Renovitch v. Kaufman
| Decision Date | 20 June 1990 |
| Docket Number | No. 89-2478,89-2478 |
| Citation | 905 F.2d 1040 |
| Parties | Fed. Sec. L. Rep. P 95,313 Paul RENOVITCH, Barbara Renovitch, Donald K. Johnson, Lawrence Wise, and the Willard E. Schafer Trust by Mrs. Esther Schafer, trustee, on behalf of themselves and all purchasers of securities issued by Intercontinental Cattle Corporation or Great Western Leasing Company and sold by Stewardship Concepts Incorporated, Plaintiffs-Appellants, v. Jay C. KAUFMAN and James Bussard, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Seventh Circuit |
James E. Beckley, Christopher J. Barber, Marsha A. Tolchin, Adler, Kaplan & Begy, Chicago, Ill., for plaintiffs-appellants.
Jerome H. Torshen, Mark K. Schoenfield, James K. Genden, Torshen, Schoenfield & Spreyer, Chicago, Ill., for defendant-appellee Jay Kaufman, a Mich. resident.
David J. Parsons, Jill A. Pieper, Wildman, Harrold, Allen & Dixon, Chicago, Ill., for defendant-appellee, James Bussard, a Mich. resident.
Before FLAUM and KANNE, Circuit Judges, and NOLAND, Senior District Judge. *
The plaintiffs, a class of dissatisfied investors, brought this securities fraud suit against numerous individual and corporate defendants, including two attorneys, Jay C. Kaufman and James Bussard. Plaintiffs sought to hold defendants Kaufman and Bussard liable for, inter alia, "aiding and abetting" a violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. Sec. 78j(b), and the Securities and Exchange Commission's Rule 10b-5, 17 C.F.R. Sec. 240.10b-5. The district court granted summary judgment in favor of defendants Kaufman and Bussard. After finding no just reason to delay appeal, the district court certified its Memorandum Opinion and Order as a final judgment pursuant to Rule 54(b) of the Federal Rules of Civil Procedure, and the plaintiffs appealed. We affirm.
John Anderson and Lester "Skip" Bunker came up with an idea to sell interests in a cattle leasing program as tax shelters. To further their scheme, they prepared a brochure to be distributed to potential investors. The brochure, which was entitled "Intercontinental Cattle Corporation Presents Holstein Dairy Cattle Leasing" ("the ICC brochure"), described how the cattle leasing program was to operate. 1 Anderson and Bunker had copied the ICC brochure from a brochure of another cattle leasing company, Continental Financial Limited, and had simply substituted Intercontinental Cattle Corporation as the name of the offeror. For purposes of this appeal, it is conceded that the ICC brochure contained several misrepresentations and material omissions regarding the quality of the cattle leasing investment. 2
In early January 1982, Anderson and Bunker, with copies of their ICC brochure in hand, consulted defendant James Bussard, an attorney who had performed various legal work for them in the past. 3 They provided attorney Bussard with a copy of the ICC brochure. Anderson and Bunker then told Bussard that they were interested in selling the cattle leases "as a tax sheltered program" and asked him if there were any problems in doing so. After "scanning" the brochure, Bussard responded negatively. He also told Anderson and Bunker that their program was "very ambitious" and advised them "to get counsel that knows what they're doing." Bussard did not verify the truth of the representations made in the ICC brochure, nor did he conduct an independent investigation to determine if the brochure contained any material omissions.
Following the January meeting, Bussard continued to perform routine legal work for Anderson and Bunker during the early part of 1982. He drafted and filed the articles of incorporation that formed Intercontinental Cattle Corporation ("ICC"). Anderson and Bunker created ICC for the purpose of operating the cattle leasing program. ICC was the original entity that promoted, sold, and administered the program. Attorney Bussard also drafted a will for Anderson and incorporated Robinson Dairy Farms for Bunker and others.
Sometime in early 1982, Anderson and Bunker showed the ICC brochure to Thomas Early, a longtime friend of Anderson. Mr. Early recommended that they contact Douglas Gray, president and majority shareholder of Stewardship Concepts, Inc. ("SCI"), for the purpose of marketing the cattle leasing program. SCI is in the business of advising individuals with regard to financial planning, investment programs, and retirement planning.
In the spring of 1982, Early sent a copy of the ICC brochure to Gray and asked him if he would be interested in having SCI market the ICC cattle leasing program. Gray then discussed the cattle leasing program with his attorney, defendant Jay C. Kaufman. Attorney Kaufman had performed various legal work for Gray in the past and at the time was specializing in estate planning and employee benefits. Gray provided Kaufman a copy of the ICC brochure. After discussing the investment program with Kaufman, Gray met with Anderson, Bunker, and Early and agreed to have SCI market the program. In July 1982, SCI began soliciting investors to purchase interests in ICC's cattle leasing program. SCI counselors distributed copies of the ICC brochure to potential investors, including the plaintiffs.
During this time, defendant Kaufman was serving as a "cooperating attorney" for SCI in connection with its estate planning activities. As such, he received client referrals from SCI counselors. These clients were referred to Kaufman for "the purpose of evaluating their estate planning, making recommendations with respect to appropriate estate planning, and if the client wanted, preparing the appropriate documents to implement those recommendations." Kaufman Depo., p. 13. In addition, Kaufman participated in training sessions for SCI employees. For example, he taught a "Principles of Estate Planning" course to SCI counselors.
In June 1983, attorney Kaufman drafted on behalf of Gray the documentation necessary to incorporate a third company, Great Western Leasing Corporation ("Great Western"). Gray formed Great Western to market the cattle leasing program, a function previously performed by SCI. A second sales brochure, nearly identical to the ICC brochure, was printed under Great Western's name; it too contained misrepresentations and material omissions. Kaufman was listed as general counsel for Great Western on the second page of the Great Western brochure. Defendant Kaufman did not learn that his name was printed on the Great Western brochures until after they were distributed to investors; more importantly, he never consented to the use of his name by Great Western. Later, in the fall of 1983, Kaufman also incorporated Dairy Reporting Service, Inc., a company designed to inspect and report on the dairy cattle leased under the program.
Sometime after ICC, SCI, and Great Western began selling the cattle leases, state authorities in Wisconsin and Michigan inquired as to whether the leases were in fact securities, and, if so, whether they should be registered. Bunker retained attorney Bussard to respond to the state inquiries regarding the unregistered status of the securities. Gray retained attorney Kaufman for the same reason.
By February 1984, approximately 122 investors had contributed over $2.3 million to the cattle leasing program. These investors lost in excess of $1.5 million when the investment program eventually failed. In some cases cattle were never purchased; instead, investors' funds were used to make payments to other investors. Many cattle were placed on farms with inadequate facilities to support a dairy operation. As a result, numerous cattle died or stopped producing milk. Finally, many cattle were sold for slaughter without the investors' permission; the proceeds from these sales were then used to pay other investors or to purchase a lesser number of replacement cattle.
The plaintiffs (over one hundred investors in the cattle leasing program) brought a class action against numerous defendants, including ICC, SCI, Great Western, Anderson, Bunker, Gray, Kaufman, and Bussard. This appeal involves only two of the defendants named in the plaintiffs' amended complaint: attorneys Kaufman and Bussard. The plaintiffs' amended complaint originally stated a myriad of federal and state-law claims. 4 However, only two of those claims remain on appeal: (1) "aiding and abetting" a violation of Section 10(b) and Rule 10b-5, and (2) fraud under Illinois law. Both claims are concerned solely with the misrepresentations and material omissions contained in the two brochures distributed to the plaintiff investors. 5
The district court granted summary judgment in favor of defendants Kaufman and Bussard on the plaintiffs' two remaining claims. The district court concluded:
Plaintiffs here have presented no evidence that either Kaufman or Bussard acted with scienter [which is a necessary element in a securities fraud case brought under Section 10(b) and Rule 10b-5]. Indeed, plaintiffs fail to come forward with any evidence that the attorneys even knew of the alleged primary securities law violations, to wit: that the factual statements in the brochures were false or misleading. Plaintiffs themselves argue in their briefs that the attorneys never made any factual investigation into the accuracy of the statements in the brochures. There is no evidence that the attorneys had any reason to know that the true state of affairs was different from what was represented in the brochures.
Memorandum Opinion and Order, pp. 7-8 (citations omitted). For the same reasons, the district court also found that the plaintiffs failed to present sufficient evidence from which a reasonable jury could conclude that defendants Kaufman and Bussard had committed fraud in violation of Illinois law.
We review de novo a district court's grant of summary judgment. Greer Properties, Inc. v. LaSalle Nat'l...
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