Matheson v. Armbrust, 16750.

CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)
Citation284 F.2d 670
Docket NumberNo. 16750.,16750.
PartiesJack D. MATHESON, Appellant, v. George ARMBRUST, Appellee.
Decision Date28 November 1960

284 F.2d 670 (1960)

Jack D. MATHESON, Appellant,
George ARMBRUST, Appellee.

No. 16750.

United States Court of Appeals Ninth Circuit.

November 28, 1960.

284 F.2d 671

Reinhardt, Coblens & Stoll, Justin N. Reinhardt, Morris J. Galen, Portland, Or., for appellant.

William F. White, White, Sutherland & White, Portland, Or., for appellee.

Before CHAMBERS and HAMLEY, Circuit Judges, and BOWEN, District Judge.

HAMLEY, Circuit Judge.

George Armbrust, purchaser of one hundred shares of the capital stock of Willamette Hauling Company, brought this action to cancel the contract of sale as void and to recover damages. Named as defendants in addition to the company were Jack D. Matheson, who sold the stock to Armbrust, and other persons since dismissed from the action. After a nonjury trial judgment was entered for plaintiff, the monetary award being in the sum of $30,000. Appealing to this court, Matheson contends that the district court was without jurisdiction over the subject matter or the person, and that appellee failed to state or prove a claim upon which relief may be granted.

The relevant facts as found by the trial court and not disputed here may be briefly stated. Matheson, a resident of the State of Oregon, was the owner of all of the outstanding corporate stock of Willamette Hauling Company, consisting of one hundred shares. He was also the president and general manager of the corporation. In April 1954 Armbrust, also a resident of the State of Oregon, inquired of Matheson at Portland, Oregon, as to the possibility of purchasing this

284 F.2d 672
stock. Negotiations were undertaken but were broken off

Thereafter, on May 6, 1954, Matheson at Portland, Oregon, telephoned to Armbrust in Pasco, Washington. During this conversation Matheson stated that he would make Armbrust a better price and furnish more complete financial data than during the original negotiations if Armbrust would return to Portland and resume negotiations. Armbrust returned to Portland following this telephone call and resumed negotiations which led to the sale of the securities to Armbrust on May 22, 1954.

In connection with this transaction Matheson intentionally undertook and practiced a scheme to defraud Armbrust. This scheme involved, among other things, the making of gross misstatements concerning the financial condition and earnings of the company. Armbrust relied upon these representations and was deceived thereby, as a result of which he was damaged in the sum of $30,000.

It was alleged in the complaint that the described conduct on the part of Matheson constituted a violation of section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C.A. § 78j(b)1 and rule X-10B-5 of the Rules and Regulations of the Securities and Exchange Commission, 17 C.F.R. § 240.10b-5.2 District court jurisdiction was therefore asserted and exercised under section 27 of the act, as amended, 15 U.S.C.A. § 78aa. This section provides, among other things, that the district courts shall have exclusive jurisdiction of all suits in equity and actions at law "brought to enforce any liability or duty created by this title or the rules and regulations thereunder. * * *"3

Appellant's contention that the district court lacked jurisdiction over the subject matter of the action is predicated in part upon the introductory language of section

284 F.2d 673
10. As indicated by this language, the use or employment of a manipulative or deceptive device or contrivance of the kind referred to in section 10(b) and rule X-10B-5 is not violative of the act unless there has been a direct or indirect use of some means or instrumentality of interstate commerce or of the mails or of a facility of a national securities exchange. The only such means, instrumentality or facility which appellant was found to have used in this case was the interstate telephone line between Portland, Oregon, and Pasco, Washington

Appellant argues that the court did not find that this instrumentality was used in perpetrating the fraud. What the court found, according to appellant, is that the fraudulent scheme was practiced upon Armbrust after the latter returned to Portland, so that the fraud all took place in Portland without the use of any instrumentality of interstate commerce. In presenting this argument appellant relies upon that part of the findings of fact quoted in the margin.4

All that is required to establish a violation of section 10 is a showing that a means, instrumentality or facility of a kind described in the introductory language of that section was used, and that in connection with that use an act of a kind described in section 10(a) or (b) occurred. Errion v. Connell, 9 Cir., 236 F.2d 447, 455.

The finding of fact upon which appellant relies is somewhat ambiguous, since it recites that the use of the long-distance telephone constituted a direct use of an instrumentality of interstate commerce "in" the fraudulent scheme...

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  • Clegg v. Conk
    • United States
    • United States Courts of Appeals. United States Court of Appeals (10th Circuit)
    • December 5, 1974
    ...had invested. Although the court indicates absolute liability for material misrepresentations, relying on Matheson (Matheson v. Armbrust, 284 F.2d 670) and Royal Air Properties (Royal Air Properties v. Smith, 312 F.2d 210), nonetheless the underlying facts demonstrate conduct from which int......
  • Mount Clemens Industries, Inc. v. Bell, 71-1318.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • June 28, 1972, evince an identical understanding of the Rule's purpose. See Ellis v. Carter, 291 F.2d 270, 273 (9th Cir. 1961); Matheson v. Armbrust, 284 F.2d 670, 674-675 (9th Cir. 1960); Errion v. Connell, 236 F.2d 447 (9th Cir. 1956); Fratt v. Robinson, 203 F.2d 627 (9th Cir. The Birnbaum court, re......
  • Brown v. Bullock
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • March 31, 1961 involving purchases of securities effected in violation of the anti-fraud rules of the 1934 Act, Matheson v. Armbrust, 9 Cir., 1960, 284 F.2d 670, 673, the court held that, where plaintiff has a choice between suing in state or federal court to recover damages for the fraud which defen......
  • Twomey v. Mitchum, Jones & Templeton, Inc.
    • United States
    • California Court of Appeals
    • June 5, 1968 show other than a breach of common law duties (id.). On the other hand in Matheson v. Armbrust (9th Cir. 1960) [262 Cal.App.2d 705] 284 F.2d 670, the court recognized that there may be situations where the defendant party may have concurrent state and federal remedies. The court observed......
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