Gay v. Akin

Gay v. Akin
1988 OK 150
766 P.2d 985
59 OBJ 3601
Case Number: 64777, 65933
Decided: 12/20/1988
Supreme Court of Oklahoma

RUBYE R. GAY, APPELLANT-PLAINTIFF,
v.
BROWN J. AKIN, JR., ANSIL LUDWICK, JR., PAUL W. ANDERSON, JR., HAL W. OSWALT, G. RICHARD DEGEN, RICHARD G. BELL, CHARLES G. WRAY; BOB C. LAMIRAND, BILL RAMSEY AND ALTUS E. WILDER, III, APPELLEES-DEFENDANTS,

WESLEY R. McKINNEY, DOUGLAS W. DIXON, AND RODNEY MILLER, DEFENDANTS.

On Certiorari to the Court of Appeals, Div. 4.

¶0 In an action by a depositor against certain directors and stockholders of Republic Financial Corporation, the District Court, Tulsa County, Robert F. Martin, Judge, gave summary judgment to three defendants and dismissed plaintiff's claim against four other defendants for failure to allege fraud with sufficient particularity. The initial appeal from this decision was dismissed against all but one defendant. On remand the plaintiff stood on her amended petition and that petition was again dismissed. She then lodged another appeal from this dismissal. The Court of Appeals consolidated the two appeals and affirmed the trial court's orders dismissing plaintiff's amended petition. Certiorari is granted and

THE COURT OF APPEALS' OPINION IS VACATED; THE TRIAL COURT'S ORDERS DISMISSING THE AMENDED PETITION ARE REVERSED AND THE CAUSE IS REMANDED.

Frank R. Hickman, Hickman & Hickman, Tulsa, for appellant-plaintiff.

Fred S. Nelson, Claire V. Eagan, Hall, Estill, Hardwick, Gable, Collingsworth & Nelson, Inc., Tulsa, for appellee-defendant Brown J. Akin, Jr.

Paul E. Quigley, G. Calvin Sharpe, Derryberry, Quigley, Parrish, Gooding & Nance, Oklahoma City, for appellees-defendants Paul W. Anderson, Jr., Ansil Ludwick, Jr., Bob C. Lamirand.

Jon R. Running, Noble Sokolosky, Jon R. Running & Associates, Tulsa, for appellee-defendant Hal W. Oswalt.

Timothy J. Sullivan, Thomas M. Klenda, Sullivan & Klenda, Tulsa, for appellee-defendant Richard G. Bell.

James K. Secrest, II, Secrest & Hill, Tulsa, for appellee-defendant Charles G. Wray.

Stephen C. Stapleton, Feldman, Hall, Franden, Woodard & Farris, Tulsa, for appellees-defendants Altus E. Wilder III, G. Richard Degen.

Tom L. Armstrong, Gregory S. Sherman, Marsh & Armstrong, Tulsa, for appellee-defendant Bill Ramsey.

OPALA, Justice.

[766 P.2d 987]

¶1 The dispositive first impression question presented on certiorari is whether the plaintiff's amended petition meets the "particularity" requirement of the Oklahoma Pleading Code, 12 O.S.Supp. 1984 § 2009 (B),

FACTS

¶2 Commencing in 1982 and continuing through September 1984, petitioner-plaintiff, Rubye R. Gay [Gay or Depositor], made several deposits in the Republic Financial Corporation [Institution], which represented her life savings ($38,951.19). In September 1984 the Institution was declared insolvent and Gay lost all her savings.

¶3 On October 25, 1985 Gay filed suit against thirteen individuals

¶4 Four of the Directors filed motions to dismiss

¶5 Several Directors filed motions for summary judgment, dismissal of the action and protective orders relieving them from answering interrogatories the Depositor had served upon them.

¶6 The Depositor appealed from these various rulings in favor of certain Directors.

I

THE ELEMENTS OF FRAUD

¶7 All averments of fraud must be pled in accordance with 12 O.S.Supp. 1984 § 2009 (B). While § 2009(B) governs how such allegations must be made; what must be pled is determined by Oklahoma substantive law.

II

PLEADING FRAUD AGAINST MULTIPLE DEFENDANTS

¶8 In construing the Oklahoma Pleading Code's provisions which govern fraud allegations, and in determining the detail necessary to satisfy the "particularity" requirement, we are obliged to look to the Federal Rules of Civil Procedure - the progenitor of our pleading code. Since the text of Federal Rule 9(b) is incorporated verbatim in the Oklahoma pleading code, federal and state jurisprudence is instructive.

¶9 The Depositor's amended petition does not make specific averments against each individual Director about the numerous fraudulent activities and schemes. Rather, she first states that each of the defendants is a stockholder and a member of the Board of Directors, and then outlines generally her allegations against them as a group. The question, then, is whether these general averments against each of the defendants as a group (qua members of the Board of Directors) support a reasonable inference of fraud as to each individual defendant.

III

THE BANK DIRECTORS' DUTIES

¶10 The common-law duties and liabilities of bank directors essentially parallel [766 P.2d 991] the obligations of corporate directors in general.

¶11 In addition to the common-law duties, the statutory scheme embodied in the Business Corporation Act

¶12 In addition, these provisions are made applicable to bank directors by [766 P.2d 992] the Oklahoma Banking Code.

¶13 The Banking Code applies to "Banks," which it defines as "any bank authorized by the law of the state to engage in the banking business."

IV

THE NATURE OF THE DIRECTORS' DUTIES SUPPORTS AN INFERENCE OF FRAUD AGAINST EACH DEFENDANT FROM THE FACTS PLED

¶14 In her amended petition the Depositor charged numerous violations of these common-law duties and the referenced statutory duties delineated in the Oklahoma Banking Code and the Business Corporation Act. Depositor also alleged each of the defendants to be a Director.

¶15 A bank director is bound by the standard implicit in these duties and his responsibility must be measured accordingly. Further, a corporation director is chargeable with all matters pertaining to the corporation's affairs, of which he has or should have knowledge in the exercise of the duties required of him as a director.

V

THE PARTICULARITY REQUIREMENT

¶16 After concluding that the Depositor need not address her allegations of fraud to each individual defendant, we now turn to the dispositive question whether the allegations stated the circumstances constituting fraud with sufficient particularity. The Federal Rules collectively, and specifically [766 P.2d 993] those rules governing pleading, were designed to simplify and modernize the litigation process.

¶17 In contrast to the relatively minimal pleading requirements of § 2008(A) and (E), § 2009(B) codifies and perpetuates the common-law rule

¶18 With these principles in mind, the purpose and requirements of § 2009(B) become clear. The section requires only the degree of specificity necessary to enable the opposing party to prepare his responsive pleadings and defenses.

CONCLUSION

¶19 Because we hold Depositor's amended petition met the requisite particularity requirement, the trial court's dismissal for failure to state a claim for fraud was erroneous. Additionally, the amended petition contained broad allegations sufficient to establish various other legal theories of recovery.

¶20 The trial court's orders dismissing the amended petition are reversed and the cause is remanded for further proceedings not inconsistent with this pronouncement.

¶21 DOOLIN, C.J., HARGRAVE, V.C.J., and HODGES, SIMMS, ALMA WILSON, KAUGER and SUMMERS, JJ., concur.

¶22 LAVENDER, J., concurs in judgment.

Footnotes:

1 See infra note 5 for the text of 12 O.S.Supp. 1984 § 2009 (B).

2 The thirteen defendants are: Brown J. Akin, Jr., Wesley R. McKinney, Ansil Ludwick, Jr., Paul W. Anderson, Jr., Douglas Dixon, Rodney Miller, Hal W. Oswalt, G. Richard Degen, Richard G. Bell, Charles G. Wray, Bob C. Lamirand, Bill Ramsey and Altus E. Wilder, III.

3 The terms of 18 O.S. 1981 § 1.146 pertained to directors' liability for unlawful payments to shareholders; § 1.149 dealt with shareholders' liability for receiving unlawful payments. These sections were formerly a part of the Business Corporation Act, (18 O.S. 1981 §§ 1.1 et seq.). The majority of this Act's provisions was repealed in 1986 (Okl.Sess.L. 1986, Ch. 292). Most of the subject matter covered by the repealed sections can now be found in the "Oklahoma General Corporation Act," (18 O.S.Supp. 1986 §§ 1001 et seq.). See § 1051 and 1053 of the new Act for the subject matter contained in former § 1.146; § 1.149 does not appear to have been included in the new Act, see Disposition Table immediately preceding 18 O.S.Supp. 1986 § 1001 .

4 Defendants Bell, Oswalt, Wray and Akin filed motions to dismiss. Although its ruling is not memorialized in the record, the trial court appears to have sustained the motions and granted the Depositor leave to amend her petition.

5 The terms of 12 O.S.Supp. 1984 § 2009 (B) provided:

"FRAUD, MISTAKE, CONDITION OF THE MIND. In all averments of fraud or mistake the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally." [Emphasis added.]

This section was amended in 1987 [Okl.Sess.L. 1987, Ch. 78, § 3 ]. The amendment does not affect the text pertinent to the issues in this case.

6 Defendants Ramsey, Wilder and Degen filed motions for summary judgment and defendants Oswalt, Wray, Akin and Bell filed motions to dismiss. Defendants Wray, Akin, Wilder and Degen also filed motions for protective orders.

7 On March 6, 1985 the trial court sustained the motions to dismiss by defendants Oswalt, Wray, Akin and Bell, gave summary judgment to defendants Wilder, Degen and Ramsey and issued protective orders for defendants Wray, Akin, Wilder and Degen.

8 The motions to dismiss by defendants Degen, Wilder, Wray and Oswalt were sustained on June 28, 1985. Defendant Akin's motion to dismiss was sustained on July 3, 1985.

9 Depositor appealed from the June 28 and July 3, 1985 rulings, supra note 8, and also from the March 6, 1985 summary judgment, supra note 7, for defendants Ramsey, Wilder and Degen.

10 This court dismissed the appeal from the March 6, 1985 summary judgment for defendants Ramsey, Wilder and Degen as not timely brought. It also dismissed the appeal as to defendants Wray, Oswalt and Bell since the orders sustaining their motions to dismiss allowed the Depositor to amend her petition. The initial appeal proceeded only against defendant Akin.

11 On January 14, 1986 motions to dismiss of defendants Wray, Oswalt, Bell, Anderson, Ludwick and Lamirand were again sustained.

12 Depositor then lodged her appeal against defendants Wray, Oswalt, Bell, Anderson, Ludwick and Lamirand. The Court of Appeals consolidated the latter appeal with the first one against defendant Akin.

13 The dismissal of Depositor's amended petition for failure to plead fraud with sufficient particularity, as required by 12 O.S.Supp. 1984 § 2009 (B), is treated as a dismissal for failure to state a claim. See e.g., Seattle-First Nat. Bank v. Carlstedt, 800 F.2d 1008, 1011 [10th Cir. 1986]. In reviewing the district court's dismissal for failure to state a claim, we must consider de novo whether the Depositor's amended petition is legally sufficient. Seattle-First Nat. Bank v. Carlstedt, supra at 1011.

14 See Hayduk v. Lanna, 775 F.2d 441, 443 [1st Cir. 1985] and Miller v. Affiliated Financial Corp., 600 F. Supp. 987, 995 [N.D.Ill. 1984].

15 Tice v. Tice, Okl., 672 P.2d 1168, 1171 [1983] and Miller v. Long, 202 Okl. 34, 210 P.2d 147, 150 [1949].

16 The terms of 76 O.S. 1981 § 4 provide:

"One who practices a deceit with intent to defraud the public, or a particular class of persons, is deemed to have intended to defraud every individual in that class, who is actually misled by the deceit."

The terms of 76 O.S. 1981 § 3 define deceit as "* * * 1. The suggestion, as a fact, of that which is not true by one who does not believe it to be true. 2. The assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true. 3. The suppression of a fact by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact; or, 4. A promise, made without any intention of performing."

See also Southern Development Co. v. Silva, 125 U.S. 247, 250, 8 S. Ct. 881, 882, 31 L. Ed. 678 [1888].

17 Photocopies of the monthly statements were not attached to the amended petition. Rather, they were affixed to Depositor's affidavit which was made a part of her response to the Directors' various dismissal motions. The exhibits physically attached to the response may be treated as additional exhibits to the amended petition.

18 The Introductory Committee Comment to the Oklahoma Pleading Code notes:

"In order to take fullest advantage of the case law interpreting the Federal Rules and the Advisory Notes, the Oklahoma Pleading Code tracks the Federal Rules closely. Where the text of the Federal Rules has been adopted in the Oklahoma Pleading Code, the construction placed on it by federal and state courts should be presumed to have been adopted as well. See Laubach v. Morgan, 588 P.2d 1071, 1973 (Okla. 1978); Baker v. Knott, 494 P.2d 302, 304 (Okla. 1972)."

19 Denny v. Barber, 576 F.2d 465, 469 [2d. Cir. 1978]; and Shapiro v. Miami Oil Producers, Inc., 84 F.R.D. 234, 236 [D.Mass. 1979].

20 Simcox v. San Juan Shipyard, 754 F.2d 430, 439 [1st Cir. 1985]; Hayduk v. Lanna, supra note 14 at 443; and Nolan Bros. Inc. v. United States, 266 F.2d 143, 146 [10th Cir. 1959].

21 Grunwald v. Bornfreund, 668 F. Supp. 128, 131 [E.D.N.Y. 1987]; and Natowitz v. Mehlman, 542 F. Supp. 674, 676 [S.D.N.Y. 1982].

22 Grunwald v. Bornfreund, supra note 21 at 131.

23 See Schroeder v. Sanford-Felt Inv. Co., 177 Okl. 54, 57 P.2d 601 [1936] (syllabus 1); Preston-Thomas Constr., Inc. v. Central Leasing Corp., Okl.App., 518 P.2d 1125, 1127 [1973]; and Sumner Coal-Mining Co. v. Pleasant, 127 Okl. 174, 259 P. 1055, 1056 [1927].

24 188 Okl. 570, 111 P.2d 1080, 1082 [1941].

25 "It is the common law duty of bank directors to `act in good faith and with ordinary care and diligence in conducting the affairs of the bank, or with such diligence as ordinarily prudent men would exercise with reference to the conduct of such a moneyed institution.'" Crews v. Garber, supra note 24, 111 P.2d at 1082.

26 See Crews v. Garber, supra note 24; see also Briggs v. Spaulding, 141 U.S. 132, 146-147, 11 S. Ct. 924, 929, 35 L. Ed. 662 [1891].

27 18 O.S. 1981 §§ 1.1 et seq. The Business Corporation Act was repealed in 1986; the subject matter of that Act can now be found in the new Oklahoma General Corporation Act, see supra note 3.

28 Defendant Akin asserts that depositor has no standing to sue under §§ 1.146 and 1.149 of the Business Corporation Act. Defendant argues that pursuant to § 1.147 only judgment creditors are authorized to maintain such an action, and that failing an allegation that she is a judgment creditor of the Institution, Depositor is without standing to maintain the action.

The duties embodied in §§ 1.146 and 1.149 in particular, and in the Business Corporation Act in general, were made equally applicable to bank directors by the Oklahoma Banking Code. See text accompanying infra note 33. The statutes regulating the conduct of bank directors were enacted for the benefit of the depositors as well as creditors and stockholders of the bank. Crews v. Garber, supra note 24, 111 P.2d at 1084; see also text accompanying infra notes 52 and 53.

Depositor may bring an action alleging a violation of a statutorily imposed duty. The action is not one for the remedies prescribed by § 1.147, rather it is one of fraud, making reference to the statute for the source of the duty owed. See, e.g., Denny v. Barber, supra note 19, and Shapiro v. Miami Oil Producers, Inc., supra note 19. "It is generally held that an action for receipt of deposits in an insolvent bank may be maintained by depositors against the directors since the injury is to the depositors and they are the real parties in interest." Crews v. Garber, supra note 24, 111 P.2d at 1084.

29 18 O.S. 1981 § 1.34 (b). Section 1.34 was repealed in 1986 (Okl.Sess.L. 1986, Ch. 292, § 160), supra note 3; see 18 O.S.Supp. 1988 § 1027 for the subject matter covered by the former statute.

30 18 O.S. 1981 § 1.133 . This section was repealed in 1986 (Okl.Sess.L. 1986, Ch. 292, § 160), supra note 3; see 18 O.S.Supp. 1986 § 1052 for the subject matter covered by the former statute.

31 18 O.S. 1981 § 1.175 . Section 1.175 was repealed in 1986 (Okl.Sess.L. 1986, Ch. 292, § 160), supra note 3; see 18 O.S. Supp. 1986 § 1029 for the subject matter covered by the former statute.

32 18 O.S. 1986 § 1.176 . Section 1.176 was repealed in 1986 (Okl.Sess.L. 1986, Ch. 292, § 160), supra note 3. The subject matter of this section does not appear to have been included in the new Oklahoma General Corporation Act, see Disposition Table immediately preceeding 18 O.S.Supp. 1986 § 1001 .

33 6 O.S. 1981 § 715 . Section 715 was amended in 1986 (Okl.Sess.L. 1986, Ch. 292, § 144) to provide that the Oklahoma Banking Code of 1965 (6 O.S. 1981 §§ 101 et seq.) shall be governed by the new Oklahoma General Corporation Act, see supra note 3.

34 The terms of 6 O.S. 1981 § 409 prohibit payment of dividends when losses exceeding assets have been incurred; the terms of 6 O.S. 1981 § 1404 prohibit loans to "managing officers;" 6 O.S. 1981 § 1406 prohibit receipt of deposits while insolvent; the terms of 6 O.S. 1981 § 1410 establish liability for false or deceptive entries or statements; and the terms of 6 O.S. 1981 § 1412 pertain to embezzlement or misapplication of funds.

The 1983 and 1986 amendments to § 1404 (Okl.Sess.L. 1983, Ch. 73, § 13 and Okl.Sess.L. 1986, Ch. 316, § 7) do not appear to affect the substantive elements of the claim.

35 6 O.S. 1981 § 712 (A). The 1988 amendment to this section (Okl.Sess.L. 1988, Ch. 166, § 7) does not appear to affect the substantive elements of the claim. See also, Hoehn v. Crews, 144 F.2d 665, 672-673 [10th Cir. 1944] (bank directors are liable for intentional violations of statutory duties and negligent violations of common-law duties).

36 6 O.S. 1981 § 102 (A).

37 6 O.S.Supp. 1982 § 1401 .

38 See e.g. Crews v. Garber, supra note 24 at 1083; and infra note 53.

39 Sumner-Coal Mining Co. v. Pleasant, supra note 23, 259 P. at 1056.

40 See Conley v. Gibson, 355 U.S. 41, 47, 78 S. Ct. 99, 103, 2 L. Ed. 2d 80 [1957] (Rule 8, Federal Rules of Civil Procedure, narrows the function of pleadings to that of giving "fair notice of what the plaintiff's claim is and the grounds upon which it rests.")

41 12 O.S.Supp. 1982 § 2008 (A)(1). The 1987 amendment of this section (Okl.Sess.L. 1987, Ch. 78, § 2 ) does not affect the text pertinent to the issues in this case.

42 12 O.S.Supp. 1982 § 2008 (E). The 1987 amendment of this section (Okl.Sess.L. 1987, Ch. 78, § 2 ) does not affect the text pertinent to the issues in this case.

43 See Richman, Lively & Mell, "The Pleading of Fraud: Rhymes Without Reason," 60 So.Cal. L.Rev. 959 [1987].

44 Simcox v. San Juan Shipyard, supra note 20 at 439. (Rule 9, Federal Rules of Civil Procedure, must be read in conjunction with Rule 8 which provides that complaint should not be struck if the nature of the claim is apparent.) See also, Todd v. Oppenheimer & Co., 78 F.R.D. 415, 419 [S.D.N.Y. 1978].

45 Hayduk v. Lanna, supra note 14 at 443. See also, 5 C. Wright and A. Miller, "Federal Practice and Procedure," §§ 1204 and 1296 [1969].

46 5 C. Wright & A. Miller, supra note 45, § 1297 at 403-404; Adair v. Hunt Int'l Resources Corp., 526 F. Supp. 736, 744 [N.D.Ill. 1981]; and Brewer v. Monsanto Corp., 644 F. Supp. 1267, 1271-1273 [M.D.Tenn. 1986].

47 Adair v. Hunt Int'l Resources Corp., supra note 46 at 744.

48 Walling v. Beverly Enterprises, 476 F.2d 393, 397 [9th Cir. 1973]. See also, the Committee Comment to § 2009 which points out that the section "should be read in light of the general philosophy of § 2008 and the § 2010 provisions for the form of pleadings to require only the degree of specificity necessary to enable the opposing party to prepare his responsive pleadings and defenses."

49 McGinty v. Beranger Volkswagen, Inc., 633 F.2d 226, 228 [1st Cir. 1980]; see also, Hayduk v. Lanna, supra note 14 at 444; Walling v. Beverly Enterprises, supra note 48 at 397; and 5 C. Wright and A. Miller, supra note 45 § 1297 at 403-404, § 1298 at 410, and § 1301 at 426.

50 Nolan Bros. Inc. v. United States, supra note 20 at 145.

51 Brewer v. Monsanto Corp., supra note 46 at 1271; and Walling v. Beverly Enterprises, supra note 48 at 397.

52 The terms of Art. 14, § 1 , Okl. Const. provide:

"General laws shall be enacted by the Legislature providing for the creation of a Banking Department, to be under the control of a Bank Commissioner, . . . with sufficient power and authority to regulate and control all State Banks, Loan, Trust and Guaranty Companies, under laws which shall provide for the protection of depositors and individual stockholders."

See Shull v. Beasley, 149 Okl. 106, 299 P. 149 [1931] (Syllabus 1) ("The public policy of the state of Oklahoma, established by section 1, article 14, of the Constitution of Oklahoma, is for the protection of depositors in state banks.")

53 The amended petition contained detailed facts regarding conspiracy, negligence and mismanagement. In Crews v. Garber, supra note 24 at 1083, quoting from Bryan County State Bank v. American Nat. Bank, 56 Okl. 529, 156 P. 352, 356 [1916], we recognized that

"`one of the main purposes of the banking laws of the state of Oklahoma is to impose upon the officers of the bank, such as the president or director, the positive duty of its management and control and to fix upon these officers the duty and responsibility of conducting said bank in accordance with law and this court should be slow to adopt any construction of law which would relieve these officers from their responsibilities.'" [Emphasis in opinion]