Westinghouse Credit Corp. v. Bader & Dufty
| Decision Date | 03 September 1980 |
| Docket Number | No. 80-1222,80-1222 |
| Citation | 627 F.2d 221 |
| Parties | Fed. Sec. L. Rep. P 97,592 WESTINGHOUSE CREDIT CORPORATION, Plaintiff-Appellant, v. BADER & DUFTY et al., Defendants-Appellees. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Hugh A. Burns, Denver, Colo. (H. Clay Whitlow of Dawson, Nagel, Sherman & Howard, Phillip S. Figa of Burns & Figa, P.C., Denver, Colo., and of counsel: Dawson, Nagel, Sherman & Howard, Denver, Colo., with him on briefs), for plaintiff-appellant.
J. Lawrence Hamil of J. Lawrence Hamil, P.C., Denver, Colo., for Bader & Dufty, et al., defendants-appellees.
Robert J. Dyer, III, of Hannon, Stutz, Brightwell & Dyer, Denver, Colo., for The Woodmoor Corp., et al., defendants-appellees.
Ernest W. Lohf of Lohf & Barnhill, P.C., Denver, Colo., for Pamela Nagle Hultin and Lawrence J. Schoenwald, defendants-appellees.
Before McWILLIAMS, BARRETT and LOGAN, Circuit Judges.
Westinghouse Credit Corporation brought the present action to enjoin alleged violations by the defendants of the Securities Act of 1933, 15 U.S.C. § 77a, et seq., and the Securities Exchange Act of 1934, 15 U.S.C. § 78a, et seq. The defendants are Bader and Dufty, a now dissolved law firm; ten attorneys alleged to have been partners in that firm; the Woodmoor Corporation, which is the subject of a bankruptcy proceeding in the District of Colorado; and the Woodmoor Corporation's Stockholder Protective Association, alleged to consist of 250 present or former stockholders of Woodmoor.
The Woodmoor Corporation brought suit against Westinghouse Credit Corporation in a state court of Colorado seeking damages for an alleged breach of certain loan agreements. That action was removed to the United States District Court for the District of Colorado, where it is now awaiting trial. The law firm of Bader and Dufty represented the Woodmoor Corporation in that action.
From the complaint in the instant case we learn that the defendants here are seeking to finance the action brought by Woodmoor Corporation against Westinghouse Credit Corporation by offering and selling securities to former stockholders, allegedly in violation of federal securities law. The claim is that these so-called securities consist of profit-sharing agreements as to any money which Woodmoor might ultimately recover in its suit against Westinghouse Credit Corporation.
The relief sought by Westinghouse Credit Corporation in the present proceeding is essentially three-fold: (1) to enjoin further fraud by the defendants in violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5; (2) to enjoin the sale by the defendants of unregistered securities unless said securities meet the requirements of Section 5 of the Securities Act of 1933, 15 U.S.C. § 77e; and (3) to order the Woodmoor Corporation to commence filing such periodic reports as are required by Section 13 of the Securities Exchange Act of 1934, 15 U.S.C. § 78m(a). It is Westinghouse's position that without the monies that are being raised by the defendants in their unlawful sale of securities, Woodmoor could not finance, and otherwise go forward with, its action against Westinghouse. Westinghouse also asserts that if the defendants had complied with the applicable registration and report requirements, Westinghouse could utilize such material, by way of discovery, in defending against the Woodmoor claim.
There was considerable discovery in the instant case. The defendants then moved to dismiss under Fed.R.Civ.P. 12(b)(6), and alternatively, sought summary judgment under Fed.R.Civ.P. 56. The trial court granted the motions to dismiss and dismissed the cause of action with prejudice on the ground that the complaint failed to state a claim on which relief could be granted. More specifically, the trial court held that Westinghouse lacked standing to seek relief on any of the grounds advanced against any of the defendants. Westinghouse now appeals the dismissal of its action. We affirm.
As indicated, Westinghouse seeks to enjoin the defendants from further violations of Section 10(b) of the 1934 Act and Rule 10b-5. Westinghouse concedes that under Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 95 S.Ct. 1917, 44 L.Ed.2d 600 (1975) a private damage action under Rule 10b-5 is confined to actual purchasers or sellers of securities, and agrees that it (Westinghouse) is neither a purchaser or a seller. However, Westinghouse argues that the rule of Blue Chip Stamps does not apply where, as here, the only relief sought is injunctive in nature. In thus arguing, Westinghouse relies heavily on Vincent v. Moench, 473 F.2d 430 (10th Cir. 1973). We do not feel compelled to here decide whether the rule of Blue Chip Stamps applies to a private action under Rule 10b-5 which is purely injunctive in nature, since in our view Westinghouse does not have standing even under the rule of Vincent.
In Vincent the plaintiffs sought private equitable relief under section 10(b) of the Act and its implementing Rule 10b-5. The claim was that the defendants had devised a scheme to defraud the plaintiffs and that, in furtherance of such scheme, the defendants deceptively purchased securities from a third party, and, though the plaintiffs were not a party or privy to the purchase itself, they had nonetheless suffered injury as a result of the effectuation of the overall scheme to defraud. The trial court, relying on Birnbaum v. Newport Steel Corp., 193 F.2d 461 (2nd Cir.), cert. denied, 343 U.S. 956, 72 S.Ct. 1051, 96 L.Ed. 1356 (1952), granted the defendant's motion to dismiss on the grounds that the plaintiffs in Vincent were neither buyers nor sellers of a security within the meaning of Section 10(b) or Rule 10b-5. On appeal, we affirmed.
In affirming the trial court's dismissal of the plaintiffs' action, we held in Vincent that the language of Section 10(b) outlawing deception or manipulation in connection with the purchase or sale of a security must be construed as meaning that in a suit for equitable relief any person showing a "causal connection" between the fraudulent sale of a security and an injury to himself may invoke federal jurisdiction....
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