Walling v. Beverly Enterprises, No. 71-1510.

CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)
Writing for the CourtMERRILL, HUFSTEDLER, and CHOY, Circuit
Citation476 F.2d 393
PartiesDean WALLING et al., Plaintiffs-Appellants, v. BEVERLY ENTERPRISES, a California corporation, Defendant-Appellee.
Docket NumberNo. 71-1510.
Decision Date09 April 1973

476 F.2d 393 (1973)

Dean WALLING et al., Plaintiffs-Appellants,
v.
BEVERLY ENTERPRISES, a California corporation, Defendant-Appellee.

No. 71-1510.

United States Court of Appeals, Ninth Circuit.

April 9, 1973.


476 F.2d 394
COPYRIGHT MATERIAL OMITTED
476 F.2d 395
John P. Hanrahan (argued), Los Angeles, Cal., for plaintiffs-appellants

Thomas H. McGovern (argued), William F. Rinehart, H. Stephen Cranston, MacDonald, Halsted & Laybourne, Los Angeles, Cal., for defendant-appellee.

Before MERRILL, HUFSTEDLER, and CHOY, Circuit Judges.

CHOY, Circuit Judge:

Appellants (West Texas Shareholders), owners of all the shares of West Texas Medical Center, Inc. (West Texas), a Texas corporation, brought this action against Beverly Enterprises (Beverly), a California corporation, for alleged violations of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j (b),1 and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5,2 and for breach of contract. Federal jurisdiction is based solely on the securities law violations.3

The district court held that West Texas Shareholders had failed to state a claim for relief under federal securities law and therefore dismissed the action for lack of subject matter jurisdiction. The validity of this ruling is the sole issue presented on appeal. We reverse.

The federal securities claim asserted by West Texas Shareholders arose from an agreement dated August 26, 1969, between Beverly and West Texas Shareholders, for an exchange of all of the common stock of West Texas for common stock of Beverly. The total value of the Beverly stock consideration, $2,700,000, was payable in one down payment and three annual installments. Each of the four payments was to have a fixed value of $675,000 and the number of shares to be issued representing each payment was to be determined by the average closing price of Beverly stock on the American Stock Exchange during the ten day trading period preceding the payment date of the installment. Thus, substantial fluctuations in the trading price of Beverly stock would have a significant effect on the consideration West Texas Shareholders were to receive.

The arrangement, however, was never consummated because Beverly refused to proceed, claiming that it had received information that West Texas's hospital building was in need of major repair and that it could not obtain a firm commitment from its own insurance carrier to include West Texas within its insurance plan. West Texas Shareholders attempted to accommodate Beverly, but the parties were unable to settle their differences and this suit was filed.

In reviewing a dismissal of a complaint for failure to sufficiently allege jurisdiction, we must accept the allegations in the complaint as true. Vine v. Beneficial Finance Co., Inc., 374 F.2d

476 F.2d 396
627 (2nd Cir.), cert. denied, 389 U.S. 970, 88 S.Ct. 463, 19 L.Ed.2d 460 (1967); 2A J. Moore, Federal Practice ¶ 12.08 (2d ed. 1972). Disregarding the inordinate verbiage in their amended complaint, West Texas Shareholders in substance allege that Beverly entered into the reorganization agreement with the intent not to perform its obligations unless it later determined that it was in its best interests to do so, and that Beverly intended to raise and did raise fictitious excuses for refusing to fulfill the agreement. Alternatively, West Texas Shareholders allege that Beverly executed the agreement with the intent to speculate on fluctuations of the price of its stock at the expense of West Texas Shareholders,4 and that Beverly executed the agreement with the intent of refusing to consummate the reorganization unless it could obtain additional concessions from them to which it was not legally entitled. West Texas Shareholders also allege that Beverly established a pattern in its acquisition program of entering into other reorganization agreements with stockholders of other corporations with only a limited intention of performing. West Texas Shareholders contend that the above actions constitute acts, practices, or a course of business which operated as a fraud or deceit upon them under § 10(b) and Rule 10b(5)

We must decide whether entering into a contract to sell securities with only a limited intention of performing is a fraud cognizable under § 10(b) and Rule 10b-5 and whether the allegations of fraud in this complaint are sufficiently well pleaded.5 We hold that the district court erred in dismissing this action.

At the outset we note that "section 10(b) must be read flexibly, not technically and restrictively. Since there was a `sale' of a security and since fraud was used `in connection with' it, there is redress under § 10(b), whatever might be available as a remedy under state law." Supt. of Insurance v. Bankers Life & Cas. Co., 404 U.S. 6, 12, 92 S.Ct. 165, 169, 30 L.Ed.2d 128 (1971). "And the fact that the transaction is not conducted through a securities exchange or an organized over-the-counter market is irrelevant to the coverage of § 10(b)." Bankers Life, supra at 10, 92 S.Ct. at 168. Likewise "neither § 10(b)...

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344 practice notes
  • James v. Group, Case No.: 14-CV-1756-AJB-JMA.
    • United States
    • United States District Courts. 9th Circuit. United States District Court (Southern District of California)
    • December 2, 2015
    ...knowledge, and other conditions of a person's mind may be alleged generally." Fed. R. Civ. P. 9(b) ; see also Walling v. Beverly Enters. , 476 F.2d 393, 397 (9th Cir. 1973) (stating Rule 9(b) does not "require any particularity in connection with an averment of intent, knowledge or conditio......
  • Ruefenacht v. O'Halloran, No. 83-5493
    • United States
    • United States Courts of Appeals. United States Court of Appeals (3rd Circuit)
    • June 11, 1984
    ...on other grounds sub nom. Scherk v. Alberto-Culver Co., 417 U.S. 506, 94 S.Ct. 2449, 41 L.Ed.2d 270 (1974); Walling v. Beverly Enters., 476 F.2d 393, 395 (9th Cir.1973) (exchange of all common stock). The parties appear to have assumed that the sale of 100 percent of the stock of a firm con......
  • Rhoades v. Powell, No. CV-F-85-549 REC.
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Eastern District of California
    • September 5, 1986
    ...? 1298 at 406 n. 66, and cases cited therein (1969). The Ninth Circuit standard was articulated in Walling v. Beverly Enterprises, 476 F.2d 393 (9th Cir. Rule 9(b) requires that the circumstances constituting fraud must be stated with particularity. But the rule does not require nor make le......
  • Boccardo v. Safeway Stores, Inc.
    • United States
    • California Court of Appeals
    • August 13, 1982
    ...& Tel. Co. (9th Cir. 1977) 555 F.2d 254; Toensing v. Brown (9th Cir. 1975) 528 F.2d 69, 72; Walling v. Beverly Enterprises (9th Cir. 1973) 476 F.2d 393.) A number of decisions have upheld the exercise of pendent jurisdiction after the pretrial dismissal of the federal claim. (In re Carter (......
  • Request a trial to view additional results
344 cases
  • James v. Group, Case No.: 14-CV-1756-AJB-JMA.
    • United States
    • United States District Courts. 9th Circuit. United States District Court (Southern District of California)
    • December 2, 2015
    ...knowledge, and other conditions of a person's mind may be alleged generally." Fed. R. Civ. P. 9(b) ; see also Walling v. Beverly Enters. , 476 F.2d 393, 397 (9th Cir. 1973) (stating Rule 9(b) does not "require any particularity in connection with an averment of intent, knowledge or conditio......
  • Ruefenacht v. O'Halloran, No. 83-5493
    • United States
    • United States Courts of Appeals. United States Court of Appeals (3rd Circuit)
    • June 11, 1984
    ...on other grounds sub nom. Scherk v. Alberto-Culver Co., 417 U.S. 506, 94 S.Ct. 2449, 41 L.Ed.2d 270 (1974); Walling v. Beverly Enters., 476 F.2d 393, 395 (9th Cir.1973) (exchange of all common stock). The parties appear to have assumed that the sale of 100 percent of the stock of a firm con......
  • Rhoades v. Powell, No. CV-F-85-549 REC.
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Eastern District of California
    • September 5, 1986
    ...? 1298 at 406 n. 66, and cases cited therein (1969). The Ninth Circuit standard was articulated in Walling v. Beverly Enterprises, 476 F.2d 393 (9th Cir. Rule 9(b) requires that the circumstances constituting fraud must be stated with particularity. But the rule does not require nor make le......
  • Boccardo v. Safeway Stores, Inc.
    • United States
    • California Court of Appeals
    • August 13, 1982
    ...& Tel. Co. (9th Cir. 1977) 555 F.2d 254; Toensing v. Brown (9th Cir. 1975) 528 F.2d 69, 72; Walling v. Beverly Enterprises (9th Cir. 1973) 476 F.2d 393.) A number of decisions have upheld the exercise of pendent jurisdiction after the pretrial dismissal of the federal claim. (In re Carter (......
  • Request a trial to view additional results

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