Barton v. Peterson

• Citation: 733 F. Supp. 1482
• Decision Date: 21 March 1990
• Docket Number: Civ. A. No. 1:87-CV-1871-JOF.
• Parties: James BARTON, et al., Plaintiffs, v. J. Chandler PETERSON, et al., Defendants.
• Court: U.S. District Court — Northern District of Georgia

733 F. Supp. 1482

James BARTON, et al., Plaintiffs, v. J. Chandler PETERSON, et al., Defendants.

Civ. A. No. 1:87-CV-1871-JOF.

United States District Court, N.D. Georgia, Atlanta Division.

March 21, 1990.

COPYRIGHT MATERIAL OMITTED

Roy Harold Meeks, Jr., Peterson, Young, Self & Asselin and Penelope Williams Rumsey and Austin Lee Ramsey, Rumsey & Ramsey, Atlanta, Ga., for plaintiffs.

John L. Taylor, Jr., Vincent, Chorey, Taylor & Feil, Thomas J. Gallo, Harkleroad & Hermance, Atlanta, Ga., and Frances M. Toole, Bush, Ross, Gardner, Warren & Rudy, Tampa, Fla., for defendants.

ORDER

FORRESTER, District Judge.

This securities fraud case is before the court on the motion for summary judgment by defendants J. Chandler Peterson and Phoenix Financial Corporation. This order follows oral arguments on these motions conducted before the court on August 11, 1989. For the reasons discussed below, the motion is GRANTED in part and DENIED in part.

I. STATEMENT OF FACTS

Plaintiffs are thirteen individuals who invested in a Florida limited partnership known as Capital: Maple Leaf Estates, Ltd. J. Chandler Peterson d/b/a Peterson Wealth Management and the Phoenix Financial Corporation (Peterson defendants) were broker/dealers for the partnership. Capital Sunbelt Investments, Inc., Capital Sunbelt Investments Group, Inc., and Capital Sunbelt Securities, Inc. (Capital defendants) were the general partner and related companies.¹

Capital: Maple Leaf Estates was one of two related partnerships. It was known as the "A side," which was to purchase a mobile home park near Port Charlotte, Florida. The "B side," a related partnership, was to lease the property from the "A side" partnership and manage it. Each of the plaintiffs except for Sharon Budnik bought their share of the partnership from Phoenix Financial in May and June of 1985.² At that time they executed subscription agreements and became limited partners.

The offering was not registered, but this fact was disclosed in the offering circular. The plaintiffs admit that they received the agreement to become a limited partner and an investors questionnaire. The investors questionnaire included a section which acknowledged receipt of the limited offering circular. Two plaintiffs left this section blank, Chamberlain and Barton. However, the other plaintiffs did fill out that section, acknowledging receipt of the circular. Moreover, the subscription agreement included a section at paragraph five, in which the investor, by signing the agreement, acknowledged and represented that a) he had received a copy of the partnership agreement, certificate of limited partnership, and limited offering circular, and had been given the opportunity to make further inquiries from the partnership and to get information relevant to the investment; b) the information provided in the document was true and correct; c) that the units were being acquired for the purpose of investment and not for resale; d) he has been advised that the units have not been registered under either the Securities Act of 1933, or under the laws of the state of Florida, or any other state. The limited offering circular itself stated that broker/dealers were required to give a copy of the circular to prospective investors. It also stated that the units were not registered under either federal or Florida law.

At some point two principals in the Capital defendants allegedly misappropriated $1.5 million of the partnership's assets. Apparently, funds were loaned to the general partner, who then lent the funds to other partnerships run by the general partner. Partnership units ceased to be sold in September or October 1985. This complaint was filed on August 21, 1987.

Following the misappropriation of funds, investor meetings were held and the Peterson companies apparently were trying to recover the money for the investors. In connection with this effort, the plaintiffs executed agreements entitled "Authorization from Related Investors of Capital Sunbelt Corporation to Phoenix Strategy Corporation and Related Companies." This authorization in the main part authorized the Peterson defendants to act on the investors behalf to recover the funds. That document states that the investor had become aware of misappropriation of funds by Capital Sunbelt and also aware that the principals of Capital Sunbelt had conveyed their personal assets, including Capital stock, to the Maple Leaf investors and that the stock was being held by one of the Peterson companies. The investor accepted his pro rata share of the assets and authorized the Phoenix Strategy Corporation to disburse the assets. The fourth paragraph authorizes Phoenix Strategy Corporation and related companies to seek the formation of groups of investors and a company to be owned by the investors to act on the investors' behalf. The investor agreed the investor representatives would be held harmless from liabilities for their action on behalf of all the investors.

The fifth paragraph of that authorization contains language that defendants contend is a release of all claims against them. That paragraph reads as follows:

I authorize the Phoenix Group and their officers and agents to speak and act on my behalf in all matters relating to CSI Capital Sunbelt Corporation and its partnerships, and specifically convey to them the power to make compromises, give releases of claims, and to expend funds out of CSI and its partnerships, of funds to which I become entitled, to secure and enhance my rights. I waive and release any and all claims against the Phoenix Group and the Peterson groups and its officers, directors and agents, as well as against any members of any investor representative groups, and agree that they shall be fully indemnified out of assets of CSI and its partnerships to which I become entitled for any liabilities or costs they may incur while pursuing my interests.

See, e.g., Defendants' Consolidated Exhibit A, page 1. The final paragraph concludes that others may rely on this appointment to confirm that the Phoenix Company was acting on the investors' behalf. All plaintiffs except Chamberlain signed this document.

Plaintiffs rely on two affidavits by Frank Chamberlain to support their claims of equitable tolling. The first affidavit states that the Peterson companies called a meeting of investors in October 1985, and introduced their counsel, who were introduced as representing the investors and the Peterson defendants in recovering the misappropriated funds. The counsel formed a corporation to protect the investors, for which Chamberlain acted as president, and represented the corporation and the investors in the bankruptcy proceedings of the principals of the general partner.

The second affidavit states that at that October meeting, the investors were told that counsel had secured assignments of assets from the principals of the general partner, and that this would ultimately make the investors whole. In January 1986, counsel formed the corporation to recover assets and to work for the investors, headed by Chamberlain. Chamberlain was led to believe that this counsel would provide legal support and advice to both this company and the investors. In a letter to the investors prepared by counsel in January of 1986, Chamberlain stated that though the principals were contesting the assignment of assets in their bankruptcy, counsel stated that the investors are the rightful owners and would ultimately recover the assets. However, Chamberlain was told in January 1987 that the bankruptcy court had returned the assets to the principals of the general partner. Chamberlain was never told that he should get a separate legal opinion, and relied until early 1987 on counsel's representations that they were providing legal support and advice to him, and in reliance on this did not seek separate counsel or an opinion from separate counsel. Also, Chamberlain states that Phoenix Financial, through its affiliates, stressed the importance of presenting a "united front" in this situation.

A related case, Weprin v. Peterson, Civil Action No. 85-4670-MHS (N.D.Ga.), was also filed by other partnership investors. Following a trial, the Weprin jury found, among other things, that there were no material misrepresentations or omissions in the private placement memorandum for this investment. See Verdict-Special Interrogatories, Defendants' Exhibit C, dated March 22, 1988.³ Judge Shoob, in an order following that trial, determined that the offering was exempt from the registration provisions of Section 5 of the 1933 Act and the Georgia Securities Act. Order, Weprin v. Peterson, No. 85-4670, ___ F.Supp. ___ (N.D.Ga. August 17, 1988).

The complaint in this action is substantially similar to the complaint in the Weprin case. Moreover, many of the discovery requests and information contained in the record of this action is apparently identical to that which was available in the Weprin action.

The Peterson defendants were not parties to the limited partnership agreement between the plaintiffs and the general partner. Neither J. Chandler Peterson, doing business as Peterson Wealth Management, nor Phoenix Financial controlled any of the Capital defendants; neither owned any stock or interest in the Capital defendants nor served as directors or officers of the Capital defendants.

II. CONCLUSIONS OF LAW

Defendants seek summary judgment on practically all claims raised by plaintiffs on numerous grounds.⁴ They argue that all the plaintiffs except Chamberlain released any and all of their claims against the Peterson defendants. They also argue that the registration issue and the issue of whether the limited offering circular was misleading have been determined adversely to plaintiffs in the Weprin case, and this court should accept that court's findings. The defendants then argue that the statute of limitations bars plaintiffs' federal and state registration and misrepresentation claims. Defen...