Roberson v. PaineWebber, Inc.

• Decision Date: 15 October 1999
• Docket Number: No. 91747.,91747.
• Citation: 998 P.2d 193,1999 OK CIV APP 17
• Parties: John R. ROBERSON, David B. Magill and Andrew O'Dwyer, Plaintiffs/Appellants, v. PAINEWEBBER, INC., Painewebber Group, Inc., Blythe Eastman Painewebber Servicing, Inc., Fourth Street Associates, Rmm Corporation, AJ Corporation, Greater Southwestern Funding Corporation, Phc Corporation and Midtown Associates Limited Partnership, Defendants/Appellees.
• Court: United States State Court of Criminal Appeals of Oklahoma. Court of Civil Appeals of Oklahoma

998 P.2d 193

1999 OK CIV APP 17

John R. ROBERSON, David B. Magill and Andrew O'Dwyer, Plaintiffs/Appellants, v. PAINEWEBBER, INC., Painewebber Group, Inc., Blythe Eastman Painewebber Servicing, Inc., Fourth Street Associates, Rmm Corporation, AJ Corporation, Greater Southwestern Funding Corporation, Phc Corporation and Midtown Associates Limited Partnership, Defendants/Appellees.

No. 91747.

Court of Civil Appeals of Oklahoma, Division No. 1.

October 15, 1999.

Certiorari Denied January 20, 2000.

Mike Barkley, Leslie C. Weeks, Tulsa, Oklahoma, and Joel H. Bernstein, New York, New York, and Laurence L. Pinkerton, Judith A. Finn, Tulsa, Oklahoma, For Appellant,

John T. Schmidt, Andrew R. Turner, Tulsa, Oklahoma, and Philip J. John, Jr, David D. Sterling, Samuel Cooper, Houston, Texas, and William B. Federman, Bill Powell Guest, Oklahoma City, Oklahoma, For Appellee.

Released for Publication by Order of the Court of Civil Appeals of Oklahoma, Division No. 1.

OPINION

CARL B. JONES, C.J.:

¶ 1 In this appeal from these motions to dismiss, we are asked to determine whether the Appellants have stated a claim upon which relief can be granted. In 1985, Appellants, John R. Roberson, David B. Magill and Andrew O'Dwyer, purchased high yield zero coupon bonds in a public offering. These bonds were issued as part of the financing of the construction of the MidContinent Tower in Tulsa, Oklahoma which would serve as the headquarters for Reading & Bates, Inc. (Reading). Series A Bonds and Series B Bonds were issued. The bonds upon which this lawsuit is based are the Series B Bonds. Repayment of the bonds depended upon Reading's unconditional long-term lease obligations. Reading, a public company involved in the oil and gas business, began suffering large losses by year-end 1985 and defaulted on its lease obligations in 1987, which resulted in a default on the bonds.

¶ 2 Appellants Roberson and Magill initially filed their petition on March 22, 1996. Then, on September 2, 1997, Appellants Roberson, Magill and O'Dwyer filed a consolidated amended petition individually and as a class action. Appellants alleged common law fraud, constructive fraud, negligent misrepresentation, breach of fiduciary duty, unjust enrichment, conversion, breach of an implied covenant, conspiracy, and breach of third party beneficiary contracts. The trial court never determined whether this action should be certified as a class action because Appellees Lehman Brothers and Smith Barney filed a Motion to Dismiss alleging that the statute of limitations had run. All of the other Appellees filed a Motion to Dismiss or in the alternative a Motion for Summary Judgment asserting that the statute of limitations had run and failure to state a claim. These issues were fully briefed by the parties, and the record reflects, that the parties presented oral arguments in support of their positions. At this hearing, Appellants agreed to dismiss Blyth Eastman PaineWebber Servicing, Inc., Fourth Street Associates, RMM Corporation, AJ Corporation, PHC Corporation and Mid Town Associates Limited Partnership. The trial court took the motions under advisement and on May 26, 1998, the trial court announced its decision from the bench granting the motions to dismiss without leave to amend and, in the alternative, also granting the motion for summary judgment. The written order was filed July 17, 1998. Appellants appealed.

¶ 3 On appeal, Appellants failed to file a petition in error timely against Lehman Brothers and Smith Barney as Appellees. On February 16, 1999, the Oklahoma Supreme Court dismissed the appeal against these parties. The Appellees remaining in this appeal are PaineWebber, Inc., PaineWebber Group, Inc. and Greater Southwestern Funding Corporation (PaineWebber).

¶ 4 A responsive pleading asserting the defense of failure to state a claim is treated as a motion for summary judgment when the parties present matters outside the pleadings and the trial court does not exclude these materials. Meadows v. Fain, 1989 OK 100, ¶ 8, 776 P.2d 1270, 1271. The parties introduced matters outside the pleadings when they submitted their briefs in support of their respective positions and the trial court noted that it had reviewed the attached documents. Accordingly, the standard of review on appeal will be that standard applied when reviewing summary judgment matters. Summary judgment is proper only when the pleadings, affidavits, depositions, or other evidentiary materials establish that no genuine issue exists regarding any material fact, and that the moving party is entitled to judgment as a matter of law. In reviewing, a motion for summary judgment, all inferences and conclusions drawn from the evidence must be viewed in a light most favorable to the party opposing the motion for summary judgment. Shelley v. Kiwash Electric Coop. Inc., 1996 OK 44, ¶ 15, 914 P.2d 669, 674.

¶ 5 PaineWebber asserts that determining whether a fact question exists on the asserted claims is unnecessary because the entire claim is barred by the statute of limitations. Appellant O'Dwyer, is a resident of Virginia and contends that the applicable statute of limitation for his claim is controlled by Virginia law. Both Oklahoma and Virginia provide that the statute of limitations period for a fraud claim is two years which is the shortest statute of limitation for the claims alleged. 12 O.S.1991 § 95. STB Mktg. Corp. v. Zolfaghari, 240 Va. 140, 393 S.E.2d 394. A statute of limitations begins to run from the time the cause of action accrues. A cause of action accrues when the litigant could maintain for the first time the cause of action to conclusion. Stephens v. General Motors Corp., 1995 OK 114, ¶ 8, 905 P.2d 797, 799. Fraud is deemed to have been discovered when, in the exercise of reasonable diligence, it could have or should have been discovered. Baker v. Massey, 1977 OK 170, ¶ 12, 569 P.2d 987, 991.

¶ 6 Appellants contend that the statute of limitation began to run when the foreclosure suit on the collateral supporting the B bonds was filed on July 26, 1994, as that was when the bondholders first incurred any damage to their investment and when the bondholders were put on notice of any fraud committed by PaineWebber. PaineWebber contends that when Reading was unable to pay the lease payments, injury occurred and Appellants with reasonable notice could have determined the injury.

¶ 7 PaineWebber contends that the prospectus provided to Appellants expressly disclosed Reading's central role in the success or failure of the investment as the prospectus provided: "Each of Southwestern, the Owner, MCA and RMM, as indicated, has limited equity capital and none of them can be viewed as a source of payment for the Bonds. As discussed above, payment of principal and interest will depend on R & B's ability to make rental payments under the Lease." Further, PaineWebber asserts that Appellants could have with the slightest exercise of diligence discovered Reading's quarterly and annual losses report in Reading's SEC filing during 1985 and 1986, both reported in The Wall Street Journal and in local publications. According to PaineWebber, by December 1987, Reading's default and its debt restructuring efforts were covered in the national and local financial media and readily available to Appellants. In addition, PaineWebber contends that the prospectus advised Appellants that Reading's net income was on the decline because in 1981 Reading's net income was approximately $93 million and in 1984 was only $25 million. The prospectus explained: "The primary reason for the net income decline in 1984 was the continuing decline in the demand for energy and related services." PaineWebber contends that this disclosure placed Appellants on inquiry notice. Appellants argue that PaineWebber has cast this investment as if the bonds had been issued by Reading rather than Greater Southwestern Funding Corporation and because Reading was not the issuer, Appellants could not be put on inquiry notice as Appellants relied on the advice of their brokers, not the information in the prospectus. Additionally, Appellant O'Dwyer denies ever receiving a copy of the prospectus.

¶ 8 PaineWebber argues that if the above information did not place Appellants on notice, that the latest date that the statute of limitations could have been triggered was on March 4, 1988, when the law firm of Csaplar & Bok, based in Boston, Massachusetts, wrote a letter to the holders of the B Bonds informing them that PaineWebber had retained this law firm to represent the interests of the B bondholders and advising the holders that Reading had defaulted on its rent and consequently the bonds were in default. All of the Appellants deny ever receiving this letter. Based on the evidence provided, the facts are disputed regarding when a reasonable person with due diligence would have discovered the alleged fraud and injury to their investments. It was error for the trial court to grant summary judgment on the issue of the statute of limitations.

¶ 9 The second issue for review is whether as a matter of law summary judgment should have been granted on Appellants' claim of fraud. To pursue a claim of fraud, Appellants must prove a) PaineWebber made a material representation; b) that the representation was false; c) PaineWebber knew it was false or made it recklessly, without regard for its truth; d) PaineWebber made it with the intention that Appellants act upon it; and e) injury was suffered by Appellants as a result. Silk v. Phillips Petroleum Co., 1988 OK 93, ¶ 12, 760 P.2d 174, 176-77. Appellants produced an affidavit from a broker who had worked for PaineWebber and had sold these particular B Bonds. The broker testified that PaineWebber had discouraged their brokers from studying the prospectus themselves or advising clients to read the prospectus. Instead, PaineWebber provided documents to the brokers which the brokers were to use in promoting...