Jost v. Locke

• Decision Date: 27 January 1984
• Citation: 65 Or.App. 704,673 P.2d 545
• Parties: , Blue Sky L. Rep. P 71,938 Patricia JOST, Howard Anderson, Dave Thompson, as Trustee for Stephen Bates, Dolores Bailey, Mardan Management, Ltd., and Fred Warnick, Appellants, v. Norman LOCKE and Janet Locke, Respondents, Robert Ladum, Defendant. A7908 03943; CA A23777.
• Court: Oregon Court of Appeals

Page 545

673 P.2d 545

65 Or.App. 704, Blue Sky L. Rep. P 71,938

Patricia JOST, Howard Anderson, Dave Thompson, as Trustee for Stephen Bates, Dolores Bailey, Mardan Management, Ltd., and Fred Warnick, Appellants, v. Norman LOCKE and Janet Locke, Respondents Robert Ladum, Defendant.

A7908 03943; CA A23777.

Court of Appeals of Oregon.

Argued and Submitted Jan. 26, 1983.

Decided Nov. 30, 1983.

Reconsideration Denied Jan. 27, 1984.

Stuart M. Brown, Portland, argued the cause and filed the briefs for appellants. With him on the briefs was Tonkon, Torp, Galen, Marmaduke & Booth, Portland.

Roscoe C. Nelson, Jr., Portland, argued the cause and filed the brief for respondents. With him on the brief was Nelson & Nelson, Portland.

Before GILLETTE, P.J., and WARDEN and YOUNG, JJ.

GILLETTE, Presiding Judge.

Plaintiffs appeal the trial court's summary judgment for defendants Locke (defendants) ¹ following the parties' cross-motions for summary judgment on each count of plaintiffs' second amended complaint seeking damages for the value of gold coins sold by defendants' company but never delivered. We affirm.

This action arose out of business transactions between plaintiffs and defendants' company during the years 1974 through 1978. During that time, defendants were officers of Columbia Coin, Inc. (Columbia Coin), an Oregon corporation involved in buying and selling coins. Columbia Coin did business in Oregon, in other states and in Canada. From 1972 until January, 1979, defendant Ladum served as a "trader" for Columbia Coin. As a trader, he was responsible for "covering" demand sales to customers with purchases by Columbia Coin. ²

Each of the individual plaintiffs purchased gold or silver coins from Columbia Coin sometime between 1974 and 1978. Columbia Coin's policy was to issue a demand receipt for the coins; the coins were turned over to the customer within 48 hours after demand. In late 1978, Ladum, through unsuccessful speculative trading, rendered Columbia Coin insolvent. On December 8, 1978, it was placed in receivership. It later filed a voluntary petition under Chapter XI of the Bankruptcy Act and the trustee made partial payments to its creditors, including plaintiffs. The present action was then filed.

Plaintiffs' complaint, briefly summarized, alleges: (1) unregistered sales of Oregon securities; (2) fraud in the sale of securities, under Oregon securities (Blue Sky) laws; (3) unregistered sales of securities and fraud in violation of the federal Securities Act of 1933; (4) fraud; and (5) conversion. The parties filed cross-motions for summary judgment as to each of plaintiffs' claims. Defendants' motions were granted. This appeal followed.

The following facts are undisputed:

1. PATRICIA JOST

Jost paid $2,662 to Columbia Coin on January 14, 1974, for the purchase of a bag of $1,000 face value 1964 Kennedy one-half dollars. The purchase was not solicited by Columbia Coin; Jost learned about Columbia Coin from a colleague who had made silver purchases in the past. She looked to the market to realize any profit, not to the efforts of Columbia Coin. Jost placed her order over the telephone. She inquired about storage and was told that Columbia Coin would store the silver for $7 per year. A specific bag of silver was purchased for her, labeled with her name, and stored on Columbia Coin's premises.

In early November, 1978, Norman Locke noticed that the Jost silver bag was missing. The reason for the disappearance was never discovered. On December 18, 1978, after Columbia Coin was placed in receivership, Jost requested delivery of her silver. Failing to receive delivery, she filed a claim with the bankruptcy court and eventually received $1,361.54.

2. MARDAN MANAGEMENT, LTD.

T.J. Robinson and his wife are the sole stockholders of Mardan Management. Robinson learned about Columbia Coin from Lee, a coin dealer in Vancouver, B.C., who had no affiliation with Columbia Coin.

Robinson first communicated with Columbia on May 8, 1978, when he sent it a check for $20,000, with a letter requesting the purchase of 100 Krugerands. Robinson made the purchase based on Lee's advice. Robinson's letter requested that the coins be stored at the Canadian Imperial Bank of Commerce in Portland, but they were not. Instead, Ladum's secretary acknowledged Robinson's purchase by letter, stating that 100 Krugerands were being stored on Mardan Management's behalf at Columbia Coin. Columbia Coin never requested a storage fee from Robinson.

Robinson expected to be able to pick up his coins on demand. He also expected to make his own decisions about resale and relied on the market for any profit. He made no demand on Columbia Coin before the initiation of the bankruptcy proceedings. Mardan Management filed a claim in that proceeding and received $6,224.33.

3. HOWARD ANDERSON

On November 8, 1978, Anderson paid $4,640 to Columbia Coin for the purchase of 20 gold Krugerands. He paid an additional $7.50 as a storage fee. Anderson learned about Columbia Coin from a friend. He contacted Columbia Coin by telephone and arranged the purchase. He understood that he could have possession of the coins on demand and that any profit he might make would depend upon the market and not on the efforts of Columbia Coin. After being notified of the bankruptcy proceeding, Anderson filed a claim for the value of his coins and received $1,267.66.

4. DAVID THOMPSON

On December 4, 1978, Columbia Coin received $10,400 for the purchase of 50 gold Krugerands from Thompson, who was acting on behalf of a bank as trustee for Steven Bates. Thompson discussed the purchase by telephone with Kwan, an employe of Columbia Coin. Kwan advised Thompson that Columbia Coin did not have the Krugerands on hand but would purchase them at a quoted price if he would forward the money. Thompson arranged to come to Portland to pick up the coins in mid-December, 1978, but Columbia Coin was placed in receivership before Thompson attempted to take possession of them. He filed a claim in the bankruptcy proceeding as trustee for Bates and received $2,682.46.

Although the evidence shows that a specific bag of coins was purchased for Jost, tagged with her name and stored at Columbia Coin, there is no evidence to show that the other plaintiffs' coins were segregated, identified or even obtained. Apparently, Columbia Coin's policy with regard to fungible coins was to purchase coins to "cover" the receipt when the owner requested delivery. The company never had adequate supplies of coins on hand to meet the demands of all those holding receipts. This policy was not explained to purchasers, who believed that specific coins were segregated and stored for them by Columbia Coin. The funds paid by plaintiffs to purchase the coins, other than Jost's purchase, went directly into Columbia Coin's general operating accounts.

During some period before it was placed in receivership, the company had been experiencing financial problems. The Lockes became aware of Ladum's speculative trading and the company's excessive commitments at least as early as October, 1978. Despite the obvious severity of Columbia Coin's financial problems, the Lockes continued to trust Ladum to handle its obligations and transactions.

As previously noted, this is an appeal from a summary judgment in favor of defendants. The parties filed cross-motions for summary judgment as to each of plaintiffs' claims, agreeing that the relevant facts were not in dispute. The parties also agreed that the question of whether Columbia Coin's sale of gold and silver coins constituted sales of securities is a question of law. Plaintiffs now urge on appeal that material issues of fact do exist with respect to defendants' state of mind and knowledge of the fraudulent activities of defendant Ladum which preclude summary judgment with respect to plaintiffs' second and third claims of securities fraud. ³ These issues only become relevant, however, if the trial court erred in its determination that Columbia Coin's sales of gold and silver coins under the circumstances of this case were not the sale of securities.

Briefly summarized, plaintiffs argue that Columbia Coin's sale of coins to plaintiffs constituted a sale of securities under both federal and state law because defendants ⁴ failed to purchase certain coins and designate them as belonging to plaintiffs. Instead, plaintiffs argue, defendants commingled plaintiffs' funds with the general operating funds of the company, thereby placing plaintiffs' investments at risk and involving their fortunes with those of Columbia Coin.

We first consider plaintiffs' federal law claim. Plaintiffs allege that defendants, in violation of the federal Securities Act of 1933, fraudulently induced plaintiffs to purchase unregistered securities. ⁵ The 1933 Act, as amended (15 U.S.C. § 77b(1)), ⁶ defines "security" as inter alia, any investment contract. The Supreme Court stated in S.E.C. v. C.M. Joiner Leasing Corp., 320 U.S. 344, 351, 64 S.Ct. 120, 124, 88 L.Ed. 88 (1943) that:

"The reach of the [Securities] Act does not stop at the obvious and common place. Novel, uncommon or irregular devices, whatever they appear to be are also reached if it be proved as a matter of fact that they were widely offered or dealt in under terms or courses of dealing which established their character or commerce as 'investment contracts' * * *." See also Tcherepnin v. Knight, 389 U.S. 332, 336, 88 S.Ct. 548, 553, 19 L.Ed.2d 564 (1967).

The circuit courts, applying the Joiner mandate, have "construed the definition [of securities] liberally." Securities & Exchange Com'n v. Glenn W. Turner Ent., Inc., 474 F.2d 476, 481 (9th Cir.1973) citing S.E.C. v. C.M. Joiner Leasing Corp., supra. See, e.g., Smith v. Gross, 604 F.2d 639 (9th Cir.1979) (sale of worms); Glen-Arden Commodities, Inc. v. Constantino, 493 F.2d 1027 (2d Cir.1974) (scotch whiskey); Securities & Exch. Com. v. Koscot Inter., Inc., 497 F.2d 473 (5th Cir.19...