Briggs v. Sterner
| Decision Date | 29 December 1981 |
| Docket Number | Civ. No. 80-532-A. |
| Citation | 529 F. Supp. 1155 |
| Parties | Blaine BRIGGS, et al., Plaintiffs, v. Gerald O. STERNER, et al., Defendants. |
| Court | U.S. District Court — Southern District of Iowa |
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Richard A. Malm, Arthur F. Owens, John W. Blyth, Dickinson, Throckmorton, Parker, Mannheimer & Raife, Des Moines, Iowa, for plaintiffs.
Bruce E. Bergman, Des Moines, Iowa, for defendant Dick Wissink.
Ross H. Sidney and John Werner, Grefe & Sidney, Des Moines, Iowa, Joan Hall and Francis H. Krasnow, Jenner & Block, Chicago, Ill., for defendant Deloitte, Haskins & Sells.
R. Earl Barrett, Des Moines, Iowa, for defendant Gerald Sterner.
Terrance J. Good, St. Louis, Mo., Richard G. Langdon, Des Moines, Iowa, for defendant Sauerman.
Harold C. Hirshman, Gregory J. Wilson, Elizabeth LeBaron, Chicago, Ill., Lorraine May, Des Moines, Iowa, for defendant Miller, Gegner & Associates.
Donald L. Schild, Grinnell, Iowa, for defendant Van Wyk.
Thomas Zurek, Des Moines, Iowa, for defendants Cohn, Vogelaar and Van Wyk.
William B. Serangeli, Des Moines, Iowa, for defendants Prins and Clark.
John McClintock and William Scherle, Des Moines, Iowa, for defendants Watson & Watson.
David Phipps and Kenneth Biermacher, Des Moines, Iowa, Lawrence Wojcek, Chicago, Ill., for defendants Denman & Co. and Sather.
R. D. Bertell and Mitchell Bovee, Spencer, Iowa, for defendant Prins.
On July 16, 1981, the above-entitled matter came on for hearing before the Court pursuant to the following motions filed by plaintiffs and defendants: (1) plaintiffs' motion for separate trials, filed April 8, 1981; (2) motions to dismiss, or, in the alternative, for summary judgment, filed on May 28, 1981 by defendants Vernon Van Wyk, Victor E. Vogelaar, Robert M. Cohn, Richard Wissink, Deloitte, Haskins & Sells' and Conrad Prins and Howard K. Clark, respectively; (3) Deloitte, Haskins & Sells' motion to stay, filed May 28, 1981 and supplemented in a reply brief filed July 10, 1981, as well as Denman & Co. and Everett N. Sather's adoption of such motion in a statement filed August 29, 1981; (4) defendant Charles F. Sauerman's May 28, 1981 motion to dismiss. Alternatively, Sauerman moves for summary judgment in a supplement filed June 30, 1981; (5) separate motions to dismiss filed May 29, 1981 by defendants Kenneth R. Miller and Kenneth R. Miller, P.C. (formerly Miller, Gegner & Associates, P.C.), Denman & Co. and Everett N. Sather, and Phillip Watson and Watson, Swanson and Rubenstein, P.C. In a statement of fact filed June 30, 1981, defendants Watson and Watson, P.C. seek summary judgment on several of the grounds set forth in their initial motion.
Since the date of hearing, on September 23, 1981, the Court has issued an Order granting plaintiffs' motion for separate trials and imposing a conditional stay of proceedings with respect to Counts 10 through 21, inclusive, of the amended and substituted complaint in response to the joint request of Deloitte, Haskins and Sells, Denman & Co. and Everett N. Sather. As to the remaining motions, the Court, after careful consideration of relevant portions of the record, briefs and documentary evidence filed in this matter, and the oral arguments of counsel, and being otherwise fully advised in the premises, enters the following Order.
This is an action filed by plaintiff Blaine Briggs, individually and as trustee of plaintiffs Management Service, Inc., Employees Profit Sharing Trust (Management Service Trust) and Ivan V. Sedrel Trust (Sedrel Trust) against the officers, directors, attorneys and accountants of Iowa Premium Service Co., Inc. (IPSCO), asserting claims pursuant to Sections 12(1), 12(2) and 15 of the Securities Act of 1933, Sections 10(b) and 20 of the Securities Exchange Act of 1934 and Rule 10b-5, Sections 502.201, 502.401, 502.501 and 502.503 of the Iowa Uniform Securities Act and common law theories of attorney and accountant malpractice, fraud, negligent misrepresentation, negligent mismanagement and breach of fiduciary duty. All claims against the defendants arise out of the purchase by plaintiffs of interest-bearing promissory notes and variable rate convertible subordinated debentures issued by IPSCO in 1977, 1978 and 1980.
Plaintiff Blaine Briggs, a former resident of Iowa who now resides in California, is an experienced investor who, among his other business affiliations, is a member of the board of directors of Employees Mutual Casualty Co., which company engages in the business of financing casualty insurance premiums through a subsidiary. Mr. Briggs and his wife are the sole beneficiaries of Management Service Trust, a qualified retirement plan. The Sedrel Trust is a testamentary trust created by the will of Mr. Briggs' father-in-law. As sole trustee of both trusts, Mr. Briggs makes all investment decisions on their behalf.
Past and present officers and directors of, and counsel for IPSCO, which group includes Gerald O. Sterner (Sterner), the sole nonmoving defendant herein, Howard K. Clark (Clark), Phillip Watson (Watson), Watson, Swanson and Rubenstein, P.C. (Watson, P.C.), Conrad Prins (Prins), Vernon Van Wyk (Van Wyk), Robert M. Cohn (Cohn), Victor E. Vogelaar (Vogelaar) and Richard Wissink (Wissink) shall hereinafter be characterized as "management defendants". Those defendants who were retained by IPSCO to conduct audit examinations of the corporation's financial structure for fiscal years commencing in 1974, Denman and Co. (Denman), Everett N. Sather (Sather), Charles F. Sauerman (Sauerman), Deloitte, Haskins and Sells (Deloitte), Kenneth R. Miller (Miller) and Kenneth R. Miller, P.C. (Miller, P.C.) shall be referred to collectively as "accountant defendants".
The following facts are accepted as true for the purpose of ruling on the above pending motions. IPSCO is an Iowa corporation formed in 1973 by defendants Sterner, Wissink, Clark, Watson and Prins to engage in the business of loaning money to finance the payment of insurance premiums on casualty insurance policies, and was at all times licensed as an industrial loan company under Iowa law. Mr. Briggs first learned of IPSCO in 1973, when defendant Sterner approached him for the purpose of extending an offer for the sale of IPSCO common stock. While plaintiff Briggs expressed his lack of interest in the offer at that time, he subsequently had an opportunity to examine bank files concerning a loan to IPSCO by the First Federal State Bank in his dual capacity as a director and member of the loan committee of the bank. In addition, Mr. Briggs heard details of IPSCO's operations and apparent success from his friend and business associate in other unrelated ventures, defendant Howard Clark, who was a director of IPSCO.
In late 1976 or early 1977, Mr. Briggs became aware through Mr. Clark that IPSCO was issuing promissory notes bearing a relatively high rate of interest, and as a consequence sought further information from First Federal's loan file and other sources regarding IPSCO's investment potential. Mr. Briggs then contacted Mr. Sterner in order to discuss the offering of promissory notes and to obtain copies of the most recent audited financial statement, the 1976 statement compiled by Deloitte, as well as IPSCO's current monthly unaudited financial statement. After review thereof, in February of 1977, Mr. Briggs as trustee of the Management Service Trust purchased an interest-bearing promissory note with a face value of $50,000. All IPSCO notes purchased by Management Service Trust prior to 1980 have been repaid.
Later in 1977, Briggs in his role as trustee purchased an IPSCO subordinated convertible debenture in the principal amount of $100,000 for the Management Service Trust. A second $100,000 debenture was purchased by Briggs as Trustee of this trust on November 30, 1978. During the period extending from April 21, 1980 to July 2, 1980, Mr. Briggs intermittently loaned money to IPSCO, individually and on behalf of both trusts, in exchange for interest-bearing promissory notes. With the exception of the April 21 loan, which had a maturity date of July 28, 1980, all other obligations were payable upon demand. Each of the foregoing notes was part of an offering whereby notes were issued to a total of 49 investors.
A demand note purchased by Mr. Briggs as representative of the Management Service Trust on April 1, 1980 was surrendered and paid by IPSCO on July 1, 1980 with cash and yet another note issued on that date. The cash payment has since been relinquished in part by the plaintiff trust as a preference in IPSCO's bankruptcy proceeding, and reimbursement for principal and interest due on the July 1, 1980 note is sought by plaintiffs in this action.
Annual financial statements for the years 1974 through 1980 were prepared by the following accountants or accounting firms: (1) 1974 and 1975: Miller, P.C.; (2) 1976: Deloitte; (3) 1977 and 1978: Sauerman; and (4) 1979 and 1980: Denman and Sather. None of the certified statements compiled by the aforementioned accountants revealed the poor financial condition of IPSCO attributed by plaintiffs to the fraud perpetrated against the corporation by Daniel Stephenson, a Fort Dodge, Iowa insurance agent whose agency arranged fictitious premium loan transactions for IPSCO. Shortly after Mr. Briggs learned of the fraud in July of 1980, IPSCO filed a bankruptcy petition in the United States Bankruptcy Court for the Southern District of Iowa under Chapter 11 of the Bankruptcy Code.
In ruling upon a motion to dismiss for failure to state a claim, the Court must accept as true all well-pleaded allegations of the complaint and construe them in a light most favorable to the complainant. Hospital...
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