Rankow v. First Chicago Corp.

• Citation: 870 F.2d 356
• Decision Date: 24 February 1989
• Docket Number: No. 88-1405,88-1405
• Parties: Fed. Sec. L. Rep. P 94,352 Martin A. RANKOW, et al., Plaintiffs-Appellants, v. FIRST CHICAGO CORP., Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 356

870 F.2d 356

Fed. Sec. L. Rep. P 94,352

Martin A. RANKOW, et al., Plaintiffs-Appellants, v. FIRST CHICAGO CORP., Defendant-Appellee.

No. 88-1405.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 14, 1988.

Decided Feb. 24, 1989.

Michael J. Daley, Nisen & Elliott, Chicago, Ill., for plaintiffs-appellants.

Lynn A. Goldstein, Law Dept. of First Nat'l Bank, Chicago, Ill., for defendant-appellee.

Before CUDAHY, RIPPLE and KANNE, Circuit Judges.

CUDAHY, Circuit Judge.

The plaintiffs, participants in a Dividend Reinvestment and Stock Purchase Plan (the "Plan") provided by First Chicago Corporation ("First Chicago"), appeal the dismissal of the three counts of their complaint alleging breach of contract, negligent misrepresentation and violations of the Securities Exchange Act of 1934 (15 U.S.C. Sec. 78j) and of Securities and Exchange Commission ("SEC") Rule 10b-5 (17 C.F.R. Sec. 240.10b-5). They do not appeal the dismissal of their fourth count, a claim under Sec. 18(a) of the Securities Exchange Act of 1934, alleging loss as a result of reliance on a false or misleading document filed with the SEC. We reverse and remand.

I.

Plaintiff Rankow began his participation in the Plan in April of 1983; by December of 1985 all of the plaintiffs had become participants. The Plan permitted First Chicago's common stockholders to reinvest their dividends and to make optional cash payments toward the purchase of more shares of common stock at five percent under the prevailing market price, without paying service charges or brokerage commissions. Since this is an appeal from the dismissal of a complaint, ¹ we accept as true the plaintiffs' allegation that their primary purpose in participating in the Plan was to sell immediately the shares they obtained in this way--and that First Chicago, the defendant, was fully aware of their practice. The amount of profit the plaintiffs made by reselling the shares they had obtained at discount prices obviously depended heavily on the timing of the purchase and resale. It was, therefore, crucial to their plan that they have reliable information as to which day would be the "pricing day" upon which discounts could be calculated.

The rules governing determination of pricing days were set out in the applicable Plan prospectus. When the plaintiffs first joined, the Plan was governed by a prospectus issued on May 10, 1982. The 1982 Prospectus provided that shares purchased pursuant to the Plan would be priced at 95% of the average high and low sales prices of the common stock as reported in the Wall Street Journal "on the first trading day of January, April, July and October of each year (the 'Pricing Date')." Complaint at p 60. ² This rule was changed in a new prospectus issued in December 1984. Under the 1984 Prospectus, shares would be priced at 95% of their average high and low sales price as reported in the Wall Street Journal on the dividend payment date. If common stock was not traded on the dividend payment date, then the pricing day would be the last preceding date on which the common stock had been traded.

The 1984 Prospectus contained a provision stating that

NO PERSON IS AUTHORIZED BY FIRST CHICAGO CORPORATION TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS.

Appellee's App. at 3. The prospectus also included a somewhat ambiguous discussion of provisions for modification of the plan, in a "question and answer statement of the provisions of the Plan:"

34. May the Plan be changed or discontinued? While the Company hopes to continue the Plan indefinitely, the Company reserves the right to suspend, terminate or modify the Plan at any time. You will be notified of any such suspension, termination or modification.

Id. at 13. As an answer to the final question in this section--"How may stockholders obtain answers to other questions regarding the Plan?"--the prospectus provided the address and telephone number of the Office of the Treasurer at First Chicago.

Soon after the new prospectus became effective, First Chicago declared a dividend payment date of January 1, 1985. Because no sales were conducted on that date, First Chicago could not use it as the pricing day. But instead of using a preceding trading day, as provided in the then-governing prospectus, First Chicago used the following day--January 2, 1985--as the pricing date. There apparently was no communication between First Chicago and the plaintiffs about this variance from the controlling prospectus at this time or throughout most of 1985.

In December of 1985, plaintiff Martin Rankow called on behalf of all of the plaintiffs to ask Richard Weincek, Senior Vice President of First Chicago, which date would be used as the pricing day for any purchases made on January 1 of 1986. Weincek, who at the time was in charge of administering the Plan for First Chicago, told Rankow that January 2 would once again be used as the pricing date. In reliance on this statement, the plaintiffs made an optional cash investment of over $11 million and immediately arranged to sell on January 2 the stock they obtained through this investment. However, First Chicago on this occasion followed the 1984 Prospectus, and used December 31 rather than January 2 as the pricing date. Because the price of the stock was lower on January 2 than it had been on December 31, the plaintiffs sold more shares of stock than they had obtained and they had to buy additional stock on the open market in order to cover their sales. In the present action they seek to recover claimed losses on this transaction in the amount of $279,453.84.

Their original complaint was in four counts: breach of contract (I), negligent misrepresentation (II), violations of SEC Rule 10b-5 and of Section 10(b) of the Securities Exchange Act (III) and violation of Section 18(a) of the Securities Exchange Act (IV). The district court granted First Chicago's motion to dismiss on all four counts. Only the first three counts are raised on appeal.

II.

A.

The plaintiffs' breach of contract count is premised on the theory that Weincek, in representing January 2 as the pricing date, offered to modify the existing contract (embodied in the 1984 Prospectus) between First Chicago and the plaintiffs. When the plaintiffs sent in their payment, under this theory, they accepted Weincek's offer. First Chicago, however, denies that Weincek had any authority to modify the terms of the Plan as given in the prospectus.

The district court, in holding for First Chicago, gave dispositive weight to the printed disclaimer. The court concluded that the mere existence of this provision definitively established (1) that Weincek lacked authority to modify the terms of the prospectus; (2) that the plaintiffs were on notice that Weincek lacked authority; and (3) that plaintiffs' reliance on Weincek's representations was therefore unreasonable. Rankow v. First Chicago Corp., 678 F.Supp. 202, 205 (N.D.Ill.1988). However, the court did not consider the way in which First Chicago's deviation from the terms of the 1984 Prospectus might affect the "authority" problem. Because a determination of the agent's authority in this case requires an examination of the surrounding circumstances and because issues of fact may be involved in this determination, ³ we must reverse and remand on the breach of contract count.

Under Illinois law, "the existence and scope of an agency relationship are questions of fact, to be decided by the trier of fact," unless the relationship is "so clear as to be undisputed." St. Ann's Home for the Aged v. Daniels, 95 Ill.App.3d 576, 579, 51 Ill.Dec. 64, 67, 420 N.E.2d 478, 481 (1st Dist.1981); see also Giannini v. First Nat'l Bank of Des Plaines, 136 Ill.App.3d 971, 91 Ill.Dec. 438, 483 N.E.2d 924 (1st Dist.1985); Sherman v. Field Clinic, 74 Ill.App.3d 21, 29 Ill.Dec. 597, 392 N.E.2d 154 (1st Dist.1979). In determining the existence and scope of an agency relationship the fact finder must examine "the facts and circumstances surrounding the particular case," Giannini, 136 Ill.App.3d at 986, 91 Ill.Dec. at 451, 483 N.E.2d at 937, and "reference may be made to the situation of the parties, their acts, and other relevant circumstances." St. Ann's, 95 Ill.App.3d at 579, 51 Ill.Dec. at 67, 420 N.E.2d at 481; see also Kalman v. Bertacchi, 57 Ill.App.3d 542, 15 Ill.Dec. 204, 373 N.E.2d 550 (1st Dist.1978); Elmore v. Blume, 31 Ill.App.3d 643, 334 N.E.2d 431 (3d Dist.1975). Similarly, "[w]hether a person has notice of the lack of an agent's authority or is put on notice by circumstances is a question of fact." Schoenberger v. Chicago Transit Auth., 84 Ill.App.3d 1132, 39 Ill.Dec. 941, 405 N.E.2d 1076 (1st Dist.1980); see also Paine v. Sheridan Trust & Sav. Bank, 342 Ill. 342, 174 N.E. 368 (1930); Slape v. Fortner, 3 Ill.App.2d 339, 122 N.E.2d 57 (4th Dist.1954).

Illinois law, then, does not appear to dictate as narrow an analysis of Weincek's authority as the district court undertook here. The court relied primarily on Malcak v. Westchester Park District, 754 F.2d 239 (7th Cir.1985), in which a former Superintendent of Parks and Recreation sued the Westchester Park District for depriving him of his job without due process in violation of the Fourteenth Amendment. Malcak claimed that a number of individual commissioners had verbally assured him that his job would be continued as long as his work was adequate. He argued that these verbal assurances had varied the terms of his employment contract as prescribed in the Park District's Operating Manual (the "Manual"). The Manual not only provided for at-will employment, terminable upon sixty days' notice by either party, but also clearly stated that no individual board member had the legal or moral right to speak for the board "unless specifically authorized to do so by action of the Board." Id. at 245.

This case, then,...