Wuliger v. Christie, No. 3:02-CV-7296.

• Decision Date: 30 March 2004
• Docket Number: No. 3:02-CV-7296.
• Citation: 310 F.Supp.2d 897
• Parties: William T. WULIGER, Receiver, Plaintiff, v. Dave CHRISTIE, Defendant.
• Court: U.S. District Court — Northern District of Ohio

Page 897

310 F.Supp.2d 897

William T. WULIGER, Receiver, Plaintiff, v. Dave CHRISTIE, Defendant.

No. 3:02-CV-7296.

United States District Court, N.D. Ohio, Western Division.

March 30, 2004.

COPYRIGHT MATERIAL OMITTED

Roger J. Katz, Victor M. Javitch, Javitch, Block, Eisen & Rathbone, Cleveland, OH, for Plaintiff.

Max E. Rayle, Rayle, Matthews & Coon, Bowling Green, OH, for Defendant.

MEMORANDUM OPINION

KATZ, District Judge.

INTRODUCTION

Plaintiff William T. Wuliger ("Wuliger") commenced this action against Defendant for recovery of commissions in connection with the sale of viatical investment. This case is an outgrowth of the Liberte v. Capwill¹ litigation which has spawned related litigation both in the state and federal courts. The essence of this action contends that Defendant Dave Christie entered into an agent sales agreement whereby he solicited individuals to invest in viatical settlements offered by Alpha Capital Group ("Alpha"). In return, Christie is alleged to have received approximately $150,528.60 in commissions.

Wuliger was appointed Receiver of Alpha in the fall of 2001. Thereafter, he was authorized by the Court in the Liberte action, in part, to:

[U]se his best judgment to protect the rights of Alpha investors and to discharge his duties in a manner calculated to preserve the greatest monetary recovery for the maximum number of all Alpha investors.

(Liberte, Doc. No. 1290.) One year later those responsibilities included the right to pursue actions against Liberte and Alpha agents and brokers. (Liberte, Doc. No. 1758.) More recently, the Court clarified the expanded role of both the General and Alpha Receivers, stating that:

[I]n keeping with the ultimate goal of maximizing the estates for the benefit of the investors, [the Receivers] are empowered to represent and pursue the interests of the investors directly. The Receivers shall further continue to carry out their duties and obligations as set forth by previous and existing Order of the Court. Finally, the Receivers shall continue to coordinate their efforts with class counsel to recover, protect and preserve receivership assets.

(Doc. No.1982.)

Wuliger initiated this suit in June 2002 against Christie alleging the following claims: (1) violations of the 1933 Securities Act, 15 U.S.C. § 77; (2) violations of the Securities Exchange Act of 1934, 15 U.S.C. § 78j; (3) violations under the Racketeer Influenced and Corruption Organizations Act², 18 U.S.C. §§ 1962 and 1964(c); (4) common law fraud; (5) unjust enrichment; (6) conversion; (8) breach of fiduciary duty and duty to act in good faith; and (8) intentional or negligent misrepresentation.

This matter comes before the Court on Plaintiff's motion for partial summary judgment on the issue of whether Alpha's viatical settlements are securities. Also before the Court is Defendant's motion for partial summary judgment as to the securities charges based upon the statute of limitations. Finally, the Defendant seeks oral argument on his motion for partial summary judgment. For the reasons stated below, Plaintiff's motion for partial summary judgment is granted and Defendant's motion for partial summary judgment is granted. The Defendant's motion for oral argument is denied as moot.

SUMMARY JUDGMENT STANDARD

Under Rule 56, the claimant may move for summary judgment regarding "all or any part thereof" of a claim or counterclaim. When construing a motion for partial summary judgment, the court employs the normal summary judgment standard. The effect of a partial summary judgment ruling is to narrow the issues for further disposition.

As an initial matter, the Court sets forth the relative burdens of the parties once a motion for summary judgment is made. Summary judgment must be entered "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). Of course, the moving party always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any," which it believes demonstrate the absence of a genuine issue of material fact. Id. at 323, 106 S.Ct. at 2553. The burden then shifts to the nonmoving party who "must set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986) (quoting Fed.R.Civ.P. 56(e)).

Once the burden of production has so shifted, the party opposing summary judgment cannot rest on its pleadings or merely reassert its previous allegations. It is not sufficient "simply [to] show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). Rather, Rule 56(e) "requires the nonmoving party to go beyond the [unverified] pleadings" and present some type of evidentiary material in support of its position. Celotex, 477 U.S. at 324, 106 S.Ct. at 2553. Summary judgment shall be rendered if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c).

PLAINTIFF'S MOTION REGARDING VIATICAL SETTLEMENTS AS SECURITIES

A. Relevant Precedent

In S.E.C. v. Howey, 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946), the Supreme Court defined the requirements of an investment contract necessary to place it within the definition of a security. There the respondent offered customers a land and service contract regarding its citrus acreage in Florida. The SEC brought suit to restrain respondents' use of mails and interstate commerce in offering and selling what it deemed unregistered securities. The Court noted how the Securities Act of 1933 defined the term "security", stating that its legal determination of this issue required consideration of all the circumstances and whether such contracts could be construed as investment contracts within the meaning of Section 2(1) of the Act. Id. at 296, 66 S.Ct. at 1102. The Court took notice of how the term "investment contract" was commonplace in state blue sky laws in existence prior to the federal statute. In spite of the fact many states did not have statutes which defined the term "investment contract," the Court noted such contracts:

had been broadly construed by state courts so as to afford the investing public a full measure of protection. Form was disregarded for substance and emphasis was placed upon economic reality. An investment contract thus came to mean a contract or scheme for `the placing of capital or laying out of money in a way intended to secure income or profit from its employment.'

Id. at 298, 66 S.Ct. at 1102. In light of this history, the Court found Congress included this term with that knowledge, thereby finding it "reasonable to attach that meaning to the term as used by Congress, especially since such a definition [wa]s consistent with statutory aims." On this basis, the Court stated the requirements regarding an investment contract as a "contract, transaction or scheme whereby a person invests his money in a commonplace enterprise and is led to expect profits solely from the efforts of the promoter or third party." Id. at 299, 66 S.Ct. at 1103. The definition was characterized by the Court as "a flexible rather than a static principle, one that [wa]s capable of adaptation to meet the countless and various schemes devised by those [ ] seek[ing] use of the money of others on the promise of profits." Id. Accord S.E.C. v. Edwards, ___ U.S. ___, 124 S.Ct. 892, 157 L.Ed.2d 813 (2004).

Like the Supreme Court in Howey, the Sixth Circuit has taken a broad approach in determining what constitutes a security. See Union Planters National Bank of Memphis v. Commercial Credit Business Loans, Inc., 651 F.2d 1174 (6th Cir.) cert. denied, 454 U.S. 1124, 102 S.Ct. 972, 71 L.Ed.2d 111 (1981). While recognizing that literal inclusion in the statutory definition is not a prerequisite, the Sixth Circuit has advocated a liberal approach:

In interpreting the Securities Acts, the rules of statutory construction have been subordinated to the doctrine that courts will construe the provisions of a statute in a manner consistent with its dominant purpose and will carry out the generally expressed legislative policy by reading the text in light of the context.

Id. at 1180. In adopting this approach, the Circuit also noted that "the Supreme Court has disregarded form in favor of substance and counselled that application of the federal securities statutes turns on the `economic realities' underlying a transaction." Id., citing United Housing Foundation, Inc. v. Forman, 421 U.S. 837, 848, 95 S.Ct. 2051, 2058, 44 L.Ed.2d 621 (1975).

With the binding precedent of the United States Supreme Court and the Sixth Circuit as a backdrop, the Court now turns to analyze whether a viatical settlement constitutes a security.

B. Discussion

As directed by the relevant precedent above, the analysis must begin with the statutory definition of a security:

The term "security" means any note, stock, treasury stock, bond, debenture, certificate of interest or participation in any profit-sharing agreement or in any oil, gas, or other mineral royalty or lease, any collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit, for a security, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index...