South Western Oklahoma Development Authority v. Sullivan Engine Works, Inc.South Western Oklahoma Development Authority v. Sullivan Engine Works, Inc.
Appeal from a summary judgment entered by the district court in favor of South Western Oklahoma Development Authority (Authority) and the Oklahoma Department of Commerce (Department). The Department and the Authority will be referred to collectively as “the Plaintiffs”. The Plaintiffs brought this securities fraud action against several defendants including the appellants, Scott Spencer and Max Buchanan (“the Defendants”). The оther defendants were either dismissed from the action or were protected from litigation by bankruptcy laws.
The district court ruled that Spencer and Buchanan had violated the provisions of
Although the Court of Appeals correctly determined that a plaintiff need not first obtain a judgment against the seller before bringing suit against the material participant or оne who aids in the sale, the Court of Appeals’ requirement of a finding of “primary liability” of the seller before “secondary liability” of the material participant may be imposed misconstrues the language of
We find material participants are jointly and severally liable with the seller under the terms of
FACTS
Authority is a public trust engaging in efforts to facilitate private economic development in Kiowa County, Oklahoma. The Department likewise is involved in facilitating private economic development in Oklahoma.
Sullivan Engine Works was established by Buchanan and othеrs not parties to this appeal to develop and manufacture an experimental rotary engine. Spencer later became involved in the project by investing his own funds and assisting in efforts to raise additional capital. One such source of additional capital was the Authority which loaned $799,-200.00 to Sullivan Engine Works. In return, Sullivan Engine Works issued debentures to the Authority.
Authority had received the funds from the Departmеnt which was responsible for the management and disbursement of the funds. The funds were entrusted to the Department by the U.S. Department of Energy with the stipulation that the money be invested in a manner that would benefit energy consumers. The contract between the Authority and Sullivan Engine Works recognized the goal of the governmental entities in funding research in Oklahoma dedicated to increasing the efficiency of energy usе.
Plaintiffs allege that the decision to invest the funds in Sullivan Engine Works and its rotary engine was based upon falsified information provided by Spencer and Buchanan through Sullivan Engine Works. This alleged misinformation included the financial status of Sullivan Engine Works, the value of the patent for the Rotary-Vee Engine, the progress of the development of the engine, the capacity of Sullivan Engine Works to produce and deliver еngines meeting certain specifications, and the existence of contracts for purchase of the engines. Moreover, the patent, Sullivan Engine Works primary asset, was transferred to Spencer, leaving the company insolvent.
The Authority eventually brought suit against Sullivan Engine Works and its officers, including Spencer and Buchanan. Authority alleged six causes of action none of which are involved in this appeal and simultaneously filed a motion for summary judgment. Defendants answered the petition and responded to the summary judgment motion. Department then joined the action and the Authority and the Department filed a joint reply brief.
Shortly before the motion was to be heard by the district court, Sullivan Engine Works filed for bankruptcy. Pursuant to statute, the action against Sullivan Engine Works was stayed, and the Plaintiffs were prohibited from cоntinuing their action against Sullivan Engine Works, the seller of the securities.
However, along with the summary judgment briefs, the Plaintiffs filed an affidavit executed by Anthony G. Mitchell, the loan specialist and general counsel of the Authority, in which Mitchell made allegations re *1055 garding fraudulent conduct by Spencer and Buchanan.
Plaintiffs then amended their petition alleging individual causes of action against Spencer and Buchanan for violating
The remaining defendants responded with briefs, a deposition of Spencer, and an affidavit from Robert Sullivan, another of the original officers and shareholders of Sullivan Engine Works, controverting the facts alleged by the Plaintiffs. The Plaintiffs replied with another affidavit from Mitchell as well as an affidavit from Tоmmie J. Holder, an officer and shareholder of Sullivan Engine Works who had settled with the Plaintiffs. Based on these affidavits and documents and arguments from counsel, the district court granted summary judgment to the Plaintiffs on their claims alleging Spencer and Buchanan had engaged in securities fraud and awarded damages against them in the amount of $799,200 together with interest. All remaining claims were either subsequently dismissed by the Plaintiffs or are irrelevаnt to this appeal.
Title
“(a) Any person who:
(1) offers or sells a security in violation of Sections 201(a), 301, or 404(b) of this title, or of any rule or order under Section 402 of this title which requires the affirmative approval of sales literature before it is used, or of any condition imposed under Sections 304(d), 305(f), or 305(g) of this title, or
(2) offers or sells or purchases a security by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading (the other party not knowing of the untruth or omission), and who does not sustain the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of the untruth or omission, is liable:
(A) in the case of an offer or sale of a security by such means, to the person buying the security from him, who may sue either at law or in equity to recover the consideration paid for the security, together with interest at ten percent (10%) per year from the date of payment, costs, and reasonable attorneys’ fees, less the amount of any income received on the security, upon the tender of the security, or for damages if he no longer owns the security. Damages are the amount that would be recoverable upon a tender, less the value of the security when the buyer disposed of it, and interest at ten percent (10%) per year from the date of disposition, or
* * ⅜ ⅝ ⅛ ⅜
(b) Every person who materially participates or aids in a sale or purchase made by any person liable under paragraph (1) or (¾) of subsection (a) of this section, or who directly or indirectly controls any person so hable, shall also be liable jointly and severally with and to the same extent as the person so liable, unless the person who so participates, aids or controls, sustains the burden of proof that he did not *1056 know, and could not have known, of the existence of the facts by reason of which liability is alleged to exist. There shall be contribution as in cases of contract among the several persons so liable.” (Emphasis added)
Spencer and Buchanan assert that
Spencer and Buchanan read the term “liable” in
The crucial question is what makes a seller “liable” under subsection (a). In essence, Subsection (a)(2) of 408, provides that any person who offers or sells “a security by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, ... is liable” to the pеrson buying the security. The mere fact that the statute states that a person selling a security by means of an untrue statement is liable does not mean that that person has already been adjudged liable by a court of law. Instead, it means that if a plaintiff proves that the seller made the untrue statements then the seller is liable for damages to the plaintiff.
In
Chicago, Rock Island & Pac. R.R. v. Davila,
“The words ‘liable’ and ‘liability’ have a number of different meanings that cannot be rigidly restricted to ‘present actionability’ so as to exclude the idea of uncertainty, futurity or contingency. Rather, when we refer to one as ‘liable’, we denote or describe ‘the condition of being responsible for a possible or actual loss, penalty, evil, expense or burden’....
In Cochran v. United States,157 U.S. 286 ,15 S.Ct. 628 ,39 L.Ed. 704 [ (1895) ], it is stated that We know of no definition of the word ‘liability’, either given in the dictionaries or as used in the common speech of men, which restricts it to such as are absolute, or excludes the idea of contingency. In fact, it is morе frequently used in the latter sense than in the former, as when we speak of the liability of an insurer or a common carrier, or the liability to accidents or to errors; * * *.’
We hold that the phrase ‘any person who is liable on such a claim’ does not operate to limit impleader contemplated by Sec. 323 to those persons who are ‘action-ably liable’ at the time the third party claim is sought to be litigated but includes also those persons who ‘may be liable’.489 P.2d at 764 (Citations omitted). See also Triton Ins. Co. v. Stephenson,516 P.2d 1338 , 1341 (Okla.1973) (reaffirming Davila and holding “[t]he word liable is used to denote one who may be responsible for a possible or actual loss, penalty, evil, expense or burden. Impleader is not limited to those actionably liable at the time the third party claim is sought to be litigated and includes those who may be liable.”)
Therefore, “liable” has been construed in terms of a person being subject to legal suit for their actions. It is this understanding of
*1057
the term “liable” that we find the Legislature intended in
“[w]here a word or phrase is used in different parts of a statute or act it will be presumed to have the same meaning throughout; and where its meaning in one instance is clear, this meaning will apply elsewhere therein, unless it plainly appears from the whole statute the Legislature intended to use it in a different sense.” Stewart v. Rood,796 P.2d 321 , 329, n. 12 (Okla.1990).
It is clear the Legislature intended the term “liable” in
The Defendants counter by pointing to language in
Nikkel v. Stifel, Nicolaus & Co.,
Nikkei brought suit under
In reversing the district court’s judgment against Oaks and Stifel, we concluded:
“Section 408(b) , supra, places liability on one who materially participates or aids in a sale made by one liable under subsection (a)....
We agree with appellants’ position. As a prerequisite for liability by a participant or aider in a sale under subsection (b), supra, thе person making the sale must be liable under subsection (a). Cole and Anderson were found not liable. That part of the judgment is final. We have heretofore determined in this opinion they are the only persons who could have been liable under subsection (a), supra. The evidence does establish Oaks and Stifel as persons who aided Cole and Anderson in making the last two Mayflower stock sales. Oaks and Stifel arе not charged with civil liability under subsection (b), supra, for Cole and Anderson were not held liable under subsection (a), supra.”542 P.2d at 1308-09 (Citations omitted)
(Emphasis added).
The question in
Nikkei
was whether Oaks and Stifel could be hable under
Contrary to the assertion of Spencer and Buchanan,
Nikkei
does not teach that before a material participant can be sued for securities fraud under
Therefore,
Nikkei’s
fundamental holding was that “a prerequisite for liability by a participant or aider in a sale under subsection (b)” was that the seller “must be hable under subsection (a).”
Thus, in order to hold a material participant or aider hable for their part in the fraudulent sale of securities, the plaintiff must show two things: (1) that the defendant was a material participant or aided in the sale of securities by a seller, and (2) that the seller is “hable” under
The statute eahs for joint and several liability between the seher and the material participant. The use of the phrase “joint and several liability” precludes primary and secondary liability. In other words, the Defendants
are not secondarily liable
to Sullivan Engine Works. Rather, the seher and the material participant may each be held accountable for the securities sales violation. As long as the requirements of
“Where liability is joint and several, judgment will he against one or ah of the defendants.” Rogers v. Citizens Nat’l Bank in Okmulgee,373 P.2d 256 , 257 (Okla.1962) (Syhabus by the Court).
Thus, the statute is clear that the seher and the materiаl participant are both hable for damages, and we have shown that the language of the statute ahows for judgment to be had against the material participant without judgment against the seher as long as the plaintiff proves the seher defrauded the plaintiff in the sale of securities.
In a secondary proposition the Defendants point to a recent U.S. Supreme Court case,
Central Bank of Dеnver, N.A. v. First Interstate Bank of Denver, N.A.,
- U.S. -,
We decline to do so because, unlike
In addition, § 10(b) is not the federal equivalent of
SUMMARY JUDGMENT WAS IMPROPER
Summary judgment is appropriate only where it appears that there is no substantial controversy as to any material fact and that one party is entitled to judgment as a matter of law.
Sellers v. Oklahoma Publishing Co.,
The motion for partial summary judgment ultimately became a “swearing match” in which the Plaintiffs produced affidavits and other documents showing securities fraud perpetrated by Sullivan Engine Works and the Defendants. The Defendants countered with documents explaining the circumstances of the case in a way which showed no fraud occurred. In essence, when viewed in the light most favorable to the Defendants, we find material facts are in substantial controversy. Consequently, the Plaintiffs were not entitled to judgment as a matter of law, but must prove their case to the trier of fact. This matter must be remanded to the district court for the jury to decide.
For the above and foregoing reasons, the opinion of the Court of Appeals is VACATED, the judgment of the district court REVERSED, and this ease REMANDED to the district court for further proceedings consistent with this opinion.
Notes
. The automatic stay provision,
. The elements of seller's liability in
"a security by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the stаtements made, in the light of the circumstances under which they are made, not misleading (the other party not knowing of the untruth or omission), and who does not sustain the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of the untruth or omission ...”
. Of course, it would be impossible for a plaintiff to show the second prong, that of seller liability, where a court has already adjudged seller to
not be
liable in that action or a previous one as was the case in
Nikkei.
In such a scenario, the plaintiff would be collaterally estopped from having the issue litigated again.
Wilson v. Kane,