Tanenbaum v. Agri-Capital, Inc., AGRI-CAPITA

• Decision Date: 15 September 1989
• Docket Number: AGRI-CAPITA,Nos. 88-1708-E,INC,88-2132-EA,s. 88-1708-E
• Parties: Blue Sky L. Rep. P 73,014, Fed. Sec. L. Rep. P 94,725, 9 UCC Rep.Serv.2d 1266 B.J. TANENBAUM, Jr., Appellant, v.; James O. Young, Sabine Capital Corporation; Worthen Bank & Trust Company, N.A.; and First National Bank of Shreveport, Appellees. FIRST NATIONAL BANK OF SHREVEPORT, Appellant, v. B.J. TANENBAUM, Jr., Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 464

885 F.2d 464

Blue Sky L. Rep. P 73,014, Fed. Sec. L. Rep. P 94,725,

9 UCC Rep.Serv.2d 1266

B.J. TANENBAUM, Jr., Appellant, v. AGRI-CAPITAL, INC.; James O. Young, Sabine Capital

Corporation; Worthen Bank & Trust Company, N.A.;

and First National Bank of Shreveport,

Appellees.

FIRST NATIONAL BANK OF SHREVEPORT, Appellant, v. B.J. TANENBAUM, Jr., Appellee.

Nos. 88-1708-EA, 88-2132-EA.

United States Court of Appeals,

Eighth Circuit.

Submitted Dec. 15, 1988.

Decided Sept. 15, 1989.

Michael J. Dennis, Pine Bluff, Ark., for appellant.

E. Harley Cox, Jr., Pine Bluff, Ark., for appellees.

Before McMILLIAN and BEAM, Circuit Judges, and HARPER, ^* Senior District Judge.

HARPER, Senior District Judge.

This is a consolidation of appeals by opposing parties of a jury verdict that resulted from a trial in the Eastern District of Arkansas. Plaintiff (hereinafter Tanenbaum) filed a claim for damages based on violations of the Arkansas and Federal Securities Acts. Defendants initially were First National Bank of Shreveport (hereinafter First National), James O. Young (hereinafter Young), Agri-Capital, Inc. (hereinafter Agri-Capital), Rob Thorpe (hereinafter Thorpe), and Worthen Bank & Trust Company, N.A. (hereinafter Worthen). Young, Thorpe and Agri-Capital settled with Tanenbaum prior to trial. A jury trial was held against First National with Worthen present as a nominal party. First National filed a counterclaim for collection of a promissory note. Judgment was entered against Tanenbaum and in favor of First National on its counterclaim. The judgment included an award of attorney's fees to First National. Tanenbaum appeals the judgment entered against him. First National appeals the amount of attorney's fees it was awarded, contending that the amount should have been considerably higher. The following facts give rise to these appeals.

On December 28, 1984, Tanenbaum and Longcrier Farms (hereinafter Longcrier) entered into a Breeding and Management Agreement (hereinafter Agreement). This agreement provided that Tanenbaum would purchase cattle embryos and Longcrier would place them in recipient cows, produce calves, raise the calves to maturity, collect high-breed embryos from those cows, and market the high-breed embryos. The total purchase price was $100,000.00. Tanenbaum paid $25,000.00 in cash to Longcrier and signed a promissory note for $75,000.00. The promissory note was secured by a letter of credit issued by Worthen. The note was made payable to Sabine Capital Corporation, which was established by Longcrier to receive investor notes and pledge those notes to banking sources in exchange for current funds. On November 27, 1984, First National prepared a loan committee presentation summary which reflected a tentative decision to loan funds to Sabine Capital Corporation based on the pledge of investor notes. On February 15, 1985, Tanenbaum's note was endorsed to First National.

On November 18, 1985, Tanenbaum was notified in writing that a lien had been placed on all of Longcrier's cattle. Tanenbaum later discovered that Longcrier had entered into bankruptcy proceedings. Tanenbaum failed to pay an interest installment, and First National drew upon the letter of credit. Subsequently, Tanenbaum and First National agreed to reinstate the Letter of Credit. Tanenbaum paid the interest through March 31, 1986, and then failed to make payments on the interest or the principal from that point on. Tanenbaum filed suit for damages based on violations of the Arkansas and Federal Securities Acts. Tanenbaum alleged that First National was an aider and abetter of the sale. First National counterclaimed for collection of the amount due on the promissory note. A jury returned a verdict for First National for $88,920.21, which represented the full amount of principal with accrued interest.

First National applied to the district court for attorney's fees and submitted a supporting affidavit claiming 365.20 hours of legal services at $125.00 an hour, for a total of $46,650.00. The trial court disallowed this amount on the ground that the supporting affidavit did not show a differentiation between the time spent in defense of Tanenbaum's claims of aider and abetter as opposed to time spent in collection of the promissory note, and was insufficient in supporting documentation. First National filed a supplemental motion and affidavit wherein the claimed hours were reduced from 365.20 to 210.30 at $125.00 an hour, making a total of $26,287.50. The district court awarded First National attorney's fees in the amount of $8,500.00 and costs in the amount of $428.05. Tanenbaum appeals the verdict in favor of First National. First National appeals the amount of attorney's fees which it was awarded.

In Tanenbaum v. First National, the issues on appeal are:

I. WHETHER THE TRIAL JUDGE ERRED IN FAILING TO DIRECT A VERDICT ON THE ISSUE OF WHETHER THE THING PURCHASED BY THE PLAINTIFF WAS A SECURITY AND ISSUE A BINDING INSTRUCTION TO THE JURY.

II. WHETHER THE TRIAL JUDGE ERRED IN DIRECTING A VERDICT THAT THE SALE OF THE SECURITY TO PLAINTIFF WAS THE SALE OF AN UNREGISTERED SECURITY IN VIOLATION OF ARKANSAS LAW AND DELIVER A BINDING INSTRUCTION ON THAT ISSUE.

III. WHETHER THE TRIAL JUDGE ERRED IN FAILING TO DIRECT A VERDICT AND ISSUE A BINDING INSTRUCTION ON THE ISSUE OF WHETHER THE PROMISSORY NOTE GIVEN FOR THE SECURITY WAS A NEGOTIABLE INSTRUMENT.

IV. WHETHER THE TRIAL JUDGE ERRED IN FAILING TO GIVE AN INSTRUCTION REGARDING THE NON-WAIVER PROVISION OF THE ARKANSAS SECURITIES ACT.

V. WHETHER THE TRIAL JUDGE ERRED IN GIVING CERTAIN INSTRUCTIONS PROFFERED BY DEFENDANT FIRST NATIONAL BANK OF SHREVEPORT WHICH WERE IMPROPER IN LIGHT OF THE APPLICABLE LAW.

VI. WHETHER THE ATTORNEY'S FEE AWARD WAS EXCESSIVE.

In First National v. Tanenbaum, the issues on appeal are:

I. WHETHER TEXAS LAW GOVERNS THE PARTIES' RIGHTS RESPECTING THE NOTE.

II. WHETHER THE TRIAL COURT ERRED IN DISALLOWING ATTORNEY'S FEES INCURRED IN DEFENSE OF CLAIMS THAT THE NOTE WAS INVALID.

Taking up first the issues on appeal in Tanenbaum v. First National:

I. WHETHER THE TRIAL JUDGE ERRED IN FAILING TO DIRECT A VERDICT ON THE ISSUE OF WHETHER THE THING PURCHASED BY THE PLAINTIFF WAS A SECURITY AND ISSUE A BINDING INSTRUCTION TO THE JURY.

At the close of the evidence, Tanenbaum requested that the Court direct a verdict that the cattle embryo investment was a security as defined by Arkansas and Federal law, and requested that the Court give a binding instruction to that effect. The Court refused to do so. Tanenbaum asserts that the Court's refusal constitutes reversible error.

Arkansas law applies a five-part test to determine whether a particular interest is a security. This test mandates consideration of the following factors: (1) Investment of money or money's worth; (2) investment in a venture; (3) expectation of some benefit to the investor as a result of the investment; (4) contribution toward the risk capital of the venture; (5) absence of direct control over the investment or policy decisions concerning the venture. Smith v. State, 266 Ark. 861, 587 S.W.2d 50, 52 (Ark.App.1979), cert. denied, 445 U.S. 905, 100 S.Ct. 1082, 63 L.Ed.2d 321 (1980). The Supreme Court, in interpreting the analogous federal securities law, 15 U.S.C. Sec. 77b(1), defined three factors that must be met in order to classify a program as a security: (1) An investment of money, (2) in a common enterprise, and (3) on an expectation of profits to be derived solely from the efforts of individuals other than the investor. Securities and Exchange Commission v. W.J. Howey Co., 328 U.S. 293, 301, 66 S.Ct. 1100, 1104, 90 L.Ed. 1244 (1946).

Tanenbaum argues that the cattle embryo program clearly meets the criteria outlined in Smith for the following reasons: (1) He invested a total of $100,000.00 for his interest in the program. (2) The cattle-breeding program was a venture as defined by Black's Law Dictionary 1396 (5th Ed.1979), "An undertaking attended with risk, especially one aiming at making money; business speculation." (3) The program's offering memorandum shows that this program was designed to generate profit and income for its investors. (4) The program's offering memorandum shows how the initial investment is used to finance the overall breeding process. (5) Investors were required to execute Breeding and Management Agreements giving Longcrier the power to manage the program.

First National disagrees with Tanenbaum's assertion that the sale of pure bred cattle embryos pursuant to the management contract arrangement entered into by Tanenbaum and Longcrier constituted a security under both federal and state laws. First National concedes that Tanenbaum invested money in expection of a financial benefit, but contends that there were considerable factual disputes over the status of the program as a "venture," whether Tanenbaum lacked the opportunity for control over his property, and whether Tanenbaum was dependent upon Longcrier to manage the embryos.

The essential question is not whether Tanenbaum actually exercised his right of control over his property, but rather whether he retained ultimate control over the property. Schultz v. Dain Corp., 568 F.2d 612, 615 (8th Cir.1978); Fargo Partners v. Dain Corp., 540 F.2d 912, 915 (8th Cir.1976). First National argues that in this case reasonable minds might find that Tanenbaum possessed the requisite business experience to enable him to control his property and that he, therefore, was not dependent upon Longcrier to manage the embryos, the recipient cattle or the resulting calves.

Whether a question should be submitted to a jury upon proper instructions depends upon whether factual issues exist over which reasonable minds might disagree. Taylor v. Cochran, 830 F.2d 900, 902 (8th Cir.1987), cert. denied, --- U.S. ----, 108 S.Ct. 1476, 99 L.Ed.2d 704 (1988). We find that the district court acted properly in refusing to direct a verdict on...