Smith v. Pennington
| Decision Date | 18 December 2003 |
| Docket Number | No. 02-1535.,02-1535. |
| Citation | 352 F.3d 884 |
| Parties | Allen E. SMITH; Elvis H. Hester, Jr.; Larry R. Wigal; Francis Lentz; Leslie S. Hollowell; Thomas H. Adams; Sherman H. Blankenship; Alice S. Carr; David L. Armbrister; Jacqueline M. Armbrister; Draper Valley Baptist Church; Westminster Presbyterian Church Corporation Of Greensboro, North Carolina; Larry W. Armbrister; Carolyn Q. Armbrister, individually and on behalf of all others similarly situated, Appellants, David Partington, Reverend, individually and for the benefit of the David Partington Rabbi Trust of which he is beneficiary, and on behalf of all others similarly situated, Plaintiff-Appellant, v. John R. PENNINGTON; James H. Perry; Patricia B. Lane; David R. Tanner; Brian Kraider; Tom Maschel; Donald G. Long; Jeffrey Paine, Defendants-Appellees, and Robert H. Garner; Ken Johnson; U.S. Capital Funding, Incorporated; First Capital Services, Incorporated; First Capital Corporation; The Charterhouse Group, Ltd., Defendants. Carl F. Schoeppl, Party in Interest. |
| Court | U.S. Court of Appeals — Fourth Circuit |
John Francis Bloss, Sr., CLARK, BLOSS & WALL, P.L.L.C., Greensboro, North Carolina, for Appellants. Gary Michael Bowman, Roanoke, Virginia, for Appellees.
ON BRIEF:
David M. Clark, CLARK, BLOSS & WALL, P.L.L.C., Greensboro, North Carolina, for Appellants.
Before LUTTIG and SHEDD, Circuit Judges, and James H. MICHAEL, JR., Senior United States District Judge for the Western District of Virginia, sitting by designation.
Affirmed by published opinion. Judge LUTTIG wrote the opinion, in which Judge SHEDD and Senior Judge MICHAEL joined.
Plaintiff-appellant, the Reverend David Partington, sued defendants, including The Charterhouse Group, Ltd. ("Charterhouse"), and defendants-appellees ("appellees") for selling unregistered securities in violation of section 12(1) of the Securities Act of 1933, codified at 15 U.S.C. § 77l (2000). Partington sued individually and for the benefit of the Reverend David Partington Rabbi Trust (the "Partington Trust"), and also sought to represent a class of similarly situated individuals. After almost two years of litigation, the district court granted summary judgment against Partington because he lacked standing under section 77l, and also denied class certification. Appellants, who include other ministers, lay persons, and churches, moved for permissive intervention, filing in several groups both before and after the dismissal of Partington's claims. The district court denied appellants' motions, concluding that the statute of limitations had run on their claims. For the reasons stated below, we affirm the judgment of the district court in all respects.
Partington, a Presbyterian minister, wished to save for his retirement. Consequently, he entered into a deferred compensation plan with his church, Shallowford Presbyterian Church ("Shallowford"), pursuant to which, as a general matter, Shallowford agreed to fund a rabbi trust1 for Partington by diverting a portion of his salary into the trust, and to direct the trust to pay benefits to Partington or his beneficiaries upon his retirement or death. Shallowford, in turn, entered into a grantor trust agreement (the Partington Trust) with Charterhouse, which provided trustee services for rabbi trusts. In this agreement, Charterhouse agreed to act as trustee over the funds that Shallowford contributed to the trust, in order to provide Shallowford "with a source of funds to assist it in the meeting of its liabilities" to Partington. J.A. 499.
Partington claims that, in 1999, one R. Ray Levy approached Charterhouse and induced it to purchase viatical insurance contracts2 as investments for the trusts Charterhouse administered, promising above-market returns. Clients of Charterhouse apparently invested more than one million dollars in these viatical contracts; it invested more than $34,000 in funds from the Partington trust. The viatical contracts were purchased from Financial Federated Title & Trust ("FinFed") using a broker controlled by Levy. In late 1999, Partington received notice that the entire investment from his trust in the viatical contracts was lost. All in all, of the 115 million dollars nationwide that was given to FinFed for the purpose of purchasing viaticals, only about six million dollars was actually so used.
Allegedly, Levy also persuaded Charterhouse to advise its clients to purchase senior notes from defendant U.S. Capital Funding, Inc. ("U.S. Capital"), a company Levy controlled, which notes purported to fund U.S. Capital's loans to well-known companies. Partington claims that Charterhouse used over $52,000 in funds from the Partington trust to purchase such a note from U.S. Capital, and that Charterhouse defendants persuaded numerous other ministers to invest in these notes. He asserts that members of his proposed class purchased over seven million dollars of these notes. U.S. Capital is now in bankruptcy, and has refused Partington's requests for payment on the note. Partington claims the investments made for the benefit of the Partington Trust all were made after consultation with and direction from him, without any input from his church.
Subsequently, Partington moved his ministry to Westminster Presbyterian Church ("Westminster"). Shallowford assigned its rights in the trust to Westminster; as part of that agreement, Westminster, unsurprisingly, replaced Charterhouse with Centura Bank as Trustee.
On February 20, 2000, Partington filed suit against defendants3 and appellees, which included Charterhouse, U.S. Capital, and other entities, as well as several individuals Partington labels "Charterhouse agents."4 After an extensive procedural history, the district court finally granted summary judgment against Partington on February 15, 2002, renewing, on its own motion, earlier-filed motions to dismiss and reinterpreting them as motions for summary judgment. The court concluded that Partington was not the legal beneficiary of the Partington Trust, and thus could not be considered the "person purchasing" the alleged securities, as is required to maintain his federal securities claim. The court also denied class certification, primarily because Partington's failure to state a claim meant he could not adequately represent anyone who did. Given its conclusion as to the only federal claim in the case, the court dismissed Partington's state law claims for lack of jurisdiction. Partington moved for reconsideration of this order on March 18, 2002, but that motion was denied.
Additional parties moved for permissive intervention on four different occasions over the course of the litigation, in each case seeking to intervene individually and on behalf of all others similarly situated. Two groups of persons sought intervention prior to dismissal of the case, but the court did not act on their motions before dismissal. After the case was dismissed and reconsideration denied, two other groups of persons and churches filed motions for permissive intervention. The district court held a hearing and, on May 14, 2002, denied all motions for intervention. The court reasoned that appellants' claims were not entitled to equitable tolling because appellants were not within the class Partington was seeking to have certified over the course of the litigation, and thus the one-year statute of limitations had run on all of appellants' claims. Along with appellants, Partington appeals from the district court's orders granting summary judgment and denying class certification, denying reconsideration, and denying the motions for intervention.
Partington first claims that the district court erred in granting summary judgment against him on the basis that he lacked standing to sue for the alleged sales of unregistered securities. Reviewing this determination de novo and construing the evidence in the light most favorable to Partington, see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986), we conclude that the district court's decision was correct. Accordingly, we hold that Partington lacks standing under section 77l, both in his individual capacity and for the benefit of the Partington Trust, to recover against appellees.
Section 77l provides, in relevant part, that "[a]ny person who ... offers or sells a security in violation of section 77e of this title ... shall be liable ... to the person purchasing such security from him ...." (emphasis added). As did the district court, we will assume, without deciding, that the notes and viaticals were securities for the purpose of section 77l. Appellees do not contest that these securities were sold without the registration required by section 77e. Nevertheless, under the plain language of section 77l, Partington cannot recover unless he is a "person purchasing such securit[ies]" as defined in this provision.
There is no allegation that Partington himself actually purchased these securities. To the contrary, Charterhouse, as trustee, purchased the viatical contracts and the note for the benefit of the Partington Trust. Instead, Partington's theory below was that he was the beneficiary of the Partington Trust, and since funds from that trust were used to purchase the securities for the benefit of that trust, he should be considered a "person purchasing" those securities. The district court, however, concluded that, even assuming that an equitable beneficiary can be a purchaser for the purpose of section 77l, Partington was not the trust beneficiary "in a legal sense," J.A. 502 — a conclusion Partington deems "hypertechnical." Opening Br. of Appellant at 20.
We recognize that other courts have, with respect to section 10(b) of the Securities Exchange Act of 1934 and S.E.C. Rule 10b-5, accorded a flexible construction to the determination of who is a purchaser or seller to avoid...
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