Seattle-First Nat. Bank v. Carlstedt

• Citation: 678 F. Supp. 1543
• Decision Date: 20 August 1987
• Docket Number: CIV-83-2548-B,CIV-83-2544-B,CIV-83-2485-B,CIV-83-2555-B and CIV-83-2564-B.,CIV-83-2428-B,No. CIV-83-2425-B,CIV-83-2487-B,CIV-83-2425-B
• Parties: SEATTLE-FIRST NATIONAL BANK, a national banking association, Plaintiff, v. James CARLSTEDT, et al., Defendants.
• Court: U.S. District Court — Western District of Oklahoma

678 F. Supp. 1543

SEATTLE-FIRST NATIONAL BANK, a national banking association, Plaintiff, v. James CARLSTEDT, et al., Defendants.

Nos. CIV-83-2425-B, CIV-83-2428-B, CIV-83-2485-B, CIV-83-2487-B, CIV-83-2544-B, CIV-83-2548-B, CIV-83-2555-B and CIV-83-2564-B.

United States District Court, W.D. Oklahoma.

August 20, 1987.

Russell L. Mulinix, Hastie & Kirschner, Oklahoma City, Okl., for plaintiff.

James M. Shuler, Kaas, Hodges & Massari, Tampa, Fla., Larry D. Patton, Oklahoma City, Okl., for defendants.

ORDER GRANTING PLAINTIFF'S SECOND MOTION FOR SUMMARY JUDGMENT

BOHANON, District Judge.

I. INTRODUCTION

A. Background.

This is a collection action filed in October 1983. The cases were begun by Seattle-First National Bank ("Seattle-First") against 35 defendants (the "defendants"), including Bernard Edwards (the "defendant"), to enforce notes which these defendants executed in favor of Penn Square Bank ("Penn Square") in order to purchase limited partnership interests in an oil and gas tax shelter, Onyx Private Drilling Program, Ltd.-1981 ("Onyx Program"). The individual collection lawsuits were consolidated by order of this court on November 9, 1983.

At the outset of this case, on January 30, 1984, the defendants raised a counterclaim and asserted various affirmative defenses against enforcement of their notes. The counter-claim and defenses involved identical allegations that Seattle-First, either personally or by virtue of its status as assignee of the Penn Square notes or Penn Square's relationship as "agent bank" in a participation sold to Seattle-First, committed violations of the Securities Exchange Act of 1934 ("the 1934 Act"), 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5. Defendants also sought to state claims for violations of Oklahoma Blue Sky Law and for common law fraud.

B. The Bank's Motion to Dismiss Defendants' Counterclaim.

Seattle-First responded to the counter-claim on March 6, 1984, with a motion to dismiss, pursuant to Fed.R.Civ.P. 9(b) and 12(b)(6), asserting that the fraud and securities fraud allegations were not pleaded with the particularity required to state a claim. The District Court agreed and granted that motion to dismiss on April 25, 1984. See Seattle-First National Bank v. Carlstedt, 101 F.R.D. 715, 716-26 (W.D. Okla.1984), rev'd, 800 F.2d 1008 (10th Cir. 1986).

Immediately thereafter, the defendants moved to amend their counterclaim. The Court denied this motion on May 17, 1984, on the grounds that

the proposed amended pleading contains no new allegations that would bring the counterclaim within the limits of Fed.R. Civ.P. 9(b) and is no different in reality from the original.

Seattle-First National Bank v. Carlstedt, 101 F.R.D. at 726.

C. The Bank's First Motion for Summary Judgment.

On May 4, 1984, Seattle-First filed its first motion for summary judgment on its promissory notes. On May 21, 1984, the defendants offered various affidavits in opposition. These affidavits ostensibly supported their affirmative defenses — which were identical to the counterclaim previously dismissed by the Court — but primarily attacked the reputation and financial acumen of Penn Square. The defendants offered no evidence of any securities fraud relating to the Onyx Program. Thus, they complained that one of the other defendants (Mr. Carlstedt) had represented to them that Penn Square "endorsed ... the Onyx Program as an investment" but did not tell them that Penn Square would obtain upstream participation or that the Oklahoma bank was not "soundly managed in a businesslike manner." They also asserted, without explanation or support, that Penn Square's motivation "to provide financing" for the Onyx Program "was to assist Ramco the general partner in obtaining immediate revenue to retire a short-term debt ... and increase its revolving line of credit." In identical affidavits, the defendants unanimously averred that had Carlstedt told them these facts, they would never have purchased interests in the Onyx Program. The defendants also submitted another affidavit, by a Ramco director, Mr. Belcher, who said that one of the employees at Penn Square "knew and approved of" the use of Penn Square's name as a Ramco reference.

The information offered in the affidavits contained no evidence which would link Seattle-First to any fraudulent conduct and no evidence that would even support a cause of action against Penn Square. Accordingly, the Court held on May 25, 1984, that the defendants' affirmative defenses were legally and factually insufficient and that, pursuant to Fed.R.Civ. 56, the Bank was entitled to summary judgment on its promissory notes.

The District Court stated that the Bank's summary judgment was "good under all the pleadings and ... should be granted," and reiterated its concern about "the defendants' continuing attempt to interpose irrelevant issues in this simple action to collect on promissory notes." Order of May 25, 1984 at 2. After carefully reviewing the various affidavits offered by the defendants, the Court concluded that they:

contain nothing new that would implicate Seattle-First in any violation of federal or state securities laws, whether defendants would choose to press that issue as a counterclaim or as a defense to the action on these notes, and the court finds reason in this most recent material to reiterate its belief that defendants are interposing these claims merely to harass Seattle-First with "strike suit" issues. There is still nothing more tangible than an aspersion cast upon Seattle-First's relationship with Penn Square in the making of these notes. Defendants have deliberately attempted to mislead the court by misconstruing Penn Square's function as agent for collection under the original participation agreement to be a different kind of agency involving the making of the notes.

Id. at 2. The Court again reminded the defendants that lending money pursuant to a participation agreement was a normal and routine banking function. Id. at 2-3. After the original notes were produced and admitted into evidence, the District Court entered final judgment in Seattle-First's favor on May 29, 1984.

D. Tenth Circuit Appeal.

All defendants except for S. Lee Puckett Management Company and S. Lee Puckett appealed these decisions to the United States Court of Appeals for the Tenth Circuit. They raised a number of legal challenges to the District Court's rulings, including its decision to grant Seattle-First's motion to dismiss the counterclaim and its decision to grant Seattle-First's motion for summary judgment. During the appeals process, numerous defendants settled with the Bank and dismissed their appeals. Only seven remained as active appellants when the Tenth Circuit ruled.

On September 8, 1986, the Tenth Circuit issued its decision in Seattle-First National Bank v. Carlstedt, 800 F.2d 1008 (10th Cir.1986). The Tenth Circuit held:

Defendants raise several issues on appeal. Only one, however, is dispositive: whether the district court erred in dismissing defendants' counterclaim alleging federal securities fraud violations for failure to comply with the requirements of Rule 9(b) with the Federal Rules of Civil Procedure. We hold that the district court erred as a matter of law in dismissing defendants' counterclaim. We must therefore reverse.

Id. at 1010.

In its opinion, the Tenth Circuit agreed with this Court and concluded that Rule 9(b) was, in fact, applicable to claims arising under the federal securities laws, but differed in its application of Rule 9(b), finding that the counterclaim and amended counterclaim satisfied the Rule's requirements. More importantly — and of direct relevance to the instant motion — the Tenth Circuit agreed with this Court on the fundamental legal issue presented by Seattle-First's Rule 9(b) motion: that aiding and abetting liability under the federal securities laws may not be imposed for the performance of routine or normal banking functions, such as the lending of money or the selling of a participation interest in a loan. 800 F.2d at 1011 n. 2.

Despite the defendants' invitation, the Tenth Circuit declined to disturb the District Court's decision awarding summary judgment in favor of Seattle-First on its promissory notes and rejecting their affirmative defenses. Indeed, the Tenth Circuit expressly noted that the defendants' challenge to the Rule 9(b) dismissal order was the only one of their arguments which was "dispositive." Id. at 1010.

E. Remand to the District Court.

The matter returned to the District Court. On February 20, 1987, Seattle-First filed its second motion for summary judgment. This second motion for summary judgment was directed to the counterclaim only, because Seattle-First argued that the rest of this Court's decisions had been left standing on appeal. See, e.g., Mutual Life Insurance Co. v. Hill, 193 U.S. 551, 553-54, 24 S.Ct. 538, 538-39, 48 L.Ed. 788 (1904) (judgment of reversal on appeal "is not necessarily an adjudication by the appellate court of any other than the questions in terms discussed and decided").

The correct interpretation of Rule 9(b) is no longer before the Court. On a summary judgment motion, the nonmoving party "may not rely upon the allegations ... of his pleading." Fed.R.Civ.P. 56(e). Indeed, the major purpose of summary judgment is to "pierce the pleadings and to assess the proof in order to see whether there is a genuine need for trial." Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). Whether the pleading of the counterclaim satisfies the particularity standards outlined by the Tenth Circuit in this case is, therefore, irrelevant at this stage of the proceedings.

II. LEGAL ANALYSIS

A. Summary Judgment Standards.

As this case demonstrates, the summary judgment motion has replaced the motion to dismiss as a tool for isolating and disposing of factually insufficient claims....