Hall v. Security Planning Services, Inc.

• Decision Date: 26 September 1978
• Docket Number: No. Civ. 72-393 Phx. WPC.,Civ. 72-393 Phx. WPC.
• Citation: 462 F. Supp. 1058
• Parties: Erma DeMarco HALL (formerly Erma Thompson DeMarco) on her own behalf and on behalf of all other purchasers of securities issued by Cochise College Park, Inc., Plaintiffs, v. SECURITY PLANNING SERVICES, INC., etc., et al., Defendants.
• Court: U.S. District Court — District of Arizona

462 F. Supp. 1058

Erma DeMarco HALL (formerly Erma Thompson DeMarco) on her own behalf and on behalf of all other purchasers of securities issued by Cochise College Park, Inc., Plaintiffs, v. SECURITY PLANNING SERVICES, INC., etc., et al., Defendants.

No. Civ. 72-393 Phx. WPC.

United States District Court, D. Arizona.

September 26, 1978.

Charles M. Duecy, of Duecy, Moore, Petsch, Robinson & Bennett, Scottsdale, Ariz., for plaintiffs.

A. Jerry Busby, of Debus, Busby & Green, Phoenix, Ariz., for defendants.

Dell Miller, in pro per.

JUDGMENT

COPPLE, District Judge.

This complex class litigation commenced on July 19, 1972. The file is immense. There are over 1500 documents; many are hundreds of pages long. Extensive and painstaking discovery has been made in accordance with the Court's pretrial orders. Partial but final judgments have heretofore been entered against several of the multiple Defendants in favor of Plaintiffs as a whole class and as sub-classes.

The instant Motions for Summary Judgment and other relief were filed and served on Defendants Marciano Rivera, Jr. (Rivera), his partner and associate Carl Tamuty (Tamuty) and their jointly owned business entity R & T Investment Co. (R & T) on January 5, 1977. A hearing on the Motions was set for February 29, 1977.

On January 19, 1977 an order was entered on stipulation of the parties granting Defendants Rivera, Tamuty and R & T an open extension of time within which to respond to Plaintiffs' Motions. The Stipulation and Order provided that either the Plaintiffs or Defendants would upon notice to the other parties petition to reschedule the hearings following the resolution of then pending criminal proceedings against Defendants Rivera and Tamuty in THE UNITED STATES OF AMERICA v. CURRAN, et al., Criminal Cause No. CR-76-323 PHX-WEC in this district after trial or upon dismissal as to the Defendants Rivera and Tamuty.

The criminal proceeding was initiated on indictment by a grand jury based on the mail fraud, securities fraud and other criminal acts arising out of the same nucleus of facts alleged in Plaintiffs' Complaint.

On May 10, 1978, Rivera and Tamuty were found guilty by a jury of nine counts of mail fraud within the District of Arizona for their participation in the execution of the scheme and artifice to defraud that is the operating nucleus of facts as alleged by the Complaint herein.

On May 26, 1978, Plaintiffs filed a Petition to Reschedule their Motions for Summary Judgment and other relief and on June 10, 1978, the Court issued the following Order:—

"1. That the Defendants RIVERA, TAMUTY and R & T INVESTMENT CO. file with the Court and serve upon Plaintiffs, the Defendants' responsive memoranda and any other pleadings directed to or in opposition to Plaintiffs' Motions:—

(1) TO MAINTAIN ACTION AS A CLASS ACTION PURSUANT TO RULE 23(c)(4), F.R.C.P. AGAINST DEFENDANTS MARCIANO RIVERA, JR., CARL TAMUTY, R & T INVESTMENT CO., a partnership of RIVERA AND TAMUTY, and R & T INVESTMENT CO., a corporation;

(2) FOR PARTIAL SUMMARY JUDGMENT AGAINST DEFENDANTS MARCIANO RIVERA, JR., CARL TAMUTY, R & T INVESTMENT CO., a partnership of RIVERA AND TAMUTY, and R & T INVESTMENT CO., a corporation,

on or before June 26, 1978.

"2. That Plaintiffs on or before July 17, 1978 file with the Court and serve upon Defendants-Respondents any reply memoranda or pleadings, and

"3. That if either party requests oral argument, such request must be made on or before the 21st day of July, 1978, otherwise the matter will be deemed submitted."

On June 26, 1978, Defendants Rivera and Tamuty filed a Motion for Enlargement of Time within which they could respond to Plaintiffs' Motions. They asked that they be allowed until July 6, 1978 and attached a proposed Order granting Defendants' Motion for Enlargement of Time until July 6, 1978 to respond to Plaintiffs' Motions. The Motion was granted.

The Defendants Rivera, Tamuty and R & T thereafter failed to file or serve upon Plaintiffs a responsive pleading to Plaintiffs' Motions or any other pleading within the period of time as enlarged, or at all.

Plaintiffs in their Motions requested Findings and that Defendants make an accounting to the Court on all sales of Cochise securities on which they had received commissions.

The matter after July 21, 1978 was deemed submitted.

On August 14, 1978, the Court by Order of that date granted Plaintiffs' Motions in all respects under Local Rule 11(g) and on the merits.

JURISDICTION

Sole jurisdiction is vested in this Court as to claims under 17 C.F.R. § 240.10b-5 (Rule 10b-5) and 15 U.S.C. § 78j(b). Clark v. Watchie, 513 F.2d 994 (9th Cir. 1975); Hall v. Security Planning Service, Inc., 419 F.Supp. 405 (D.Ariz.1976); 15 U.S.C. § 78aa.

This court has pendent and ancillary jurisdiction of Plaintiffs' claims asserted under A.R.S. §§ 44-1991, 2001 and 2003 and for common law fraud under the laws of this state inasmuch as the federal claim under Rule 10b-5 is the major substantive claim, and it and all of the pendent claims derive from the common nucleus of operative facts and are such that any party would ordinarily be expected to try them in one judicial proceeding. See United Mine Workers of America v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966).¹

BACKGROUND

Summary judgment is the exception rather than the usual in resolution of complex multi-class litigation involving thousands of Plaintiffs and scores of Defendants all of which are scattered over no less than thirty-nine states and extending into Canada and to other nations where Plaintiffs in the armed services were victims of the fraud. The record in this case, the Answers of the Defendants Rivera and Tamuty to the voluminous and penetrating discovery by Plaintiffs under Rule 33 and Rule 36 F.R.C.P., together with adjudicative facts judicially noticed pursuant to Rule 201 of Rules of Evidence, coupled with the knowing and intentional failure of Defendants Rivera, Tamuty and R & T to respond to Plaintiffs' Motions provides more than adequate uncontested proof as to all of the elements of such action as they relate to these Defendants.

The undisputed facts in this record reveal the following pattern of fraud and deceit of these Defendants in participation with other Defendants and third parties. Cochise College Park, Inc. was a corporation organized under the laws of the State of Arizona. It platted a real estate subdivision in Arizona known as Cochise College Park. It conducted nationwide sales campaigns to induce individuals from throughout the world to purchase lots in the subdivision. As a direct adjunct to these sales Cochise College Park marketed by itself and through others such as Defendants Rivera, Tamuty and R & T the paper that represented the alleged notes received in the lot sales transactions. The notes were purportedly signed by various lot purchasers for balances due on the lot purchase and the notes were purportedly secured by mortgages.

Rivera and Tamuty in January of 1968 on behalf of R & T executed an Agency Agreement with Cochise College Park, Inc., (Cochise), whereby Cochise made facilities available to Rivera, Tamuty and R & T as agents to sell what was purported to be "Title Insured First Mortgages" which were the notes and mortgages emanating from Cochise. These notes and mortgages sold by Rivera, Tamuty and R & T are non-exempt securities and are not registered as required by law either under the Federal Securities Laws or the laws of Arizona. See Hall v. Security Planning Service, Inc., 419 F.Supp. 405 (D.Ariz.1976); Hall v. Security Planning Service, Inc., 371 F.Supp. 7 (D.Ariz.1974). The agreement between Cochise and the Defendants Rivera, Tamuty and R & T was in effect until June of 1972 when Cochise went into bankruptcy under Chapter X. During this period of time Rivera, Tamuty and R & T sold securities emanating from Cochise in a total amount of over ten million dollars. The sales included the sale of securities sold to the twenty-four Nominal Plaintiffs identified in Plaintiffs' Motion for Summary Judgment.

OPINION AND LAW

The Defendants Rivera and Tamuty were controlling persons of R & T either as partners or as its sole stockholders, directors and officers when R & T became a corporation. Each was a 50% owner of R & T as partner and later, after September 20, 1970 when R & T was incorporated, as stockholder. As such they are liable, not only personally for their own participation in the fraud but as controlling persons of R & T pursuant to 15 U.S.C. § 78t and as dealers, salesmen or agents pursuant to A.R.S. § 44-2003. Defendants Rivera and Tamuty fall within the definition of controlling persons under § 78t by the Ninth Circuit Court of Appeals. See Hecht v. Harris, Upham & Co., 430 F.2d 1202 (9th Cir. 1970). Cf. Safeway Portland Emp. Fed. Credit Union v. C. H. Wagner & Co., 501 F.2d 1120 (9th Cir. 1974) (applying 15 U.S.C. § 77o, analogous to 15 U.S.C. § 78t).

Section 10(b) of the Securities & Exchange Act and Rule 10b-5 make unlawful the use of any manipulative or deceptive device or contrivance in connection with the sale and purchase of any security on a national exchange or otherwise and Rule 10b-5 provides that

it shall be unlawful for any person directly or indirectly ... (a) to employ any device, scheme or artifice to defraud ... or (c) to engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person.

17 C.F.R. § 240.10b-5. See Hecht, supra. The record shows Rivera and Tamuty personally and through R & T knowingly engaged in both manipulative devices and in a scheme, artifice and device to defraud Plaintiffs in the sale of the Cochise securities. A.R.S. § 44-2003 provides that "an action brought under §§ 44-2001 or 44-2002 may be brought against any person, including any dealer, salesman, or agent, who made, participated in or induced the unlawful sale or purchase, and such persons shall be jointly...