Bradford v. Moench

Decision Date26 October 1992
Docket NumberNo. 87-C-0078-S.,87-C-0078-S.
Citation809 F. Supp. 1473
CourtU.S. District Court — District of Utah
PartiesC. Frank BRADFORD, et al., Plaintiffs, v. Lorin L. MOENCH, Robert B. Beckstead, Snell Olsen, Richard Moench, John M. Taggart, Copper State Thrift & Loan Company, a Utah corporation, Copper State Financial Corporation, a Utah corporation, John & Jane Does, 1-10, Defendants.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Robert M. Anderson, Ross C. Anderson, and Linda M. Jones, Anderson & Watkins, Salt Lake City, UT, for plaintiffs.

Christopher L. Burton, Michael Patrick O'Brien, Jones, Waldo, Holbrook & McDonough; Henry Nygaard; Denis R. Morrill, Prince, Yeates & Geldzahler; Jeffrey B. Brown, Brown & Brown; John S. Snow; and Ray R. Christensen and Jay Jensen, Christensen, Jensen & Powell, Salt Lake City, UT, for defendants.

ORDER

SAM, District Judge.

The court has before it the Report and Recommendation of the magistrate judge dated February 25, 1992. There was no timely objection to the Report and Recommendation, other than that filed by the Moench defendants, who have since been dismissed from the case.1

The court, having reviewed the matter de novo, concurs with the Report and Recommendation of the magistrate judge. The Report and Recommendation contains alternate recommendations with respect to plaintiffs' 12(1) claim. For purposes of this case, the court adopts the magistrate judge's alternate recommendation regarding plaintiffs' 12(1) claim that the relevant offering occurs at the time the securities were last offered to the public.

Although the court, for the specific purpose of this case, adopts the alternate recommendation of the magistrate judge, the court is of the view that the Report and Recommendation offers guidance on the issue of whether unregistered securities are, or are not, bona fide offered. The court considers the analysis presented to be extrinsic to the thrust of the briefing and arguments of counsel; however, the thorough, scholarly treatment of this question by the magistrate judge may prove beneficial to other litigants and courts when this question arises in the future.

Accordingly, with the foregoing observations and the reasons stated, the court adopts the Report and Recommendation of the magistrate judge dated February 25, 1992 as the court's own opinion.

BOYCE, United States Magistrate Judge.

Plaintiffs are the purchasers and present owners of thrift certificates, savings passbook, or other accounts issued by the now defunct Copper State Thrift & Loan (CST & L), a Utah industrial loan corporation. Defendants are Copper State Financial Corporation (CSFC) which owned all CST & L stock, individual stockholders of CSFC, and individual directors and officers of CST & L and CSFC. Plaintiffs allege that defendants violated provisions of federal and Utah law including the Securities Act of 1933, the Securities Exchange Act of 1934, the Utah Uniform Securities Act, the Racketeer Influenced and Corrupt Organizations Act (RICO), and the Utah Racketeering Influences and Criminal Enterprise Act (RICE). In addition, plaintiffs allege common law fraud and negligence. The case was referred to the magistrate judge under 28 U.S.C. § 636(b)(1)(B).

Defendants filed a motion to dismiss for failure to state a claim upon which relief can be granted under Rules 12(b) and 9(b) of the Federal Rules of Civil Procedure. Pursuant to the magistrate judge's recommendation, the court denied the motion except as to plaintiffs' claim under section 17(a) of the Securities Act of 1933. The court dismissed plaintiffs' section 17(a) claim. Bradford v. Moench, 670 F.Supp. 920 (D.Utah 1987).

After their motion was denied, defendants Lorin L. Moench, Richard Moench, and Moench Investment Co., Ltd. filed a motion for summary judgment (File entry no. 184), which was joined by defendant Robert Beckstead (File entry no. 189). Thereafter, plaintiffs Ernest R. Gates, Linda Gates, Michael W. Edwards, Debra Edwards, Theodore Scharrier, and Marianne Scharrier filed a motion for partial summary judgment against defendant Beckstead on the issue of liability under section 12(1) of the 1933 Act. (File entry no. 199.) This report and recommendation is submitted pursuant to the reference on the cross-motions for summary judgment.

I. STANDARD FOR SUMMARY JUDGMENT

Summary judgment should be entered if the record shows that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c).

A party moving for summary judgment bears the initial burden of informing the court of the basis of its motion. It may do so by identifying portions of the record that demonstrate that there is no genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). In response, the nonmoving party must "make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Id. at 322, 106 S.Ct. at 2552. If the nonmoving party fails to meet this burden, summary judgment is mandated. Id. In such a case, no genuine issue of material fact exists because a complete failure of proof of an essential element of the party's claim necessarily renders all other facts immaterial. Id. at 322-23, 106 S.Ct. at 2552-53.

II. ABSTENTION

Defendants ask the court to abstain from hearing plaintiffs' claims. In support of their request, defendants cite Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943), for the proposition that "federal courts decline to exercise jurisdiction in order to avoid needless conflict with the administration by the state of its own affairs." (See Defs.' Mem.Supp.Summ.J. at 29-31, file entry no. 186; Defs.' Reply Mem. at 28-33, file entry no. 214; Defs.' 2d Suppl.Mem. at 11 n. 2, file entry no. 245.) As additional support for their abstention argument, defendants cite Brandenburg v. Seidel, 859 F.2d 1179 (4th Cir.1988) in which the Fourth Circuit upheld, on the basis of the Burford doctrine, a district court's decision to abstain from considering federal RICO and pendent state claims against state financial institutions.

Noting that the Maryland legislature had set up a comprehensive system to rehabilitate and liquidate the ailing savings and loans, the Fourth Circuit stated that the liquidation process would be greatly impeded if more than one decision-making authority was involved. Brandenburg v. Seidel, 859 F.2d at 1191. In the court's view, the federal proceedings would disrupt the state effort to provide a unified method for liquidation by interfering with the receiver's efforts to marshal assets and by undermining previous orders of the state receivership court. Id. at 1191-92. See also Tafflin v. Levitt, 865 F.2d 595, 599-600 (4th Cir.1989) (upholding a similar abstention decision), aff'd as to unrelated issue, 493 U.S. 455, 110 S.Ct. 792, 107 L.Ed.2d 887 (1990).

According to defendants, Utah has set up a system for resolving the thrift crisis substantially similar to Maryland's. Based on the Brandenburg decision and the Burford doctrine, defendants argue that this court should also abstain from hearing plaintiffs' claims in this case.

Federal courts have an obligation to adjudicate claims within their jurisdiction. New Orleans Pub. Serv., Inc. v. Council of City of New Orleans (NOPSI), 491 U.S. 350, 356-60, 109 S.Ct. 2506, 2512-13, 105 L.Ed.2d 298 (1989); Deakins v. Monaghan, 484 U.S. 193, 203, 108 S.Ct. 523, 530, 98 L.Ed.2d 529 (1988); Cohens v. Virginia, 19 U.S. (6 Wheat) 264, 404, 5 L.Ed. 257 (1821). Although abstention is permissible in some cases, it remains the exception, not the rule. NOPSI, 491 U.S. at 358, 109 S.Ct. at 2513; Hawaii Hous. Auth. v. Midkiff, 467 U.S. 229, 236, 104 S.Ct. 2321, 2326, 81 L.Ed.2d 186 (1984); Colorado River Water Conserv. Dist. v. United States, 424 U.S. 800, 813, 96 S.Ct. 1236, 1244, 47 L.Ed.2d 483 (1976).

In Burford v. Sun Oil Co., a federal district court was faced with a due process challenge to the validity of an order by the Texas Railroad Commission granting a permit to drill four oil wells. Burford, 319 U.S. at 316-17, 63 S.Ct. at 1099. Although the constitutional question was of minimal federal importance, the case required the court to determine whether the Commission had properly applied Texas's complex oil and gas regulations. Id. at 331 & n. 28, 63 S.Ct. at 1106 & n. 28.

In addition to conserving an important natural resource, uniform regulation of the oil fields was very important to the Texas economy. Id. at 320, 63 S.Ct. at 1100. Because of the importance and complexity of the Texas regulatory scheme, and to prevent the confusion caused by multiple review of the same general issues, the Texas legislature had provided for centralized judicial review of the Commission's decisions in the state courts of Travis County. As a result, the Travis County courts had developed a certain expertise in dealing with problems of oil and gas regulation. Id. at 325-27, 63 S.Ct. at 1103-04. Because federal district courts were relatively unsophisticated in these matters, federal review of the Commission's decisions had resulted in confusion, delay, misunderstanding of state law, and needless conflict with state policy. Id. at 327, 63 S.Ct. at 1104. Noting that intervention by lower federal courts was almost certain to result in conflicts in the interpretation of state law which would be dangerous to the success of state policies, the Supreme Court concluded that abstention was appropriate. Id. at 334, 63 S.Ct. at 1107.

In NOPSI, decided shortly after Brandenburg and Tafflin, the Supreme Court attempted to clarify the Burford doctrine:

Where timely and adequate state court review is available, a federal court sitting in equity must decline to interfere with the proceedings or orders of state administrative agencies: (1) when there are
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3 books & journal articles
  • Securities fraud.
    • United States
    • American Criminal Law Review Vol. 42 No. 2, March 2005
    • March 22, 2005
    ...akin to federal regulations in Marine Bank do not remove an instrument from the definition of a security); Bradford v. Moench, 809 F. Supp. 1473, 1483-84 (D. Utah 1992) (following Holloway to determine that thrift certificates and passbook accounts are securities under federal securities (1......
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    • United States
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    • March 22, 2007
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    • March 22, 2009
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