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Allico National Corp. v. Amalgamated Meat Cutters and Butcher Workmen of North America

April 16, 1968

ALLICO NATIONAL CORPORATION, ETC., AND RICHARD WOIKE, PLAINTIFFS-APPELLANTS,
v.
AMALGAMATED MEAT CUTTERS AND BUTCHER WORKMEN OF NORTH AMERICA ET AL., DEFENDANTS-APPELLEES



Schnackenberg, Castle and Fairchild, Circuit Judges.

Author: Fairchild

FAIRCHILD, Circuit Judge.

This action concerns securities of defendant Amalgamated Labor Life Insurance Company. Plaintiff Allico National Corporation (formerly The Gold Star Life Company of America) agreed in 1965 to buy Labor Life from defendant Amalgamated Meat Cutters and Butcher Workmen of North America, a labor union. Allico agreed to buy 400,000 shares of common stock and a $750,000 debenture note from the Union. Allico was to buy the note for $750,000 on July 1, 1966 and to give five notes for $150,000 each, payable on July 1 of each of the five succeeding years. When the contract was signed in 1963, Allico bought 25,000 shares from Labor Life for $250,000 cash. The debenture note, the 425,000 shares (all the stock outstanding), and Allico's five notes were deposited in escrow. Until default by Allico, it was to have the right to vote the stock.

After July, 1966, the Union agreed to sell all 425,000 shares and the debenture note to defendant Missouri National Life Insurance Company.

Jurisdiction, if any, is founded upon the proposition that the action is brought to enforce liabilities and duties under the securities act and the exchange act.

The amended complaint contains six counts. Counts IV, V, and VI allege the formation of the contract in 1965, the use of the mails and instrumentalities of interstate commerce, and reliance by Allico and plaintiff Woike, its president, on false representations by the Union and Labor Life. Count IV claims a violation of sec. 10(b) of the exchange act and of Rule 10-b-5; Count V of sec. 17(a) (1), (2) and (3) of the securities act; and Count VI of sec. 12(2) of the securities act. Each count asks for judgment against the Union and Labor Life far $250,000 compensatory damages, together with punitive damages. These counts roughly approximate a claim for rescission and seek a return of the cash paid for the 25,000 shares. The district court decided it has jurisdiction of them, and they are not directly before us on this appeal.

Counts I, II, and III contain the same averments as to the formation of the 1965 contract, and allegedly false representations. In addition they contain averments, in substance, as follows:

The Union extended the time by which the debenture note must be purchased to September 15, 1966. On August 31, Allico offered to purchase it, "but the Union, having learned that notwithstanding its fraud the shares of Amalgamated Labor Life had substantially increased in value, refused to sell plaintiffs said $750,000 Note and said 400,000 shares of stock as they had agreed to do and wrongfully obtained possession of plaintiffs' 25,000 shares of stock." The Union later agreed to sell all the shares and the debenture note to Missouri National for $2,000,000, a better price by $500,000.

In each count, the plaintiffs seek the following types of relief: (1) injunction against the sale to Missouri National, (2) a decree for return of the 25,000 shares and for specific performance of the contract with Allico, and (3) compensatory damages of $1,000,000, as well as punitive damages. Count I characterizes the conduct in connection with the sale to Missouri National as a device to defraud, operating as a fraud upon plaintiffs, in violation of sec. 10(b) of the exchange act*fn1 and of Rule 10-b-5, and Count II terms such conduct a violation of sec. 17(a) of the securities act.*fn2 Count III avers that the sale is a breach of contract and will unjustly enrich defendants.

The district court concluded that Counts I, II and III amounted only to actions to enforce a contract or recover damages for breach, rather than to enforce liabilities or duties under the securities act or exchange act. He directed that judgment be entered dismissing these counts for want of jurisdiction, and determined that there was no just reason for delay. Plaintiffs appealed.

The Union and Labor Life ask us to dismiss the appeal, arguing that it was an abuse of discretion to make the dismissal of these counts a final judgment under Rule 54(b).

We would not, however, dismiss the appeal in any event, because the order has the effect, in this case, of refusing a preliminary injunction, and is appealable, as such, even if interlocutory.*fn3 There was, moreover, no abuse of discretion in making the order a final judgment. Although the two sets of counts have some facts in common, Counts I, II, and III are predicated in large part on facts outside the scope of Counts IV, V and VI. They present distinct legal questions, seek different relief, and involve parties not concerned in Counts IV, V and VI, and there appears no probability that developments in the subsequent course of Counts IV, V and VI before the district court would compel or suggest revision of the order dismissing Counts I, II, and III.

Apparently the district court analyzed the dismissed counts as claims by plaintiffs that they had a contract to buy securities from the Union, had tendered the performance due July 1, 1966 within the period of an extension granted by the Union, and that equity should aid them by preventing the sale of the identical securities to a third party and compelling the Union to perform. Following this analysis in simplest terms, the decision would be correct.

Two averments suggest, however, that there is wrongdoing and bad faith on the part of the Union, and that this is not solely a dispute in good faith over the existence or interpretation of contractual obligations and performance thereof. One averment is that 25,000 shares were owned by plaintiffs, though pledged as security, that the Union "wrongfully obtained possession" of them, and agreed to sell them to a third party. The other is that the Union was motivated in dealing with plaintiffs' 25,000 shares and the shares and ...


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