Jenson v. Continental Financial Corporation

• Decision Date: 19 November 1975
• Docket Number: Civ. No. 4-75-36.
• Citation: 404 F. Supp. 792
• Parties: Lawrence JENSON et al., Plaintiffs, v. CONTINENTAL FINANCIAL CORPORATION et al., Defendants.
• Court: U.S. District Court — District of Minnesota

404 F. Supp. 792

Lawrence JENSON et al., Plaintiffs, v. CONTINENTAL FINANCIAL CORPORATION et al., Defendants.

Civ. No. 4-75-36.

United States District Court, D. Minnesota, Fourth Division.

November 19, 1975.

Chas. S. Zimmerman, Edw. Glickman, Minneapolis, Minn., for plaintiffs.

James H. O'Hagen, Minneapolis, Minn., for defendants.

MEMORANDUM AND ORDER RE AMENDMENT OF COMPLAINT, SUMMARY JUDGMENT, AND APPOINTMENT OF RECEIVER

MILES W. LORD, District Judge.

Before the Court is a motion by the plaintiffs to amend their complaint and cross motions for summary judgment.¹ In addition, the plaintiffs have requested the appointment of a receiver and an accounting of all funds received by the defendants from the plaintiff investors should they prevail on their motion for summary judgment.

The plaintiffs and the class they purport to represent are investors who purchased gold and silver coins from the defendant, Continental Coin Exchange, Inc. The stock of the latter corporation is owned entirely by the defendant Continental Financial Corporation, which does business under the name of Continental Coin Exchange, Inc. (Hereinafter referred to as CCEX) The remaining defendant corporate entities are similarily related by virtue of their common ownership. The individual defendants are present and former officers, directors, brokers and/or employees of the defendant corporations.

The plaintiffs' first amended complaint contains seven counts which may be briefly summarized as follows:

Count I alleges fraud in the sale of securities pursuant to Section 17(a) of the Securities Act of 1933, as amended (15 U.S.C. § 77q(a)), Section 10(b) of the Securities Exchange Act of 1934, as amended (15 U.S.C. § 78j(b)), and Rule 10b-5 (17 C.F.R. § 240.10b-5); Sections 12 and 15 of the Securities Act of 1933, as amended (15 U.S.C. § 77l and § 77o); and Section 20 of the Securities Exchange Act of 1934, as amended (15 U.S.C. § 78t).

Count II alleges the sale of unregistered securities pursuant to Section 2(1) of the Securities Act of 1933, as amended (15 U.S.C. § 77b(1)); Section 5(a) (1) and (2), (b) (2), and (c) of the Securities Act of 1933, as amended (15 U.S.C. § 77e(a) (1) and (2), (b) (2), and (c)); and Sections 12 and 15 of the Securities Act of 1933, as amended (15 U. S.C. § 77l and § 77o).

Count III alleges fraud in the sale of securities in violation of the Minnesota Securities Act, Minn.Stat. § 80A.01 and § 80A.03 (1973 Supp.).

Count IV alleges the sale of unregistered securities in violation of the Minnesota Securities Act, Minn.Stat. § 80A.08, § 80A.14(m), and § 80A.23 (1973 Supp.).

Count V alleges a common law breach of a fiduciary duty.

Count VI alleges consumer fraud under the Minnesota Consumer Fraud Act, Minn.Stat. § 325.79 (1973 Supp.)

Count VII alleges false advertising under the Minnesota False Advertising Act, Minn.Stat. § 325.905 (1973 Supp.).

Because the facts and legal questions involved in this litigation are complex, the Court will discuss the merits of each motion separately.

I. Motion to Amend

The plaintiffs have moved to amend their complaint pursuant to Rule 15, F.R.Civ.P Rule 15 requires that amendments be freely allowed so long as they are made in good faith and no prejudice results to the non-moving party. Foman v. Davis, 371 U.S. 178, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962). The defendants have failed to demonstrate either bad faith on the part of the plaintiffs or that they will be prejudiced if the amendment is allowed. Therefore, the motion to amend is granted.

II. Summary Judgment

The plaintiffs and defendants have filed cross motions for summary judgment as to liability on Count II of the amended complaint² which alleges that the defendants sold unregistered securities in violation of §§ 2, 5, 12 and 17 of the Securities Act of 1933. Accordingly, the Court, after considering all the evidence consisting of affidavits, answers to interrogatories, exhibits, certificates and other documents and material including memoranda of points and authorities, finds the following genuine facts to be undisputed:

A. Findings of Fact

1. Defendant Continental Financial Corporation is a Minnesota corporation with its principal place of business formerly at 1840 IDS Center, 80 South Eighth Street, Minneapolis, Minnesota, currently at 930 Hennepin Avenue, Minneapolis, Minnesota.

2. Continental Financial Corporation does business under the name of Continental Coin Exchange, Inc., (CCEX), a Minnesota corporation, and a wholly owned subsidiary, with its principal place of business formerly at 1840 IDS Center, 80 South Eighth Street, Minneapolis, Minnesota, currently at 930 Hennepin Avenue, Minneapolis, Minnesota. CCEX does business in more than twenty (20) states throughout the United States and sells its approximately 2000 customers directly by long distance telephone, wire services, mail and advertising placed throughout the United States.

3. Defendant Numisco Sales, Inc. changed its name to Continental Financial Corp. on November 5, 1973 without filing an official name change. The corporate directors of Numisco Sales, Inc. were the same as those for Continental Financial Corporation.

4. Defendant Continental Metals, Inc. is a Minnesota corporation with its principal place of business formerly at 1840 IDS Center, 80 South Eighth Street, Minneapolis, Minnesota, currently at 930 Hennepin Avenue, Minneapolis, Minnesota. Defendant Continental Metals, Inc. is a subsidiary of Continental Financial Corporation and CCEX.

5. Defendant Continental Coin Galleries, Inc. is a Minnesota corporation, with its principal place of business at 930 Hennepin Avenue, Minneapolis, Minnesota. Continental Coin Galleries, Inc. is an operating division of Continental Financial Corporation, and operates as a retail sales outlet of CCEX in the sale of gold and silver coins and bullion to the public.

6. Defendant General Refineries, Inc. is a Minnesota corporation with its principal place of business at 292 Walnut Street, St. Paul, Minnesota. General Refineries, Inc. is a wholly owned subsidiary of Continental Financial Corporation and supplies precious metals to CCEX for offer and sale to the public in the investment scheme as outlined below.

7. Defendant Kent Froseth, a resident of Hennepin County, Minnesota, was at all times material herein an officer of Continental Financial Corporation, holding the offices of vice president and president, and a director and officer of CCEX holding the offices of secretary and vice-president.

8. Defendant Gary Wallin, a resident of Hennepin County, Minnesota, was at all times material herein an officer and director of Continental Financial Corporation, holding the office of president, and, an officer and director of CCEX holding the offices of treasurer and president, and, a director of defendant Continental Metals, Inc.

9. Defendant Thomas Haley, a resident of Scott County, Minnesota, was at all times material herein a director of CCEX.

10. Defendant Thomas Vickman, a resident of Hennepin County, Minnesota, was at all times material herein an officer of Continental Financial Corporation and CCEX.

11. Defendant Glen Youman, a resident of Hennepin County, Minnesota, was at all times material herein a director of Continental Financial Corporation.

12. Defendant Arthur Kydd, a resident of Ramsey County, Minnesota, was at all times material herein a director, incorporator and shareholder of Continental Financial Corporation and a director and incorporator of Numisco Sales, Inc.

13. Defendant James Gergen, a resident of Ramsey County, Minnesota, was at all times material herein a director and shareholder of Continental Financial Corporation.

14. Defendant William Brandt, a resident of Hennepin County, Minnesota, was at all times material herein an officer of CCEX.

15. Defendant Richard V. Martinson, a resident of Hennepin County, Minnesota was at all times material herein an incorporator, director, officer and majority shareholder of Continental Financial Corporation and in addition, he was the incorporator and director of Numisco Sales, Inc., of Hennepin County, Minnesota.

16. Defendant Richard Newham, a resident of Hennepin County, Minnesota, at all times material herein was an officer and broker of CCEX.

17. Defendant Harvey A. Carlson was at all times material herein employed by Continental Financial Corporation and CCEX as a manager of operations of CCEX and is a resident of Hennepin County, Minnesota.

18. Defendant Dale Anderson, defendant Robert J. Harnan and defendant Kenneth Kaminsky were at all times material herein employed by Continental Financial Corporation and CCEX as brokers and are residents of Hennepin County, Minnesota.

19. Representative Plaintiffs Randal Jenson, Lawrence Jenson, Duane Steil, Barry Vernick, John Musil, David A. Skare, E. R. Boedecker, W. O. Sletten, Jerry Campbell, A. L. Lancette, Felix A. Ricco and Paul Reynolds are all residents of the State of Minnesota. 20. Representative Plaintiffs D. R. Bentz, Howard I. Barton, and Jane E. Barton at all times material herein have been and are residents of the State of Wisconsin.

21. Representative Plaintiffs William K. Maas, John H. Lind and Hansen, Lind & Meyer, a partnership, are residents of the State of Iowa.

22. Representative Plaintiff Douglas J. Fredericks is a resident of the State of New York.

23. Representative Plaintiff Lewis S. Meyers has been and is a resident of the State of Illinois.

24. The defendants have been making use of the mails, and means and instruments of transportation and communication in interstate commerce and instrumentalities of interstate commerce, including interstate telephone calls and interstate telex messages to offer for sale and to sell and deliver their contracts for the sale of coins.

25. No registration statement has been filed or is in effect with the Securities and Exchange Commission under the Securities Act of 1933, as amended, with respect to any gold coins, or silver coins

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