Unpublished Disposition, 895 F.2d 1416 (9th Cir. 1990)

MEMORANDUM^* 

Armand Auger and Alan Knopf, plaintiffs-appellees, filed this suit alleging that defendants-appellants violated section 10(b) of the Securities Exchange Act of 1934, 5 U.S.C. § 78(j) (5), state anti-fraud securities statutes, engaged in common law fraud, and breached their fiduciary duties. After a bench trial the district court entered judgment for plaintiffs.

FACTS

Harper Associates Limited Partnership (Harper) is a Michigan limited partnership which was formed to acquire and lease property. Harper marketed and sold the limited partnership interests through Amtax Management Corporation (Amtax). Pursuant to the Broker-Dealer Distribution agreement with Harper, Amtax hired Barry Gordon to sell the limited partnership units.

At the time Gordon was marketing the Harper units, he also provided business management services to Auger and Knopf. To encourage their investment, Gordon met individually with Auger and Knopf, advising them to invest in Harper. Gordon informed both Auger and Knopf that he was not obtaining a commission for his work and that he himself planned to invest in the Harper partnership. Gordon persuaded Auger to purchase one partnership unit and Knopf purchased two. Auger and Knopf learned later that Gordon had misrepresented certain facts regarding the investment. They brought this suit seeking to rescind their investments.

Auger and Knopf filed "A Statement of Uncontroverted Facts and Conclusions of Law" and moved for summary judgment. The court denied the motion for summary judgment but found 16 statements set out by the plaintiffs "to be facts without substantial controversy." Among these facts were the following:

Amtax was authorized by Harper, pursuant to the "Broker-Dealer Distribution Agreement" entered into by Harper and Amtax, to enter into selling agreements with sub-agents with respect to the sale of Harper units.

Barry Gordon ("Gordon") was an agent of Amtax, and a sub-agent of Harper, and received a sales commission or fee from Amtax for selling shares in Harper to Auger and Knopf.

Gordon's representation to Auger and Knopf that he had no relationship with Harper were in fact false.

No objection was made by counsel for the defendant. The court entered a pre-trial order which again recited these facts and declared that they "require no proof." In addition to the judge, counsel for both parties signed an acknowledgment that the order was approved by them "as to form and content."

What remained to be tried was the materiality of Gordon's false representations, the reliance by the plaintiffs on them, and the damages. After a bench trial the court found that the representations were material and that the plaintiffs relied on them. The court permitted Auger and Knopf to rescind the contract and awarded damages. Harper appealed.

THE APPEAL

On appeal Harper was represented by new counsel, Leonard S. Machtinger. The heart of the appeal was a challenge addressed to the plaintiffs' motion for summary judgment. The opening brief asserted: "There is no substantial evidence to support the plaintiffs' assertions therein and the District Court's order granting partial summary judgment."

The brief recited the district court's findings of fact, but went on to say: "The plaintiffs also failed to produce any evidence that Gordon was an agent of Amtax or that Gordon was a 'sub-agent' of Harper." The brief asserted: "evidence is lacking to establish that Gordon was Harper's 'sub-agent.' " Under the heading "Argument" the brief declared that the "basis" for the plaintiffs' position was the contention that Gordon was Harper's "sub-agent," and that this claim "remains a contention even now, after trial, unsupported by substantial evidence." The brief then said the judgment should be reversed "because the plaintiffs failed to prove that Gordon was Harper's 'sub-agent.' " On page 17 the brief argued that Amtax did not have authority to select sub-agents, and that "in any case, no agency relationship between Gordon and Harper was established." The argument concluded, "The district court erred in finding that Gordon was Harper's 'sub-agent,' and therefore, the Judgment herein should be reversed."

A new argument, made for the first time on appeal, was that the plaintiffs waived their right to rescind. The opening brief also objected that fees should not have been awarded to the plaintiffs.

The brief in response of Auger and Knopf focused on the pretrial conference order as an agreement that Harper had agreed that certain facts "were admitted or stipulated and require no proof." The brief stated that Harper had "concealed from this Court that it previously stipulated to the facts." The brief also asked for attorneys fees on appeal as due from the losing litigant under the contract.

This court issued an order directing Leonard S. Machtinger and his firm to show cause why they should not be disciplined by this court for misrepresentations of fact in his opening brief.

On Thursday, January 11, 1990 oral argument was held in this case and Leonard S. Machtinger was also given the opportunity to show cause. He had previously filed with the court a declaration in support of his position. His argument before the court continued to assert that Harper was free on appeal to challenge the facts found by the district court after the motion for summary judgment and was free to challenge the same facts as they had been again set out in the pretrial conference order to which trial counsel for Harper had agreed.

ANALYSIS

On a motion for summary judgment the trial court may find facts as to which there is no substantial controversy. No controversy existed as to the facts here found. The district court entered an order that the facts required no proof in the subsequent trial. No objection was made to that order. The facts were again put beyond controversy by the parties' agreement that they approved the pretrial conference order as to form and content. The facts, therefore, had not only been found by the district court, but Harper had expressly acknowledged that these facts had been properly found. No basis existed for the contentions made by Harper in its opening brief.

The other arguments also fail. The contention that Auger and Knopf waived their right to rescind was a new issue without a basis in the record. Harper gave no reason for challenging the attorneys fees granted by the district court.

It is very difficult to understand how a lawyer familiar with ordinary procedures in the federal courts could make the contentions that Leonard Machtinger made on behalf of Harper in this appeal. Machtinger did not conceal the record. He simply acted and argued as though the record did not exist or as if he did not understand the legal effect of findings of fact and stipulations. His appeal was frivolous, and Auger and Knopf are entitled to attorneys fees and costs incurred in this appeal.

AFFIRMED.

Appellees are to submit to this court a statement of their costs and attorneys fees on this appeal.

A copy of this decision is to be sent by the Clerk of Court to the California State Bar Association for it to pursue further appropriate action with respect to Leonard S. Machtinger.