Flannery v. Carroll

• Decision Date: 17 May 1982
• Docket Number: No. 81-1124,81-1124
• Citation: 676 F.2d 126
• Parties: Blue Sky L. Rep. P 71,737 Horace FLANNERY, et al., Plaintiffs-Appellants, v. Art CARROLL, d/b/a Hemisphere Petroleum and Ben Schultz, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 126

676 F.2d 126

Blue Sky L. Rep. P 71,737

Horace FLANNERY, et al., Plaintiffs-Appellants, v. Art CARROLL, d/b/a Hemisphere Petroleum and Ben Schultz Defendants-Appellees.

No. 81-1124.

United States Court of Appeals Fifth Circuit.

May 17, 1982.

Strother, Davis & Hill, Roger J. Allen, Gerald R. Velarde, Dallas, Tex., for plaintiffs-appellants.

John E. Collins, Bonnie Wulff, Irving, Tex., for defendants-appellees.

Appeal from the United States District Court for the Northern District of Texas.

Before DYER ^*, SAM D. JOHNSON, and WILLIAMS, Circuit Judges.

JERRE S. WILLIAMS, Circuit Judge:

This action arises out of the defendant's sale to plaintiffs of a fractional undivided working interest in an oil and gas lease. Plaintiffs alleged that defendant made untrue statements or omitted material facts concerning the interest to induce them to make the purchase in violation of the Securities Act of 1933, 15 U.S.C. § 77l(2); the Texas Securities Act, Tex.Rev.Civ.Stat.Ann. art. 581-33; and Ohio securities laws, Ohio Rev.Code Ann. §§ 1707.41 and 1707.43. Plaintiffs also alleged claims of common Plaintiffs submitted a pre-trial order which was adopted by the court. The order stated that jurisdiction was based upon § 12(2) of the Securities Act of 1933 but it did not mention the jurisdictional basis of the state law claims. Plaintiffs' contested issues of fact concerned whether defendant misrepresented or omitted material facts and whether defendant had breached a fiduciary duty owed plaintiffs. They presented as contested issues of law whether certain statutory prerequisites were met so that the claims would be within the federal Securities Act and whether the court lacked jurisdiction over the state law claims. In their Summary of Claims, plaintiffs stated that the action was brought under 15 U.S.C. § 77l(2); they cited neither the Texas nor the Ohio Act as additional or alternative grounds for suit. The Summary of Defendant's Claims included lack of jurisdiction over the state law claims and unconstitutional application of the Texas Securities Act. This was the only reference to the Texas Securities Act in the order. The issue of the federal act's one year statute of limitations was also raised, but Texas' three year period was not. Bound by this order, the parties proceeded to trial before a jury.

law negligence. Defendant denied its liability and raised various counterclaims. ¹

Before submitting the case to the jury, the court conferred with counsel concerning the instructions and special interrogatories to be submitted to the jury and asked plaintiffs' counsel which theory he would prefer to rely upon in going to the jury since he had pleaded the negligence count in the alternative. Counsel stated that the case should be submitted under § 12(2) of the Securities Act of 1933. Again, as in the pre-trial order, plaintiffs' counsel did not raise the Texas Securities Act. The court then stated that it would frame the charge in terms of § 12(2) of the federal act since that was the only claim going to the jury. Plaintiffs' counsel agreed to this. His only objection to the court's proposed charge concerned the wording of the special interrogatory relating to the statute of limitations. He agreed that the time period was "obviously" one year as provided in the federal act but asked the judge to rephrase the question more clearly. Once this was accomplished, plaintiffs' counsel was satisfied with the charge. He did not seek to include interrogatories relating to the Texas act even though that act had a three year limitations period.

To establish a violation of the federal Securities Act, plaintiffs had to prove that the defendant, through the use of an instrumentality of interstate commerce, sold or offered to sell a security by means of a prospectus or oral communication. Further, the communication had to include an untrue statement or omission of material fact of which the plaintiffs had no knowledge, and the defendant did have knowledge or could have had knowledge. 15 U.S.C. 77l(2).

The jury was given four special interrogatories to answer. They found (1) that the defendant used an instrumentality of interstate commerce in selling the interest; (2) that the defendant made an untrue statement or omitted a material fact to plaintiffs and that the plaintiffs did not know of the untruth or omission; (3) that the defendant did know or could have known of the untruth or omission; and (4) that plaintiffs did discover or should have discovered the untruth or omission more than one year prior to the date they filed suit. Thus, although the jury answered all the substantive elements of the federal act favorably to plaintiffs, they also found that the act's one year statute of limitations had run.

Realizing that the federal claim was lost, plaintiffs filed a Motion for Judgment on the Verdict arguing that because all the substantive elements of the federal and Texas acts are the same ² and because the statute of limitations had not run on the In this appeal plaintiffs contend the court erred in denying their Motion for Judgment on the Verdict and that Fed.R.Civ.P. 54(c) compels a judgment in their favor. We hold that the district court was correct in denying plaintiffs' motion and in entering judgment for the defendant.

Texas claim as a matter of law, ³ the jury's answers entitled them to judgment under the Texas act. The court denied the motion because the elements of the two acts are not the same, the pre-trial order precluded consideration of the Texas act, and plaintiffs failed to request a jury instruction on the Texas act or object to the court's failure to submit such an instruction.

This case contains several procedural twists which must be unravelled to resolve the appeal. We begin with the filing of plaintiffs' Complaint and trace the procedural development of the case as it occurred, step by step, to determine whether plaintiffs were entitled to a favorable judgment on their claims arising under the Texas Securities Act.

Plaintiffs' original complaint, dated March 28, 1978, clearly alleged a violation of the Texas act and prayed for relief thereunder. Defendant responded by alleging that the court did not have jurisdiction over the claim, that venue was improper, that the statute was inapplicable, and that if applied to this transaction the statute would be unconstitutional. At this point in the proceeding, then, the Texas claim was very much alive.

Following discovery, plaintiffs' counsel prepared the pre-trial order described above. Defendants' counsel was unable to participate in the preparation of the order, so plaintiffs submitted their order on behalf of both parties. The order stated, in two separate places, that the suit was brought under the federal act. The only specific reference to the Texas act concerned defendant's contention that it would be unconstitutional if applied in this case. Lack of jurisdiction over the state law claims was also mentioned, but this could have referred to one or all of the Texas, Ohio, and common law negligence claims. When the district court construed the pre-trial order in connection with plaintiffs' Motion for Judgment on the Verdict, it concluded that the Texas claim was not preserved in the order and was therefore waived by plaintiffs. Plaintiffs contend that the claim survived the pre-trial order and that the court erred in ruling that it did not. We find the court was correct in concluding that the Texas claim was omitted from the order and that it was therefore waived.

The pre-trial order is an indispensable mechanism in the district court. Its purpose is to determine which of the claims pleaded will actually be tried. The claims, issues, and evidence are limited by the order and the course of the trial is thereby narrowed to expedite the proceeding. See Hodges v. United States, 597 F.2d 1014, 1017-18 (5th Cir. 1979). Once the order is entered, it controls the scope and course of the trial, Fed.R.Civ.P. 16. If a claim or issue is omitted from the order, it is waived. Ramada Development Co. v. Rauch, 644 F.2d 1097 (5th Cir. 1981); Hodges, 597 F.2d at 1017; Del Rio Distributing, Inc. v. Adolf Coors Co., 589 F.2d 176, 178 (5th Cir. 1979), cert. denied, 444 U.S. 840, 100 S.Ct. 80, 62 L.Ed.2d 52 (1979); Pacific Indemnity Co. v. Broward County, 465 F.2d 99, 103 (5th Cir. 1972); 6 C. Wright and A. Miller, Federal Practice and Procedure, § 1522 (1971).

Because of the importance of the pre-trial order in achieving efficacy and expeditiousness upon trial in the district court, appellate courts are hesitant to interfere with the court's discretion in creating, enforcing, and modifying such orders. Allen v. United States Steel Corp., 665 F.2d 689 (5th Cir. 1982); Hodges, 597 F.2d at 1018. District courts are encouraged to construe pre-trial orders narrowly without fear of reversal. Hodges, 597 F.2d at 1014. ⁴

Unless the court has abused its discretion, its rulings concerning the order will not be disturbed on appeal. Allen, 665 F.2d at 696; Hodges, 597 F.2d at 1017; Del Rio Distributing, 589 F.2d at 178. The court below construed the pre-trial order narrowly and concluded that the Texas claim was not contained therein despite the slight reference to it. Because we cannot say that the court abused its discretion in construing the order as it did, we uphold the conclusion that the Texas claim was omitted.

Although plaintiffs could have specifically included the Texas act in the pre-trial order, as they did include the federal act, they did not do so. The order included only one slight reference to the Texas act but contained repeated citations to and reliance upon the federal act. Plaintiffs omitted to mention the Texas act's three year statute of limitations which was clearly more favorable to them than the federal act's one year period. The absence of reference to this issue suggests that the Texas act was purposefully not mentioned in the order.

The...