Blazer v. Black

• Decision Date: 19 March 1952
• Docket Number: No. 4304.,4304.
• Citation: 196 F.2d 139
• Parties: BLAZER v. BLACK.
• Court: U.S. Court of Appeals — Tenth Circuit

196 F.2d 139 (1952)

BLAZER v. BLACK.

No. 4304.

United States Court of Appeals Tenth Circuit.

March 19, 1952.

COPYRIGHT MATERIAL OMITTED

A. D. Weiskirch, Wichita, Kan., and Jack O. Brown, Chicago, Ill. (Fred Dobmeier, Buffalo, N. Y., and Manford Holly, Wichita, Kan., on the brief), for appellant.

George Siefkin, Wichita, Kan. (George B. Powers, Samuel E. Bartlett, Carl T. Smith, John F. Eberhardt, Stuart R. Carter, Robert C. Foulston, Jr., and Robert N. Partridge, all of Wichita, Kan., on the brief), for appellee.

Before PHILLIPS, Chief Judge, and BRATTON and MURRAH, Circuit Judges.

MURRAH, Circuit Judge.

This is a suit in the District Court of Kansas, by a former stockholder of a dissolved corporation, against its former president for compensatory and punitive damages for the alleged fraudulent conversion of the stockholder's stock before dissolution. At the conclusion of the plaintiff's case, the trial court sustained a motion for a directed verdict, and this appeal is from a judgment on that verdict.

The Black-Marshall Oil Company was organized under the laws of Illinois in 1940. It was authorized to do business in Kansas, and established its principal office in Great Bend, Kansas. Appellee, W. H. Black was one of its organizers and President. Dale Ives, an attorney at Aledo, Illinois, was also an incorporator and Secretary-Treasurer. More than 50,000 of the 200,000 shares of authorized common stock were sold to a group living in and around Aledo, where Black had lived and where Ives lived and practiced law. Herschel J. Blazer, a citizen of Aledo, and appellant here, owned 1150 shares of Black-Marshall stock. Stockholders meetings were held in Aledo, and Black came there from time to time to attend the stockholders meetings and report on the operations of the company, which was primarily engaged in drilling for and producing oil in Kansas.

As we construe and summarize the first amended complaint, it alleges that sometime in 1944, President Black devised a fraudulent scheme to acquire control of the stock of the Black-Marshall, including the appellant's stock, with the use of corporate funds; enter into an extensive drilling program, with borrowed funds, for the purpose of enhancing the value of the stock, and then sell the outstanding stock of the Company to the National Cooperative Refinery Association. In furtherance of that scheme, it is alleged that Black, acting through his agent Ives, induced the group of stockholders in and around Aledo, and particularly this appellant, to deliver their stock to Ives, endorsed in blank, under the false pretense that Black-Marshall had been sold for an undisclosed amount, but for an amount sufficient to pay the stockholders $12 per share; that the company would retain undeveloped properties held by its wholly owned subsidiary, the Landowners Oil Association; that Black-Marshall would be dissolved and the stockholders would be issued stock in the Landowners Oil Association proportionate to their interest in Black-Marshall, or another corporation would be formed to develop the properties then held by Landowners, and stock would be issued to the Black-Marshall stockholders proportionately; that relying upon these representations, and believing that Black-Marshall had been sold as represented, this appellant delivered his 1150 shares to Ives, endorsed in blank, in September 1945, who accepted the same and delivered them to Black; that the appellant was paid the sum of $13,800, representing $12 per share for his stock, by a check on Black-Marshall; that at about the time of this transaction, and on October 1, 1945, Black, as president of Black-Marshall, entered into an agreement with the National Cooperative Refinery Association, under the terms of which the latter loaned Black-Marshall $3,200,000, in consideration of the assignment of certain designated properties of Black-Marshall; that the Association further agreed to loan Black-Marshall the sum of $22,000 for each producing well drilled on the properties conveyed to the Association, until a total of not to exceed $528,000 was advanced, said loan to be evidenced by notes, payable not later than five days from the date of the agreement.

It is alleged that in furtherance of the fraudulent scheme, approximately $1,000,000 of the $3,200,000 loaned to Black-Marshall was used by Black personally, to acquire the stock of the stockholders in Black-Marshall, and that Black caused Black-Marshall to commence an extensive drilling program, during which 100 wells were drilled, 70 per cent of which were commercial producers, thus greatly enhancing the value of Black's stock in the corporation. It is alleged that after acquiring approximately 68,000 shares of the outstanding stock of Black-Marshall, including the 1150 shares of the appellant, all in blank, Black placed the same in his private lock box in Great Bend, Kansas; that it remained there as street stock, paid for by Black-Marshall but charged to Black's personal stock account until 56,402.75 shares were marked retired on June 1, 1947, and the remaining outstanding stock of the corporation sold to the National Cooperative Refinery Association for $7,500,000. It is alleged that the 56,402.75 shares, including the appellant's 1150 shares, marked retired, were in fact outstanding stock at the time of the sale, and based upon the sale price, was worth $51.06 per share or $58,719 for the 1150 shares owned by the appellant.

It is specifically alleged that at all times material, Black and his agent Ives, as officers of the Company, were acting in a relation of trust and confidence, and as such required to deal with the stockholders, including this appellant, with the utmost fairness, and were required to communicate to the appellant all material facts bearing upon the transactions mentioned relating to the true financial condition of Black-Marshall, and that they purposely failed to disclose the information and concealed transactions in order to effect the fraudulent scheme. Appellant avers that he first learned of the sale of Black-Marshall during the forepart of 1948, and after an investigation discovered the fraud. A demand for restitution was refused, and this suit followed in the Fall of 1949. The prayer was for the difference between the $13,800.00 paid for the stock at $12 per share and $58,719, based upon a valuation of $51.06 per share. He further prayed for his proportionate interest in Landowners Royalty, which Black acquired at the time of the dissolution of Black-Marshall, for the sum of $52,000 and for $100,000 punitive damages.

On motion of the defendant, the trial court struck from the complaint all the allegations with respect to matters and events occurring subsequent to September 29, 1945, when appellant parted with his stock and received $13,800 therefor. The court observed that while such allegations might be entirely proper in an action for rescission or in a proceedings to impress a trust upon funds in the hands of an unfaithful fiduciary, they had no place in a suit for money damages for fraud and deceit, citing Turner v. Jarboe, 145 Kan. 202, 64 P.2d 26. The court was further of the view that the measure of damages, if any, would be the difference between the price paid for the stock and its true value at the time of the transaction "if the latter exceeds the former", citing Hotchkiss v. Fischer, 139 Kan. 333, 31 P.2d 37, 38. Appellant was accordingly ordered to amend his complaint to conform to the ruling, or go to trial on the first amended complaint sans the stricken allegations.

The appellant filed a second amended complaint in which he reiterated the fraudulent scheme, the fiducial relationship, the fraudulent representations which induced him to part with his stock, and the discovery of the fraud in 1948. He prayed for the damages originally sought, based upon the "wrongful, deceitful, and fraudulent practices" perpetrated by the appellee Black through his own conduct and that of his agent Ives. In sum, the claim stated was substantially the same as the original claim, eliminating therefrom only the detailed facts and circumstances occurring subsequent to the transaction in which the appellant parted with his stock on September 29, 1945, and the final sale of the Company in June, 1947.

Black answered, specifically denying that Ives was his agent or that he made any representations to the appellant either personally or through Ives. He affirmatively alleges that Ives, acting in some capacity, unknown to him, did purchase for the Black-Marshall Company the appellant's stock for the sum of $13,800; that the check was cashed in full consideration of the purchase price and the stock assigned in blank; that the stock was purchased by the Company pursuant to a resolution of the Board of Directors, retired as company stock, and never reissued. He specifically denied ever representing to the appellant any facts relating to the affairs of Black-Marshall or the value of its stock, or that he ever received or claimed to own appellant's stock in the Company. He pleaded the two year statute of limitations and analogous laches.

On appeal, appellant has assigned as error the order of the court striking from his complaint the allegations of matters and events alleged to be part, or in furtherance, of the alleged fraudulent scheme. It is said that the court's ruling in that regard had the effect of converting his stated claim for damages based upon equitable conversion to one for damages for fraud and deceit. No objections are raised in appellee's brief to the consideration of this assignment of error on appeal, but at the bar of the court it is suggested that when appellant amended his complaint pursuant to the order of the court, he waived the right to stand upon the allegations of his first amended complaint, and must now stand or fall on the second amended complaint.

In some jurisdictions, where a pleader elects to plead over and files an...