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Full Opinion
Fed. Sec. L. Rep. P 97,420
Kay N. BROWN; Gilbert Fennema; Minnie G. Fennema; Harold
J. Lemmon; Marjorie T. Miller; William C. Findt; William
G. Brown; Loyette Eby; David Lawrence; Charles W. Manz,
As Trustee for the Manz Family Trust; Jules Belkin; Tony
Arlotti; Rita G. Thye; Richard O. Slutzky; Alyson
Slutzky; Judith Alterman; Central Machine & Welding, Inc.;
George F. Robinson; Margaret B. Sealander; Valerie R.
Lynn; Ralph Madoff; Lily Madoff; Ralph G. Bock; Glen M.
Carlson; Nila Carlson; Frederick H. Duffield; Elizabeth
D. Duffield; Richard J. Paetz; Luana Borchers; Emerson
Eby; Madeline Shields; Albert W. Shields; Rosemarie Cobb;
Joyce V. Moorehouse; Mary K.O. Sanders; Harry J. Beyer;
Elizabeth Beyer, As Trustees for the Beyer Family trust
under agreement dated 11/28/77; Gerald K. Doman; Gary E.
Fischer; Esther W. Fischer; Fred T. Baker; Richadean M.
Burrows, As Trustee for the Richadean M. Burrows Trust under
Declaration of trust dated 12/19/86; Elizabeth S. Peeler;
Melvin W. Sewell; Lela H. Sewell; Richard F. Bleau;
Kathleen A. Bleau; Janice J. Bowen; Arthur H. Smith, Jr.;
Anna Johnell Crimen; Wayne C. Schmidt; Robert L. Duff;
Donald K. Fischer; James R. Cooper; Marguerite C. Cooper;
Floyd J. Lyne; Carolyn L. Lyne; Ralph A. Sternberg; Meta
L. Sternberg; A. Joseph Creston; T. Josephine Creston;
Donald M. Shegrud; Donald S. Kyle; Jeanniette A. Kyle;
Rita P. Brown; Ivan R. Bowers; Dora J. Bowers; Ralston B.
Brown; Jean M. Brown; Robert F. Papenmeier; Judy A.
Papenmeier; Thomas Mathew, Dr.; Albert W. Beiser; Karolyn
K. Kufeld; Roland C. Kufeld; William M. Smith; Maurice W.
Keating; Brooks Pool Company, Inc.; Scott C. Crawley;
Owen T. Crawley; Lou Craig; Rudy J. Garbien; Josephine M.
Garbien; Paul Mangold; Imogene Mangold; Robert J.
Whitten; Della D. Whitten; John W. Claughton; Thomas M.
Stout; Marilyn K. Stout; Louis A. Caporale; Milton R.
Darling; Dolores W. Darling; R.K. Nair, M.D., As Trustee
of the R.K. Nair, M.D. Pension & Profit Sharing Plan; Frank
N. Grateau; Virginia W. Grateau; Burr R. Carlson; Carol
D. Carlson; John N. Bailey; James C. Roberts; Vivian R.
Roberts; James Wilkinson; Adolph Albert Pezoldt; Sandra
E. Pezoldt; Charles R. Hartwig; Scott B. Edmonds; Thelma
Hemenway; Robert A. Brandon; Ruth J. Brandon; Anne Z.
Burgess; Frances S. Hardin, As Trustee for the Frances S.
Hardin living trust; Merle C. Johnson; Beverly A. Johnson;
James A. Lowry; Shirley L. Allen; Charles I. Trinrud, As
Trustee of the Charles I. Trinrud trust under declaration of
trust dated 12/16/83; John J. Kokemor, M.D.; Leslie
Mayberry; Harvey S. Wright; June E. Jarmer, As Trustee of
the June E. Jarmer Revocable Trust; Edward F. Johnston;
Francine E. Johnston; Billy L. Cone; Judy A. Cone;
Joe E. Vetter; Betty M. Vetter; Georgene L. Creagor; Rom
S. Charmin; Paul Farver; Gwendolyn Farver; Samuel M.
Feller; Renate Bauer; Joseph J. Falsia; Angelene
Antolini; Jack L. Keyes; Norman J. Hull; Elizabeth K.
Hull; Sophia H. Quick; Edward J. Santucci; Janet A.
Santucci; Nancy C. Davis; John T. Weiller; Sharinne S.
Weiller; Chester J. Holmes; Robert F. Martin; Ragnheidur
L. Martin; Louis T. Perry; E. Jean Crowell; John H.
Crowell; Armando B. Sorchini; Doris D. Meyers; Robert F.
Olivere; Marilyn Hess Olivere; Jeanne A. Hockert; Eric G.
Koskoff; Sandra L. Koskoff; R.C. Fretz, M.D., As Trustee
for R.C. Fretz, M.D., Inc. Pension Plan & Trust; Maynard J.
Mitchell; Pauline J. Mitchell; Dorothy Price; James A.
Kosa; Donald Kosa; Walter R. Gardner; Dorothy Mae
Gardner; Betty C. Popp; Faye McAllister; Dale A.
McAllister; Bernard L. Gburek; Celina Gburek; Ervin B.
Whitt; Jacqueline P. Whitt; Katherine N. Ase; Norma
Jensen; Darrell L. Jensen; Clyde L. Metsinger; Ruth A.
Metsinger; John F. Queenan; Leon A. Dale; Arlene R. Dale;
Muriel A. Link; Merrill D. Round, Jr.; Deborah Taras;
Max L. Fisher; Robert J. Blackburn; First Interstate Bank
of Billings, N.A., As Successor Trustee of the William C.
Alexander 1982 Revocable Trust; Wilbur L. Vanneste; Elaine
A. Greenwood; Cecil E. Cross, D.D.S.; Alice Faye Cross;
Thomas R. Jordan; Barbara L. Jordan; James A. Ardaiolo;
Mary Lou Percy; Charles W. Mettler; Doris E. Lemmon; Earl
L. Headworth; Harriet L. Headworth; Marilyn B. Johnson;
Marshall J. Spencer; Helen S. Godwin; Landers Finseth;
Dorothy Finseth; John C. Wilson; Betty G. Wilson; Lewis
R. West; Janet B. West; Daniel R. Howe, As Trustee for the
Daniel R. Howe trust under agreement dated 2/2/69 for the
benefit of Daniel R. Howe; Don L. McDermott; Hubert P.
Richter; Jeanne M. Richter; Marlene A. Radloff; Russell
W. Eckman; Loretta C. Eckman; Martha I. Pickersgill;
Joseph K. Johnson; Chester Kwiatt, As Trustee of the
Chester Kwiatt trust under agreement dated 1/22/85; George
E. Chorba; Hilda K. Chorba; Donald G. Bergey, As Trustee
for Geoffrey D. Bergey and Colin D. Bergey; Herbert O.
Beadle, Jr.; Catherine B. Beadle; Mary Frances Sutherland,
As Trustee for the James Hobart Dunlap Trust 2; Peter J.
Caggiano; Richard L. Heintz, As Trustee of the William &
Heintz Map Corporation; Heintzvisitype Profit Sharing
Trust; Paul A. Jacobsen; Elsie M. Jacobsen; Francis P.A.
Williams; Elsie B. Williams; William N. Spangler; Thomas
I. Fritts; Joyce P. Fritts; Phillip T. Schaefer; Richard
L. Morris; Katherine J. Morris; John E. Proctor; Robert
J. Koperwhats; Martha A. Koperwhats; Paul A. Landrum;
Delores A. Landrum; David C. Koerber; Peter Frantzis;
Catherine E. Frantzis; Frances L. Belko; Coetta McNeal
Thomas; Nancy E. Szot; Thomas W. Barnard, As Trustee for
Jennifer Lynn Barnard; Carol S. Barnard, As Trustee for
Kristen Shell Barnard; Bernadine E. Ruof; Donald C.
Kamsler; Mary Belle Kamsler; Edith M. Dyer; Ruth A.
Dickson; John R. Farquhar; Doris M. Farquhar; Robert C.
Kraxner; John H. Weitz; Robert W. Wilson; Edith E.
Wilson; Joseph Croce; N. Ruth Reed; Elizabeth A.
Richardson; Lawrence M. Halverson; Ferne P. Halverson;
Clarence C. Hanson; Grace J. Hanson; Harry W. Hopes;
Frances P. Hopes; Betty L. Shaw; James C. Stone; Michael
Maffioli; Bobbie N. Hart; Charles T. Ames; John J. Moore,
III; Frederic A. Riegel; Alice P. Riegel; Ellen R. Oakes,
As Trustee for the Ellen R. Oakes, Ph.D., Inc., profit
sharing plan; John Kovas; Carol Lindberg; Eric I. Pas;
Michele J. Pas; Elma Crowley; John W. Butler; Harvey Gene
Shackelford; Gary J. Skaff; Andrew G. Teacherson; Elaine
A. Teacherson; George S. Deavor; Margaret A. Deavor; Paul
V. Kellman; Evelyn R. Kellman, As Trustees of the Kellman
1985 trust; Ronald A. Millett; Joyce D. Millett; Albert
K. Earnest; David A. MacAfee; Robert Stanton, As
Trustee for the Stanton Real Estate, Inc., pension
plan; Jerry L. McQuiston; David Moehlman; Jean D.
Moehlman; John N. Lester; Dawn C. Lester, As Trustee of
the John N. and Dawn C. Lester trust; Louis G. Cramer;
Sarah E. Cramer; Frederick E. Jackson; Janet C. Jackson;
Earnest E. Moore; Betty Moore; Leonard C. Vogel; Dennis
K. Dang; Anthony Pisciotta; Cornelita Pisciotta; Lillian
A. Newton; Dorothy M. Gary; Morton Daftary; Myriam
Daftary; William J. Powell; Stanley R. Arnold; Judy E.
Arnold; Frances Marie Kotsch; Arly M. Sills; William T.
Taylor; Virginia C. Hughes; Benjamin W. Vallat, Jr.; M.
Lorraine Vallat, As Trustee of the Vallat Family trust dated
2/6/76; Paul A. Johnson; Saranne O. Johnson; Joseph B.
Schmelzle, As Trustee for the benefit of Joseph B.
Schmelzle; Julia Ann Costa, As Trustee for Joseph Edwin
Costa; Gladys M. Federspiel; Carolyn F. Lagomarsino;
Donald L. Hunton; Dean G. Fesette; Lloyd R. Golden, As
Trustee for the Golden Family trust; Freda L. Schmelzle, As
Trustee for the benefit of Freda L. Schmelzle; Douglas B.
Zubrin; Bettina Wyman; Carol Ann Fischer Matscherz; Leola
A. Shaw; Flowers Wilson; Sam McClain; Christine M.
McClain; Ory C. Pranger; Gail A. Hoeldt; Katherine
McCall; Mary M. Warner; William F. Lolli, D.D.S., As
Trustee of the William F. Lolli, D.D.S. Corporation;
Beatrice A. McNamara; Judy Heady; Jack Lisabeth; Evelyn
Lisabeth; Margaret B. Morrow; Frederick Carleton Hutchins,
P.T.; Donald H. Blowers; James H. Reynolds; Sara S.
Reynolds; Alvera Schultz; Hoyt N. McPherson; Dorothy A.
Young; Tura M. Kleiger; Frank T. Seil; Irene Seil; Edwin
Gienger; Virginia Gienger; A.E. Caswell; J. Rodney
Wilson; Robert Gottlieb; Lois D. Gottlieb, As Trustees of
the Gottlieb Family trust dated 6/25/86; Clyde Barks; Emma
Barks; Nadine Schwartz; Lee J. Dewitt; Edna L. Dewitt;
Suzanne B. Fyvolent; Don H. Cox; Carolyn O. Cox; Ray V.
Work; Katherine L. Work; Catherine D. Nolan; Henry M.
Nelson; Barbara W. Nelson; George W. Holton; Donald S.
Fowler; Mary L. Fowler; Gloria B. Hendrickson; Thelma D.
Jacks; Dallis C. Nickell; Charles L. Ging; Myrtle C.
Ging; Bernard Maas; Stanley J. Dzialowy; Ann Dzialowy;
Joseph J. Force; Margaret A. Force; Audrey J. Cannon;
Richard A. Rudy; Diane Rudy; Joseph G. Alders; Lorraine
M. Marcus; Kenneth S. Kornblum, D.D.S., As Trustee for
Kenneth S. Kornblum, D.D.S., Inc. profit sharing plan;
Malcom A. Rea; Argyle Q. O'Brien, D.D.S.; Carol A.
O'Brien; Mary Kathleen Baird; Ernest N. Wallace; Robert
Watson; H. Reba Watson; Alex V. Streltzov; Carolina G. De
Hoyos; Corrine M. De Hoyos; Janice W. Hagen; Frank S.
Brooks; Nancy G. Brooks; Jacqueline J. Kelly; Alice L.
Mueller, As Trustee for the Benefit of Dean R. Johnson;
Gary T. Johnson; Mark C. Johnson; Everett E. Roberts;
Dorothy B. Roberts; Carl W. Fisher; Thomas C. Borreson;
Luciano Tucci; Barbara J. Pariente; Louis M. Silber;
Gerald W. Jewell; Vonetta J. Jewell; Mildred L. Stromberg;
Jean E. Anderton; George G. Sause; Evelyn Sause; John D.
Hiscox; Eleanor G. Walkney; Robert L. Sherman; Abbie J.
Sherman; Burt A. Kaufman; Paulette Kaufman; Lawrence R.
Wiskirchen; Alice Ann Wiskirchen; Harold D. Wells;
Margaret J. Wells, As Trustees under declaration of trust
1987-1 dated 4/21/87; Helen L. Riley; Kenneth D. Heun;
Michael M. Kronberg; Elinor Kronberg; Gloria R. Penico;
Maureen Rutherfurd; Lajeanne T. Gilmer; Ellwyn Bailey;
Paul W. Laube; Mary R. Laube; Virginia McKemie Belt, As
Trustee for Cal Trust; Emmett S. Orange; James R.
Somerville; Joyce M. Somerville; Michele A. Young;
Godfrey Brown Desha, As Trustee under agreement dated
10/10/82; Eiloise Marie Desha, As Trustee under agreement
dated 10/10/82; Marie T. Haffey; Charlotte L. Timmons;
Robert H. Staley; Lois M. Pool; George H. Stoddard; Ella
D. Stoddard; Gerald J. Conte, As Trustee for the Gerald J.
Conte trust under agreement dated 6/19/87 for the
benefit of Gerald J. Conte; Dorothy J. Davies; Barbara G.
Harness; Hilton M. Grier, As Trustees for the Barbara G.
Harness trust; Chris Eirich; Molly Eirich; James
Sportelli; Louis G. Bencze; Rebecca C. Bencze; Gail E.
Vandyke; Roland E. Hardee; Edith R. Hardee; Troy L.
Sorensen; Marian R. Sorensen; Robert B. Smith; Jean D.
Smith; Keith Groves; Veneda Groves; Ada Marie Curry, As
Trustee of the Ada Marie Curry trust; Viola B. Moore;
Sheila Gallagher; Warren W.F. Thrun; Dolores Thrun;
Terrie L. Gregis; Dorothy A. Clements; John D. Winters;
Kathleen Winters, As Trustees for the John D. Winters Family
trust; James E. Dunn; Bluefield Urology, Inc.; Gordon F.
Brown; Marian S. Brown; C. Downey Price, M.D.; Edna B.
Price, as Trustees, for the benefit of Conroe Eye Associates
Pension Plan & Trust; Barry S. Martin; Robert G. Dinsbier;
Althea N. Putnam; Joel D. Anderson; Lynell M. Anderson;
Clegg B. Rowley; Rose Salzano; Erval R. Howard; Robert W.
Mangold; Max Medoff; Ben A. Ayers; Genevieve T. Ayers;
Arthur N. Shiro; Gay Burch; Robert E. Fraser; Robert J.
Salzer; Margaret M. Salzer; Story Musgrave; John R.
Leonhard; Arthur L. Schwenneker; Anita M. Schwenneker;
John David Rathbone; Vera T. Rathbone; Stephen W. Gleave;
Patricia S. Gleave; Paul J. Roberts; Brenda S. Roberts;
Marvin E. Sands, As Trustee for the Joe E. Fritzlen trust;
Michael Coatney; Cathleen Coatney; Russell A. Jaeger;
Lois S. Jaeger; Dwayne E. Dobson; Beatrice Ricker;
Charles C. Goetz; Miriam B. Robins; Anthony P. Ragonetti;
Kay N. Brown; Gilbert Fennema; Minnie G. Fennema; Harold
J. Lemmon; Marjorie T. Miller; William C. Findt; William
G. Brown; Loyette Eby; David Lawrence; Charles W. Manz,
As Trustee for the Manz Family trust; Jules Belkin; Tony
Arlotti; Rita G. Thye; Richard O. Slutzky; Alyson
Slutzky; Judith Alterman; Central Machine & Welding, Inc.;
George F. Robinson; Margaret B. Sealander; Valerie R.
Lynn; Ralph Madoff; Lily Madoff; Ralph G. Bock; Glen M.
Carlson; Nila Carlson; Frederick H. Duffield; Elizabeth
D. Duffield; Richard J. Paetz; Luana Borchers; Emerson
Eby; Madeline Shields; Albert W. Shields; Rosemarie Cobb;
Joyce V. Moorehouse; Mary K.O. Sanders; Harry J. Beyer;
Elizabeth Beyer, As Trustees for the Beyer Family trust
under agreement dated 11/28/77; Gerald K. Doman; Gary E.
Fischer; Esther W. Fischer; Fred T. Baker; Richadean M.
Burrows, As Trustee for the Richadean M. Burrows Trust under
Declaration of trust dated 12/19/86; Elizabeth S. Peeler;
Melvin W. Sewell; Lela H. Sewell; Richard F. Bleau;
Kathleen A. Bleau; Janice J. Bowen; Arthur H. Smith, Jr.;
Anna Johnell Crimen; Wayne C. Schmidt; Robert L. Duff;
Donald K. Fischer; James R. Cooper; Marguerite C. Cooper;
Floyd J. Lyne; Carolyn L. Lyne; Ralph A. Sternberg; Meta
L. Sternberg; A. Joseph Creston; T. Josephine Creston;
Donald M. Shegrud; Donald S. Kyle; Jeanniette A. Kyle;
Rita P. Brown; Ivan R. Bowers; Dora J. Bowers; Ralston B.
Brown; Jean M. Brown; Robert F. Papenmeier; Judy A.
Papenmeier; Thomas Mathew, Dr.; Albert W. Beiser; Karolyn
K. Kufeld; Roland C. Kufeld; William M. Smith; Maurice W.
Keating; Brooks Pool Company, Inc.; Scott C. Crawley;
Owen T. Crawley; Lou Craig; Rudy J. Garbien; Josephine M.
Garbien; Paul Mangold; Imogene Mangold; Robert J.
Whitten; Della D. Whitten; John W. Claughton; Thomas M.
Stout; Marilyn K. Stout; Louis A. Caporale; Milton R.
Darling; Dolores W. Darling; R.K. Nair, M.D., As Trustee
of the R.K. Nair, M.D. Pension & Profit Sharing Plan; Frank
N. Grateau; Virginia W. Grateau; Burr R. Carlson; Carol
D. Carlson; John N. Bailey; James C. Roberts; Vivian R.
Roberts; James Wilkinson; Adolph Albert Pezoldt; Sandra
E. Pezoldt; Charles R. Hartwig; Scott B. Edmonds; Thelma
Hemenway; Robert A. Brandon; Ruth J. Brandon; Anne Z.
Burgess; Frances S. Hardin, As Trustee for the Frances
S. Hardin living trust; Merle C. Johnson; Beverly A.
Johnson; James A. Lowry; Shirley L. Allen; Charles I.
Trinrud, As Trustee of the Charles I. Trinrud trust under
declaration of trust dated 12/16/83; John J. Kokemor, M.D.;
Leslie Mayberry; Harvey S. Wright; June E. Jarmer, As
Trustee of the June E. Jarmer Revocable Trust; Edward F.
Johnston; Francine E. Johnston; Billy L. Cone; Judy A.
Cone; Joe E. Vetter; Betty M. Vetter; Georgene L.
Creagor; Rom S. Charmin; Paul Farver; Gwendolyn Farver;
Samuel M. Feller; Renate Bauer; Joseph J. Falsia;
Angelene Antolini; Jack L. Keyes; Norman J. Hull;
Elizabeth K. Hull; Sophia H. Quick; Edward J. Santucci;
Janet A. Santucci; Nancy C. Davis; John T. Weiller;
Sharinne S. Weiller; Chester J. Holmes; Robert F. Martin;
Ragnheidur L. Martin; Louis T. Perry; E. Jean Crowell;
John H. Crowell; Armando B. Sorchini; Doris D. Meyers;
Robert F. Olivere; Marilyn Hess Olivere; Jeanne A.
Hockert; Eric G. Koskoff; Sandra L. Koskoff; R.C. Fretz,
M.D., As Trustee for R.C. Fretz, M.D., Inc. Pension Plan &
Trust; Maynard J. Mitchell; Pauline J. Mitchell; Dorothy
Price; James A. Kosa; Donald Kosa; Walter R. Gardner;
Dorothy Mae Gardner; Betty C. Popp; Faye McAllister; Dale
A. McAllister; Bernard L. Gburek; Celina Gburek; Ervin B.
Whitt; Jacqueline P. Whitt; Katherine N. Ase; Norma
Jensen; Darrell L. Jensen; Clyde L. Metsinger; Ruth A.
Metsinger; John F. Queenan; Leon A. Dale; Arlene R. Dale;
Muriel A. Link; Merrill D. Round, Jr.; Deborah Taras;
Max L. Fisher; Robert J. Blackburn; First Interstate Bank
of Billings, N.A., As Successor Trustee of the William C.
Alexander 1982 Revocable Trust; Wilbur L. Vanneste; Elaine
A. Greenwood; Cecil E. Cross, D.D.S.; Alice Faye Cross;
Thomas R. Jordan; Barbara L. Jordan; James A. Ardaiolo;
Mary Lou Percy; Charles W. Mettler; Doris E. Lemmon; Earl
L. Headworth; Harriet L. Headworth; Marilyn B. Johnson;
Marshall J. Spencer; Helen S. Godwin; Landers Finseth;
Dorothy Finseth; John C. Wilson; Betty G. Wilson; Lewis
R. West; Janet B. West; Daniel R. Howe, As Trustee for the
Daniel R. Howe trust under agreement dated 2/2/69 for the
benefit of Daniel R. Howe; Don L. McDermott; Hubert P.
Richter; Jeanne M. Richter; Marlene A. Radloff; Russell
W. Eckman; Loretta C. Eckman; Martha I. Pickersgill;
Joseph K. Johnson; Chester Kwiatt, As Trustee of the
Chester Kwiatt trust under agreement dated 1/22/85; George
E. Chorba; Hilda K. Chorba; Donald G. Bergey, As Trustee
for Geoffrey D. Bergey and Colin D. Bergey; Herbert O.
Beadle, Jr.; Catherine B. Beadle; Mary Frances Sutherland,
As Trustee for the James Hobart Dunlap Trust 2; Peter J.
Caggiano; Richard L. Heintz, As Trustee of the William &
Heintz Map Corporation; Heintzvisitype Profit Sharing
Trust; Paul A. Jacobsen; Elsie M. Jacobsen; Francis P.A.
Williams; Elsie B. Williams; William N. Spangler; Thomas
I. Fritts; Joyce P. Fritts; Phillip T. Schaefer; Richard
L. Morris; Katherine J. Morris; John E. Proctor; Robert
J. Koperwhats; Martha A. Koperwhats; Paul A. Landrum;
Delores A. Landrum; David C. Koerber; Peter Frantzis;
Catherine E. Frantzis; Frances L. Belko; Coetta McNeal
Thomas; Nancy E. Szot; Thomas W. Barnard, as Trustee for
Jennifer Lynn Barnard; Carol S. Barnard, As Trustee for
Kristen Shell Barnard; Bernadine E. Ruof; Donald C.
Kamsler; Mary Belle Kamsler; Edith M. Dyer; Ruth A.
Dickson; John R. Farquhar; Doris M. Farquhar; Robert C.
Kraxner; John H. Weitz; Robert W. Wilson; Edith E.
Wilson; Joseph Croce; N. Ruth Reed; Elizabeth A.
Richardson; Lawrence M. Halverson; Ferne P. Halverson;
Clarence C. Hanson; Grace J. Hanson; Harry W. Hopes;
Frances P. Hopes; Betty L. Shaw; James C. Stone; Michael
Maffioli; Bobbie N. Hart; Charles T. Ames; John J. Moore,
III; Frederic A. Riegel; Alice P. Riegel; Ellen R. Oakes,
As Trustee for the Ellen R. Oakes, Ph.D., Inc., profit
sharing plan; John Kovas; Carol Lindberg; Eric I. Pas;
Michele J. Pas; Elma Crowley; John W. Butler; Harvey Gene
Shackelford; Gary J. Skaff; Andrew G. Teacherson; Elaine
A. Teacherson; George S. Deavor; Margaret A. Deavor; Paul
V. Kellman; Evelyn R. Kellman, As Trustees of the Kellman
1985 Trust; Ronald A. Millett; Joyce D. Millett; Albert
K. Earnest; David A. MacAfee; Robert Stanton, As Trustee
for the Stanton Real Estate, Inc., pension plan; Jerry L.
McQuiston; David Moehlman; Jean D. Moehlman; John N.
Lester; Dawn C. Lester, As Trustee of the John N. and Dawn
C. Lester trust; Louis G. Cramer; Sarah E. Cramer;
Frederick E. Jackson; Janet C. Jackson; Earnest E. Moore;
Betty Moore; Leonard C. Vogel; Dennis K. Dang; Anthony
Pisciotta; Cornelita Pisciotta; Lillian A. Newton;
Dorothy M. Gary; Morton Daftary; Myriam Daftary; William
J. Powell; Stanley R. Arnold; Judy E. Arnold; Frances
Marie Kotsch; Arly M. Sills; William T. Taylor; Virginia
C. Hughes; Benjamin W. Vallat, Jr.; M. Lorraine Vallat, As
Trustee of the Vallat family trust dated 2/6/76; Paul A.
Johnson; Saranne O. Johnson; Joseph B. Schmelzle, As
Trustee for the benefit of Joseph B. Schmelzle; Julia Ann
Costa, as Trustee for Joseph Edwin Costa; Gladys M.
Federspiel; Carolyn F. Lagomarsino; Donald L. Hunton;
Dean G. Fesette; Lloyd R. Golden, As Trustee for the Golden
Family trust; Freda L. Schmelzle, As Trustee for the
benefit of Freda L. Schmelzle; Douglas B. Zubrin; Bettina
Wyman; Carol Ann Fischer Matscherz; Leola A. Shaw;
Flowers Wilson; Sam McClain; Christine M. McClain; Ory C.
Pranger; Gail A. Hoeldt; Katherine McCall; Mary M.
Warner; William F. Lolli, D.D.S., As Trustee of the William
F. Lolli, D.D.S. Corporation; Beatrice A. McNamara; Judy
Heady; Jack Lisabeth; Evelyn Lisabeth; Margaret B.
Morrow; Frederick Carleton Hutchins, P.T.; Donald H.
Blowers; James H. Reynolds; Sara S. Reynolds; Alvera
Schultz; Hoyt N. McPherson; Dorothy A. Young; Tura M.
Kleiger; Frank T. Seil; Irene Seil; Edwin Gienger;
Virginia Gienger; A.E. Caswell; J. Rodney Wilson; Robert
Gottlieb; Lois D. Gottlieb, As Trustees of the Gottlieb
Family trust dated 6/25/86; Clyde Barks; Emma Barks;
Nadine Schwartz; Lee J. Dewitt; Edna L. Dewitt; Suzanne
B. Fyvolent; Don H. Cox; Carolyn O. Cox; Ray V. Work;
Katherine L. Work; Catherine D. Nolan; Henry M. Nelson;
Barbara W. Nelson; George W. Holton; Donald S. Fowler;
Mary L. Fowler; Gloria B. Hendrickson; Thelma D. Jacks;
Dallis C. Nickell; Charles L. Ging; Myrtle C. Ging;
Bernard Maas; Stanley J. Dzialowy; Ann Dzialowy; Joseph
J. Force; Margaret A. Force; Audrey J. Cannon; Richard A.
Rudy; Diane Rudy; Joseph G. Alders; Lorraine M. Marcus;
Kenneth S. Kornblum, D.D.S., As Trustee for Kenneth S.
Kornblum, D.D.S., Inc. profit sharing plan; Malcom A. Rea;
Argyle Q. O'Brien, D.D.S.; Carol A. O'Brien; Mary Kathleen
Baird; Ernest N. Wallace; Robert Watson; H. Reba Watson;
Alex V. Streltzov; Carolina G. De Hoyos; Corrine M. De
Hoyos; Janice W. Hagen; Frank S. Brooks; Nancy G. Brooks;
Jacqueline J. Kelly; Alice L. Mueller, As Trustee for the
benefit of Dean R. Johnson; Gary T. Johnson; Mark C.
Johnson; Everett E. Roberts; Dorothy B. Roberts; Carl W.
Fisher; Thomas C. Borreson; Luciano Tucci; Barbara J.
Pariente; Louis M. Silber; Gerald W. Jewell; Vonetta J.
Jewell; Mildred L. Stromberg; Jean E. Anderton; George G.
Sause; Evelyn Sause; John D. Hiscox; Eleanor G. Walkney;
Robert L. Sherman; Abbie J. Sherman; Burt A. Kaufman;
Paulette Kaufman; Lawrence R. Wiskirchen; Alice Ann
Wiskirchen; Harold D. Wells; Margaret J. Wells, As
Trustees under declaration of trust 1987-1 dated 4/21/87;
Helen L. Riley; Kenneth D. Heun; Michael M. Kronberg;
Elinor Kronberg; Gloria R. Penico; Maureen Rutherfurd;
Lajeanne T. Gilmer; Ellwyn Bailey; Paul W. Laube;
Mary R. Laube; Virginia McKemie Belt, As Trustee for Cal
Trust; Emmett S. Orange; James R. Somerville; Joyce M.
Somerville; Michele A. Young; Godfrey Brown Desha, As
Trustee under agreement dated 10/10/82; Eiloise Marie
Desha, As Trustee under agreement dated 10/10/82; Marie T.
Haffey; Charlotte L. Timmons; Robert H. Staley; Lois M.
Pool; George H. Stoddard; Ella D. Stoddard; Gerald J.
Conte, As Trustee for the Gerald J. Conte trust under
agreement dated 6/19/87 for the benefit of Gerald J. Conte;
Dorothy J. Davies; Barbara G. Harness; Hilton M. Grier, As
Trustees for the Barbara G. Harness trust; Chris Eirich;
Molly Eirich; James Sportelli; Louis G. Bencze; Rebecca
C. Bencze; Gail E. Vandyke; Roland E. Hardee; Edith R.
Hardee; Troy L. Sorensen; Marian R. Sorensen; Robert B.
Smith; Jean D. Smith; Keith Groves; Veneda Groves; Ada
Marie Curry, As Trustee of the Ada Marie Curry trust; Viola
B. Moore; Sheila Gallagher; Warren W.F. Thrun; Dolores
Thrun; Terrie L. Gregis; Dorothy A. Clements; John D.
Winters; Kathleen Winters, As Trustees for the John D.
Winters Family trust; James E. Dunn; Bluefield Urology,
Inc.; Gordon F. Brown; Marian S. Brown; C. Downey Price,
M.D.; Edna B. Price, As Trustees, for the Benefit of Conroe
Eye Associates Pension Plan & Trust; Barry S. Martin;
Robert G. Dinsbier; Althea N. Putnam; Joel D. Anderson;
Lynell M. Anderson; Clegg B. Rowley; Rose Salzano; Erval
R. Howard; Robert W. Mangold; Max Medoff; Ben A. Ayers;
Genevieve T. Ayers; Arthur N. Shiro; Gay Burch; Robert E.
Fraser; Robert J. Salzer; Margaret M. Salzer; Story
Musgrave; John R. Leonhard; Arthur L. Schwenneker; Anita
M. Schwenneker; John David Rathbone; Vera T. Rathbone;
Stephen W. Gleave; Patricia S. Gleave; Paul J. Roberts;
Brenda S. Roberts; Marvin E. Sands, as Trustee for the Joe
E. Fritzlen trust; Michael Coatney; Cathleen Coatney;
Russell A. Jaeger; Lois S. Jaeger; Dwayne E. Dobson;
Beatrice Ricker; Charles C. Goetz; Miriam B. Robins;
Anthony P. Ragonetti, Plaintiffs-Appellants-Cross-Appellees,
v.
The E.F. HUTTON GROUP, INC.; Hutton Energy Services II,
Inc.; E.F. Hutton & Co., Inc.; Shearson Lehman
Hutton Inc., Defendants-Appellees,
Indian Wells Production Company; Indian Wells Oil Co.;
Hutton/Indian Wells 1983 Energy Income Fund, Ltd.,
Defendants-Appellees-Cross-Appellants.
No. 824, Docket 92-7780.
United States Court of Appeals, Second Circuit.
Argued Jan. 4, 1993.
Decided April 19, 1993.
Elizabeth M. Toll, New York City (Beigel & Sandler, New York City, of counsel), for appellants.
Edward J. Yodowitz, New York City (Steven Kronengold, Daniel J. Fish, Skadden, Arps, Slate, Meagher & Flom, New York City, of counsel), for appellees.
Before KEARSE, ALTIMARI and JACOBS, Circuit Judges.
JACOBS, Circuit Judge:
Plaintiffs-appellants appeal from so much of a judgment in the United States District Court for the Southern District of New York, John M. Walker, Circuit Judge, sitting by designation, 735 F.Supp. 1196, as (a) granted summary judgment to defendant E.F. Hutton Group, Inc. ("Hutton") on plaintiffs-appellants' claim that they were sold unsuitable securities in violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) (1988) (" § 10(b)") and, (b) having dismissed all federal claims before trial or discovery, dismissed plaintiffs-appellants' pendent state law claims for common law fraud and breach of fiduciary duty. Plaintiffs-appellants also appeal from the district court's subsequent judgment denying their motion for reargument under Southern District of New York Local Civil Rule 3(j). We affirm.
BACKGROUND
Plaintiffs-appellants are approximately 400 presumably unsophisticated, income-oriented investors in a limited partnership called the Hutton/Indian Wells 1983 Energy Income Fund, Ltd. (the "Partnership"). According to the Partnership's October 14, 1983 prospectus (the "Prospectus"), it was organized to acquire properties upon which existing oil and gas wells are located and to provide regular cash distributions to investors from sales of oil and gas produced from those properties.
After their investments allegedly became worthless, the plaintiffs-appellants (the "Limited Partners") brought suit in the United States District Court for the Southern District of New York against Hutton, the Indian Wells Production Company and related entities (collectively, the "defendants"). In their amended complaint, the Limited Partners assert two claims arising under § 10(b) and two claims arising under state common law theories of fraud and breach of fiduciary duty.
In response to the amended complaint, the defendants moved below (a) to dismiss the amended complaint for failure to state a claim and for failure to plead fraud with particularity, and (b) in the alternative for summary judgment. The district court granted summary judgment as to the first count, which alleges that defendant Hutton sold the Limited Partners unsuitable securities in violation of § 10(b); dismissed the second count, which alleged that all defendants fraudulently sold securities in violation of § 10(b); granted leave to replead the second count; and, having dismissed all federal claims before trial or discovery, dismissed the remaining state law claims for lack of independent federal jurisdiction. The Limited Partners' second amended complaint, repleading what had been count two, was ultimately dismissed with prejudice in an opinion that is not the subject of this appeal. Brown v. Hutton Group, 795 F.Supp. 1317 (S.D.N.Y.1992). This appeal followed the district court's denial of the Limited Partners' motion for reargument as to the first count.
The Limited Partners contend that this Court should reverse the grant of summary judgment as to the unsuitability claim (1) because the district court erroneously relied in part upon the supplement to the Prospectus (the "Supplement") which may not have been distributed to each of the Limited Partners prior to their investment in the Partnership; (2) because the promotional brochure used by Hutton to market the Partnership interests (the "Brochure") and the Prospectus did not expressly and directly contradict certain oral misrepresentations allegedly made by Hutton account executives; and (3) because the district court failed to consider all relevant factors to determine whether each of the Limited Partners justifiably relied on his or her broker's assurances.
A. Allegations in the Amended Complaint
The district court, for purposes of Hutton's summary judgment motion and without objection from Hutton, accepted as true the following allegations from the amended complaint: (a) that each of the more than 400 Limited Partners was unsophisticated; (b) that each Limited Partner told a Hutton account executive that his or her investment objectives included some combination of income, capital appreciation, tax benefits and savings; and (c) that the Hutton account executives gave oral assurance to each Limited Partner that the Partnership had either no risk or low risk.1 Hutton's motion did, however, contest the Limited Partners' allegations that they made their purchases in justifiable reliance on the brokers' oral representations and that the Brochure and Prospectus were materially false and misleading.
B. The Offering Materials
As the Limited Partners contend, the Brochure depicts the Partnership's financial outlook in bright terms. In this regard, the Brochure distinguishes the Partnership from prototypically risky oil and gas investments by emphasizing that the purchase of "only producing oil and gas properties" eliminates exploration risk. The Brochure's disclosure concerning other risks is by reference to the Prospectus. The jacket of the Brochure contains the following caution:
The use of this material is authorized only when preceded or accompanied by a prospectus for Hutton Indian Wells 1983 Energy Income Fund, Ltd. Prospective investors are encouraged to read the prospectus, including the section entitled "Risk Factors."
Although the Brochure again and again references the risk disclosure sections in the Prospectus, nowhere does the Brochure quote or otherwise recite the cautionary statements in the Prospectus.2
After a review of the Brochure in its entirety there can be no doubt that it is a selling tool. In contrast, the Prospectus' disclosure of the Partnership's risks is thorough and materially complete, if not decidedly glum. The cover of the Prospectus warns that "[n]o person has been authorized to give any information or to make any representations, other than those contained in this prospectus, and if given or made, such information or representations must not be relied upon." The first page of the prospectus states:
THIS OFFERING INVOLVES CERTAIN RISKS
See "RISK FACTORS"
The "RISK FACTORS" section takes up roughly three single spaced pages. It is prominently featured immediately after the opening "SUMMARY OF OFFERING" section. The "RISK FACTORS" section states at the outset that "[t]here can be no assurance that properties selected will produce oil or gas in the quantities or at the cost anticipated, or that they will not cease producing entirely." It ends by disclosing the Limited Partners' potential obligations in the event the Partnership is "involuntarily liquidated because of insolvency." The "RISK FACTORS" section is divided by headings entitled "General Risks" and "Specific Risks", and by fourteen subheadings entitled "Risks Inherent in Oil and Gas Operations", "Competition and Markets", "Regulation", "Operating and Environmental Hazards", "General Partners' Limited Prior Activities", "Diversification", "Lack of Opportunity to Review Partnership Properties", "Conflicts of Interest", "Limitations on Cash Distributions", "Limited Transferability", "Limited Liquidity", "Loss of Limited Liability", "Distribution of Partnership Properties", and "Partnership Liquidation". The "RISK FACTORS" section also directs the potential investor to numerous other sections of the Prospectus.
There is little in the Prospectus to tranquilize the investor:
Risks Inherent in Oil and Gas Operations. Purchases of Producing Properties will be based on available geological and engineering data, the extent and quality of which will vary. There can be no assurance that properties selected will produce oil or gas in the quantities or at the cost anticipated, or that they will not cease producing entirely, and assumptions concerning the prices at which oil and gas will sell in the future may prove incorrect. In the event that oil and gas prices fall or do not rise, profit potential may be limited. Oil prices and the price of certain categories of natural gas declined over the past two years. The price obtained for any oil and gas produced by the Partnership will depend upon numerous factors, including the extent of domestic production and imports of foreign oil, market demand and the effect of governmental regulations.
Competition and Markets. The oil and gas industry is highly competitive. The Partnership will be involved in competition for desirable properties, and will be competing with many entities which possess financial resources and technical staffs significantly greater than those available to the Partnership.
....
Operating and Environmental Hazards. Hazards incident to the operation of oil and gas properties, such as accidental leakage of petroleum liquids and other unforeseen conditions, are sometimes encountered.... It is anticipated that customary insurance coverage will be obtained, but the Partnership may be subject to liability for pollution and other damages or may lose substantial portions of properties due to hazards which cannot be insured against or have not been insured against due to prohibitive premium costs or for other reasons....
General Partners' Limited Prior Activities. The General Partners were recently organized and have no operating history.... The success of the Partnership will be dependent upon the ability of the General Partners to identify and acquire Producing Properties. Since the General Partners have only limited experience in such activities, there can be no assurance that the Partnership will be able to acquire Producing Properties on a timely or profitable basis....
In addition, the Prospectus warns that the Limited Partners would "own no direct interest in any oil and gas properties or other assets owned by the Partnership"; that "[t]here will be no ready market" for the Partnership units; and that there is "no assurance that the Partnership will have the financial resources to honor its repurchase commitments."
The Supplement describes itself as a summary of "estimates of the net proved crude oil and natural gas reserves attributable to the Producing Properties, the future net revenues from such reserves and the present value of such future net revenues." The Limited Partners contend that the district court relied upon the Supplement as part of the full disclosure picture, and erred in doing so because the record does not establish that any of the Limited Partners received the Supplement prior to investing. However, the district court's October 18, 1990 decision denying the Limited Partners' motion for rehearing stated that even if the court had "not considered the Supplement at all, its decision would have remained the same. The other written offering materials were sufficient by themselves to disclose the relevant risks of the investment."
DISCUSSION
I. SCOPE OF REVIEW
We have described this Court's function in reviewing the district court's grant of summary judgment as "plenary", since we apply the same standard as that employed by the trial court pursuant to Fed.R.Civ.P. 56(c). City of Yonkers v. Otis Elevator Co., 844 F.2d 42, 45 (2d Cir.1988). Pursuant to Rule 56(c), we examine the record "in the light most favorable to ... the party opposing the motion." Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 473, 82 S.Ct. 486, 491, 7 L.Ed.2d 458 (1962).
A motion for summary judgment must be granted upon a showing "that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Materiality is defined by the substantive law of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986).
II. § 10(B) UNSUITABILITY CLAIM
In granting Hutton's motion for summary judgment on the Limited Partners' § 10(b) unsuitability claim, the district court concluded that "the offering materials are not misleading as a matter of law, or, to the same effect, that plaintiffs' reliance on certain portions of the materials was not reasonable as a matter of law." 735 F.Supp. at 1200. The district court also concluded that the Limited Partners could not have reasonably relied on the alleged oral representations by Hutton account executives. Id. at 1202. Based on our review of the facts and the law, we believe the district court reached the proper result.
This Court recognized the viability of a § 10(b) unsuitability claim in Clark v. John Lamula Investors, Inc., 583 F.2d 594, 600-01 (2d Cir.1978). A plaintiff must prove (1) that the securities purchased were unsuited to the buyer's needs; (2) that the defendant knew or reasonably believed the securities were unsuited to the buyer's needs; (3) that the defendant recommended or purchased the unsuitable securities for the buyer anyway; (4) that, with scienter, the defendant made material misrepresentations (or, owing a duty to the buyer, failed to disclose material information) relating to the suitability of the securities; and (5) that the buyer justifiably relied to its detriment on the defendant's fraudulent conduct. See generally id. at 600; National Union Fire Insurance Co. v. Woodhead, 917 F.2d 752, 757 (2d Cir.1990). Scienter may be inferred by finding that the defendant knew or reasonably believed that the securities were unsuited to the investor's needs, misrepresented or failed to disclose the unsuitability of the securities, and proceeded to recommend or purchase the securities anyway. A plaintiff's burden with respect to the reliance element of an unsuitability claim, as in other § 10(b) and Rule 10b-5 actions, may vary depending on whether the claim alleges fraudulent representations or fraudulent omissions. See Burke v. Jacoby, 981 F.2d 1372, 1378-79 (2d Cir.1992).
Analytically, an unsuitability claim is a subset of the ordinary § 10(b) fraud claim in which a plaintiff must allege, inter alia, (1) material misstatements or omissions, (2) indicating an intent to deceive or defraud, (3) in connection with the purchase or sale of a security. See Luce v. Edelstein, 802 F.2d 49, 55 (2d Cir.1986) (citing Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976)). For purposes of this summary judgment motion we accept as true (as did the district court) the Limited Partners' allegations that the Partnership investment was incompatible with their needs for income, capital appreciation and savings,3 and we consider the aspects of the investment relating to those needs to be material facts as a matter of law.
For the purpose of our review, we will not take the Supplement into consideration. That said, we are quick to add that the Limited Partners' first ground on appeal, challenging the district court's purported reliance on the Supplement--in the face of that court's statement that such consideration had no effect on its ruling--is meritless.
A. DISCLOSURE OF SUITABILITY
The first count of the amended complaint generally asserts that Hutton's account executives' oral recommendations of the Partnership as a low risk, conservative investment misled the Limited Partners into purchasing unsuitable securities. The Limited Partners acknowledge that Hutton sent the Brochure and Prospectus, and that they received those documents; they insist, however, that the Brochure and Prospectus (a) fail to state expressly that the Partnership is unsuited to an investor who seeks an opportunity for "no risk", "low risk" or "conservative" capital appreciation, income or savings, and (b) understate, obscure or elide discussion of the real risks of the investment. We disagree.
We find that the Limited Partners' reliance on the oral statements presumptively made by Hutton as to the low risk, conservative character of the investment is not justified as a matter of law and that the alleged oral statements are contradicted by the offering materials sent to the Limited Partners. We find further that the information available to the Limited Partners about the suitability of their investments was materially complete and not misleading.
An investor may not justifiably rely on a misrepresentation if, through minimal diligence, the inve