Continental Grain (Australia) Pty. Ltd. v. Pacific Oilseeds, Inc., No. 78-1418

CourtUnited States Courts of Appeals. United States Court of Appeals (8th Circuit)
Writing for the CourtBefore LAY, ROSS and McMILLIAN; McMILLIAN
PartiesFed. Sec. L. Rep. P 96,767 CONTINENTAL GRAIN (AUSTRALIA) PTY. LTD., Appellant, v. PACIFIC OILSEEDS, INC. and Carl Ernest Claassen, Appellees, and Northrup, King & Co.
Decision Date28 February 1979
Docket NumberNo. 78-1418

Page 409

592 F.2d 409
Fed. Sec. L. Rep. P 96,767
CONTINENTAL GRAIN (AUSTRALIA) PTY. LTD., Appellant,
v.
PACIFIC OILSEEDS, INC. and Carl Ernest Claassen, Appellees,
and
Northrup, King & Co.
No. 78-1418.
United States Court of Appeals,
Eighth Circuit.
Submitted Oct. 19, 1978.
Decided Feb. 6, 1979.
Rehearing and Rehearing En Banc Denied Feb. 28, 1979.

Page 410

Michael A. Berens, Oppenheimer, Wolff, Foster, Shepard & Donnelly, Minneapolis, Minn. (argued), David Strain and Robert K. Schiebelhut, Lillick, McHose & Charles, San Francisco, Cal., on brief, for appellant.

Lawrence C. Brown, Faegre & Benson, Minneapolis, Minn. (argued), John D. Shively, Minneapolis, Minn., John P. Macmeeken, Chickering & Gregory, San Francisco, Cal., on brief, for appellees.

Before LAY, ROSS and McMILLIAN, Circuit Judges.

McMILLIAN, Circuit Judge.

Continental Grain (Australia) Pty. Ltd. (hereinafter referred to as Continental) appeals from an order entered by the District Court for the District of Minnesota granting the motion of defendants Pacific Oilseeds, Inc. (hereinafter POI) and Carl Ernest Claassen (hereinafter Claassen) to dismiss Continental's complaint alleging violation of federal securities laws, common law fraud and breach of contract. Because parties on both sides of the motion referred the district court to affidavits, depositions and other matters outside the pleadings, the district court treated the motion as one for summary judgment, pursuant to Fed. Rules of Civil Proc. Rule 12(c). The question presented is squarely jurisdictional: did the district court err in dismissing the complaint for lack of subject matter jurisdiction?

Page 411

For the reasons discussed below, we conclude the district court did have subject matter jurisdiction and therefore reverse and remand the case for further action not inconsistent with this opinion.

The facts are not in dispute; the parties do, however, disagree sharply over the jurisdictional significance of those facts. In any case, we accept as true the allegations of the complaint for the purpose of appeal. E. g., Fargo Partners v. Dain Corp., 540 F.2d 912, 914 (8th Cir. 1976).

Continental purchased all of the stock of Pacific Seeds (Australia) Pty. Ltd. (hereinafter PacSeeds), an Australian corporation, from three vendors. The three vendors were Australian Chemical Holdings, Ltd. (hereinafter Australian Chemical), an Australian corporation and owner of 51% Of the stock of PacSeeds; defendant POI, a California corporation and owner of 48% Of the stock of PacSeeds; and defendant Claassen, a California resident, president of POI and owner of 1% Of the stock of PacSeeds. Continental is an Australian corporation, a wholly-owned subsidiary of Continental Grain Corp., a Delaware corporation. Any financial loss suffered by Continental (Australia) would be reflected in the accounts of the parent Continental Grain Corp. because, under Continental Grain Corp.'s accounting principles, the financial transactions of the two corporations are consolidated.

At the time of the stock purchase in August, 1974, PacSeeds was a party to a ten-year license agreement with Northrup, King & Co. (hereinafter Northrup, King), a Minnesota corporation, under which Northrup, King supplied PacSeeds with hybrid sorghum parental materials or seedstock. Apparently this license agreement, or at least the continued availability of hybrid seedstock, constituted the primary asset of PacSeeds.

Sometime before May 7, 1974, Continental investigated PacSeeds as a possible acquisition and obtained a copy of the Northrup, King-PacSeeds license agreement. On May 7, Continental submitted a written proposal to purchase PacSeeds to Peter Leech, a resident of Australia and managing director of Australian Chemical, who acted as an agent for the three vendors in negotiating the sale. Neither Claassen nor any other representative of POI had any Direct contact with Continental. Part of the proposal to purchase specified the termination of the license agreement and the vendors' guarantee that PacSeeds would enjoy continued use of the hybrid seedstock. Leech forwarded the proposal by mail to Claassen in California with the observation that in his (Leech's) opinion PacSeeds would be able to continue to use the hybrid seedstock already in its possession without restriction after the termination of the license agreement.

Claassen, however, was already aware that Northrup, King did not share this opinion and intended to reclaim any hybrid seedstock in the possession of PacSeeds upon termination of the license agreement. On May 14, 1974, Claassen called Allenby White of Northrup, King to tell him there was a prospective buyer of PacSeeds and added that "it would be wrong" for Northrup, King to "spoil the deal" with Continental by telling Continental of Northrup, King's intention to reclaim the seedstock upon termination of the license agreement.

On May 15 or 16, Claassen, Leech and Michael Cole, corporate counsel for PVO International, Inc., discussed the Continental proposal in a transpacific telephone call. PVO International, Inc., a California corporation, is the parent corporation of POI. At this time Claassen, Leech, Cole and other corporate representatives of POI knew that Northrup, King intended to reclaim the hybrid seedstock then in the possession of PacSeeds upon termination of the license agreement. On May 17, Cole wrote to Leech, referring to Northrup, King's intention to reclaim the seedstock, and indicated PacSeeds was unwilling to make any representations or warranties about the license agreement or the continued use of the seedstock.

In early June, Continental sought legal advice from an Australian and a New York law firm; both firms were of the opinion that the seedstock would be available

Page 412

to PacSeeds after the termination of the license agreement. 1

On June 14, 1974, Claassen again wrote to Leech, emphasizing that any difficulties with the license agreement should be considered Continental's and not PacSeeds'. On June 17, 1974, Allenby White sent Claassen a formal termination letter, notifying him that the license agreement was nontransferable and that Northrup, King did not intend to renew the license agreement after its expiration on October 27, 1974. This letter also stated that PacSeeds could not use the seedstock then in its possession to produce commercial seeds or give away, sell or dispose of this seedstock in any way. On June 20, 1974, Claassen wrote Leech again, confirming that Northrup, King intended to reclaim the seedstock and directing Leech not to "spoil the deal" by informing Continental of this development. 2

At no time during the negotiations did any representative of POI, PacSeeds or Northrup, King directly communicate with Continental with regard to Northrup, King's intention to reclaim the hybrid seedstock. To the extent it is possible to ascribe an origin to the failure to disclose, the district court found it had been conceived in and directed from the United States. This "scheme of nondisclosure" about the status of the license agreement is the heart of Continental's allegation of securities fraud.

The contract for the sale of PacSeeds to Continental was executed by POI and Claassen in California. James Dawe, the corporate secretary of POI, then personally delivered the sales contract in Australia and attended the closing in Sydney, Australia on August 9, 1974. The closing was intentionally held outside the United States for

Page 413

tax reasons. The PacSeeds stock certificates were delivered at the closing, at which time Continental made the initial payment of the purchase price in Australian dollars. Dawe converted the payment to U.S. dollars and wired it to California. The balance of the purchase price was paid in November, 1974, after a post-closing audit and was also wired to California.

The license agreement expired in October, 1974, and was not renewed. Northrup, King subsequently asserted in a related proceeding that it is entitled to possession of the hybrid seedstock. See note 2 Supra.

Continental in Count I 3 of its complaint alleged POI and Claassen violated § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. Count II alleged that certain warranty language in the sales contract executed August 9, 1974, constituted material misrepresentations in violation of § 10b and Rule 10b-5. Counts III and IV alleged common law fraud and breach of contract.

The district court dismissed the action for lack of subject matter jurisdiction and personal jurisdiction as against POI and Claassen. This appeal followed.

Subject Matter Jurisdiction

Simply stated, the issue presented is whether the district court erred in dismissing Continental's complaint for lack of subject matter jurisdiction. The district court specifically found that POI and Claassen had engaged in no actionable conduct within the United States sufficient to enable the district court to exercise jurisdiction under § 10(b) and that the alleged effect (the decreased value of PacSeeds stock as reflected in the financial records of Continental's parent corporation, Continental Grain Corp.) was too remote to confer jurisdiction under § 10(b). For reversal Continental argues that defendants' conduct, the effect of that conduct in the United States and the nationality of defendants, whether considered separately or taken together, support a finding of subject matter jurisdiction.

The scope of federal jurisdiction under the federal securities laws as applied to international or transnational transactions has been the subject of much recent litigation, See cases cited in United States v. Cook, 573 F.2d 281, 283 (5th Cir. 1978), and discussion in law review articles. 4 In particular, Judge Friendly of the Second Circuit, "the Mother Court" of securities law, See Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 762, 95 S.Ct....

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37 practice notes
  • Pioneer Properties, Inc. v. Martin, No. 81-1137.
    • United States
    • United States District Courts. 10th Circuit. United States District Courts. 10th Circuit. District of Kansas
    • March 3, 1983
    ...of defendant's conduct within this country and involvement with the forum. See, e.g., Continental Grain, Etc. v. Pacific Oil Seeds, Inc., 592 F.2d 409 (8th Cir.1979); Travis v. Anthes Imperial Ltd., 473 F.2d 515 (8th Cir.1973); Securities and Exchange Commission v. Myers, 285 F.Supp. 743 (D......
  • Morrison v. Nat'l Austl. Bank Ltd., No. 08–1191.
    • United States
    • United States Supreme Court
    • June 24, 2010
    ...CP Ships Ltd. Securities Litigation, 578 F.3d 1306, 1313 (C.A.11 2009); Continental Grain (Australia) Pty. Ltd. v. Pacific Oilseeds, Inc., 592 F.2d 409, 421 (C.A.8 1979). But to ask what conduct § 10(b) reaches is to ask what conduct § 10(b) prohibits, which is a merits question. Subject-ma......
  • Stern v. Merrill Lynch, Pierce, Fenner & Smith, Inc., No. 78-1377
    • United States
    • United States Courts of Appeals. United States Court of Appeals (4th Circuit)
    • July 16, 1979
    ...of New York v. Bartos (S.D.N.Y.1975) 404 F.Supp. 304, 315; See, also, Continental Grain, Etc. v. Pacific Oilseeds, Inc. (8th Cir. 1979) 592 F.2d 409, 412, n. 1. 14 In fact, it was argued in the first Pearlstein appeal, without apparent contradiction, that brokers had only been held liable t......
  • In re Banco Santander Sec.-Optimal Litig.., Case Nos. 09-MD-02073-CIV
    • United States
    • United States District Courts. 11th Circuit. United States District Courts. 11th Circuit. Southern District of Florida
    • July 30, 2010
    ...v. Sternberg, 149 F.3d 659, 667 (7th Cir.1998) with 732 F.Supp.2d 1317Continental Grain (Australia) Pty., Ltd. v. Pacific Oilseeds, Inc., 592 F.2d 409, 421 (8th Cir.1979). The D.C. Circuit reluctantly adopted the Second Circuit's approach after expressing concern that the securities act was......
  • Request a trial to view additional results
37 cases
  • Pioneer Properties, Inc. v. Martin, No. 81-1137.
    • United States
    • United States District Courts. 10th Circuit. United States District Courts. 10th Circuit. District of Kansas
    • March 3, 1983
    ...of defendant's conduct within this country and involvement with the forum. See, e.g., Continental Grain, Etc. v. Pacific Oil Seeds, Inc., 592 F.2d 409 (8th Cir.1979); Travis v. Anthes Imperial Ltd., 473 F.2d 515 (8th Cir.1973); Securities and Exchange Commission v. Myers, 285 F.Supp. 743 (D......
  • Morrison v. Nat'l Austl. Bank Ltd., No. 08–1191.
    • United States
    • United States Supreme Court
    • June 24, 2010
    ...CP Ships Ltd. Securities Litigation, 578 F.3d 1306, 1313 (C.A.11 2009); Continental Grain (Australia) Pty. Ltd. v. Pacific Oilseeds, Inc., 592 F.2d 409, 421 (C.A.8 1979). But to ask what conduct § 10(b) reaches is to ask what conduct § 10(b) prohibits, which is a merits question. Subject-ma......
  • Stern v. Merrill Lynch, Pierce, Fenner & Smith, Inc., No. 78-1377
    • United States
    • United States Courts of Appeals. United States Court of Appeals (4th Circuit)
    • July 16, 1979
    ...of New York v. Bartos (S.D.N.Y.1975) 404 F.Supp. 304, 315; See, also, Continental Grain, Etc. v. Pacific Oilseeds, Inc. (8th Cir. 1979) 592 F.2d 409, 412, n. 1. 14 In fact, it was argued in the first Pearlstein appeal, without apparent contradiction, that brokers had only been held liable t......
  • In re Banco Santander Sec.-Optimal Litig.., Case Nos. 09-MD-02073-CIV
    • United States
    • United States District Courts. 11th Circuit. United States District Courts. 11th Circuit. Southern District of Florida
    • July 30, 2010
    ...v. Sternberg, 149 F.3d 659, 667 (7th Cir.1998) with 732 F.Supp.2d 1317Continental Grain (Australia) Pty., Ltd. v. Pacific Oilseeds, Inc., 592 F.2d 409, 421 (8th Cir.1979). The D.C. Circuit reluctantly adopted the Second Circuit's approach after expressing concern that the securities act was......
  • Request a trial to view additional results

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