Krause v. Perryman

• Decision Date: 26 August 1987
• Docket Number: No. 86-1379,86-1379
• Citation: 827 F.2d 346
• Parties: Fed. Sec. L. Rep. P 93,356 Jack KRAUSE and Eugene V. Rankin, Appellants, v. Jerry D. PERRYMAN, Appellee. Accutap Ltd.; Terry Wamsganz; Stifel, Nicolaus & Company, Frank Reichwein, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 346

827 F.2d 346

Fed. Sec. L. Rep. P 93,356

Jack KRAUSE and Eugene V. Rankin, Appellants, v. Jerry D. PERRYMAN, Appellee Accutap Ltd.; Terry Wamsganz; Stifel, Nicolaus & Company Frank Reichwein, Appellee.

No. 86-1379.

United States Court of Appeals Eighth Circuit.

Submitted Nov. 10, 1986.

Decided Aug. 26, 1987.

David L. Campbell, St. Louis, Mo., for appellants.

Jerry D. Perryman, Clayton, Mo., pro se.

Daniel T. Rabbitt, St. Louis, Mo., for Frank Reichwein.

Before HEANEY and BOWMAN, Circuit Judges, and ARNOLD, ^* District Judge.

BOWMAN, Circuit Judge.

This case presents a lengthy record of pleadings and discovery resulting in the dismissal by the District Court of all claims against defendants Jerry D. Perryman and Frank Reichwein, the appellees herein, prior to trial. Jack Krause and Eugene V. Rankin, plaintiff-appellants, brought suit against Accutap Ltd. (Accutap); Perryman, the president and a majority shareholder of Accutap; Reichwein, a former officer and former shareholder of Accutap; and several other parties, alleging that defendants had induced them by false representations concerning Accutap's financial status and patent rights to expend $250,000 purchasing worthless Accutap stock. Plaintiffs contend that defendants acted in concert to defraud them in violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Secs. 1961-1968 (RICO); federal and state securities laws; and common law rules of fraud and deceit. ¹

The District Court dismissed, for failure to state a claim, the count of the complaint alleging that Perryman, Reichwein, and Accutap had violated section 17(a) of the Securities Act of 1933. With respect to all other claims, the District Court dismissed without prejudice as to Accutap and Perryman, ² and granted summary judgment in favor of Reichwein. Plaintiffs contend that the District Court erred in all these rulings. We affirm the orders of the District Court in all respects.

I.

The undisputed facts are as follows. Accutap was a Missouri corporation formed by Perryman and Reichwein in 1978 to manufacture, distribute, and sell an electronically-operated beverage dispenser. In January 1981, Reichwein sold his interest in Accutap to Perryman and two friends of Perryman, Harvey Cantor and Sherwin Wayne. Reichwein was compensated therefor by means of a "consulting agreement" that provided for payments of $4580 per month for 60 months. Plaintiffs first became involved with Accutap in the fall of 1981 when Terry Wamsganz, a registered securities representative, introduced them to Perryman. Following a series of meetings with Perryman, plaintiffs agreed to purchase 384,000 shares of convertible preferred Accutap stock in December 1981, nearly one year after Reichwein's sale of his interest in Accutap. Plaintiffs agreed to pay a total of $500,000, which sum included a payment of $50,000 to buy out the consulting agreement between Accutap and Reichwein.

Plaintiffs allege that in making their investment decision, they relied upon a private placement memorandum prepared by Perryman that inaccurately reported Accutap's income, grossly overstated existing sales contracts, and falsely stated that Accutap owned the patent for its product. Plaintiffs also allege that Perryman represented to them that they would be made officers and directors of the corporation, that a public offering of stock was in the works, and that the money plaintiffs invested would be used to manufacture taps for existing sales contracts. They allege that each of these statements was false.

Plaintiffs made an initial payment of $250,000, including $50,000 to Reichwein to buy out his consulting agreement, but did not receive the directorships they had been offered or even stock certificates. Moreover, they discovered that Accutap's certificate of incorporation did not authorize the issuance of preferred stock. Plaintiffs determined that Perryman knew and did not reveal that several of the sales contracts for Accutap products, which were shown to them as an inducement to purchase stock, had been cancelled or were in difficulty prior to the time that plaintiffs made their stock purchase. Finally, plaintiffs discovered that the $200,000 they had paid directly to Accutap had been used to repay old loans and not for the manufacture of new taps. Plaintiffs then refused to make further payment.

In setting forth their RICO claim, plaintiffs allege a history of misrepresentation by Perryman and Reichwein in the establishment and maintenance of Accutap. The complaint alleges that Perryman and Reichwein acted in concert from the inception of Accutap to use that corporation as a vehicle by which to pocket illegal gains. Plaintiffs allege that in carrying out this plan, Perryman and Reichwein stole patent rights, procured bank loans by means of fraudulent income statements, and defrauded individual investors in violation of securities laws and mail and wire fraud statutes. Plaintiffs implicate Perryman in the entire series of alleged bad acts leading to their loss, including the creation of the bogus private placement memorandum and their purchase of Accutap stock on the basis of material misrepresentations. However, plaintiffs do not allege that Reichwein was involved at all in the creation of the private placement memorandum or in their purchase of Accutap stock. Nor do they present any evidence, beyond Reichwein's continuing receipt of payments pursuant to the consulting agreement, that would implicate Reichwein in the activities of Accutap following his sale of all his Accutap stock in January 1981.

II.

Plaintiffs appeal the dismissal by the District Court of their claim against Perryman and Reichwein under section 17(a) of the Securities Act of 1933, 15 U.S.C. Sec. 77q(a). In Shull v. Dain, Kalman & Quail, Inc., 561 F.2d 152, 155, 159 (8th Cir.1977), cert. denied, 434 U.S. 1086, 98 S.Ct. 1281, 55 L.Ed.2d 792 (1978), this Court held that no private cause of action may be maintained for violation of section 17(a). The District Court, relying on Shull, held that plaintiffs had failed to state a cognizable section 17(a) claim. Order of March 25, 1983. Plaintiffs ask us to overturn the ruling in Shull. Even were we so inclined, which we are not, this panel has no authority to overrule Shull. United States v. Lewellyn, 723 F.2d 615, 616 (8th Cir.1983) ("Only the court en banc is empowered to change an existing rule of law."); see also Deviries v. Prudential-Bache Securities, Inc., 805 F.2d 326, 328 (8th Cir.1986). We therefore affirm the District Court's dismissal of plaintiffs' section 17(a) claim.

III.

Plaintiffs argue that the District Court erred in dismissing without prejudice their remaining claims against Perryman. The District Court's order of January 31, 1986 (as amended February 5, 1986) notes that all claims against Perryman were stayed pursuant to the automatic stay provisions of the bankruptcy code, 11 U.S.C. Sec. 362. (All claims against Accutap previously had been stayed as a consequence of its bankruptcy proceeding. See Order, October 1, 1982.) The court then proceeded to dismiss all claims against Perryman and Accutap without prejudice. ³

The District Court's dismissal without prejudice of plaintiffs' claims against Perryman occurred following an off-the-record, in-chambers conference and an exchange of letters between counsel for plaintiffs and for Perryman in which the ramifications of Perryman's stated intent to declare bankruptcy were discussed. The culmination of these exchanges was the order that is set forth in the margin of this opinion.

Plaintiffs contend that the in-chambers agreement between the parties was that Perryman would file for bankruptcy under Chapter 7 of the Code, not under Chapter 13, as he in fact did. ⁴ Plaintiffs further contend that they did not intend to give up any rights, and that continuance rather than dismissal was contemplated, while Perryman contends that plaintiffs did in fact agree to dismiss all their claims in the present action and to pursue the remedies available to them in bankruptcy court.

The District Court's understanding of the in-chambers agreement obviously was in accord with Perryman's. If plaintiffs believed that the order entered by the District Court dismissing their claims against Perryman without prejudice did not accurately reflect the agreement of the parties, they should have called this to the District Court's attention and given that court an opportunity to rule on their contentions. Plaintiffs easily could have done this by means of a motion under Fed.R.Civ.P. 59(e) to alter or amend the judgment or under Fed.R.Civ.P. 60(b) for relief from the court's judgment or order. Since they did not do so, they gave the District Court no opportunity to consider their claim that the court's order was not in accord with the in-chambers agreement. The issue not having been raised below, it is not properly before us, and we should not and will not address it. Consequently, plaintiffs' attack on this aspect of the judgment below fails, and we affirm the District Court's dismissal without prejudice of the claims against Perryman.

IV.

Plaintiffs argue that the District Court erred in granting summary judgment in favor of Reichwein. They allege a continuing conspiracy among Perryman, Accutap, and Reichwein. Their claims against Reichwein rest on the assertion that Reichwein, through continued receipt of funds from Accutap in 1981 and 1982 and knowledge of the past activities of Accutap and Perryman, had not withdrawn from the alleged conspiracy, but was still an active conspirator who was "sitting this one out." Whether Reichwein in fact already had withdrawn from the alleged conspiracy at the time plaintiffs allegedly were defrauded is determinative of the existence of triable claims against Reichwein. ⁵ In summary judgment terms, the question is whether Reichwein's continued receipt of payments pursuant to his consulting agreement,...