House v. Aiken County Nat. Bank, Civil Action No. 1:94-1560-6BD.

CourtUnited States District Courts. 4th Circuit. United States District Court of South Carolina
Writing for the CourtDuffy
Citation956 F.Supp. 1284
PartiesHarold D. HOUSE and Deborah S. House, Plaintiffs, v. AIKEN COUNTY NATIONAL BANK, Wade Brodie, Gordon Parrott, Ted Morton, L.O. Benton, Harold D. Enloe, David Lock, Stanley Jackson, Michael Laughlin, Richard Von Beudigen, and Gary Milner, Defendants.
Docket NumberCivil Action No. 1:94-1560-6BD.
Decision Date23 February 1996
956 F.Supp. 1284
Harold D. HOUSE and Deborah S. House, Plaintiffs,
AIKEN COUNTY NATIONAL BANK, Wade Brodie, Gordon Parrott, Ted Morton, L.O. Benton, Harold D. Enloe, David Lock, Stanley Jackson, Michael Laughlin, Richard Von Beudigen, and Gary Milner, Defendants.
Civil Action No. 1:94-1560-6BD.
United States District Court, D. South Carolina, Charleston Division.
February 23, 1996.

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Harold D. House and Deborah S. House, plaintiffs pro se.

James R. Barber, III, Todd & Barber, Columbia, SC, for defendants.


DUFFY, District Judge.

This matter is before the Court upon Magistrate Judge Bristow Marchant's recommendation that the Defendants' motion to dismiss, treated as a motion for summary judgment, be granted, without prejudice, and that Defendants' motion for sanctions be denied.


The Plaintiffs, pro se, filed this action on June 2, 1994, alleging various securities violations by the named Defendants. This action arises out of Defendant Aiken County National Bank ("ACNB") obtaining possession of a stock certificate from Plaintiffs representing

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a controlling interest in a corporation called Med-Trade International, Inc. ("MTI"). The natural Defendants are alleged to have been officers or directors of the Defendant ACNB.

The Defendants filed a motion to dismiss and for sanctions on June 23, 1994 pursuant to Rules 11 and 12(b)(6), Fed.R.Civ.P. Defendants contend in their motion that Plaintiffs have previously executed a release of all claims against the Defendants concerning the issues raised in the complaint. As the Plaintiffs are proceeding pro se, a Roseboro order was filed on June 5, 1994, advising the Plaintiffs of the importance of a motion to dismiss and of the necessity for them to file an adequate response. Plaintiffs were specifically advised that if they failed to respond adequately, the Defendants' motion may be granted, thereby ending the case. Plaintiffs filed a response on July 13, 1994, and an affidavit on July 18, 1994.

The Magistrate held a hearing on Defendants' motion to dismiss as well as several pending discovery motions on December 8, 1994. After consideration of the arguments presented at the hearing, the Magistrate opined from the bench that it appeared Plaintiffs' complaint was essentially arising out of the same issues previously litigated in a state court case, and covered by the release. Plaintiff (Mr. House) conceded at the hearing that the release was authentic and had been executed by the Plaintiffs, who were at the time represented by counsel.

Because the Plaintiffs are proceeding pro se, the Magistrate gave the Plaintiffs ten (10) days in which to present to the court any evidence of fraud or other grounds for a finding that the release was invalid. Plaintiffs then submitted a supplemental memorandum to which the Defendants have filed a response. The Magistrate then held a tele-conference on the matter on January 25, 1995.

United States Magistrate Judge Marchant filed a Report and Recommendation on January 30, 1995. The local rules allow a party to object, in writing, to a report and recommendation of a magistrate judge within ten days from the date the report and recommendation is filed. Local Rule 20.08, D.S.C. Plaintiffs filed timely written objections with this court on February 13, 1995.


The Report and Recommendation of the United States Magistrate Judge was made in accordance with 28 U.S.C. § 636 and the local rules of this district concerning reference to a magistrate judge. See United States Magistrates, Local Rule 19, D.S.C.; Bowman v. Bordenkircher, 522 F.2d 209 (4th Cir.1975). Under 28 U.S.C. § 636(b),

[a] judge of the court shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made. A judge of the court may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate. The judge may also receive further evidence or recommit the matter to the magistrate with instructions.

Here, objections to the Magistrate Judge's report were filed by the Plaintiffs and the Court has conducted a de novo review of those portions of the Magistrate Judge's Report and Recommendation to which objections were made.

This court has carefully considered the Magistrate Judge's Report and Recommendation and Plaintiffs' objections to the Report and Recommendation. This Court concludes that the Magistrate Judge applied correct legal principles and reasoning, and agrees that the Defendants' motion to dismiss should be granted. Finding no error in the report, this court adopts the Report and Recommendation and incorporates it into this Order.


This court will address Plaintiffs' objections in the order proffered by Plaintiffs.

The first objection is as follows:

[t]he Magistrate Judge contends that the specificity of the release precludes this action because the release "was signed as a result of previous litigation over a loan and the stock certificate at issue". (page 5,

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paragraph 1, Report and Recommendation). This observation is incorrect. The Defendants were not a party to the litigation from which the release arose. Defendants put forth the release as a term and condition of acceptance of payment in a previous litigation in civil court (Aiken County National Bank v. Med-Trade International, Inc., and Harold and Deborah House). The release satisfied the issues raised in that litigation, none of which pertained to the stock at issue in this instant case. While it is true that the securities violations alleged by Plaintiffs in this instant case occurred prior to the signing of the release, Plaintiff has stated by affidavit that not only was there no prior knowledge of these acts but that Defendants undertook affirmative acts to conceal the violations. Plaintiffs therefore object to the linkage of the release resulting from one separate, independent action, to this instant action. (Objections at p. 2)

The Magistrate has correctly stated that the release in question in this case was signed in connection with previous litigation in which Mr. and Mrs. House and ACNB were parties. The Plaintiffs seemingly object to the Magistrate linking the release to this action. However, the release is central to the entire proceeding. This court finds, therefore, that this objection is without merit.

The Plaintiffs' second objection is as follows:

[t]he Magistrate Judge's Report and Recommendation ignores the key element of Petro-Ventures, Inc., v. Takessian, 967 F.2d 1337 (9th Cir.1992). Although the language of the release is clear, it is limited, as defined in the Petro-Ventures, Inc. decision to events which were known at the time of the release. Plaintiffs have previously submitted affidavits which state specifically that the theft and conversion of the stock at issue was unknown to them. Two subsequent years of litigation against the Defendant Bank's counsel have, finally, revealed these facts which were and are the basis of this action. Petro-Ventures limits a release to known facts. To argue that unknowable but perhaps related facts should be bared by a general release simply provides a party with a blanket absolution which is strictly contrary to the Petro-Ventures decision. Plaintiffs object to the Report and Recommendation as being inconsistent with the Petro-Ventures Decision. (Objections at p. 3)

Plaintiffs contend that they were unaware of certain actions taken by Defendants prior to the execution of the release, and therefore, the release should be found invalid. Plaintiffs cite Petro-Ventures, Inc. v. Takessian, 967 F.2d 1337 (9th Cir.1992) in support of their contention: "In dealing with federal securities, the general rule is that unknown or subsequently maturing causes of action may not be waived." However, the Court in Petro-Ventures went on to state:

[w]hen, as here, a release is signed in a commercial context by parties in a roughly equivalent bargaining position and with ready access to counsel, the general rule is that, if `the language of the release is clear, ... the intent of the parties [is] indicated by the language employed.' Petro-Ventures, Inc. v. Takessian, 967 F.2d 1337, 1342 (9th Cir.1992) (quoting Locafrance U.S. Corp. v. Intermodal Sys. Leasing, Inc., 558 F.2d 1113, 1115 (2nd Cir.1977) (quoting In re Schaefer, 18 N.Y.2d 314, 274 N.Y.S.2d 869, 872, 221 N.E.2d 538, 540 (1966).

Also, the Seventh Circuit has held that a party has a duty of inquiry when signing a release and that the fact that one party is requesting a release should be sufficient notice to the signing party that he should undertake a reasonable inquiry. Goodman v. Epstein, 582 F.2d 388 (7th Cir. 1978).

The release in question states clearly that, in return for a given consideration, the Plaintiffs release the Defendant ACNB and all of its agents, servants and employees from any and all claims "whatsoever" as a result of any and all actions and dealings between these parties. The release was signed at the conclusion and settlement of litigation which concerned disputed and contested claims and allegations, and contains an acknowledgment by the Plaintiffs that they read and fully understood the terms and

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meaning of the release. Plaintiffs were represented by counsel in the former litigation.

This Court is of the opinion that Petro-Ventures, Inc. v. Takessian, 967 F.2d 1337 (9th Cir.1992) supports the finding by the Magistrate that where a release is the result of negotiations between parties of equal bargaining power who had access to counsel, it is valid and enforceable even with regard to securities fraud claims.

The third objection is as follows:

[t]he Magistrate Judge concludes on Page 9 of his Report and Recommendation that "Plaintiffs executed a release which clearly releases the Defendants named in this action from any and all...

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