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Marshall & Ilsley Trust Co. v. Pate

decided: May 20, 1987.

MARSHALL & ILSLEY TRUST CO., AS PERSONAL REPRESENTATIVE OF THE ESTATE OF CHARLES W. LANDIS, PLAINTIFF-APPELLANT,
v.
JOSEPH L. PATE, ET AL., DEFENDANTS-APPELLEES; CHARLES W. LANDIS, PLAINTIFF-APPELLEE, V. JACK LEONE, ET AL., DEFENDANTS-APPELLANTS; CHARLES W. LANDIS, PLAINTIFF-APPELLEE, V. RAYMOND E. FRENCH, DEFENDANT-APPELLANT



Appeals from the United States District Court for the Eastern District of Wisconsin, No. 84 C 993, Thomas J. Curran, Judge.

Cummings, and Cudahy, Circuit Judges, and Will, Senior District Judge.*fn*

Author: Cudahy

CUDAHY, Circuit Judge.

On September 22, 1982, Dr. Charles W. Landis, now deceased and represented by the plaintiff Marshall & Ilsley Trust Co., purchased three limited-partnership shares from the defendant Joseph Pate for a total consideration of $30,000. Landis lost the entire investment, and he eventually sued the defendants alleging violations of the Securities Exchange Act of 1934 ("1934 Act") and the Racketeer Influenced and Corrupt Organizations Act ("RICO") and also alleging common law fraud. The district court dismissed the RICO counts for failure to state a claim upon which relief could be granted, granted summary judgment to the defendants based on their statute of limitations defense to the 1934 Act count and dismissed the pendent state fraud claim for lack of jurisdiction. We vacate and remand.

I.

The plaintiff appeals from an adverse grant of summary judgment, so we credit its version of disputed facts.

Defendant Pate was an accountant for Landis and his medical practice. In September, 1982, Pate encouraged Landis to invest in a limited partnership known as Energy Conservation Partners ("EC Partners"), which was formed to fund the development and marketing of "energy management systems" manufactured by K.E.M. Systems, Inc. ("KEM Systems"). Landis was led to believe that K.E.M. Industries, Inc. ("KEM Industries") was planning to buy KEM Systems' product and go public with it. Pate assured Landis that he would receive $60,000 for his $30,000 investment.*fn1

Landis received little paperwork documenting his investment, and his concern gradually mounted when the predicted $60,000 return did not materialize. In January 1984, Landis asked Pate about the delay; Pate expressed surprise that Landis had received nothing. In February 1984, Landis contacted defendant Jack Leone about the delay. Leone told Landis that EC Partners had fallen apart and that the investment was lost. Landis filed his four-count complaint on July 27, 1984.

Count 1 of Landis' original complaint alleged that Pate and the other defendants (except Trans Global) violated sections 10(b) and 20 of the 1934 Act, 15 U.S.C. §§ 78j(b), 78t(a), by deceiving Landis in connection with the sale of the limited partnership interest. The complaint alleged that Pate personally misled Landis and that the other defendants were all "controlling persons" liable for the actions of EC Partners and its agent Pate.

Counts 2 and 3 of Landis' original complaint alleged that the activities of the defendants described in Count 1 and similar acts defrauding other investors constituted racketeering activities violating section 1962 of RICO, 18 U.S.C. § 1962. Count 4 alleged that all the defendants (except Trans Global) misrepresented facts to Landis, violating common law fraud duties.

No answer to the complaint was received from defendants Pate, Nicholas Leone, EC Partners, KEM Systems or Trans Global. Answers were filed by defendants Jack Leone, French, Deerfield, KEM Industries, and Ilice. A flurry of procedural parrying eventually resulted in a victory for all defendants -- both those present and those absent. The district court reached the following dispositions. On Count 1 (securities fraud), summary judgment was granted in favor of the defendants based on the relevant Wisconsin statute of limitations. On Counts 2 and 3 (RICO), the defendants' motions to dismiss were granted with prejudice because the plaintiff did not allege two predicate acts that injured Landis. Count 4 (fraud) was dismissed for lack of pendent jurisdiction. The court on its own motion denied or dissolved default judgments against nonappearing defendants.

On Count 1, we vacate the summary judgment, and we remand the case with instructions to reinstate the state fraud claim and to permit the plaintiff to attempt to amend its RICO claims.

II.

A. 1934 Act ...


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