MEMORANDUM AND ORDER
ROGERS, District Judge.
This is a diversity action brought by plaintiff Professional Investors Life Insurance Co., Inc. for actual and punitive damages against a group of defendants who
Plaintiff's theory in this case, briefly capsulized, is that defendant Louis Roussel orchestrated the surreptitious purchase of 300,000 to 400,000 shares of Farm & Ranch stock by his friends, business associates and Roussel-controlled corporations for the purpose of placing financial pressure upon First Greystone so that First Greystone would breach its contract with plaintiff and sell its 290,000 shares to American Benefit Life Insurance Company, a Roussel-controlled company. These purchases, according to plaintiff, were made in violation of the Kansas Insurance Holding Company Act which requires persons or related entities who wish to purchase more than ten percent of a Kansas insurance company's stock, to file a Form A application with the Commissioner of Insurance. Plaintiff claims that defendants' conspiracy was effective because plaintiff had the option of backing out of its agreement to purchase the block of Farm & Ranch stock from First Greystone if plaintiff's Form A application was not approved by the Insurance Commissioner by July 1, 1975. Once it became clear that plaintiff's Form A filing would not be approved by July 1, 1975 First Greystone allegedly feared that its block of stock would plummet in value. This is because defendants' stock purchases outnumbered 290,000 shares. Thus, First Greystone's block of stock no longer represented effective control of Farm & Ranch. Fearing that plaintiff would not be interested in buying a minority interest in Farm & Ranch and, consequently, would use its option to back out of the stock purchase after July 1, 1975, and further fearing no other buyer could be found at the price of $5.20 per share, First Greystone breached its contract with plaintiff in June and sold the block of stock to American Benefit Life Insurance Company ("American Benefit"). Thus, plaintiff was deprived of its contractual right to buy the First Greystone block of Farm & Ranch stock as well as its opportunity to use that block of stock as a springboard for the takeover of Farm & Ranch.
The complaint contains three counts charging defendants with fraud, inducing a breach of contract, and interference with a prospective business advantage. Several defendants have now moved for summary judgment against all counts.
The Tenth Circuit recently reviewed these standards in Barber v. General Electric Co., 648 F.2d 1272 (10th Cir. 1981):
Id. at 1276 n. 1.
It is also worthwhile to note that summary judgment is not favored as a substitute for trial in conspiracy cases. The Tenth Circuit commented in Fisher v. Shamburg, 624 F.2d 156, 162 (1980):
These sentiments have been applied to cases involving conspiracies to violate state and federal securities laws (Ferguson v. Omnimedia, Inc., 469 F.2d 194, 198 (1st Cir. 1972)), conspiracies to commit fraud (Seaboard Surety Co. v. Permacrete Const. Corp., 105 F.Supp. 349, 350 (E.D.Pa.1952)), and claims of inducement to breach a contract (Savarin Corp. v. National Bank of Pakistan, 290 F.Supp. 285 (S.D.N.Y.1968)).
Finally, courts are reluctant to grant summary judgment in cases involving complex factual and legal issues, even when basic facts are settled. In Wessinger v. Southern Ry. Co., Inc., 438 F.Supp. 1256, 1259 (D.S.C.1977), the court stated:
Of course, summary judgment is not precluded in a factually complex case involving conspiracy claims. See, e.g., Staffin v. Greenberg, 509 F.Supp. 825 (E.D.Pa. 1981). Much caution is warranted, however, before granting such a "drastic remedy."
FRAUD
In Kansas, the necessary elements of fraud have been listed as:
Miles v. Love, 1 Kan.App.2d 630, 573 P.2d 622, 624 (1977). Kansas courts have also recognized an action based on fraud when material facts have been fraudulently concealed from a buyer by a vendor. Jenkins v. McCormick, 184 Kan. 842, 339 P.2d 8 (1959); Griffith v. Byers Construction Co., 212 Kan. 65, 70, 510 P.2d 198 (1973); Miles v. Love, supra.
In the instant case, plaintiff alleges it was damaged by its reliance upon defendants' fraudulent misrepresentations and defendants' fraudulent concealment of material information in filings before the Kansas Commissioner of Insurance and the Securities and Exchange Commission. Defendants respond by arguing that any fraud action based upon the failure to comply with the Kansas Insurance Holding Company Act, K.S.A. § 40-3301 et seq., and the Securities Exchange Act of 1934 as amended by the Williams Act of 1968, 15 U.S.C. § 78n(e) is barred by the exclusion of tender offerors from the protected class of each statute. The exclusion of plaintiff from the protection of these statutes is substantiated by an examination of K.S.A. § 40-3301 and Piper v. Chris-Craft Industries, 430 U.S. 1, 97 S.Ct. 926, 51 L.Ed.2d 124 (1977).
We disagree with defendants' contention because we do not believe that plaintiff's exclusion from the class of persons protected by statutes allegedly violated by defendants' misrepresentations, limits the liability of defendants for the misrepresentations if the misrepresentations were calculated to influence plaintiff's conduct. This holding does not conflict with Restatement (Second) of Torts § 536 (1977) in spite of defendants' reliance upon that authority. Section 536 of the Restatement provides:
This section does not limit liability for misrepresentations made to persons whom the maker of the misrepresentations intends or has reason to expect to act or to refrain from action in reliance upon the misrepresentations. This is made clear by Comment C to § 536:
This point is illustrated by the holding in Hindman v. First National Bank, 112 F. 931 (6th Cir. 1902) cert. denied, 186 U.S. 483, 22 S.Ct. 943, 46 L.Ed. 1261 (1902). There, the plaintiff relied upon a certificate the defendant bank filed with the Kentucky insurance commissioner. The certificate stated the deposits held by an insurance company, and was necessary for the insurance company to be licensed to do business in Kentucky. The plaintiff relied upon the certificate in making a decision to buy stock in the insurance company. The plaintiff sued the bank on the basis of false statements made in the certificate after the stock purchase proved to be "a most ruinous investment."
The circuit court determined that the case should go to a jury instructed to determine if the bank representation was made to influence the plaintiff.
Id. at 943.
Similarly, in the case at bar, we believe a jury should decide if the representations made by defendants were made for purpose of influencing plaintiff's conduct. The evidence of such intent in this case may not be as strong as that present in Hindman, supra, where the plaintiff was referred to the certificate as evidence of the insurance company's financial strength. Nevertheless, we believe there is sufficient evidence in the record from which defendants' intention to influence plaintiff may be inferred, to preclude a finding of summary judgment on behalf of defendants.
Defendants also argue that summary judgment should be granted against plaintiff's fraud claim because no buyer-seller or fiduciary relationship existed between plaintiff and defendants. We do not believe that plaintiff must prove the existence of such a relationship in order to recover. Citizens State Bank v. Gilmore, 226 Kan. 662, 669, 603 P.2d 605 (1979).
Finally, defendants argue that plaintiff did not rely upon the alleged concealment of information and misrepresentations because plaintiff had independent knowledge that the "Roussel group" was making stock purchases. Defendants, however, do not contend that the value of this knowledge was equivalent to the information plaintiff would have had if defendants had not made their alleged misrepresentations. Frankly, the extent plaintiff's reliance upon defendants' filings with the Commissioner of Insurance for Kansas and the Securities Exchange Commission is an issue of fact which should be determined by a jury.
INDUCING BREACH OF CONTRACT
The elements of the tort of inducing breach of contract may be summarized as follows: 1) the existence of a contract between plaintiff and a third party; 2) actual or constructive knowledge of the contract by defendants; 3) intentional acts by defendants inducing a third party to breach the contract with plaintiff; 4) such acts constituting the proximate cause of the
The argument of defendants Cauble, Salloum, and Azar is similar to an argument discussed in Seaboard Surety Co. v. Permacrete Const. Corp., 105 F.Supp. 349 (E.D.Pa. 1952). There, the plaintiff surety sued several defendants for conspiring to transmit erroneous financial information relating to a construction company which plaintiff bonded. The summary judgment contention of one defendant named Smith was described as follows:
The court denied the motion for summary judgment on the following grounds:
Id. at 350. The court also noted evidence in the form of a counteraffidavit indicated the existence of a genuine issue of material fact relating to Smith's knowledge of Permacrete's financial condition.
We believe a similar approach must be applied in this case. The value of defendants' affidavits must be discounted by the reality that conspiracies, human knowledge, and human intention are seldom provable with direct evidence. In the case at bar, there is sufficient evidence from which defendants' knowledge of plaintiff's contract with First Greystone can be inferred, to allow a jury to determine the truth of the statements defendants made in their affidavits.
All defendants contend that they are not liable for inducing the breach of plaintiff's contract with First Greystone because they did not buy stock from First Greystone after the breach. Defendants' direct benefit from the breach of the contract, however, is not an element of the tort. Since plaintiff need not prove that defendants bought First Greystone's stock in Farm & Ranch, defendants' failure to make such a purchase does not require the entry of summary judgment.
In addition, defendants contend that they did not induce First Greystone to breach
Defendants contend that the financial pressure faced by First Greystone was not of defendants' making and that First Greystone could have enforced its contract with plaintiff to sell its Farm & Ranch stock for $5.20 per share. There is no doubt that First Greystone faced economic problems that were not caused by defendants' actions. It is also true that First Greystone could have enforced its contract to sell Farm & Ranch stock to plaintiff, regardless of the defendants' stock purchases, if plaintiff's Form A application was approved by the Commissioner of Insurance by July 1, 1975. But, plaintiff contends that when it became clear that the Commissioner's approval would not happen before July 1, 1975, First Greystone feared that it could not enforce its contract with plaintiff and that defendants' stock purchases would require it sell its block of Farm & Ranch stock for a lower price. Therefore, plaintiff alleges, First Greystone was induced to break its contract with plaintiff and sell the stock to American Benefit, a Roussel-controlled company. The alleged means of inducement was economic pressure through the unlawful and unethical acquisition of Farm & Ranch stock. A review of the record does not persuade this court beyond doubt of the inaccuracy or untruthfulness of plaintiff's scenario. Therefore, we refuse to grant summary judgment on the grounds that First Greystone voluntarily breached its contract with plaintiff.
INTERFERENCE WITH A PROSPECTIVE BUSINESS ADVANTAGE
The tort of interference with a prospective business advantage is a developing concept with elements similar to the tort of inducing breach of contract. The elements have been summarized as follows: 1) the existence of a business relationship or expectancy with the probability of future economic benefit for the plaintiff; 2) knowledge of the relationship or expectancy by defendants; 3) that, except for the conduct of the defendants, plaintiff was reasonably certain to have continued in the relationship or realized the expectancy; 4) intentional misconduct by defendants; and 5) damage suffered by plaintiff as a direct or proximate result of defendants' misconduct. American Bar Association, Model Jury Instructions for Business Tort Litigation § 2.02 [2] (1980).
Defendants raise one issue against this part of the complaint which is not raised against plaintiff's claim for inducing breach of contract. This issue is whether plaintiff can claim an expectancy of stock purchases beyond the purchase contracted for with First Greystone. Plaintiff alleges that defendants prevented plaintiff from gaining control of Farm & Ranch. Alexander Stone, the President of Professional Investors Life Insurance Co., has testified that plaintiff intended to purchase 51% of the Farm & Ranch stock. (Stone deposition, p. 239). It is admitted however, that plaintiff made no further stock purchases after it contracted to buy 32% of the Farm & Ranch stock from First Greystone. Plaintiff alleges that it did not make further purchases because it thought such purchases would be illegal. There is no other evidence of plaintiff's development of a business relationship with stockholders in Farm & Ranch aside from First Greystone.
We believe this record cannot support even a reasonable doubt that plaintiff had a sufficient expectation of future stock purchases to support a claim of a prospective business advantage. While we recognize that interference with a prospective business advantage is a developing field, we
In sum, because the discovery record forecloses the possibility that plaintiff could prove the existence of a business relationship with other stockholders from which plaintiff had a reasonable expectation of future benefit, we shall grant defendants' motions for summary judgment against plaintiff's claim of interference with a prospective business advantage.
We shall now discuss two arguments defendants have applied to each count of the complaint, namely, 1) that the Kansas Insurance Holding Company Act, K.S.A. § 40-3301 et seq. is unconstitutional; and 2) that defendants have been released from tort liability.
THE CONSTITUTIONALITY OF THE KANSAS INSURANCE HOLDING COMPANY ACT
Defendants claim that the Kansas Insurance Holding Company Act ("KIHCA") is unconstitutional because it violates the Commerce Clause and the Supremacy Clause of the Constitution. Defendants' argument is hinged on the contention that the KIHCA is not protected from a Commerce Clause attack and preemption by federal securities legislation by the McCarran-Ferguson Act, 15 U.S.C. § 1012. The McCarran-Ferguson Act permits states to regulate the "business of insurance" and removes all Commerce Clause limitations upon this authority. Western & Southern Life Ins. Co. v. State Board of Equalization, 451 U.S. 648, 101 S.Ct. 2070, 68 L.Ed.2d 514 (1981). The McCarran-Ferguson Act also bars conflicting federal regulation of the "business of insurance." See Securities and Exchange Commission v. National Securities, Inc., 393 U.S. 452, 457, 89 S.Ct. 564, 567, 21 L.Ed.2d 668 (1969). Defendant claims that regulations affecting the relationship of insurance companies with their stockholders are not laws regulating the business of insurance for the purposes of McCarran-Ferguson. Since the KIHCA regulations have such an effect, defendants argue that the McCarran-Ferguson Act does not protect KIHCA from their constitutional challenge.
Plaintiff has made several arguments in response to the defendants' constitutional attack upon the KIHCA. We shall use this opinion to note our agreement with two of those arguments. First, we agree with plaintiff that defendants, as conspirators alleged to have performed fraudulent acts in connection with the requirements of the KIHCA, may not argue that their fraud is absolved by the unconstitutionality of KIHCA.
Plaintiff relies upon Dennis v. United States, 384 U.S. 855, 86 S.Ct. 1840, 16 L.Ed.2d 973 (1966) for this argument. In Dennis, the defendants were charged with a criminal conspiracy in violation of 18 U.S.C. § 371. This statute creates an offense for the conspiracy of two or more persons to
The Court refused to hear defendants' constitutional argument because defendants did not openly and directly challenge the statute.
Id. at 867, 86 S.Ct. at 1847-1848.
Very similar circumstances are alleged in the instant case. Defendants are alleged to have concealed information in violation of the KIHCA and to have made misrepresentations in violation of the KIHCA. It is also alleged that defendants' misconduct was committed with the intention of misleading plaintiff. Instead of making a direct attack upon the filing requirements of KIHCA before appearing to comply with the statute, defendants have waited until they are charged with fraud to claim that the KIHCA is unconstitutional.
The fraudulent, improper and unethical conduct charged in this case centers upon defendants' purported compliance with the KIHCA. The alleged unconstitutionality of the statute does not negate the wrongfulness of purporting to comply with the statute for the purpose of defrauding plaintiff or evading the statute with the intention of inducing a breach of contract.
Defendants contend that Dennis is distinguishable from the instant case because it involved a criminal conspiracy charge. Criminal conspiracy, unlike civil conspiracy, does not require damage. The constitutionality of the KIHCA, however, does not affect plaintiff's damages. Neither does it alter the "actionable conduct" required under Kansas law for liability for civil conspiracy. See Ammon v. Kaplow, 468 F.Supp. 1304, 1312 (D.Kan.1979). If defendants' alleged misrepresentations and alleged concealment of material information were intended to influence plaintiff, defendants' conduct was actionable regardless of the constitutionality of the KIHCA. If defendants' interference with plaintiff's contract was lawful because of the asserted constitutionality of the KIHCA, but also unethical and committed in bad faith, defendants' conduct is still actionable. Lawful but unjustified and unprivileged conduct may be actionable as interference with contractual relations. See Restatement (Second) of Torts § 767 Comment C (1977) ("Under some circumstances the interference is improper even though innocent means are employed.")
In sum, we do not recognize the distinction raised by defendants. Under the rationale of Dennis, defendants' constitutional challenge should not be heard.
Plaintiff also argues that if defendants' constitutionality argument is considered, the argument is meritless. We agree with plaintiff for the following briefly described reasons.
As noted earlier, the key to defendants' argument is the application of the McCarran-Ferguson Act to the KIHCA. McCarran-Ferguson has application as long as the KIHCA governs the "business of insurance." Thus, the critical issue is whether the KIHCA regulates the "business of insurance" as that term has been construed by the courts.
Securities and Exchange Commission v. National Securities, Inc., 393 U.S. 452, 453,
Similar analysis may be applied to this case. The KIHCA mandates that the Kansas Insurance Commissioner should consider Form A filings when 10% of a Kansas insurance company's stock is purchased, to determine if the interests of the insurance company's securityholders and policyholders are impaired. K.S.A. § 40-3304(d). To the extent the law operates to protect securityholders, it does not receive McCarran-Ferguson protection. Nevertheless, the KIHCA is safe from constitutional attack relative to the Supremacy and Commerce Clauses as long as the KIHCA does not significantly impede the purpose of federal securities regulation and does not place an excessive burden upon interstate commerce. Sharon Steel Corp. v. Whaland, 433 A.2d 1250 (N.H.1981) (Exhibit No. 2 attached to Memorandum of Intervenor Fletcher Bell). Remaining mindful that federal and state securities regulation should be construed to be consistent (Merrill Lynch, Pierce, Fenner & Smith v. Ware, 414 U.S. 117, 127, 94 S.Ct. 383, 389-390, 38 L.Ed.2d 348 (1973)), we fail to find that defendant has proven the KIHCA deficient in these regards.
More significantly, the KIHCA regulations merit McCarran-Ferguson protection because they protect the security of the policyholders with Kansas insurance companies. This fact is essentially undenied by defendants. Defendants argue that the regulations are excessive and that the policyholders may be protected with less stringent measures. This argument, however, ignores the intention of the McCarran-Ferguson Act to "broadly ... give support to the existing and future state systems for regulating and taxing the business of insurance." Prudential Ins. Co. v. Benjamin, 328 U.S. 408, 429, 66 S.Ct. 1142, 1154-1155, 90 L.Ed. 1342 (1946).
We believe that state authority in the area of insurance regulation should enjoy a presumption of validity. We refuse to adopt the position of requiring the least intrusive means of protecting insurance company-policyholder relations or the means most consistent with federal securities regulation. Complete harmony between federal securities regulation and state insurance regulation is clearly not required. Cf., Securities and Exchange Commission v. National Securities, Inc., supra (court remands the case for the trial court to consider the SEC's request to unwind a merger approved by the State insurance commissioner).
We recognize that MITE Corporation v. Dixon, 633 F.2d 486 (7th Cir. 1980); Great Western United Corp. v. Kidwell, 577 F.2d 1256 (5th Cir. 1978), and Empire, Inc. v. Ashcroft, 524 F.Supp. 898 (W.D.Mo.1981) provide some support for defendants' position. These cases, however, are distinguishable on the grounds that they consider the constitutionality of general takeover statutes. Such statutes must have a greater impact upon commerce and be a greater impediment to federal securities regulation than a law concentrating on insurance company transactions. In addition, the statutes are not protected by McCarran-Ferguson.
In sum, we hold that defendants' constitutionality argument should not be heard; but even if it is, the argument is meritless.
PLAINTIFF'S RELEASE OF FIRST GREYSTONE
In return for $100,000, plaintiff signed a release statement which read as follows in pertinent part:
Since this release was signed and executed in Oklahoma, defendants argue that Oklahoma law governs the interpretation of the release. According to defendants, Oklahoma law holds that a release of one joint tortfeasor is presumed to be a release of all other tortfeasors. Defendants argue that the release extends to tort liability because the third paragraph mentions "obligations or contracts." In addition, defendants note that Clark Brandon, the President of Farm & Ranch and an officer of First Greystone was once a defendant in this action. On the basis of these points, defendants claim that the release of Clark Brandon as an officer of First Greystone operated to release all defendants from tort liability.
Assuming that the predicate to defendants' claim is correct, we still do not believe summary judgment may be granted. The breaching party to a contract may not be sued for the tort of inducing a breach of contract. 45 Am.Jur.2d Interference § 26 (1969). A plaintiff's recourse against the breaching party is limited to a contract action. Thus, Clark Brandon's actions as an officer of First Greystone do not place him in the role of a joint tortfeasor. Instead, if not for the release, Brandon might be liable in a breach of contract claim.
Even if Brandon could be considered a released tortfeasor, there is enough evidence in the record regarding plaintiff's refusal to release Roussel, to place in doubt the presumption that the release was intended to protect defendants from liability. Therefore summary judgment is not justified on the theory of release.
We shall now consider the separate arguments of defendants F.D.V. de La Barre and Michael Shada for summary judgment.
F.D.V. de LA BARRE'S SUMMARY JUDGMENT MOTION
In addition to arguments similar or identical to some already discussed in this order, defendant F.D.V. de La Barre raises four different issues. First, defendant claims that this case should be dismissed because of an absence of diversity jurisdiction. According to defendant de La Barre, defendant Nick Pope and plaintiff are citizens of Oklahoma for jurisdictional purposes. As plaintiff points out though, non-diverse defendants may be dismissed from a case under Fed.R.Civ.P. 21 for the preservation of diversity jurisdiction. Miller v. Leavenworth-Jefferson Elec. Coop., 653 F.2d 1378 (10th Cir. 1981). Steps have already been taken to preserve this court's jurisdiction by dismissing Mr. Pope. Therefore, defendants' motion to dismiss because of the absence of diversity shall be denied.
The second new argument presented by defendant de La Barre is that this court may not exercise personal jurisdiction over him. In a related argument, defendant
It should be noted that defendant's reliance upon the fact that some of his actions were taken as an agent or personal representative of another person or corporation is to no avail. The Kansas long-arm statute, K.S.A. § 60-308(b) applies to the personal representatives of persons committing torts or transacting business within the state.
In sum, a review of the record supports the exercise of personal jurisdiction over defendant de La Barre. The same review leads us to deny defendant de La Barre's motion for summary judgment on the grounds that he did not participate in the conspiracy alleged in the complaint. The evidence is sufficient to allow a jury to decide this question.
Finally, defendant has argued that this case should be dismissed because plaintiff has dismissed an indispensable party, Frank Leu from this action. Mr. Leu is alleged to have made purchases of Farm & Ranch stock on behalf of Louis Roussel. We must agree with the arguments and authorities well-presented by plaintiff against defendant's contention. Mr. Leu is no more than a joint tortfeasor or co-conspirator and, as such, is not an indispensable party. See, e.g., Herpich v. Wallace, 430 F.2d 792, 817 (5th Cir. 1970).
MICHAEL SHADA'S SUMMARY JUDGMENT MOTION
Defendant Michael Shada argues that there is insufficient evidence in the record to substantiate his active personal involvement in the conspiracy charged in the complaint. We disagree. There is a sufficient indication in the record of defendant Shada's participation in Farm & Ranch stock purchases at the direction of Louis Roussel to overcome defendant's summary judgment motion. The motion shall be denied.
CONCLUSION
In conclusion, summary judgment shall be granted against plaintiff's claim for interference with a prospective business advantage. Otherwise, defendants' motions are denied.
IT IS SO ORDERED.
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