Blackmar v. Lichtenstein, 77-1855

• Decision Date: 06 July 1978
• Docket Number: No. 77-1855,77-1855
• Citation: 578 F.2d 1273
• Parties: Charles B. BLACKMAR, Trustee of Liberty's Investment for Employees, and Charles B. Blackmar, Trustee of Incentive Trust, Plaintiff-Appellant, v. David B. LICHTENSTEIN, Sr., William A. Gerard, Lyle S. Woodcock, Sidney N. Held, David B. Lichtenstein, Jr., Oscar H. Love, Carl A. Algren, and American National Bank in St. Louis, Defendants-Appellees, John W. Knox and Everett B. Best, Movants-Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1273

578 F.2d 1273

Charles B. BLACKMAR, Trustee of Liberty's Investment for

Employees, and Charles B. Blackmar, Trustee of

Incentive Trust, Plaintiff-Appellant, v. David B. LICHTENSTEIN, Sr., William A. Gerard, Lyle S.

Woodcock, Sidney N. Held, David B. Lichtenstein, Jr., Oscar

H. Love, Carl A. Algren, and American National Bank in St.

Louis, Defendants-Appellees,

John W. Knox and Everett B. Best, Movants-Appellees.

No. 77-1855.

United States Court of Appeals,

Eighth Circuit.

Submitted Feb. 17, 1978.

Decided July 6, 1978.

William I. Rutherford of Lashly, Caruthers, Thies, Rava & Hamel, Clayton, Mo., for appellant; Albert H. Hamel and Mark D. Mittleman, Clayton, Mo., on brief.

Thomas E. Wack, Armstrong, Teasdale, Kramer & Vaughan, St. Louis, Mo., for appellee, Lichenstein; William J. Travis, and Robert S. Allen and Kathianne Knaup of Lewis, Rice, Tucker, Allen & Chubb, St. Louis, Mo., on brief.

John B. Carothers, Thompson, Walther, Shewmaker & Gaebe, St. Louis, Mo., for appellee, American National Bank; Harold C. Gaebe, St. Louis, Mo., on brief.

John G. Gianoulakis of Kohn, Shands, Elbert, Gianoulakis & Giljum, St. Louis, Mo., for appellees, Knox and Best; Cynthia C. Bottini and Carroll J. Donohue, Robert J. Domrese and James V. Stepleton of Husch, Eppenberger, Donohue, Elson & Cornfeld, St. Louis, Mo., on brief.

Before HEANEY and HENLEY, Circuit Judges, and HANSON, Senior District Judge. ^*

HANSON, Senior District Judge.

Blackmar appeals from an order of the district court finding that his complaint as to all defendants failed to state a cause of action pursuant to Section 10(b) of the Securities Exchange Act of 1934. We hold that the district court, in dismissing the complaint for lack of subject matter jurisdiction, overlooked and failed to rule upon an issue of real party in interest, an issue that should have been considered prior to the merits and must be considered before further appeal.

The procedural facts underlying the case are critical, though not complex. Blackmar, on May 1, 1976, was appointed by the new management of Liberty Loan Corporation as successor trustee of Liberty's Investment for Employees (The "LIFE" Trust) and Liberty's Incentive Trust (The Incentive Trust), both of which are profit-sharing trusts for Liberty employees. The trusts at that time were insolvent, and Blackmar was hired to investigate possible legal action for mishandling of the trust funds by former officers, directors, and major stockholders of Liberty and former trustees of the trusts.

On July 29, 1976, Blackmar filed the original complaint in federal district court. The complaint, which alleged that the former trustees had failed to diversify trust investments and fraudulently schemed to inflate Liberty stock, was in four counts. Two counts were rooted in Section 10(b) of the 1934 Act, and Rule 10b-5 promulgated thereunder; the other two counts, by way of pendent jurisdiction, sought relief under state law for violations of fiduciary duties.

On January 12, 1977, Blackmar advised the management of Liberty that he would seek leave to file an amended complaint joining Liberty as a party defendant to the pending lawsuit. Liberty, within a few hours thereafter, informed Blackmar that he would be removed as trustee. By January 14, 1977, Liberty had appointed Knox and Best as trustees of the LIFE Trust and the Incentive Trust, respectively.

Movants Knox and Best filed an April 11, 1977 motion for substitution pursuant to Rule 25(c) of the Federal Rules of Civil Procedure, ¹ requesting that the district court substitute them for Blackmar as parties plaintiff. They stated that pursuant to provisions of the trust instruments, Blackmar "(had) been removed as trustee of both said trusts, effective January 13, 1977, by resolution of the Executive Committee of the Board of Directors of Liberty Loan Corporation." This resolution, which was subsequently ratified by the entire Board of Directors on January 25, 1977, is alleged to have legitimately terminated any interest that Blackmar may have had as trustee in this litigation. Blassie v. Kroger Co., 345 F.2d 58 (8th Cir. 1965); Raffety v. Parker, 241 F.2d 594 (8th Cir. 1957).

Knox and Best were neither the first nor the only litigants to raise a question regarding the proper party plaintiff in this lawsuit. Defendants in answering the complaint affirmatively pleaded lack of capacity pursuant to Rule 9(a) of the Federal Rules of Civil Procedure, a means for raising the matter of real party in interest under Rule 17. ² On April 26, 1977, certain employee beneficiaries of the trusts in question filed a motion of intervention. Finally, plaintiff, in his May 13, 1977 motion and application for instructions, requested direction with respect to his possible status and duties as trustee.

In its ruling of September 26, 1977, the district court first presumed that plaintiff trustee had standing as a purchaser or seller of securities under the 1934 Act. It then went forward to sustain defendants' motion to dismiss on the ground that a federal cause of action, which was also necessary to the pendent state counts, had not been stated.

No ruling, however, was made with respect to the proper party plaintiff. The motions for substitution, intervention, and instructions were summarily denied as "moot". Also denied was Blackmar's leave to amend the complaint, as the district court had reviewed the proposed unfiled amended complaint under seal, for asserted reasons of privilege, and determined that it did not cure the deficiency of the original complaint.

Blackmar subsequently filed timely motions to alter or amend the judgment and requested leave to file a second amended complaint. The motions were overruled. In refusing to permit the proposed amended complaint to be filed, the court held that plaintiff had still failed to set forth any federal claim upon which relief could be granted.

Our concern herein is not the standing of plaintiff to sue under the Securities Act of 1934, but his status pursuant to pertinent trustee law to bring this case as a real party in interest. To presume real party in interest, in addition to presuming standing to sue under the federal securities law, is not to engage in that "prudential exercise" of jurisdiction which the United States Supreme Court has recently required of federal courts. Singleton v. Wulff, 428 U.S. 106, 96 S.Ct. 2868, 49 L.Ed.2d 826 (1976); Warth v. Seldin, 422 U.S. 490, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975); ...