Arst v. Stifel, Nicolaus ( 1996 )

UNITED STATES COURT OF APPEALS
Tenth Circuit
Byron White United States Courthouse
1823 Stout Street
Denver, Colorado 80294
(303) 844-3157
Patrick J. Fisher, Jr. Elisabeth A. Shumaker
Clerk Chief Deputy Clerk
June 24, 1996
TO: ALL RECIPIENTS OF THE CAPTIONED OPINION
RE: 95-3005 Arst v. Stifel, Nicolaus
June 11, 1996 by the Honorable Terry C. Kern
Please be advised of the following correction to the
captioned decision:
The attorneys were listed incorrectly with respect to
parties represented.
Please replace page one of the opinion with the revised
page one which has been included for your convenience.
Very truly yours,
Patrick Fisher, Clerk
Beth Morris
Deputy Clerk
encl
PUBLISH
FILED 6/11/96
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
____________________
RODGER M. ARST, )
)
Plaintiff-Appellant, )
)
vs. ) No. 95-3005
)
STIFEL, NICOLAUS & COMPANY, INC., )
and ODIS E. SHOAF, JR., )
)
Defendants-Appellees. )
____________________
Appeal from the United States District Court
for the District of Kansas
(D.C. No. 93-1299-PFK)
____________________
Joe Rebein of Shook, Hardy & Bacon, P.C., Kansas City, Missouri,
(Barbara A. Harmon and Brett D. Leopold of Shook, Hardy & Bacon,
P.C. of Overland Park, Kansas, and Kurt A. Harper of Sherwood &
Harper, Wichita, Kansas with him on the brief) for Plaintiff-
Appellant.
Reggie C. Giffin of Morrison & Hecker, Kansas City, Missouri
(John C. Nettels, Jr. of Morrison & Hecker, Wichita, Kansas, and
James A. Walker of Triplett, Woolf & Garretson, L.L.P., Wichita,
Kansas, with him on the brief) for Defendants-Appellees.
____________________
Before BRORBY and McWILLIAMS, Circuit Judges, and KERN, District
Judge. *
____________________
KERN, District Judge.
____________________
*
The Honorable Terry C. Kern, United States District Judge
for the Northern District of Oklahoma, sitting by designation.
In this appeal we are asked to consider whether the district
court properly granted Defendants’ motion for summary judgment.
Plaintiff-Appellant Rodger M. Arst (“Arst”) sued Defendants-
Appellees Stifel, Nicolaus & Company, Inc. (“Stifel Co.”) and
Odis E. Shoaf, Jr. (“Shoaf”), asserting claims under Kansas
common law for breach of fiduciary duty and claims under the
Kansas Securities Act, Kan. Stat. Ann. § 17-253 (1994), and the
Securities Exchange Act of 1934, 15 U.S.C. § 78(j) (1981). We
affirm the District Court’s grant of summary judgment in part and
reverse in part and remand for further proceedings.
I. Facts. In 1990, Physician Corporation of America (PCA)
engaged Stifel Co. to act as an accommodating broker for PCA
shares. Stifel Co. was to put together buyers and sellers of PCA
stock on an unsolicited basis, charging both parties a
commission. Stifel would not make recommendations concerning the
stock, nor make a market in the stock. (Although PCA had
originally asked Stifel Co. to serve as a market maker, Stifel
Co. had declined.) PCA advised its shareholders by mail that it
had made arrangements with Stifel Co. to accommodate the purchase
and sale of PCA stock and that shareholders should contact Odis
Shoaf, a senior vice president of Stifel Co., if they wanted to
buy or sell shares. On various occasions since 1990, Mr. Shoaf
purchased PCA shares for himself and family without revealing to
the shareholders that he was the purchaser. Stifel Co. had
instructed Shoaf not to disclose his purchases to PCA
2
shareholders because Stifel Co. wanted to remain a neutral go-
between and was concerned that Shoaf’s purchases could be
construed as recommendations. Shoaf asserts that he paid the
same amount as other buyers of the PCA shares minus his regular
commission.
Appellant Arst purchased 37,500 shares of PCA stock for
$2.00 in the 1980s, before Stifel Co. was engaged as an
accommodating broker. Around August 1992, Arst contemplated
selling his PCA shares. Arst called Shoaf on August 17 to
inquire about the price of the stock and the market for the
shares. Shoaf apparently told Arst some unfavorable facts and
opinions about PCA’s strength and future as a company. Shoaf did
not mention rumors circulating about PCA’s plans to go public--
rumors that Shoaf apparently had mentioned to other people.
There is no evidence that Shoaf was privy to inside information.
On August 18, 1996, Arst authorized Shoaf to sell all of his
37,500 PCA shares at $4.625 per share--the going price. Shoaf
sold some of Arst’s shares to third parties and, without telling
Arst, bought 10,110 shares for himself and his family on August
19. Shoaf testified that at the time Arst commissioned Shoaf to
sell the shares, Shoaf did not know whether he or his family
would purchase any of the shares. Prior to closing the
transaction, Arst signed a nonsolicitation letter that stated
that Shoaf had not solicited the sale and that Arst agreed not to
hold Stifel Co. or Shoaf responsible for any damages or other
liability arising out of the transaction. At the conclusion of
3
the transaction in August 1992, Stifel Co. sent Arst a
confirmation slip that stated the names of the buyers of his
shares would be furnished upon written request. At the time of
the closing, Arst did not inquire who had bought his shares.
In November 1992, PCA announced its plans to go public. In
December, PCA stock split four for three, and in March 1993, PCA
made a public offering at $15.25 per share. In April 1993, Arst
sent Shoaf and Stifel Co. a written request for the names of the
purchasers of his stock. Defendants refused to disclose the
names. Arst then filed suit in state court against Stifel Co.
and Shoaf, who removed the case to federal court. Defendants
ultimately revealed the names of the purchasers of Arst’s shares
after being compelled by court order.
Arst brought claims against Shoaf and Stifel Co. under
Kansas common law for breach of fiduciary duty and claims under
the Kansas Securities Act, Kan. Stat. Ann. § 17-253, the
Securities Exchange Act of 1934, 15 U.S.C. § 78(j), and SEC Rules
10b-5 and 10b-10(a)(7)(i). Defendants filed a motion for summary
judgment. The District Court granted Defendants’ motion, holding
that SEC Rule 10b-10(a)(7)(i) did not provide a private cause of
action and that Defendants did not have the requisite fiduciary
duty to support liability under the remainder of Plaintiff’s
claims. Arst now appeals the district court’s order.
4
II. Discussion
We review the district court's grant of summary judgment de
novo, applying the same standard as the district court under
Fed.R.Civ.P. 56(c). Universal Money Centers. v. American Tel. &
Tel. Co., 22 F.3d 1527, 1529 (10th Cir.), cert. denied, 115 S.Ct.
655 (1994). Summary judgment is appropriate if "there is no
genuine issue as to any material fact and . . . the moving party
is entitled to a judgment as a matter of law." Fed.R.Civ.P.
56(c). We examine the factual record and reasonable inferences
therefrom in the light most favorable to the nonmoving party.
Id. If there is no genuine issue of material fact in dispute, we
must determine whether the district court correctly applied the
law. Applied Genetics Intern. v. First Affiliated Securities ,
912 F.2d 1238, 1241 (10th Cir. 1990).
A. Cause of Action under Rule 10b-10(a)(7)(i). Arst brought
a claim under SEC Rule 10b-10(a)(7)(i), 17 C.F.R. § 240.10b-
10(a)(7)(i), for Defendants’ failure to disclose the names of the
buyers of his stock. The rule provides in relevant part:
Rule 10b-10. Confirmation of Transactions
(a) It shall be unlawful for any broker or dealer to
effect for or with the account of a customer any transaction
in, or to induce the purchase or sale by such customer of,
any security . . . unless such broker or dealer, at or
before completion of such transaction, gives or sends to
such customer written notification disclosing:
. . .
(7) If he is acting as agent for such customer,
for some other person, or for both such customer and
some other person,
(i) The name of the other person from whom
the security was purchased, or to whom it was
sold, for such customer or the fact that such
information will be furnished upon written request
5
of such customer . . . .
Defendants complied with their initial obligations under the Rule
by informing Arst at the completion of the transaction that the
names of the buyers of his shares would be furnished upon written
request; however, when Arst subsequently made such a written
request eight months later, Defendants refused to furnish the
names until compelled by court order.
Rule 10b-10(a)(7)(i), which was promulgated by the SEC
pursuant to § 10(b) of the Securities Exchange Act of 1934, 15
U.S.C. § 78(j), does not expressly provide for a private cause of
action for a violation of its terms. "Absent an express grant of
a private cause of action, a mere proscription of behavior does
not justify an inference of a private cause of action for its
violation; instead, there must be some evidence that Congress
intended one." Coosewoon v. Meridian Oil Co. , 25 F.3d 920, 929
(10th Cir. 1994) (interpreting the Federal Oil and Gas Royalty
Management Act) (quoting Pullman v. Chorney, 712 F.2d 447, 449
(10th Cir. 1983)) (citing Transamerica Mortgage Advisors, Inc.
(TAMA) v. Lewis, 444 U.S. 11 (1979)). The Supreme Court has
stated that in determining the scope of conduct prohibited by §
10(b) of the Exchange Act, the statute under which Rule 10b-
10(a)(7)(i) was promulgated, the text of the statute controls the
court’s decision. Central Bank v. First Interstate Bank , 114 S.
Ct. 1439, 1446 (1994). The Court admonished that although a
private plaintiff may bring suit against violators of § 10(b), a
private plaintiff may not bring a suit under an SEC regulation
6
promulgated pursuant to § 10(b) for acts not prohibited by the
text of § 10(b). Id. The Court explained, “To the contrary, our
cases considering the scope of conduct prohibited by § 10(b) in
private suits have emphasized adherence to the statutory
language, 'the starting point in every case involving
construction of a statute.'” Id. (citing Ernst & Ernst v.
Hochfelder, 425 U.S. 185, 197 (1976)).
In the instant case, the critical language in § 10(b) is “in
connection with.” Section 10(b) makes it unlawful for any person
(b) To use or employ, in connection with the purchase or
sale of any security registered on a national securities
exchange or any security not so registered, any manipulative
or deceptive device or contrivance in contravention of such
rules and regulations as the Commission may prescribe as
necessary or appropriate in the public interest or for the
protection of investors.
15 U.S.C. § 78(j)(b) (1981) (emphasis added).
This court has construed “in connection with” to require a
causal connection between the allegedly deceptive act or omission
and the alleged injury. See Westinghouse Credit Corp. v. Bader &
Dufty, 627 F.2d 221, 223 (10th Cir. 1980); Vincent v. Moench, 473
F.2d 430, 435 (10th Cir. 1973). 2 See also Angelastro v.
Prudential-Bache Securities , 764 F.2d 939, 942, 944 (3rd Cir.)
(finding an implied private cause of action under Rule 10b-16 and
noting that the Third Circuit has construed § 10(b) as mandating
that there be some causal connection between the alleged fraud
2
Although both of these cases involved suits for equitable
relief, the requirement for a causal connection applies with
equal force when, as here, the suit is for money damages.
7
and the harm incurred when the security is purchased or sold),
cert. denied, 474 U.S. 935 (1985); Liberty National Insurance
Holding Co. v. Charter Co. , 734 F.2d 545, 555 (11th Cir. 1984)
(noting that the “in connection with” element requires a causal
relationship between the claimed deception and a subsequent
purchase or sale).
In the instant case, there is no such causal relationship
between the alleged deception by Defendants and any harm incurred
from the sale of Arst’s shares. The allegedly deceptive practice
prohibited by Rule 10b-10(a)(7)(i)--Defendants' failure to reveal
the buyers’ names--occurred after the sale. Since Defendants’
allegedly deceptive conduct could not have had an impact on
Arst’s decision to sell his shares, Defendants’ conduct was not
“in connection with” the purchase or sale of a security § 10(b).
In other words, while Defendants’ conduct was proscribed by the
Rule, it was not prohibited by the statute. Therefore,
Defendants’ failure to disclose the names of the purchasers of
Arst's shares after the closing of the transaction did not give
rise to a private cause of action.
B. Alleged breach of fiduciary duty . Arst claims that
Defendants breached their fiduciary duties to Arst in two
respects: first, by failing to disclose that Shoaf was buying
Arst's shares on Shoaf's account; and second, by failing to
provide Arst complete and accurate information about PCA prior to
the closing of the transaction. Arst contends that Shoaf and
Stifel Co., as fiduciaries, had a common law duty to disclose
8
this information; therefore, their failure to disclose
constituted a breach of their fiduciary duty. Since there was no
3
express fiduciary relationship between Defendants and Arst, any
fiduciary duty must arise under an implied-in-law fiduciary
relationship. See Rajala v. Allied Corp. , 919 F.2d 610, 614
(10th Cir. 1990) (citing Denison State Bank v. Madeira , 640 P.2d
1235, 1241 (Kan. 1982)), cert. denied, 500 U.S. 905 (1991). We
will first address Defendants’ alleged breach for failure to
disclose self-dealing and then address their alleged breach for
failure to disclose information about PCA.
1. Duty to disclose self-dealing . Any state law fiduciary
duty of Defendants arose from their agency relationship with
Arst. See Hill v. Bache Halsey Stuart Shields, Inc. , 790 F.2d
817, 824 (10th Cir. 1986) (applying Colorado law). Shoaf, on
behalf of Stifel Co., was Arst’s agent for the purpose of
conducting the sale Arst ordered. As an agent, Shoaf was a
fiduciary 'with respect to matters within the scope of [the]
agency.'” Id. (citing Restatement (Second) of Agency § 13
(1958)). See also Henderson v. Hassur, 594 P.2d 650, 658 (Kan.
1979) (“The relationship existing between a principal and agent
is a fiduciary one . . . .”)(citing Merchant v. Foreman, 322 P.2d
3PCA notified its shareholders in writing that Stifel Co.
would be serving as an accommodating broker. We do not construe
this communication as establishing an express contractual
fiduciary relationship between Defendants and PCA shareholders.
See Rajala v. Allied Corp. , 919 F.2d 610, 614 (10th Cir. 1990)
(delineating instances in which a fiduciary relationship is
specifically created by contract or formal legal proceeding),
cert. denied, 500 U.S. 905 (1991).
9
740, 745 (Kan. 1958)).
To be sure, the scope of Shoaf’s agency, and his attendant
fiduciary duties, were limited. Shoaf had nondiscretionary
authority in the sale of Arst's shares: he was to sell the
specified amount of shares at the agreed-upon price. Therefore,
the fiduciary duty Shoaf owed Arst was to carry out the ordered
sale with due care and loyalty and not to make unauthorized
sales. See Hill, 790 F.2d at 824-25. 4 See also Merchant v.
Foreman, 322 P.2d 740, 745 (Kan. 1958) (“[I]n all transactions
concerning and affecting the subject matter of his agency, it is
the duty of the agent to act with the utmost good faith and
loyalty for the furtherance and advancement of the interests of
his principal”) (citations omitted).
Arst's claim of self-dealing implicates Shoaf’s duty of
loyalty as a fiduciary. Under Kansas law of agency, when Shoaf
decided to purchase on his own account the subject matter of the
agency--i.e., Arst’s PCA shares--Shoaf had the duty to disclose
4
Our holding that Shoaf had a limited fiduciary
relationship with Arst is not at odds with our holding in Hotmar
v. Lowell H. Listrom & Co. , 808 F.2d 1384 (10th Cir. 1987). That
case involved a claim by an investor that his broker had breached
fiduciary duties with respect to a nondiscretionary account. We
noted that under Kansas law the existence of a fiduciary duty
depends on the facts and circumstances in each case. We held
that in the absence of an agreement by the broker to control the
account, the broker did not have a fiduciary duty “to execute
only those orders he considered 'suitable' for one in [the
investor’s] position, and hence, no breach of fiduciary duty was
shown.” Id. at 1387 n.3. In the instant case, we hold that
Shoaf had a far narrower fiduciary duty than claimed in Hotmar.
Shoaf, as agent, had a fiduciary duty to carry out the requested
sale with due care and loyalty to the principal.
10
this purchase to Arst. The Kansas Supreme Court notes, “[W]here
a fiduciary relationship is established between [a principal and
agent] the law views with suspicion and scrutinizes very closely
all dealings between them in the subject matter of the agency to
see that the agent has dealt with the utmost good faith and
fairness.” Merchant, 322 P.2d at 745 (citations omitted).
Section 389 of the Second Restatement of Agency establishes an
agent’s duty to disclose self-dealing. “Unless otherwise agreed,
an agent is subject to a duty not to deal with his principal as
an adverse party in a transaction connected with his agency
without the principal’s knowledge.” Although the Kansas Supreme
Court did not explicitly adopt this section of the Restatement in
Merchant, it did cite § 390 (dealing with the duties of an agent
acting on his own account) which encompasses § 389.
Specifically, the Kansas Supreme Court cited the following
comment to § 390 of the Restatement, which cross-references §
389: “Hence, the disclosure [by the agent to the principal] must
include not only the fact that the agent is acting on his own
account, but also all other facts which he should realize have or
are likely to have a bearing upon the desirability of the
transaction, from the viewpoint of the principal.” Restatement
(Second) of Agency § 390 cmt. a (1958). (emphasis added).
Therefore, Shoaf’s duty of loyalty as an agent included a duty to
disclose his purchases of the PCA shares on his own account. See
also Reuschlein & Gregory, The Law of Agency & Partnership (2nd
ed. 1990) § 67 at 126 (“An agent must disclose to his principal
11
that he is the purchaser of property from the principal.”).
Defendants contend that they are not subject to the terms or
rationale of this rule because Shoaf did not deal with Arst as an
adverse party. Defendants assert that the price was externally
set: the procedures set up by Stifel Co. and allegedly followed
by Shoaf were that Shoaf would pay the same price as the other
buyers. Therefore, they argue, there was no possibility of a
conflict of interests.
The Restatement anticipates this type of argument and
explains that even under these circumstances the agent has a duty
to disclose purchases on his own account.
[I]n the absence of a known custom or an agreement, an agent
employed to sell at the market price cannot, without
disclosure to the principal, properly buy the goods on his
own account, even though he pays a higher price for them
than the principal could obtain elsewhere. . . . Likewise,
ordinarily, an agent appointed to buy or to sell at a fixed
price violates his duty to the principal if, without the
principal’s acquiescence, he buys from or sells the
specified article to himself at the specified price, even
though it is impossible to obtain more or as much.
Restatement (Second) of Agency § 389 cmt. c (1958). We hold that
irrespective of Shoaf’s control over the price he paid for the
shares, he had a duty to disclose purchases on his own account.
His failure to so disclose therefore constituted a breach of his
fiduciary duty under Kansas law, and he was not properly entitled
to summary judgment in his favor as to this claim.
2. Duty to give investment advice . Arst contends that in
addition to a duty to disclose self-dealing, Defendants had a
duty to give Arst advice about the transaction, including the
12
prospects of PCA making a public offering. Arst argues that
Shoaf assumed this broader fiduciary duty by dispensing his
opinion regarding the strength and future of PCA. The district
court held that Defendants had no such duty. We agree with the
district court.
In Rajala v. Allied Corp. , 919 F.2d 610 (10th Cir. 1990), we
analyzed the requirements under Kansas law of an implied
fiduciary relationship. While the existence of an implied
fiduciary relationship “depends on the facts and circumstances of
each individual case,” id. at 614, the Supreme Court of Kansas
has prescribed certain broad principles in making such a
determination:
A fiduciary relationship imparts a position of peculiar
confidence placed by one individual in another. A fiduciary
is a person with a duty to act primarily for the benefit of
another. A fiduciary is in a position to have and exercise,
and does have and exercise influence over another. A
fiduciary relationship implies a condition of superiority of
one of the parties over the other. Generally, in a
fiduciary relationship, the property, interest or authority
of the other is placed in the charge of the fiduciary.
Id. at 614 (quoting Denison State Bank v. Madeira , 640 P.2d 1235,
1241 (1982)). Each of the general considerations listed in
Denison need not be present in every case in which a fiduciary
relationship is alleged. Rajala, 919 F.2d at 614.
The Kansas Supreme Court has emphasized that “the overriding
consideration in the law of fiduciary relationships [is] that
'one may not abandon all caution and responsibility for his own
protection and unilaterally impose a fiduciary relationship on
another without a conscious assumption of such duties by the one
13
sought to be held liable as a fiduciary.'” Rajala, 919 F.2d at
614 (quoting Denison, 640 P.2d at 1243-44). We have held that
“conscious assumption of the alleged fiduciary duty is a
mandatory element under Kansas Law.” Rajala, 919 F.2d at 615.
Under Kansas law a party seeking to establish the existence of a
fiduciary relationship must prove it by clear and convincing
evidence. Id. (citing Wolf v. Brungardt, 524 P.2d 726, 736 (Kan.
1974)).
Arst has not met this burden of proof. Shoaf held himself
out strictly as a go-between: matching sellers and buyers of PCA
stock. (Shoaf and Stifel Co. refused to act as market maker,
which would have implicated broader fiduciary duties.) That
Shoaf made some comments concerning the strength and prospects of
PCA is not sufficient to prove that Shoaf consciously assumed a
broader fiduciary relationship beyond that of an accommodating
broker. 5 Arst could not abandon all caution and responsibility
for his own protection and unilaterally impose a fiduciary
relationship on Shoaf to dispense complete and accurate
investment advice concerning the PCA stock without a conscious
assumption of such duties by Shoaf. Denison, 640 P.2d at 1243-
44. See also Hotmar v. Lowell H. Listrom & Co. , 808 F.2d 1384,
5
Referring to the principles enumerated in Denison to
establish an implied fiduciary relationship, the relationship
between Arst and Defendants most closely resembles the last one:
when the property of one party is placed in the charge of
another. As we explained, Shoaf's authority over this property
was nondiscretionary; therefore, his fiduciary duty was limited
to executing Arst’s orders concerning the disposition of this
property with due care and loyalty.
14
1387 & n.3 (10th Cir. 1987). Indeed, Arst was well aware that
Shoaf and Stifel Co. were acting as agents for both buyers and
sellers of PCA stock. Arst was “fully competent and able to
protect his own interests.” Denison, 640 P.2d at 1243-44. As
the District Court found, Arst was an experienced businessman who
had made previous investments. He had a broker, other than
Shoaf, with whom he could have discussed his decision to sell the
PCA stock. Arst v. Stifel Nicolaus & Co. , 871 F. Supp. 1370,
1384 (D.Kan. 1994). Upon an examination of the record, viewing
all factual disputes in favor of the nonmoving party, White v.
General Motors Corp. , 908 F.2d 669, 670 (10th Cir. 1990), cert.
denied, 498 U.S. 1069 (1991), we find no evidence to support
Arst’s claim that Shoaf consciously assumed a fiduciary duty to
dispense accurate and complete investment advice. Therefore, his
failure to dispense such information did not constitute a breach
of a fiduciary duty.
C. SEC Rule 10b-5 and Kan. Stat. Ann. § 17-1253 . Arst
alleges that Shoaf’s failure to disclose self-dealing and failure
to advise Arst about the prospects of a public offering also
constituted violations of Rule 10b-5, 17 C.F.R. 240-10b-5, and
“the Kansas Securities Act, and specifically K.S.A. § 17-1253.”
(Amend. Compl. ¶ 12.). Rule 10b-5 provides in pertinent part:
It shall be unlawful for any person, directly . . .
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to
omit to state a material fact necessary in order to make the
statements made, in light of the circumstances under which
they were made, not misleading, or
(c) To engage in any act, practice or course of business
15
which operates or would operate as a fraud or deceit upon
any person, in connection with the purchase or sale of any
security. 6
It is well established that Rule 10b-5 provides a private
cause of action. Central Bank v. First Interstate Bank , 114 S.
Ct. 1439, 1445-46 (1994). We have explained the elements of
liability under this rule as follows:
In order to establish primary liability under § 10(b), a
party must allege and prove facts showing that the conduct
complained of occurred 'in connection with' the purchase or
sale of a security--that the actor made an untrue statement
of a material fact, or failed to state a material fact, that
in so doing, the party acted knowingly and with intent to
deceive or defraud, and that plaintiff relied on the
misrepresentations, and sustained damages as a proximate
result of the misrepresentation.
Farlow v. Peat Marwick, Mitchell & Co. , 956 F.2d 982, 986 (10th
Cir. 1992). In regards to a 10b-5 claim alleging a failure to
disclose information, 7 we explained,
6
The language of Kan. Stat. Ann. 17-1253(a) closely tracks
that of Rule 10b-5. Section 17-1253(a) provides,
It is unlawful for any person, in connection with the offer,
sale or purchase of any security, directly or indirectly,
to:
(1) Employ any device, scheme or artifice to defraud;
(2) make any untrue statement of a material fact or to omit
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; or
(3) engage in any act, practice or course of business which
operates or would operate as a fraud or deceit upon any
person.
Since Plaintiff makes no particularized claim under the Kansas
Securities Act, we will evaluate that claim under the same
elements as its federal counterpart. See Comeau v. Rupp., 810 F.
Supp. 1127, 1157 (D. Kan. 1992) (observing the closeness in
language and requisite elements between § 17-1253(a) and Rule
10b-5).
7
Plaintiff did not argue in his appellate brief or at oral
(continued...)
16
The failure to disclose material information is actionable
only when one is under a duty to do so. And the duty to
disclose arises when one party has information that the
other party is entitled to know because of a fiduciary or
other similar relation of trust and confidence between them.
A duty arises from the relationship between the parties not
merely because one party has an ability to acquire
information. Without a duty to disclose, silence cannot be
made fraudulent.
Windon Third Oil and Gas v. Federal Deposit Ins. , 805 F.2d 342,
347 (10th Cir. 1986) (citing Chiarella v. United States , 445 U.S.
222, 228, 231 n. 14 (1980)). See also Dirks v. SEC, 463 U.S.
646, 655 (1983) (holding that a duty to disclose “arises . . .
from the existence of a fiduciary relationship.”).
For the reasons discussed above, Shoaf had no duty to
disclose information about the strength and prospects of PCA
stock, including the possibility of a public offering.
Therefore, his failure to disclose this information does not
support liability under either federal or state securities
statutes. And there is no evidence in the record that Shoaf was
privy to inside information that he might have been obligated to
disclose. However, as we explained above, Shoaf did have a duty
to disclose the fact that he purchased the shares on his own
account. This failure alone does not establish liability under
7
(...continued)
argument that Defendants had made misrepresentations in violation
of Rule 10b-5; plaintiff argued only that defendants failed to
disclose information in violation of that rule. Therefore, we
conclude that Plaintiff has waived the former issue. See
Abercrombie v. City of Catoosa, Okla. , 896 F.2d 1228, 1231 (10th
Cir. 1990); Jordan v. Bowen, 808 F.2d 733, 736 (10th Cir.), cert.
denied, 484 U.S. 925 (1987); Bledsoe v. Garcia, 742 F.2d 1237,
1244 (10th Cir. 1984).
17
Rule 10b-5, but in light of the record, the remaining elements
for liability under Rule 10b-5--including scienter, materiality,
and causation--present genuine issues of material fact for a
jury. Therefore, Arst has presented facts sufficient to
withstand summary judgment with respect to his claim that
Defendants’ failure to disclose self-dealing violated federal and
state securities laws.
IV. Conclusion.
In sum, we hold as follows: (1) Plaintiff does not have a
cause of action under Rule 10b-10(a)(7)(i); (2) Plaintiff has
presented facts sufficient to withstand summary judgment as to
his claims under Kansas common law and state and federal
securities statutes alleging Defendants' failure to disclose
self-dealing; and (3) Plaintiff has not presented facts
sufficient to withstand summary judgment as to his claims under
Kansas common law and state and federal securities statutes
alleging Defendants' failure to dispense investment advice. We
therefore AFFIRM the judgment of the United States District Court
for the District of Kansas in part and REVERSE in part and REMAND
this case for further proceedings in accordance with this
opinion.
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