Hampton v. Long, Civ. A. No. TY-84-541-CA.

• Citation: 686 F. Supp. 1202
• Decision Date: 28 March 1988
• Docket Number: Civ. A. No. TY-84-541-CA.
• Parties: Charles HAMPTON, Plaintiff, v. Hal LONG, Bruce Morris, Ewing Adams, and Texas American Bank—Town North, Defendants.
• Court: U.S. District Court — Eastern District of Texas

686 F. Supp. 1202

Charles HAMPTON, Plaintiff, v. Hal LONG, Bruce Morris, Ewing Adams, and Texas American Bank—Town North, Defendants.

Civ. A. No. TY-84-541-CA.

United States District Court, E.D. Texas, Tyler Division.

March 28, 1988.

Carl A. Generes, Dallas, Tex., for plaintiff.

Rex A. Nichols, Nichols, Bailey & Watson, Longview, Tex., for defendant Bruce Morris.

Ewing Adams, Longview, Tex., pro se.

Andy Tindel, Hill, Perry, & Sloan, Longview, Tex., for Hal Long.

ORDER

JUSTICE, Chief Judge.

Before the court in the above-entitled and numbered action is the motion of one defendant, the Texas American Bank— Town North (Bank), for summary judgment. For the reasons set forth below, the motion shall be granted in part, and denied as to the rest.

In his complaint, plaintiff Charles Hampton (Hampton) alleges that the defendants violated the 1934 Securities Exchange Act, 15 U.S.C. §§ 78a et seq., the Texas Securities Act, Tex.Civ.Stat. arts. 581-1 et seq., various Texas stock fraud statutes, see Tex.Bus. & Commerce C. §§ 27.01 et seq., and the civil provisions of the federal Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961 et seq. Hampton recites that through various misrepresentations, the individual defendants, all of whom were agents and officers of the Bank, fraudulently induced him to purchase shares in three companies (here collectively called "Judson"), to loan money to these companies, and to guarantee their loans with the Bank. Moreover, he alleges the existence of an underlying scheme, conspiracy, and plan among the defendants to engage in such fraudulent conduct. Hampton asserts that soon after he invested his money and pledged his guaranty, the Judson enterprises ceased to be economically viable, and Hampton was left with worthless stock and personal liability for at least some of Judson's debts.

The Bank is not alleged to have engaged in any fraudulent acts distinct from those of its agents. However, Hampton asserts that Bank personnel were used in furtherance of the purported scheme, and that the Bank "directly and indirectly benefited" from its execution. In its answer, the Bank generally denies Hampton's charges. As for the unlawful conduct of which its employees are accused, the Bank further pleads that the individual defendants had gone beyond the scope of their agency relationship with the bank in personally carrying out and directing it. Moreover, the Bank has counterclaimed against Hampton for a $732,079.85 debt, which allegedly arose from the transactions at issue in Hampton's case in chief. Indeed, the Bank already has secured a judgment for this sum against Hampton and others, jointly and severally. That judgment, won in an earlier action in Texas state court, remains unsatisfied. The Bank's counterclaim also seeks interest, attorney's fees, and costs in connection with its recovery of the $732,079.85 debt.

The summary judgment motion now before the court respects the Bank's status as a defendant, not as a counterclaimant. From the record, certain uncontested facts emerge.

First, the Bank filed an action against Hampton and others in the District Court of Gregg County, Texas, in 1983. In its state court petition, the Bank recited that it held two promissory notes from a Judson company, that Hampton and others had guaranteed these notes, and that Judson had defaulted. The principal due on the notes totalled $510,000.00. See Plaintiff's Original Petition, Town North National Bank v. Judson Rod Company, Inc., Cause No. 83-2187A, District Court of Gregg County, Texas (filed August 26, 1983), Exhibit A to the Bank's Motion for Summary Judgment. In the suit, Hampton had interposed a general denial to the Bank's complaint, but he did not raise the issue of the Bank's allegedly fraudulent conduct in any of his pleadings. See Defendants' Original Answer and General Denial, Judson Rod, supra (filed Sept. 5, 1983), Exhibit B to the Bank's Motion.

Second, the Bank filed a motion for summary judgment against Hampton in the Judson Rod case. The Bank's evidence on that motion showed that Hampton and others acted as guarantors of Judson's debts on the notes, and that the notes' principal balances (plus interest thereon) were due and unpaid. See Plaintiff's Motion for Summary Judgment, Judson Rod, supra (filed May 14, 1984), Exhibit C to the Bank's Motion. Summary judgment was later entered for the Bank against Judson, Hampton, and other guarantors, jointly and severally. See Order of Summary Judgment, slip op. at 2, Judson Rod, supra (June 29, 1984), Exhibit F to the Bank's Motion. This judgment amounted to $732,079.85, a sum that represented $510,000.00 in unpaid principal, plus $222,079.85 in interest. Additional statutory interest was assessed on the judgment, and it accrued at an annual rate of ten percent from June 29, 1984. Id.

Third, two months after the Bank filed the Judson Rod petition, Hampton executed an affidavit, in which he averred that one of the individual defendant Bank employees, Hal Long, owned five percent of Judson. According to the affidavit, Hampton had known that it was illegal for an officer of the Bank to own the Judson shares outright. Therefore, Hampton maintained, Long resorted to the subterfuge of having his shares issued to a third-party straw man.¹ Hampton's affidavit further states that he and all of Judson's other shareholders were aware of Long's hidden interest in the companies. See Affidavit of Charles W. Hampton, dated October 25, 1983, Exhibit H to the Bank's Motion. Additionally, contemporaneous affidavits by two other nonparty witnesses made substantially the same contentions that were set forth in the Hampton affidavit. See Affidavit of Richard Pickell, dated July 27, 1983; Affidavit of Kenneth Leath, dated July 27, 1983, Exhibit I to the Bank's Motion. On the basis of the affidavits, the Bank argues here that, while Judson Rod was pending against him years ago, Hampton was aware of the activity that is at issue in the federal case now before the court.

Hampton does not seriously dispute the evidence summarized above. Instead, the contested issues presented by the Bank's summary judgment motion concern the legal consequences of the facts adduced. The Bank's principal argument is that, under the Texas compulsory counterclaim rule, Tex.R.Civ.P. 97(a), Hampton's failure to plead the Bank's frauds in the Judson Rod suit forecloses his opportunity to litigate these claims against the Bank now.

The Texas compulsory counterclaim rule directs that

a pleading shall state as a counterclaim any claim within the jurisdiction of the Court, not the subject of the pending action, which at the time of filing the pleading, the pleader has against any opposing party, if it arises out of the transaction or occurrence which is subject matter of the opposing party's claim and is not required for its adjudication the presence of third parties of whom the Court cannot acquire jurisdiction.

Tex.R.Civ.P. 97(a). In its language and effect, Fed.R.Civ.P. 13(a) imposes virtually identical requirements. In this connection, the Bank points out that Hampton had made only a general denial to the petition in Judson Rod, even though he could have asserted state law causes of action against the Bank—based on the Texas Securities Act, Texas stock fraud statutes, and Texas common law fraud—which were fully litigable in that case. Moreover, the Bank contends that Hampton's theories of liability under federal law—RICO and the 1934 Securities Exchange Act—were within the concurrent jurisdiction of the Gregg County court in Judson Rod, and thus, at the time, were also fully litigable. Accordingly, the Bank asserts that Hampton cannot press any of his claims against it in federal court.

It is necessary to distinguish between Hampton's pendent Texas law claims, and his causes of action under federal securities law and RICO. With respect to one of Hampton's federal claims, the District Court of Gregg County clearly never had jurisdiction to adjudicate Hampton's 1934 Securities Exchange Act cause of action. Section 27 of the Act plainly states that the federal courts "shall have exclusive jurisdiction of ... all suits in equity and actions at law brought to enforce any liability or duty created by the Act." 15 U.S.C. § 78aa (emphasis added); see also Piambino v. Bailey, 610 F.2d 1306, 1333 (5th Cir.1980); Great Western United Corporation v. Kidwell, 577 F.2d 1256, 1270-71 (5th Cir.1978). Thus, Hampton's federal securities claims never were litigable in the Judson Rod court, and Tex. R.Civ.P. 97(a) can have no preclusive effect on them here.

A more problematic issue is whether the District Court of Gregg County—or any state court—has concurrent jurisdiction over violations of the federal RICO statute. Rule 97(a) would bar litigation of Hampton's RICO claim here, if the Texas court could have heard it. In support of its argument that RICO confers concurrent jurisdiction, the Bank cites only the holding of Greenview Trading Company v. Hershman & Leicher, P.C., 123 Misc.2d 152, 473 N.Y.S.2d 722 (N.Y.Sup.Ct.1984). At most, this decision from a state trial court outside of Texas is only of persuasive value. But what renders the use of this case very unconvincing is the Bank's failure also to mention that it was later reversed by a New York appellate court.² See Greenview Trading Company v. Hershman & Leicher, P.C., 108 A.D.2d 468, 489 N.Y. S.2d 502 (N.Y.App.Div., 1st Dept.1985). Moreover, subsequent New York appellate cases have also repudiated the Greenview Trading trial court opinion. See, e.g., Simpson Electric Corporation v. Leucadia, Inc., 128 A.D.2d 339, 515 N.Y.S.2d 794 (N.Y.App.Div., 2d Dept.1987); Belfont Sales Corporation v. Gruen Industries, Inc., 112 A.D.2d 96, 100, 491 N.Y.S.2d 652, 655 (N.Y.App.Div., 1st Dept.1985); see also Cullen v. Margiotta, 811 F.2d 698, 732 (2nd Cir.1987) (construing New York law).

Nevertheless, as a national question of law, the...