Semegen v. Weidner

• Decision Date: 16 January 1986
• Docket Number: 84-2730,Nos. 84-2174,s. 84-2174
• Citation: 780 F.2d 727
• Parties: Fed. Sec. L. Rep. P 92,436 Susan C. SEMEGEN, et al., Plaintiffs-Appellants, v. Stephen M. WEIDNER, et al., Defendants, and Robert Alexander, Alexander & Rosenberg, David B. Winder, and Peat, Marwick, Mitchell & Co., Defendants-Appellees. Susan C. SEMEGEN, et al., Plaintiffs-Appellants, v. Stephen M. WEIDNER, et al., Defendants, and Jan Mirsky and Daniel Topper, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 727

780 F.2d 727

Fed. Sec. L. Rep. P 92,436

Susan C. SEMEGEN, et al., Plaintiffs-Appellants, v. Stephen M. WEIDNER, et al., Defendants, and Robert Alexander, Alexander & Rosenberg, David B. Winder, and Peat, Marwick, Mitchell & Co., Defendants-Appellees.

Susan C. SEMEGEN, et al., Plaintiffs-Appellants, v. Stephen M. WEIDNER, et al., Defendants, and Jan Mirsky and Daniel Topper, Defendants-Appellees.

Nos. 84-2174, 84-2730.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Aug. 14, 1985.

Decided Sept. 24, 1985.

Designated for Publication Jan. 16, 1986.

Caroline Barron, Joseph A. Schenk, Beus, Gilbert, Wake & Morrill, Phoenix, Ariz., for plaintiffs-appellants.

Gary F. Bendinger, Giauque & Williams, Salt Lake City, Utah, Frank M. Placenti, Phoenix, Ariz., for defendants-appellees.

Appeals from the United States District Court for the District of Arizona.

Before TANG and FERGUSON, Circuit Judges, and JAMESON, ^* District Judge.

FERGUSON, Circuit Judge:

Investors in a group of purported coal-mining ventures appeal the dismissal of their securities fraud action as to certain defendants by the district court. We affirm the dismissal with respect to defendants David Winder, the accounting firm of Peat, Marwick, Mitchell & Co., Robert Alexander and the law firm of Alexander & Rosenberg (No. 84-2174), and reverse with respect to defendants Jan Mirsky and Daniel Topper (No. 84-2730).

I.

Beginning in 1976 defendants Stephen M. Weidner ("Weidner") and Stein Skattum ("Skattum") developed a scheme whereby they created six limited partnerships and joint ventures for the stated purpose of mining and marketing coal. Pursuant to this plan Weidner and Skattum, with the assistance of certain accounting and legal professionals, put together six private placement offerings in which limited partnership or joint venture interests in the mining ventures were sold to private investors.

The six coal ventures, Kiwebb Associates, Ltd., Renim Associates, Ltd., Walden Coal Venture, Bank Creek Coal Venture, Collins Fork Associates, and New Star Venture, had a common structure. Each had a venture administrator or general partner who purported to transact business on behalf of the individual investors. Jan Mirsky ("Mirsky") was a general partner of Renim Associates, Ltd. Daniel Topper ("Topper") was the venture administrator of Bank Creek Coal Venture. In all cases the venture leased coal mining rights from an entity which was wholly owned by the two major promoters. This entity in turn leased the coal rights from another corporation that was either owned or controlled by one of the other defendants. In each venture a large "advance royalty" payment was required before "contract miners" would agree to mine and market the coal. The "contract miner" was allegedly either owned or controlled by Weidner and Skattum or by Robert Alexander ("Alexander"), Melvin Katz and the law firm of Alexander, Katz, Rosenberg & Kole, purported by appellants to be the predecessor firm of Alexander & Rosenberg ("A. & R.").

The offering materials utilized to promote and sell the coal mining ventures represented that the venture would be profitable and that investors would enjoy certain tax benefits based upon the depletion allowance. The materials implied that the leases and contractual arrangements were structured in an arm's length manner. The materials did not disclose, among other things, the relationship between Weidner and Skattum and the entities from which the ventures leased coal mining rights.

Financial projections for four of the six ventures--Kiwebb Associates, Ltd., Renim Associates, Ltd., Walden Coal Venture, and Bank Creek Coal Venture--used in the offering materials were allegedly prepared by David Winder ("Winder"), a partner of Peat, Marwick, Mitchell & Co. ("P.M.M."), and P.M.M. P.M.M. and Winder also allegedly acted as accountants for these four ventures.

The plaintiffs-appellants in this action, relying on the offering materials, invested in the ventures. As it turned out, virtually no coal was ever mined by any of the ventures. The Internal Revenue Service did not allow the promised tax benefits. The investment capital intended for venture operations was instead diverted to the personal use of individual defendants. Between December 31, 1976 and December 31, 1978 each of the ventures closed its operation.

The investors then filed an action in the United States District Court for the District of Arizona seeking to recover consideration or damages with respect to monies paid to the promoters and sellers of the coal mining ventures. Subsequently, additional investors joined the action and a revised amended complaint was filed. Over thirty defendants, among whom were Mirsky, Topper, Winder, Alexander, P.M.M., and A. & R., were named in the complaint.

Various defendants filed motions to dismiss the plaintiffs' complaint. The district court treated these motions as motions for a more definite statement and ordered the plaintiffs to submit a complaint stating their claims with greater specificity. Plaintiffs filed a motion for leave to file a second amended complaint. This motion was granted and plaintiffs filed their second amended complaint. The complaint sought relief based on claims of: (1) conspiracy to violate the securities laws; (2) violation of section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. Sec. 78j(b), and Rule 10b-5, 17 C.F.R. Sec. 240.10b-5, promulgated under the Securities Exchange Act of 1934 by the Securities Exchange Commission; (3) violation of section 17(a) of the Securities Act of 1933, 15 U.S.C. Sec. 77q(a); (4) aiding and abetting federal securities violations; (5) common-law fraud; (6) breach of fiduciary duty; (7) breach of contract; (8) negligence; (9) violation of state security laws; (10) state racketeering; and (11) demand for an accounting.

Defendants Mirsky and Topper then filed a consolidated motion to dismiss. The court ordered Mirsky and Topper to submit a statement of uncontested facts. The statement and a supplemental statement were submitted. The plaintiffs filed controverting statements. Because matters outside the pleadings had thus been submitted for consideration by the court, the district court treated the motion as one for summary judgment and entered a written order granting summary judgment in favor of Mirsky and Topper. Plaintiffs appeal this judgment.

Also in response to plaintiffs' filing of the second amended complaint, defendants Winder and P.M.M., as well as Alexander and A. & R., renewed motions to dismiss. The district court granted the motions to dismiss. Plaintiffs appeal this judgment. Both this appeal, No. 84-2174, and the companion appeal of the summary judgment entered in favor of Mirsky and Topper, No. 84-2730, are disposed of in this memorandum.

II.

Because this opinion addresses two companion appeals, we will discuss the two separately. Due to the fact that questions of personal jurisdiction and venue are raised in both appeals, however, we will discuss these issues first before dividing our discussion.

The defendants, with the exception of P.M.M., contend that the district court had no personal jurisdiction over them because they do not have the requisite minimum contacts with the State of Arizona, where the action was filed. In light of the recent case of Securities Investor Protection Corp. v. Vigman, 764 F.2d 1309 (9th Cir.1985), this argument is without merit.

In Vigman, this circuit held that the appropriate standard to apply in determining whether the district court has personal jurisdiction over a defendant in an action brought under the Securities and Exchange Act of 1934 "is whether that defendant had sufficient contacts with the United States and not whether the defendant had sufficient contacts with the forum district." 764 F.2d at 1318. The district court, therefore, clearly had personal jurisdiction over the defendants here, who all reside in the United States. Id.

The defendants further contend that venue is improper in the District of Arizona. This argument is also refuted by Vigman. Vigman held that the co-conspirator venue theory, under which venue is proper as to all co-conspirators so long as venue is proper as to any one of them, applies to actions brought under the federal securities laws. 764 F.2d at 1318. Because defendants not involved in this appeal offered and sold coal venture investments in the State of Arizona, venue is proper with respect to the defendants involved in this appeal if plaintiffs have set forth sufficient facts to connect them with the alleged scheme.

III.

The district court dismissed the plaintiffs' claims against Winder, P.M.M., Alexander and A. & R. with prejudice "for all of the reasons stated in their supporting briefs." Because the contention of these defendants that the plaintiffs failed to meet the requirements of Rule 9(b) of the Federal Rules of Civil Procedure is dispositive here--making the dismissal proper--we need not discuss the other grounds asserted by each defendant.

Rule 9(b) provides in pertinent part that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Rule 9(b) ensures that allegations of fraud are specific enough to give defendants notice of the particular misconduct which is alleged to constitute the fraud charged so that they can defend against the charge and not just deny that they have done anything wrong. See Bosse v. Crowell Collier & Macmillan, 565 F.2d 602, 611 (9th Cir.1977). It also prevents the filing of a complaint as a pretext for the discovery of unknown wrongs and protects potential defendants--especially professionals whose reputations in their fields of expertise are most sensitive to slander--from the harm that comes from being charged with the commission of fraudulent acts.

Despite repeated opportunities given them by the district court, the plaintiffs have failed...