Franke v. Midwestern Okl. Development Authority, CIV-76-172-B.

• Decision Date: 08 October 1976
• Docket Number: No. CIV-76-172-B.,CIV-76-172-B.
• Citation: 428 F. Supp. 719
• Parties: Fred. A. W. FRANKE, on his own behalf and on behalf of all other persons similarly situated, Plaintiff, v. MIDWESTERN OKLAHOMA DEVELOPMENT AUTHORITY et al., Defendants.
• Court: U.S. District Court — Western District of Oklahoma

428 F. Supp. 719

Fred. A. W. FRANKE, on his own behalf and on behalf of all other persons similarly situated, Plaintiff, v. MIDWESTERN OKLAHOMA DEVELOPMENT AUTHORITY et al., Defendants.

No. CIV-76-172-B.

United States District Court, W. D. Oklahoma.

October 8, 1976.

COPYRIGHT MATERIAL OMITTED

Roger J. Nichols and Mason H. Rose, Los Angeles, Cal., J. Michael Rediker, Birmingham, Ala., Robert A. Jackson, Oklahoma City, Okl., for plaintiff.

Reford Bond and Reid E. Robison of McAfee, Taft, Mark, Bond, Rucks & Woodruff, A Professional Corp., Oklahoma City, Okl., for defendants Smith, Leaming & Swan, Hal D. Leaming and Roger H. Swan.

MEMORANDUM OPINION AND ORDER

BOHANON, District Judge.

This matter is before the Court on Motion for Summary Judgment filed on behalf of Smith, Leaming & Swan, a partnership, and its partners, Hal D. Leaming ("Leaming") and Roger H. Swan (these defendants are hereinafter referred to collectively as "Smith, Leaming"). The Court feels prompted to stress that both the law and the manifest requirements of fairness resolve this suit in favor of Smith, Leaming and require the granting of summary judgment in their favor. Considering all of the pleadings and affidavits, and every inference therefrom, in the light most favorable to plaintiff, the Court concludes that there is neither any evidence in support of such claims nor any evidence from which the Court could reasonably infer any wrongdoing on the part of Smith, Leaming.

Rule 8 of the Federal Rules of Civil Procedure requires that a Complaint provide "a short and plain statement of the claim showing that the pleader is entitled to relief . .." and such Complaint may be dismissed without leave to amend when it is "so verbose, confused and redundant that its true substance, if any, is well disguised." Corcoran v. Yorty, 347 F.2d 222 at 223 (9th Cir. 1965); National Indian Youth Council v. Morton, 363 F.Supp. 475 at 479 (W.D.Okl.1973). Especially as to defendants Smith, Leaming, plaintiff's 19-page Complaint is indecisive and unduly vague, and thus susceptible to being dismissed as a matter of law. More importantly, however, the defendants are entitled to summary judgment based on a careful examination of the merits of plaintiff's claim.

The record clearly establishes that Smith, Leaming were retained to serve solely as bond counsel. It was incumbent upon them to advise as to the bond sales legality and to verify the tax exempt status of interest payments accruing to the bondholders. As bond counsel they could not be expected to warrant the over-all economic soundness of the issue; such a fiducial role and responsibility was not attributable to them. Bond counsel standards generally contemplate no such function or ability, and the Smith, Leaming terms of employment, including the amount of their fee, $6,500.00, expressly preclude the possibility that such was the intent of the parties. There is no intimation in this entire record that the legal services contracted for and rendered were in anyway faulty or deficient; and it would be inappropriate for this Court to arbitrarily expand bond counsel liability beyond expressly understood limits and clearly beyond Smith, Leaming's acknowledged and professed area of expertise.

Plaintiffs rely heavily on SEC v. National Student Marketing Corp., 402 F.Supp. 641 (D.D.C.1975), a case clearly distinguishable from the one before this Court. In that case the Court determined that the defendant, a lawyer, backdated documents involving the sale of certain corporate assets and made fraudulent statements with an intent to mislead third parties into believing that the divesting of the assets had resulted in a profit to the corporation, when in fact a substantial loss had been incurred. Emphasizing that the lawyer was guilty of issuing a false and misleading opinion letter that was integral to the perpetration of the alleged fraud, the Court concluded that more than a marginal involvement and limited knowledge on the part of the attorney was involved and denied the defendant's motion for summary judgment. As to defendants Smith, Leaming, no comparable issues or factual questions are raised by a careful and attentive reading of the entire record before the Court.

The plaintiff's action as stated in his Complaint and as further stated by his counsel in argument on this Motion is one for damages allegedly arising from plaintiff's investment in bonds issued on or about July 25, 1973, as part of the Midwestern Oklahoma Development Authority Industrial Revenue Bonds, Chill Can Manufacturing, Inc. Series 1973 ("Chill Can Bonds"). Midwestern Oklahoma Development Authority ("MODA") is a development authority or trust organized under the laws of the State of Oklahoma. According to plaintiff's allegations, the net proceeds of the offering of the Chill Can Bonds were to be utilized by Chill Can Manufacturing, Inc. to manufacture a self-cooling recyclable beverage can at the Clinton-Sherman Industrial Airpark near Clinton, Oklahoma. Plaintiff, asserting various causes of action in his Complaint, denies that any misrepresentations were made to him to induce his purchase of the Chill Can Bonds. Plaintiff alleges rather that certain information set forth in his Complaint was omitted from the information which he received, and that as a result he has been damaged.

Smith, Leaming served as one of three "bond counsel" in connection with the bond issue and prepared a "legality opinion."

Plaintiff alleges that Smith, Leaming and other defendants herein knew of the following factors but concealed them from plaintiff: (1) That MODA had no adequate screening process to determine whether Chill Can Manufacturing, Inc. would earn sufficient revenues to pay bond interest premiums; (2) that MODA's experience with industrial revenue bonds such as Chill Can Bonds ". . . was that most issues ended up in default;" (3) that Chill Can Manufacturing, Inc. would be undercapitalized after receipt of the bond funds and because of such undercapitalization the Chill Can Bonds would likely default; (4) that Chill Can Manufacturing, Inc. would have a high risk of failure because it was a single product company; (5) that no production model of the Chill Can had ever been produced even though patent rights had been held by other defendants since August 19, 1969; (6) that the Chill Can would be manufactured at Clinton-Sherman Airpark which is located in a remote section of Oklahoma which has no skilled or adequate labor force; (7) that the bond proceeds would be used by defendants for their own benefits; (8) that the underwriting discount was excessive and would indicate to the average buyer that the Chill Can Bonds were a highly risky and speculative security; and (9) that the indenture trustee was unfamiliar with and was unskilled in the duties of a trustee bank and would breach its fiduciary duties to the bond holders.

In its Answer, Smith, Leaming has denied all allegations of wrongdoing and further has denied any knowledge of the omissions complained of by plaintiff in his Complaint.

The record in this case includes the following:

1. Two affidavits of Leaming (one of which has attached as an exhibit a copy of the "legality opinion");

2. An affidavit of Roger H. Swan;

3. Affidavits of Roger J. Nichols, J. Michael Rediker and Leonard Siegel (all of whom are counsel for plaintiff) together with attached exhibits;

4. The deposition of Fred A. W. Franke, plaintiff, taken in Oklahoma City, Oklahoma, May 8, 1976, with attached exhibits;

5. The affidavit of Harold W. Scott (another defendant herein) with an attached copy of the offering statement relating to Chill Can Bonds;

6. Statements of counsel made in the August 12, 1976, hearing on the instant Motion for Summary Judgment;

7. Letter of April 27, 1976, from Roger J. Nichols, counsel for plaintiff, acknowledging receipt of the relevant documents of Smith, Leaming sent to counsel for plaintiff by defense counsel.

Appropriateness of Summary Judgment

Summary judgment cannot serve as a substitute for the trial of cases and does not require the parties to dispose of litigation by the use of affidavits. Harman v. Diversified Medical Investments Corporation, 488 F.2d 111 (10th Cir. 1973). However, the function of Rule 56 of the Federal Rules of Civil Procedure is to test whether there are disputed issues of fact to be tried, and conclusory allegations do not create an issue of fact. Bumgarner v. Joe Brown Company, 376 F.2d 749 (10th Cir. 1967). As stated by the United States Supreme Court in Blue Chip Stamps v. Manor Drugstores, 421 U.S. 723, 739, 740, 95 S.Ct. 1917, 1927, 44 L.Ed.2d 539 (1975):

"There has been widespread recognition that litigation under Rule 10b-5 presents a danger of vexatiousness different in degree and in kind from that which accompanies litigation in general. . .

. . . . .

The first of these concerns is that in the field of federal securities laws governing disclosure of information even a complaint which by objective standards may have very little chance of success at trial has a settlement value to the plaintiff out of any proportion to its prospect of success at trial so long as he may prevent the suit from being resolved against him by dismissal or summary judgment." (Emphasis added by this Court)

Therefore, this Court must disregard unsupported allegations, and unless there is a genuine issue as to any material fact in this case, summary judgment is appropriate. Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976); Thompson v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 401 F.Supp. 111 (W.D.Okl. 1975).

The affidavits submitted by plaintiff in opposition to Smith, Leaming's Motion for Summary Judgment are most unsatisfactory. The deposition of Mr. Franke reveals no evidence of wrongdoing by Smith, Leaming. No affidavit has been submitted by Mr. Franke himself and the affidavits submitted by three of his lawyers are inconsistent...