Richardson v. MacArthur
| Decision Date | 03 December 1971 |
| Docket Number | No. 348-70.,348-70. |
| Citation | 451 F.2d 35 |
| Parties | Sullivan C. RICHARDSON, Plaintiff-Appellee, v. John W. MacARTHUR et al., Defendants-Appellants. |
| Court | U.S. Court of Appeals — Tenth Circuit |
George W. Hopper, Denver, Colo. (McKay & Burton, Salt Lake City, Utah, White & Steele, Denver, Colo., on the brief), for defendant-appellant, Bonneville-Sylvan Life Insurance Co.
C. Keith Rooker, Salt Lake City, Utah (David L. Gillette and Dale A. Kimball, Salt Lake City, Utah, on the brief), for plaintiff-appellee.
Before HILL and JONES,* Circuit Judges, and BROWN, District Judge.
Appellee Richardson recovered a judgment for $178,700.32 against appellant Bonneville-Sylvan Life Insurance Company. The case was tried to a judge sitting without a jury, and it is the trial judge's findings of fact and conclusions of law which form the basis of Bonneville's direct appeal to this court.
Appellee's amended complaint stated five claims, including two claims against John and Hazel MacArthur and three claims against appellant Bonneville and the MacArthurs jointly. Prior to trial, appellee dismissed the action against MacArthurs without prejudice, pursuant to an agreement that the MacArthurs would release their claim of $50,500 against appellee. Of appellee's claims against appellant Bonneville, one alleged a violation of § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j and Rule 10b-5, 17 C.F.R. § 240.10b-5 promulgated by the Securities and Exchange Commission. It was upon the alleged securities act violation that the trial court found for appellee and granted judgment against appellant Bonneville. This appellate court's mission is to review for correctness the trial court's findings and conclusions entered to support the judgment.
Under Rule 52 F.R.Civ.P., 28 U.S.C., we are bound by the trial judge's fact findings unless they are clearly erroneous. Our close examination of the record upon appeal discloses no clear error in this regard, and we proceed to outline the pivotal evidence adduced at the trial.
Bonneville-Sylvan was originally incorporated in Utah in 1958 as Bonneville Life Insurance Company. The original stock offering of the fledgling insurance company was an intrastate offering restricted to residents of Utah and therefore exempt from registration under the Securities Act of 1933. The capital stock was underwritten by Pacific Securities Company and was marketed on a subscription basis whereby a subscriber could pay cash or could pay over a period of time on a monthly installment basis. John MacArthur was an employee of Pacific Securities and was responsible for selling the lion's share of the subscriptions for Bonneville's stock. By February, 1960, Bonneville's original offering was fully subscribed. Thereafter, because of his success in the underwriting, MacArthur was hired by Bonneville and was placed in charge of organizing Bonneville's business in California.
By June, 1961, appellee Richardson, a California resident, had become interested in Bonneville. He contacted the Utah offices of Bonneville expressing an interest mainly in their stock, but with some additional indication that he was also interested in selling their insurance. Richardson was advised to contact MacArthur to discuss an association with the company in California. Richardson and MacArthur met and discussed Bonneville's stock and insurance; subsequently they agreed to associate in the development of Bonneville's insurance business in California. At the same time, Richardson's investment interest in Bonneville stock continued, and this was well known to MacArthur.
After working together for only a short time, Richardson and MacArthur formed a close relationship and bond of trust. Accordingly, on August 25, 1961, Richardson and MacArthur entered into a written agreement whereby in consideration of $33,500 MacArthur conveyed to Richardson his equity in 2000 shares of subscribed stock in Bonneville. Previously, in late 1960 and early 1961, MacArthur had acquired an equity interest in many shares of subscribed stock, when it had become apparent that many of the original subscribers to Bonneville's capital stock issue were not going to be able to meet their schedule of payments for the subscribed stock. Having sold a large number of subscriptions, MacArthur knew many of the subscribers and, with the knowledge of Bonneville, he began acquiring assignments of those individuals' unpaid subscriptions. One of his admitted purposes for acquiring the subscription rights was to utilize the shares as sort of a quasi stock option plan to entice prospective agents into the California agency.
By the terms of the contract whereby Richardson was to pay $33,500 for MacArthur's equity in the subscribed stock, it was also agreed that Richardson would pay $68,000 to Bonneville, which was the amount of the original subscription price of the stock which remained unpaid and owing to Bonneville. At the time of the agreement, Richardson was able to pay MacArthur $20,000, but subsequently it developed that Richardson was unable to raise the rest of the purchase price. Therefore, MacArthur and Richardson reached a new accord whereby it was agreed that Richardson would take only 1500 shares. Accordingly his purchase price to MacArthur was reduced to $25,000 and the amount payable to Bonneville to exercise the subscription rights to the 1500 shares was reduced to $50,500.
Under the modified agreement, Richardson was able to pay MacArthur an additional $5,000 and this, coupled with the previous $20,000 payment, completed Richardson's payment to MacArthur for MacArthur's equity in the subscriptions. Bank financing was arranged to cover the remaining $50,500 which Richardson owed Bonneville. In this regard, on November 29, 1961, MacArthur arranged for a loan of $125,000 from the Union Bank in Los Angeles on a note signed by MacArthur and Richardson. The proceeds of the loan were used in part to pay the $50,500 necessary to exercise the subscription rights on Richardson's 1500 shares and, in addition the proceeds of the loan provided sufficient capital for MacArthur to exercise his subscription rights on 2200 additional shares of Bonneville stock. In short, the transaction was this: MacArthur and Richardson jointly signed a note for $125,000; the bank deposited the proceeds in MacArthur's account; MacArthur wrote a check to Bonneville for $125,000 to free 3700 shares of original issue capital stock; Bonneville then issued 3700 shares of stock in MacArthur's name; and, lastly, by prearrangement, Bonneville sent the stock to the Union Bank to be held as the bank's collateral on the loan.
For some unknown reason, the $125,000 note was shortly replaced by two smaller notes. One note in the sum of $50,500 was signed by Richardson as the principal obligor with MacArthur apparently signing as a guarantor. The second note was for $74,500 and it was signed by MacArthur alone. At the bottom of the respective notes a notation was made that 1500 shares of Bonneville stock secured Richardson's note, and 2200 shares secured MacArthur's note.
Although Richardson made no payments on the note reducing the principal, he continuously paid the monthly interest on his note through the due date of May 28, 1962. Richardson testified that around the due date on the note, MacArthur contacted him and related that the SEC was investigating Bonneville to determine if the intrastate registration exemption had been violated.1 For this reason, MacArthur said it was necessary to remove all documentary evidence that Richardson, who was not a Utah resident, was the actual owner of 1500 shares of Bonneville stock. Hence Richardson was led to believe that he was signing papers so that not only would the stock be in MacArthur's name, but also the notes reflecting the purchase price of the stock would also be in MacArthur's name.
Notwithstanding Richardson's belief that he was signing papers so that his name would be "taken off the note," the evidence showed that what Richardson actually signed was a note which renewed the $50,500 loan until November 29, 1962. Without dispute, Richardson thereafter paid nothing on the $50,500 note, and eventually MacArthur paid the renewal note in Richardson's name. Where MacArthur obtained the funds to pay Richardson's note, along with his own note for $74,500, is none too clear from the record. It appears that some of the funds used for repayment of the notes came from a complex series of transactions with other banks whereby loans were obtained on Bonneville stock and the proceeds were used to retire the notes at the Union Bank. It also appears that Bonneville made advances or loans to MacArthur which were used to reduce the Richardson note. In the final analysis, it was MacArthur who surreptitiously paid Richardson's note of $50,500, and it was MacArthur who received the 1500 shares that were securing Richardson's note.
After May, 1962, when Richardson supposedly was taken off the note, he made repeated inquiries concerning when the 1500 shares of stock would be transferred into his name. He was reassured by MacArthur that everything was fine and that time would soon be ripe to set straight the transaction to reflect Richardson's interest in the 1500 shares. By December, 1965, the stock price began to rise, and Richardson's inquiries became demands. At this point, Richardson was no longer met with reassurances from MacArthur, and instead it became clear that MacArthur intended to keep the stock.
There are four principal questions on this appeal: (1) Was the action barred by the statute of limitations; (2) was the trial judge's determination that MacArthur perpetrated a fraud on Richardson supported by the record; (3) was appellant Bonneville liable for MacArthur's deeds as a controlling person within the meaning of § 20(a) of the Securities Exchange Act of 1934; and (4) did the trial court...
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