995, the Plaintiffs filed their Complaint in the Circuit Court of Hinds County. The Complaint alleged violations of the securities laws of the United States, Mississippi, Florida, and California by John G. Kinnard & Company,1 certain individuals related to that entity, and individuals related to the entity which became known as Palace Casinos, Inc. The Complaint also alleged that the Palace Defendants were responsible for the destruction of the casino as an ongoing business and are liable directly to shareholders under Utah law.
¶ 2. Both the Kinnard Defendants and the Palace Defendants filed separate motions to dismiss for failure to state a claim upon which relief could be granted. The motions asserted that the Complaint did not state cognizable claims under federal, Mississippi, Florida or California securities law. Furthermore, the motions stated that the Complaint did not meet the requirements of the federal or state statutes, that each claim was barred by the applicable statute of limitations, and that the document in question, a Private Placement Memorandum ("PPM"), was not misleading when read in its entirety.
¶ 3. The trial court granted both motions to dismiss from which the Plaintiffs appeal. Since the appeal was filed, three Appellants, A.J. Acker, Linda Gazie, and Harvey Young, have settled their claims and are no longer parties to this appeal. Therefore, the claims asserted by the Appellants in their principal brief regarding federal securities law and the Florida common law of fraud are moot. Furthermore, the remaining Appellants have conceded the issues of federal law as decided by the trial court.
STATEMENT OF THE FACTS
¶ 4. Ward's Oil and Gas, Inc. was incorporated in the State of Utah in 1980. The company later changed its name to Maritime Resorts International, then to Palace Casinos, Inc., the subject of the present action.
¶ 5. In 1992, Maritime Resorts International (hereinafter "Maritime") began developing a casino project in Biloxi, Mississippi. Maritime acquired barges and an option on dockside space in the Point Cadet area of Biloxi. These assets were acquired through a stock swap with Maritime Group, Ltd., a wholly-owned subsidiary which was to run the casino.
¶ 6. In order to raise additional capital to build the casino, Maritime decided to issue Preferred Stock through a confidential Private Placement Memorandum (PPM) on May 3, 1993. John G. Kinnard & Co. ("Kinnard"), a Minnesota corporation also registered in Mississippi, handled the underwriting of the new issue of preferred shares.
¶ 7. The PPM was directed towards wealthy and sophisticated investors with individual annual income greater than $200,000, or over $300,000 with spouse, or with a net worth in excess of $1,000,000. Furthermore, the PPM contained a multitude of warnings regarding the risky and unsure nature of the casino business and the potential loss of any investment in this casino venture. Potential investors were required to complete and sign a subscription agreement and questionnaire which continued to warn of investment risk and questioned the investors' ability to absorb investment loss. Despite the warnings, the stock issuance was successful, and all available shares were purchased. After the issuance, the company filed a registration statement (Form S-1) and Form 10-K with the U.S. Securities and Exchange Commission (SEC) on December 3, 1993, and September 4, 1994, respectively. Both contained significant warnings that the venture was not proceeding as planned and that the Company was in trouble.
¶ 8. Following extensive financial and construction problems, the Palace Casino opened on April 15, 1994. However, the general contractor later filed a lawsuit and a construction lien causing a default under the terms of the casino's mortgage debt agreement with Maritime Group, Ltd. The default was coupled with a $10 million dollar operating loss, and Palace Casinos, Inc. and Maritime petitioned for protection under Chapter 11 in the United States bankruptcy court in Utah. The cases were subsequently transferred to the Southern District of Mississippi.
¶ 9. The Plaintiffs ("Investors") have brought an action against the Palace Casino Defendants and Kinnard based upon alleged material misrepresentations in the PPM, upon which they relied when purchasing Palace Casino stock. Furthermore, the Investors seek to recover from the Palace Defendants for the destruction of the company under Utah law.
¶ 10. There are sixteen Investors. Nine are residents of Florida, six are residents of California, and one is from Mississippi. Of the sixteen Investors, only three, Acker, Gazie and Young, purchased the Preferred Shares covered by the PPM issued on May 3, 1993.2 Ten other Investors did not purchase the Preferred Shares covered by the PPM but allege that they relied on the PPM to purchase shares of common stock from sellers other than the Defendants. The Investors admit that some shares of common stock were purchased prior to the issuance of the PPM by seven of the Investors. The remaining three Investors, Allyn, Lord and Sallas, did not purchase any stock in reliance on the PPM and join only in the corporate aspect of the suit under Utah law.
¶ 11. Of the Palace Defendants, Wortman, Lawrence, Schiff, and Mush were not officers or directors of the company when the PPM was issued in May of 1993. Defendant Brewer, the only Mississippi Defendant, and Defendants Gray and Harvey had been directors for the Palace Casino only a few days prior to the issuance of the PPM and had no involvement in its preparation, approval or issuance.
¶ 12. Following the filing of the Investors' Complaint in the Circuit Court of Hinds County, both sets of Defendants filed motions to dismiss for failure to state a claim upon which relief can be granted pursuant to Miss. R. Civ. P. 12(b)(6). The trial court granted both motions to dismiss. The decision was primarily based on lack of jurisdiction by the trial court, failure to file within the applicable statutes of limitation, and lack of privity with the Defendants. The Investors now appeal to this Court.
ANALYSIS
¶ 13. This Court conducts de novo review of questions of law raised by Rule 12(b)(6) motions. Wells v. Panola County Bd. of Educ., 645 So.2d 883, 888 (Miss.1994); Tucker v. Hinds County, 558 So.2d 869, 872 (Miss.1990); UHS-Qualicare, Inc. v. Gulf Coast Community Hospital, Inc., 525 So.2d 746, 754 (Miss.1987). Well-pleaded facts must be taken as true, and dismissal should be granted only where it appears beyond a reasonable doubt that the Plaintiff can prove no set of facts in support of a claim that entitles him to relief. Weeks v. Thomas, 662 So.2d 581, 585 (Miss.1995); Overstreet v. Merlos, 570 So.2d 1196, 1197 (Miss.1990).
¶ 14. Since the attorneys for the Defendants wrote the trial court's opinion, as requested by the trial judge, the Investors correctly indicate that the opinion should be viewed with an increased measure of scrutiny. Kerr-McGee Chem. Corp. v. Buelow, 670 So.2d 12, 16 (Miss.1995).
I. WHETHER THE TRIAL COURT HAD PERSONAL JURISDICTION OVER THE PARTIES AND SUBJECT MATTER JURISDICTION OVER THEIR CLAIMS AND DEFENSES.
¶ 15. In its opinion, the trial court states "there is a significant question whether this Court has jurisdiction of the claims asserted in the Complaint." The trial court bases its conclusion on the fact that only one Defendant, Charles Brewer, and only one Plaintiff, Guy Evans, are residents of Mississippi, and the claims of the Mississippi Plaintiff and claims against the Mississippi Defendant are without merit and must be dismissed. Neither the trial court nor the Appellees cite any authority in support of this position. Furthermore, the trial court denies jurisdiction but dismisses the case based on...
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...for guidance.3 In fact, “[ Section] 75–71–501 is virtually identical to § 17(a) of the Securities Act of 1933 [.]” Allyn v. Wortman, 725 So.2d 94, 102 (Miss.1998). Section 17(a) is codified at 15 U.S.C. § 77q(a)(1), and it provides: It shall be unlawful for any person in the offer or sale o......
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