Davidson v. Wilson
| Decision Date | 26 August 1992 |
| Docket Number | No. 91-2136,91-2136 |
| Citation | 973 F.2d 1391 |
| Parties | Fed. Sec. L. Rep. P 96,979 Robert L. DAVIDSON; Guenther R. Roth, Appellants, v. Thomas C. WILSON; Winthrop Securities Co., Inc.; Winthrop Financial Associates, a limited partnership, a Maryland limited partnership, Appellees. |
| Court | U.S. Court of Appeals — Eighth Circuit |
John LeFevre, Minneapolis, Minn., for appellants.
Rebecca Bender, Minneapolis, Minn., for appellees.
Before BEAM, Circuit Judge, LOKEN, Circuit Judge, and KAUFMAN, * Senior District Judge.
Appellants, Robert L. Davidson and Guenther R. Roth, commenced this action in May 1989, against appellees Thomas C. Wilson ("Wilson"), Winthrop Securities Company, Inc. ("Winthrop Securities") and Winthrop Financial Associates ("Winthrop Financial"), a limited partnership. Wilson acted as agent on behalf of Winthrop Securities. The latter, in turn, was owned by Winthrop Financial. Davidson and Roth claim they were wrongfully induced by appellees to invest in Wilcap Holding Limited Partnership ("Wilcap") by appellees' misrepresentations concerning allocations of tax losses, rates of return, and cash distributions available to the investor. The seven-count complaint included the following claims: violations of the Securities Exchange Act of 1934 and Rule 10b-5; violations of sections 17 and 12 of the Securities Act of 1933; violations of the securities laws of Minnesota and Massachusetts; RICO violations; common-law misrepresentation; and breaches of fiduciary duty.
Appellees filed a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure. However, because papers other than pleadings were filed in support of that motion, the district court treated that motion as one for summary judgment under Rule 56 and in an Opinion and Order dated March 6, 1990, 763 F.Supp. 1465, granted summary judgment in favor of appellees as to all of appellants' allegations except for those asserting common law misrepresentation and RICO violations. Subsequently, in an Opinion and Order dated April 10, 1991, the district court granted summary judgment with regard to the remaining claims of appellants. 763 F.Supp. 1470. In this appeal, appellants challenge the granting by the district court of summary judgment as to all of their claims other than those for breach of fiduciary duty and violations of RICO.
Wilcap was formed for the sole purpose of purchasing 1,000 units in another limited partnership known as Winthrop California Investors Limited Partnership (WCI), a limited partnership which owns real estate in California. Winthrop Financial, which, as indicated supra, owns Winthrop Securities, is the general partner of Wilcap. Limited partnership units in Wilcap were a separate syndication pursuant to which benefits arising from special allocations of cash distributions and tax losses by appellees were promised. Davidson and Roth each contend that Wilson fraudulently promised the special allocations of tax losses and the cash distributions in order to induce each of appellants to invest in the Wilcap partnership.
Davidson is a wealthy real estate development lawyer who is a partner in a Minneapolis law firm. He has been practicing law for approximately 35 years and is experienced in both investments and commercial law practice. Davidson initially became aware of the Wilcap investment opportunity when he was contacted by one of his former accountants--James Weichert--who had discussed the investment with Wilson. During a three-way telephone conversation on September 19, 1986, involving Weichert, Wilson, and Davidson, the latter states that Wilson informed him that a $105,000 investment in Wilcap made in September, 1986 would provide Davidson a 1986 tax loss of approximately $132,000 and annual cash flow distributions of $6,000 in 1986, and $7,000 in 1987, and, thereafter, cash flow distributions which would annually increase at the rate of 6% per year until the project's end in 1996. In addition, Davidson claims that Wilson told Weichert and himself during that discussion on the telephone that Davidson would receive a total of $200,000 in cash distributions over the ten-year life of the project and would realize $195,000 to $200,000 from the sale of the residual interest in the project.
In a subsequent three-way telephone conference among the same three persons on September 24, 1986, Davidson says that Wilson said that written confirmation of the special allocations under Wilcap could not yet be provided by him, Winthrop Financial or Winthrop Securities, and that Wilson also stated that if he (Wilson) did get new numbers, "he would have to rescind all sales and start over" and Wilson did not want to incur that expense. After Davidson requested written verification of new cash flow numbers, Wilson, according to Davidson, stated that the numbers were not yet available in writing but stated that Davidson would soon receive written confirmation of the "new numbers."
Davidson asserts that on September 24, 1986, Wilson also provided information about the underlying transaction--the WCI investment. According to Davidson, it was the latter information which led Davidson--who acknowledges he is experienced in real estate transactions--to conclude that Wilcap could deliver the promised benefits. Wilson, according to Davidson, informed the latter during the September 24, 1986 discussion that Wilson and his partners had purchased 1,000 units in WCI without even considering the tax ramifications. Wilson allegedly represented that an attractive feature of the Wilcap investment was that appellees could offer a combination of tax benefits and cash flows because they were specially allocated by the general partner of Wilcap--Winthrop Financial.
Davidson also alleges that in one or more of the above referred-to discussions, Wilson stressed the need for Davidson to act quickly because the special benefits would not be available if Davidson delayed beyond September. Davidson decided to purchase a unit in Wilcap immediately following the September 24, 1986 telephone conversation. Davidson then sent a personal check for $105,000 to Wilson at Winthrop Securities. Davidson alleges Winthrop Securities accepted Davidson's check without first obtaining from Davidson a signed Wilcap Subscription Agreement or a signed investor questionnaire. 1
Davidson was admitted to the Wilcap limited partnership on September 30, 1986. Davidson states that Winthrop sent to Davidson on November 5, 1986 only the single signature page of the Subscription Agreement which Davidson then executed on November 10, 1986. According to Davidson, the cover letter did not identify the document to which that signature page related. Nevertheless, Davidson simply signed and returned that single sheet.
Thereafter, in March 1987, Davidson states that he received his Schedule K-1, and, upon such receipt, he questioned, in a series of written and telephone inquiries, why he was not receiving the cash flow he had been promised. According to Davidson, Wilson stated that appellees had "screwed up" and that Wilson would "make book," i.e., make good, on the tax losses and cash flows.
Roth apparently was the former president of a large personal care products company which had been sold to the Gillette Company for $30 million in 1986. By the end of 1986, in order to shelter his income from that sale as well as from other sources, Roth had invested in over 100 tax shelters and was thoroughly familiar with standard documentation which accompanied the sale or transfer of such shelters. Like Davidson, Roth indicated on his investor questionnaire that he was a sophisticated investor and was not in need of a purchaser representative to assist him in weighing the risks and benefits. Roth had been a client of Wilson and of Winthrop Securities prior to investing in Wilcap. Jerald Shaw, acting as Roth's agent, had purchased several real estate investments from Wilson and, earlier in 1986, Roth had purchased a limited partnership in WCI--the underlying transaction for Wilcap. Later in 1986, Roth says that Wilson proposed to Shaw that Roth make the Wilcap investment; and that at a meeting with Shaw and Weichert--Davidson's former accountant, who had been involved in Davidson's investment in Wilcap--Wilson represented to Shaw that an investment in Wilcap would provide a 3 to 1 tax write-off in 1986 and an 8% annual cash flow on the total investment.
In response to questions from Shaw and Weichert, Shaw states that Wilson said that written financial information was not available but would be forthcoming in the future; and that during the meeting, Wilson gave Shaw a single sheet entitled "Winthrop Holding Limited Partnership," but that the typewritten information on the sheet did not describe Wilcap although the handwritten notations on that sheet reflected cash flows available to a Wilcap investor.
At Wilson's invitation, Shaw says that he and another person traveled to California to view the WCI investment; and that while viewing the investment, Wilson again told Shaw, in the presence of that third person, that Roth would obtain a 3 to 1 tax write-off for 1986 as well as an 8% return on investment generated from the net cash flows of the project. In response to questions from the said third person, Shaw states that Wilson reiterated Wilson's assurance that the benefits would be as promised and that the benefits would be delivered through special allocations by appellees to the Wilcap investors.
In a subsequent telephone conversation, Shaw alleges that Wilson advised Shaw that Roth had to act quickly because the promised benefits soon would be unavailable. On Shaw's recommendation and in reliance upon Wilson's statements, Roth asserts that he accepted Wilson's offer and purchased five units in Wilcap for a total price of...
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