Crocker-Citizens Nat. Bank v. Control Metals Corp., CROCKER-CITIZENS
| Decision Date | 07 December 1977 |
| Docket Number | CROCKER-CITIZENS,Nos. 75-2140 and 75-2955,s. 75-2140 and 75-2955 |
| Citation | 566 F.2d 631 |
| Parties | Fed. Sec. L. Rep. P 96,291 NATIONAL BANK, a National Banking Association, Plaintiff-Appellant, v. CONTROL METALS CORPORATION, Wayne Dougherty, William C. Ogle, Pete Buffo, Nat Rosenberg, James E. Mack, James H. Fors and George S. Smith, Defendants-Appellees.NATIONAL BANK, a National Banking Association, Plaintiff, Counter-Defendant-Appellant, v. Wayne DOUGHERTY, Counter-Claimant Defendant-Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Robert H. Edwards (argued) of MacDonald, Halsted & Laybourne, Los Angeles, Cal., for plaintiff-appellant.
Lawrence P. Grassini, Hurley & Grassini (argued), North Hollywood, Cal., for defendants-appellees.
Appeal from the United States District Court for the Central District of California.
Before TUTTLE, * BARNES and WALLACE, Circuit Judges.
Crocker-Citizens National Bank (the bank) brought suit against Control Metals Corporation (Control Metals), Dougherty, Ogle, Buffo, Rosenberg, Mack, Fors and Smith, seeking damages based on alleged violations of Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 (10b-5) and common-law fraud. Dougherty filed a cross-claim against Control Metals, Ogle, Buffo, Mack, Rosenberg, Fors and Smith, and a counterclaim against the bank. The bank appeals from a judgment, entered subsequent to a jury's verdict, disallowing the bank's 10b-5 and fraud claims against Buffo, Mack, Ogle, and Dougherty. In addition, the bank appeals from a $20,000 judgment entered against it based upon Dougherty's counterclaim. We affirm in part and reverse in part.
On February 26, 1969, Control Metals issued to Fors, its vice president, 160,000 shares of its unregistered common stock. Although the certificates bore no restrictive legends, the stock was nontransferable. Sometime between the date the shares were issued and March 5, 1969, Rosenberg learned that Fors wished to sell the recently acquired securities. Rosenberg passed this information to Buffo. Buffo in turn told Ogle. Ogle expressed interest in the securities and told Buffo that Dougherty might be willing to finance the purchase.
Some days later, Buffo and Ogle met with Dougherty and discussed generally the possibility of purchasing the stock. A few days later, Rosenberg met with Ogle, Buffo and Dougherty and explained to them that Fors would be willing to sell 50,000 shares for $20,000 and that the stock was actually worth approximately $1.50 per share. Rosenberg subsequently gave one or two of the certificates to Buffo for his inspection. Dougherty took the loaned certificates to his broker to ascertain their salability. The broker informed Dougherty that the stock could be sold if Dougherty obtained a "third party release."
In March 1969, Dougherty spoke with Kasselman, assistant vice president of the bank and manager of one of its branches, concerning whether the bank was interested in selling the stock. Kasselman apparently requested proof that Dougherty was entitled to sell the stock.
On March 5, 1969, Buffo and Ogle went to the office of their attorney, Mack, and requested his opinion regarding the stock's salability. On March 6, Mack issued a written opinion which stated that the stock was readily transferable and thus could be sold with impunity. Mack's opinion was, of course, wholly inaccurate and was based, among other things, upon the erroneous "fact" that "the shares themselves are not carried on the books of the corporation nor on the record of the transfer agent with any restriction whatsoever . . . ."
On March 6, Ogle, Buffo and Dougherty delivered the $20,000 to Fors. Four days later, Dougherty delivered Mack's opinion letter to Kasselman and signed an order to sell 10,000 shares of the Control Metals stock for his (Dougherty's) account.
During or shortly after this meeting, Kasselman called the bank's investment department to determine if it had any record of the stock having been stolen. Kasselman was informed that the bank had no report of stolen Control Metals securities. Kasselman examined the stock and observed that Fors' endorsement was guaranteed by a Nevada bank. Kasselman telephoned the Nevada bank and verified the endorsement. Kasselman also read the Mack opinion letter of March 6.
On March 19, 1969, Control Metals issued 15,000 shares of its common stock to Smith, another of its vice presidents. These shares were also unregistered and were nontransferable. Some or all of these shares were eventually passed through Rosenberg and Ogle and were sold by the bank for Dougherty's account.
On March 27, Dougherty delivered to the bank two additional opinion letters signed by Mack. These letters made substantially the same representations as the original letter of March 6. One of these letters pertained to the 15,000 shares of Control Metals which Ogle had acquired from Smith. The other letter referred to 50,000 shares of Consolidated Industries which Ogle had acquired from Rosenberg. About April 9, 1969, Mack issued another opinion letter covering additional shares of Control Metals. This final letter was also delivered to Kasselman.
During the period between March 10 and May 1, 1969, the bank sold 145,000 shares of Control Metals and 50,000 shares of Consolidated Industries for Dougherty's account. Proceeds from these sales were divided among Rosenberg, Ogle, Buffo, Sinclair (not a party) and Dougherty. Mack received only his attorney's fees.
In the latter half of April 1969, the bank was informed by the transfer agents for Control Metals and Consolidated Industries that the shares were nontransferable. In May the bank brought a like number of shares in order to deliver valid shares to the purchasers of the stock. On May 14, 1969, the bank confiscated the cash balance in Dougherty's account which totaled $15,161.41. The total cost of covering the sales of Control Metals and Consolidated Industries stock was $230,587.50.
The bank brought 10b-5 and common law fraud claims against Control Metals, Dougherty, Ogle, Buffo, Mack, Fors, Rosenberg, and Smith. Dougherty counterclaimed against the bank, seeking judgment in the amount of $15,161.41 plus interest on the basis of conversion and negligent misrepresentation. Dougherty also cross-claimed against Control Metals, Ogle, Buffo, Mack, Rosenberg, Fors, and Smith, seeking indemnification against any judgment secured by the bank. Rosenberg defaulted; jurisdiction was not obtained over Fors and Smith.
The jury returned a verdict in favor of the bank against Control Metals but found no liability as to Dougherty, Buffo, Ogle and Mack. The verdict also awarded Dougherty $20,000 on his counterclaim against the bank. After denying the bank's motions for judgment N.O.V., the district judge entered judgment in favor of the bank against Control Metals only and against the bank in favor of Dougherty in the amount of $20,000.
The bank now contends that the jury's verdict disallowing its 10b-5 and fraud claims against Ogle, Buffo, Mack and Dougherty was not supported by the evidence and that the district court erred in not granting the bank's motion for judgment N.O.V. against these individuals. The bank further contends that the jury's verdict in favor of Dougherty's counterclaim was not supported by the evidence and that the district judge erred in not granting its motion for judgment N.O.V. We now discuss these contentions.
The bank requests that we reverse the judgment of the district court and enter judgment in its favor notwithstanding the verdict. While we have power to do so, Neely v. Martin K. Eby Construction Co., 386 U.S. 317, 322, 87 S.Ct. 1072, 18 L.Ed.2d 75 (1967), a judgment N.O.V. should not be granted unless "the evidence is such that without weighing the credibility of the witnesses there can be but one reasonable conclusion as to the verdict . . . ." Cockrum v. Whitney, 479 F.2d 84, 85 (9th Cir. 1973), quoting Brady v. Southern Ry., 320 U.S. 476, 479, 64 S.Ct. 232, 88 L.Ed. 239 (1943). As we stated in Cockrum :
Courts are not free to reweigh the evidence and set aside the jury verdict merely because the jury could have drawn different inferences or conclusions or because judges feel that other results are more reasonable.
Cockrum v. Whitney, supra, 479 F.2d at 86, quoting Tennant v. Peoria & P.U. Ry., 321 U.S. 29, 35, 64 S.Ct. 409, 88 L.Ed. 520 (1944). We might well have reached the opposite result had we tried the 10b-5 claim, but that is not the issue before us. We find that the jury's verdict reflects a reasonable construction of the evidence. 1
Section 10(b) of the 1934 Act makes it unlawful for one "(t)o use or employ, in connection with the purchase or sale of any security . . . any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors." 15 U.S.C. § 78j (1970).
Acting pursuant to this grant of rulemaking authority, the SEC promulgated Rule 10b-5, which provides:
in connection with the purchase or sale of any security.
After referring to this statute and rule, the district judge instructed the jury in light of White v. Abrams, 495 F.2d 724 (9th...
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