Gay v. AkinGay v. Akin
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- Opala
The dispositive first impression question presented on certiorari is whether the plaintiff’s amended petition meets the “particularity” requirement of the Oklahoma Pleading Code,
FACTS
Commencing in 1982 and continuing through September 1984, petitioner-plaintiff, Rubye R. Gay [Gay or Depositor], made several deposits in the Republic Financial Corporation [Institution], which represented her life savings ($38,951.19). In September 1984 the Institution was declared insolvent and Gay lost all her savings.
On October 25, 1985 Gay filed suit against thirteen individuals
2
whom she alleged to be members of the Board of Directors and Stockholders of the Institution [Directors]. Depositor averred that the Institution had represented itself as a public banking corporation and a member of the Federal Deposit Insurance Corporation [FDIC]; that the Institution had, by its advertisements, lured her into depositing her savings into it; and that she continued to transact business with the Institution and left her funds on deposit in reliance on
Four of the Directors filed motions to dismiss
4
for failure to state a claim, citing the
Several Directors filed motions for summary judgment, dismissal of the action and protective orders relieving them from answering interrogatories the Depositor had served upon them.
6
The Depositor resisted the motions and supplemented her fraud allegations by an affidavit, attaching photocopies of two monthly statements she had received from the Institution during the months of June and July 1984. Each printed statement identified the Institution as a “Bank” and included the phrase “MEMBER Federal Deposit Insurance Corporation.” In her affidavit Depositor stated the Institution was represented as a “Bank” on all the monthly statements she received. The trial court again sustained the motions to dismiss, gave summary judgment on the Directors’ motions and issued the requested protective orders.
7
The trial court also granted Depositor leave to amend her petition. She filed an amended petition restating and further elaborating on her prior fraud allegations. Depositor also included
The Depositor appealed from these various rulings in favor of certain Directors.
9
This court dismissed the appeal as to all but one of the Directors.
10
The Depositor then stood on her last amended petition. The Directors then reasserted their motions to dismiss, which were again sustained.
11
Depositor brought another appeal from this ruling.
12
The Court of Appeals consolidated the two appeals for disposition by a single opinion and affirmed the trial court’s orders dismissing the Depositor’s amended petition.
13
Certiorari is granted to address the first-impression question about the quantum of allegations required to satisfy the “particularity” standard in
I
THE ELEMENTS OF FRAUD
All averments of fraud must be pled in accordance with
II
PLEADING FRAUD AGAINST MULTIPLE DEFENDANTS
In construing the Oklahoma Pleading Code’s provisions which govern fraud allegations, and in determining the detail necessary to satisfy the “particularity” requirement, we are obliged to look to the Federal Rules of Civil Procedure — the progenitor of our pleading code. Since the text of Federal Rule 9(b) is incorporated verbatim in the Oklahoma pleading code, federal and state jurisprudence is instructive.
18
We note initially that the particularity requirement extends to
all
averments of fraud, regardless of the theory of legal duty — statutory, tort, contract or fiduciary.
19
To satisfy the requirements of
The Depositor’s amended petition does not make specific averments against each individual Director about the numerous fraudulent activities and schemes. Rather, she first states that each of the defendants is a stockholder and a member of the Board of Directors, and then outlines generally her allegations against them as a group. The question, then, is whether these general averments against each of the defendants as a group (qua members of the Board of Directors) support a reasonable inference of fraud as to each individual defendant. 22 Whether such an inference may be supported depends upon the nature of the relationship between the Directors and the Institution, and the duties incumbent upon them. To facilitate a proper assessment, we must examine both the common-law and the statutory duties and liabilities of a member of a board of directors.
Ill
THE BANK DIRECTORS’ DUTIES
The common-law duties and liabilities of bank directors essentially parallel
In addition to the common-law duties, the statutory scheme embodied in the Business Corporation Act 27 prescribed extensive duties and liabilities of directors in general. 28 The provisions relevant here include § 1.34(b) which imposes a fiduciary relationship between directors and the corporation and requires that directors exercise good faith when performing their duties. 29 Section 1.133 proscribes payment of dividends when the corporation is insolvent or there is reasonable ground to believe that its payment would render the corporation insolvent. 30 Section 1.175 forbids corporate loans to directors and makes them jointly and severally liable to the corporation and its creditors for violations. 31 Section 1.176 establishes liability for false statements. 32 Depositor both explicitly and implicitly alleged in her amended petition violations of each of these statutorily mandated duties and prohibitions.
In addition, these provisions are made applicable to
bank directors
by the
The Banking Code applies to “Banks,” which it defines as “any bank authorized by the law of the state to engage in the banking business.” 36 The Code also proscribes the unauthorized receipt of money for deposit, transaction of banking business, and the use or advertisement of the term “bank” in connection with anything other than authorized banking business. 37 Here, that the Institution was not in fact a bank will not insulate its Directors from liability. The unlawful representation to the public that the Institution was an authorized banking concern imposes on the Institution’s Directors the same duties and liabilities as those of de jure bank directors. 38
IV
THE NATURE OF THE DIRECTORS’ DUTIES SUPPORTS AN INFERENCE OF FRAUD AGAINST EACH DEFENDANT FROM THE FACTS PLED
In her amended petition the Depositor charged numerous violations of these com-
mon-law duties and the referenced statutory duties delineated in the Oklahoma Banking Code and the Business Corporation Act. Depositor also alleged each of the defendants to be a Director.
A bank director is bound by the standard implicit in these duties and his responsibility must be measured accordingly. Further, a corporation director is chargeable with all matters pertaining to the corporation’s affairs, of which he has or should have knowledge in the exercise of the duties required of him as a director. 39 Under these circumstances, where knowledge of the alleged specific unlawful acts committed by the Institution and the individual Directors is imputed to each of the Directors as a matter of law, the allegations of fraud averred against the defendants as a group (without specific reference to each individual defendant) is sufficient to support a reasonable inference of fraud as to each of the individual Directors.
V
THE PARTICULARITY REQUIREMENT
After concluding that the Depositor need not address her allegations of fraud to each individual defendant, we now turn to the dispositive question whether the allegations stated the circumstances constituting fraud with sufficient particularity. The Federal Rules collectively, and specifically
In contrast to the relatively minimal pleading requirements of
With these principles in mind, the purpose and requirements of
CONCLUSION
Because we hold Depositor’s amended petition met the requisite particularity requirement, the trial court’s dismissal for failure to state a claim for fraud was erroneous. Additionally, the amended petition contained broad allegations sufficient to establish various other legal theories of recovery. 53 It follows that the protective orders relieving the Directors of their discovery obligations were also in error.
The trial court’s orders dismissing the amended petition are reversed and the cause is remanded for further proceedings not inconsistent with this pronouncement.
DOOLIN, C.J., HARGRAVE, V.C.J., and HODGES, SIMMS, ALMA WILSON, KAUGER and SUMMERS, JJ., concur. LAVENDER, J., concurs in judgment.
Notes
. See
infra
note 5 for the text of
. The thirteen defendants are: Brown J. Akin, Jr., Wesley R. McKinney, Ansil Ludwick, Jr., Paul W. Anderson, Jr., Douglas Dixon, Rodney Miller, Hal W. Oswalt, G. Richard Degen, Richard G. Bell, Charles G. Wray, Bob C. Lamirand, Bill Ramsey and Altus E. Wilder, III.
. The terms of
. Defendants Bell, Oswalt, Wray and Akin filed motions to dismiss. Although its ruling is not memorialized in the record, the trial court appears to have sustained the motions and granted the Depositor leave to amend her petition.
. The terms of
“FRAUD, MISTAKE, CONDITION OF THE MIND. In all averments of fraud or mistake the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally.” [Emphasis added.]
This section was amended in 1987 [Okl.Sess.L. 1987, Ch. 78, § 3]. The amendment does not affect the text pertinent to the issues in this case.
. Defendants Ramsey, Wilder and Degen filed motions for summary judgment and defendants Oswalt, Wray, Akin and Bell filed motions to dismiss. Defendants Wray, Akin, Wilder and Degen also filed motions for protective orders.
. On March 6, 1985 the trial court sustained the motions to dismiss by defendants Oswalt, Wray, Akin and Bell, gave summary judgment to defendants Wilder, Degen and Ramsey and issued protective orders for defendants Wray, Akin, Wilder and Degen.
. The motions to dismiss by defendants Degen, Wilder, Wray and Oswalt were sustained on June 28, 1985. Defendant Akin’s motion to dismiss was sustained on July 3, 1985.
. Depositor appealed from the June 28 and July 3, 1985 rulings, supra note 8, and also from the March 6, 1985 summary judgment, supra note 7, for defendants Ramsey, Wilder and Degen.
. This court dismissed the appeal from the March 6, 1985 summary judgment for defendants Ramsey, Wilder and Degen as not timely brought. It also dismissed the appeal as to defendants Wray, Oswalt and Bell since the orders sustaining their motions to dismiss allowed the Depositor to amend her petition. The initial appeal proceeded only against defendant Akin.
. On January 14, 1986 motions to dismiss of defendants Wray, Oswalt, Bell, Anderson, Lud-wick and Lamirand were again sustained.
. Depositor then lodged her appeal against defendants Wray, Oswalt, Bell, Anderson, Ludwick and Lamirand. The Court of Appeals consolidated the latter appeal with the first one against defendant Akin.
. The dismissal of Depositor’s amended petition for failure to plead fraud with sufficient particularity, as required by
. See Hayduk v. Lanna, 775 F.2d 441, 443 [1st Cir.1985] and Miller v. Affiliated Financial Corp., 600 F.Supp. 987, 995 [N.D.Ill.1984].
. Tice v. Tice, Okl., 672 P.2d 1168, 1171 [1983] and Miller v. Long, 202 Okl. 34, 210 P.2d 147, 150 [1949].
. The terms of 76 O.S. 1981
“One who practices a deceit with intent to defraud the public, or a particular class of persons, is deemed to have intended to defraud every individual in that class, who is actually misled by the deceit.”
The terms of
“ * * * 1. The suggestion, as a fact, of that which is not true by one who does not believe it to be true. 2. The assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true. 3. The suppression of a fact by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact; or, 4. A promise, made without any intention of performing.”
See also Southern Development Co. v. Silva, 125 U.S. 247, 250, 8 S.Ct. 881, 882, 31 L.Ed. 678 [1888].
. Photocopies of the monthly statements were not attached to the amended petition. Rather, they were affixed to Depositor’s affidavit which was made a part of her response to the Directors’ various dismissal motions. The exhibits physically attached to the response may be treated as additional exhibits to the amended petition.
. The Introductory Committee Comment to the Oklahoma Pleading Code notes:
“In order to take fullest advantage of the case law interpreting the Federal Rules and the Advisory Notes, the Oklahoma Pleading Code tracks the Federal Rules closely. Where the text of the Federal Rules has been adopted in the Oklahoma Pleading Code, the construction placed on it by federal and state courts should be presumed to have been adopted as well. See Laubach v. Morgan, 588 P.2d 1071, 1973 (Okla.1978); Baker v. Knott, 494 P.2d 302, 304 (Okla.1972).”
. Denny v. Barber, 576 F.2d 465, 469 [2d. Cir.1978]; and Shapiro v. Miami Oil Producers, Inc., 84 F.R.D. 234, 236 [D.Mass.1979].
. Simcox v. San Juan Shipyard, 754 F.2d 430, 439 [1st Cir.1985]; Hayduk v. Lanna, supra note 14 at 443; and Nolan Bros. Inc. v. United States, 266 F.2d 143, 146 [10th Cir.1959].
. Grunwald v. Bomfreund, 668 F.Supp. 128, 131 [E.D.N.Y.1987]; and Natowitz v. Mehlman, 542 F.Supp. 674, 676 [S.D.N.Y.1982].
. Grunwald v. Bomfreund, supra note 21 at 131.
. See Schroeder v. Sanford-Felt Inv. Co., 177 Okl. 54, 57 P.2d 601 [1936] (syllabus 1); Preston-Thomas Constr., Inc. v. Central Leasing Corp., Okl.App., 518 P.2d 1125, 1127 [1973]; and Sumner Coal-Mining Co. v. Pleasant, 127 Okl. 174, 259 P. 1055, 1056 [1927].
. 188 Okl. 570, 111 P.2d 1080, 1082 [1941],
. “It is the common law duty of bank directors to ‘act in good faith and with ordinary care and diligence in conducting the affairs of the bank, or with such diligence as ordinarily prudent men would exercise with reference to the conduct of such a moneyed institution.’ ” Crews v. Garber, supra note 24, 111 P.2d at 1082.
. See Crews v. Garber, supra note 24; see also Briggs v. Spaulding, 141 U.S. 132, 146-147, 11 S.Ct. 924, 929, 35 L.Ed. 662 [1891],
.
. Defendant Akin asserts that depositor has no standing to sue under
The duties embodied in
Depositor may bring an action alleging a violation of a statutorily imposed duty. The action is not one for the remedies prescribed by § 1.147, rather it is one of fraud, making reference to the statute for the source of the duty owed. See, e.g., Denny v. Barber, supra note 19, and Shapiro v. Miami Oil Producers, Inc., supra note 19. “It is generally held that an action for receipt of deposits in an insolvent bank may be maintained by depositors against the directors since the injury is to the depositors and they are the real parties in interest.” Crews v. Garber, supra note 24, 111 P.2d at 1084.
.
.
.
. 18 O.S. 1986
.
. The terms of
The 1983 and 1986 amendments to
.
.
.
. See e.g. Crews v. Garber, supra note 24 at 1083; and infra note 53.
. Sumner-Coal Mining Co. v. Pleasant, supra note 23, 259 P. at 1056.
. See Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 103, 2 L.Ed.2d 80 [1957] (Rule 8, Federal Rules of Civil Procedure, narrows the function of pleadings to that of -giving “fair notice of what the plaintiffs claim is and the grounds upon which it rests.’’)
.
.
. See Richman, Lively & Mell, “The Pleading of Fraud: Rhymes Without Reason,” 60 So.Cal. L.Rev. 959 [1987].
. Simcox v. San Juan Shipyard, supra note 20 at 439. (Rule 9, Federal Rules of Civil Procedure, must be read in conjunction with Rule 8 which provides that complaint should not be struck if the nature of the claim is apparent.) See also, Todd v. Oppenheimer & Co., 78 F.R.D. 415, 419 [S.D.N.Y.1978].
.Hayduk v. Lanna, supra note 14 at 443. See also, 5 C. Wright and A. Miller, “Federal Practice and Procedure,” §§ 1204 and 1296 [1969].
. 5 C. Wright & A. Miller, supra note 45, § 1297 at 403-404; Adair v. Hunt Inti Resources Corp., 526 F.Supp. 736, 744 [N.D.Ill.1981]; and Brewer v. Monsanto Corp., 644 F.Supp. 1267, 1271-1273 [M.D.Tenn.1986].
. Adair v. Hunt Int‘l Resources Corp., supra note 46 at 744.
.
Walling v. Beverly Enterprises,
476 F.2d 393, 397 [9th Cir.1973], See also, the Committee Comment to
. McGinty v. Beranger Volkswagen, Inc., 633 F.2d 226, 228 [1st Cir.1980]; see also, Hayduk v. Lanna, supra note 14 at 444; Walling v. Beverly Enterprises, supra note 48 at 397; and 5 C. Wright and A. Miller, supra note 45 § 1297 at 403-404, § 1298 at 410, and § 1301 at 426.
. Nolan Bros. Inc. v. United States, supra note 20 at 145.
.Brewer v. Monsanto Corp., supra note 46 at 1271; and Walling v. Beverly Enterprises, supra note 48 at 397.
. The terms of Art. 14, § 1, Okl. Const, provide: “General laws shall be enacted by the Legislature providing for the creation of a Banking Department, to be under the control of a Bank Commissioner, . . . with sufficient power and authority to regulate and control all State Banks, Loan, Trust and Guaranty Companies, under laws which shall provide for the protection of depositors and individual stockholders.”
See Shull v. Beasley, 149 Okl. 106, 299 P. 149 [1931] (Syllabus 1) (“The public policy of the state of Oklahoma, established by section 1, article 14, of the Constitution of Oklahoma, is for the protection of depositors in state banks.”)
. The amended petition contained detailed facts regarding conspiracy, negligence and mismanagement. In Crews v. Garber, supra note 24 at 1083, quoting from Bryan County State Bank v. American Nat. Bank, 56 Okl. 529, 156 P. 352, 356 [1916], we recognized that
“‘one of the main purposes of the banking laws of the state of Oklahoma is to impose upon the officers of the bank, such as the president or director, the positive duty of its management and control and to fix upon these officers the duty and responsibility of conducting said bank in accordance with law and this court should be slow to adopt any construction of law which would relieve these officers from their responsibilities’” [Emphasis in opinion]