Fed. Sec. L. Rep. P 97,592 Westinghouse Credit Corporation v. Bader & Dufty, 627 F.2d 221, 10th Cir. (1980)

627 F.
2d 221
Fed. Sec. L. Rep. P 97,592

WESTINGHOUSE CREDIT CORPORATION, PlaintiffAppellant,
v.
BADER & DUFTY et al., Defendants-Appellees.
No. 80-1222.
United States Court of Appeals,

Tenth Circuit.
Argued June 23, 1980.
Decided July 28, 1980.
Rehearing Denied Sept. 3, 1980.
Hugh A. Burns, Denver, Colo. (H. Clay Whitlow of Dawson, Nagel,

Sherman & Howard, Phillip S. Figa of Burns & Figa, P.C., Denver, Colo.,
and of counsel: Dawson, Nagel, Sherman & Howard, Denver, Colo., with
him on briefs), for plaintiff-appellant.
J. Lawrence Hamil of J. Lawrence Hamil, P.C., Denver, Colo., for Bader
& Dufty, et al., defendants-appellees.
Robert J. Dyer, III, of Hannon, Stutz, Brightwell & Dyer, Denver, Colo.,
for The Woodmoor Corp., et al., defendants-appellees.
Ernest W. Lohf of Lohf & Barnhill, P.C., Denver, Colo., for Pamela Nagle
Hultin and Lawrence J. Schoenwald, defendants-appellees.
Before McWILLIAMS, BARRETT and LOGAN, Circuit Judges.
McWILLIAMS, Circuit Judge.
Westinghouse Credit Corporation brought the present action to enjoin alleged

violations by the defendants of the Securities Act of 1933, 15 U.S.C. 77a, et
seq., and the Securities Exchange Act of 1934, 15 U.S.C. 78a, et seq. The
defendants are Bader and Dufty, a now dissolved law firm; ten attorneys
alleged to have been partners in that firm; the Woodmoor Corporation, which is
the subject of a bankruptcy proceeding in the District of Colorado; and the

Woodmoor Corporation's Stockholder Protective Association, alleged to consist
of 250 present or former stockholders of Woodmoor.
2
The Woodmoor Corporation brought suit against Westinghouse Credit

Corporation in a state court of Colorado seeking damages for an alleged breach
of certain loan agreements. That action was removed to the United States
District Court for the District of Colorado, where it is now awaiting trial. The
law firm of Bader and Dufty represented the Woodmoor Corporation in that
action.
From the complaint in the instant case we learn that the defendants here are
seeking to finance the action brought by Woodmoor Corporation against
Westinghouse Credit Corporation by offering and selling securities to former
stockholders, allegedly in violation of federal securities law. The claim is that
these so-called securities consist of profit-sharing agreements as to any money
which Woodmoor might ultimately recover in its suit against Westinghouse
Credit Corporation.
The relief sought by Westinghouse Credit Corporation in the present

proceeding is essentially three-fold: (1) to enjoin further fraud by the
defendants in violation of Section 10(b) of the Securities Exchange Act of
1934, 15 U.S.C. 78j(b), and Rule 10b-5; (2) to enjoin the sale by the
defendants of unregistered securities unless said securities meet the
requirements of Section 5 of the Securities Act of 1933, 15 U.S.C. 77e; and
(3) to order the Woodmoor Corporation to commence filing such periodic
reports as are required by Section 13 of the Securities Exchange Act of 1934,
15 U.S.C. 78m(a). It is Westinghouse's position that without the monies that
are being raised by the defendants in their unlawful sale of securities,
Woodmoor could not finance, and otherwise go forward with, its action against
Westinghouse. Westinghouse also asserts that if the defendants had complied
with the applicable registration and report requirements, Westinghouse could
utilize such material, by way of discovery, in defending against the Woodmoor
claim.
There was considerable discovery in the instant case. The defendants then
moved to dismiss under Fed.R.Civ.P. 12(b)(6), and alternatively, sought
summary judgment under Fed.R.Civ.P. 56. The trial court granted the motions
to dismiss and dismissed the cause of action with prejudice on the ground that
the complaint failed to state a claim on which relief could be granted. More
specifically, the trial court held that Westinghouse lacked standing to seek
relief on any of the grounds advanced against any of the defendants.
Westinghouse now appeals the dismissal of its action. We affirm.

6
As indicated, Westinghouse seeks to enjoin the defendants from further

violations of Section 10(b) of the 1934 Act and Rule 10b-5. Westinghouse
concedes that under Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 95
S.Ct. 1917, 44 L.Ed.2d 600 (1975) a private damage action under Rule 10b-5 is
confined to actual purchasers or sellers of securities, and agrees that it
(Westinghouse) is neither a purchaser or a seller. However, Westinghouse
argues that the rule of Blue Chip Stamps does not apply where, as here, the
only relief sought is injunctive in nature. In thus arguing, Westinghouse relies
heavily on Vincent v. Moench, 473 F.2d 430 (10th Cir. 1973). We do not feel
compelled to here decide whether the rule of Blue Chip Stamps applies to a
private action under Rule 10b-5 which is purely injunctive in nature, since in
our view Westinghouse does not have standing even under the rule of Vincent.
In Vincent the plaintiffs sought private equitable relief under section 10(b) of
the Act and its implementing Rule 10b-5. The claim was that the defendants
had devised a scheme to defraud the plaintiffs and that, in furtherance of such
scheme, the defendants deceptively purchased securities from a third party, and,
though the plaintiffs were not a party or privy to the purchase itself, they had
nonetheless suffered injury as a result of the effectuation of the overall scheme
to defraud. The trial court, relying on Birnbaum v. Newport Steel Corp., 193
F.2d 461 (2nd Cir.), cert. denied, 343 U.S. 956, 72 S.Ct. 1051, 96 L.Ed. 1356
(1952), granted the defendant's motion to dismiss on the grounds that the
plaintiffs in Vincent were neither buyers nor sellers of a security within the
meaning of Section 10(b) or Rule 10b-5. On appeal, we affirmed.
In affirming the trial court's dismissal of the plaintiffs' action, we held in

Vincent that the language of Section 10(b) outlawing deception or manipulation
in connection with the purchase or sale of a security must be construed as
meaning that in a suit for equitable relief any person showing a "causal
connection" between the fraudulent sale of a security and an injury to himself
may invoke federal jurisdiction. "Causal connection" between a fraudulent sale
and resultant injury was interpreted as meaning that the fraudulent sale was
"directly" associated with the alleged injury. Under the well-pleaded facts in
Vincent, we observed that there was a scheme to defraud, a deceptive purchase
of a security, and an injury to the plaintiffs. However, we held that such did not
spell federal jurisdiction, and we upheld the trial court's dismissal of the action
on the ground there was no direct, or causal connection, between the deceptive
purchase of the security and the alleged injury to the plaintiffs.
Applying the rationale of Vincent to the present case, we hold that there is no
direct connection between the sale by the defendants of the profit sharing
agreements and the alleged injury to Westinghouse, i.e., the continued
prosecution by Woodmoor Corporation of its suit against Westinghouse. The
connection is only indirect at best. In our view the instant case is actually a
weaker one than Vincent. In Vincent, the defendants made a deceptive
purchase of a security as part of an overall scheme to gain control of a familyowned business at the expense of the plaintiffs, who were a part of the family
and also had an interest in the family owned business. Because of the lack of
direct connection between the purchase of the security and the injury allegedly
suffered by the plaintiffs, we held there was no federal jurisdiction. In the
instant case the defendants by the sale of so-called securities are raising money
to finance Woodmoor's suit against Westinghouse. We find no direct causal
connection between the sale and the alleged injury. Indeed, we doubt that the
injury which Westinghouse claims to have suffered is the type of injury
contemplated by the statute. In sum, Westinghouse does not have standing to
pursue a private action under Section 10(b) or Rule 10b-5, even though it be for
injunctive relief only.
10
Westinghouse also sought an injunctive order restraining the defendants from

offering or selling the securities unless registered as required by 15 U.S.C.
77e, and unless certain periodic reports are filed, as required by 15 U.S.C.
78m(a). The injury claimed to have been suffered as a result of defendant's
failure to thus register and report is that Westinghouse has been deprived of
information which it could conceivably use in defending the Woodmoor action.
We fail to see how Westinghouse has standing to prosecute this part of its
claim. The registration and reporting requirements were designed to protect the
investing public by helping them to make informed investment decisions. SEC
v. Continental Tobacco Co. of S.C., 463 F.2d 137, 154 (5th Cir. 1972) and
Greater Iowa Corporation v. McLendon, 378 F.2d 783, 790 (8th Cir. 1967).
Westinghouse would require the defendants to register and report to the end
that the information contained in such registration and reporting could be used
by it in a private civil proceeding. We agree with the trial court that
Westinghouse has no standing to challenge the defendants' failure to register
and report.
11
Westinghouse also objects to the refusal of the trial court to exercise its socalled "inherent equitable powers" to grant Westinghouse standing. In declining
to expand on the rather comprehensive scheme of federal securities laws, the
trial court did not in anywise abuse its discretion.
12
The trial court fixed a cost bond in the amount of $5,000. Westinghouse
complains here about the amount of the cost bond. Whether that matter is
properly before us is debatable. In any event, under the circumstances of the

case, we find no abuse of discretion on the part of the trial court in setting the
cost bond at $5,000. See F.R.A.P. 7.
13
After notice of appeal was filed, the defendants filed with the trial court a
motion to tax costs and allow attorney's fees. Such motion has lain dormant
pending disposition of this appeal. On remand, the trial court shall promptly
hear and determine these ancillary matters.
14
Judgment affirmed.

Fed. Sec. L. Rep. P 97,592 Westinghouse Credit Corporation v. Bader & Dufty, 627 F.2d 221, 10th Cir. (1980)

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Fed. Sec. L. Rep. P 97,592 Westinghouse Credit Corporation v. Bader & Dufty, 627 F.2d 221, 10th Cir. (1980)

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627 F.

Fed. Sec. L. Rep. P 97,592

United States Court of Appeals,

Hugh A. Burns, Denver, Colo. (H. Clay Whitlow of Dawson, Nagel,

Westinghouse Credit Corporation brought the present action to enjoin alleged

the subject of a bankruptcy proceeding in the District of Colorado; and the

The Woodmoor Corporation brought suit against Westinghouse Credit

The relief sought by Westinghouse Credit Corporation in the present

Westinghouse now appeals the dismissal of its action. We affirm.

As indicated, Westinghouse seeks to enjoin the defendants from further

In affirming the trial court's dismissal of the plaintiffs' action, we held in

Westinghouse also sought an injunctive order restraining the defendants from

properly before us is debatable. In any event, under the circumstances of the

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