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Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 

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. t 1 LE 

Uruec State§ o«n f)f Appeals 

Tenth Ci!'ruit 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

/:fJj 2 8 1991 

.ROBERT L. HOECKER 

Clerk 

MAJIR KORNBLIT, an individual; PAT 

WILSEY, an individual; ABE BARBER, 

an individual; RALPH W. BURNETT, an 

individual; JOE ESCO TIRE COMPANY, 

a corporation; FRANK MERRILL, an 

individual; JIMMIE R. PHAGAN, 

an individual, 

Plaintiffs-Appellants, 

v. 

C. W. CAMERON, an individual; 

WILLIAM M. CAMERON, an individual; 

LINDA CAMERON, an individual; 

COMMERCIAL BANK, N.A., a national 

banking association; COMMERCIAL 

BANKSTOCK, a corporation; AMERICAN 

FIDELITY CORPORATION, a corporation; 

FEDERAL DEPOSIT INSURANCE CORPORATION, 

a corporation; JOHN REX, an individual; 

STEVE GARRETT, an individual, 

Defendants-Appellees, 

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JIM D. SCOTT, an individual; ROGER 

LAUBAUCH, an individual; HENRY B. 

BOECKING, III, an individual; ROBERT 

HELM, an individual; LOUIS H. 

BRIGHAM, an individual; EARL C. 

MADISON, II, an individual; JAMES A. 

SMELZER, an individual; HARRY MERSON, 

an individual, 

Defendants. 

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No. 89-6429 

(D.C. No. CIV-89-0075-W) 

(W.D. Oklahoma) 

Appellate Case: 90-6081 Document: 010110031040 Date Filed: 02/28/1991 Page: 1 
MAJIR KORNBLIT, an individual; PAT 

WILSEY, an individual, ABE BARBER, 

an individual; RALPH W. BURNETT, an 

individual; JOE ESCO TIRE COMPANY, 

a corporation; FRANK MERRILL, an 

individual; JIMMIE R. PHAGAN, an 

individual, 

Plaintiffs-Appellees, 

v. 

C. W. CAMERON, an individual; 

WILLIAM M. CAMERON, an individual; 

LINDA CAMERON, an individual; 

COMMERCIAL BANK, N.A., a national 

banking association; COMMERCIAL 

BANKSTOCK, a corporation; AMERICAN 

FIDELITY CORPORATION, a corporation; 

JOHN REX, an individual; STEVE GARRETT, 

an individual, 

Defendants-Appellants. 

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) No. 90-6081 

) (D.C. No. CIV-89-0075-W) 

) (W.D. Oklahoma) 

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ORDER AND JUDGMENT* 

Before LOGAN, MOORE, and BALDOCK, Circuit Judges. 

After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of these appeals. See Fed. R. App. P. 

34(a); 10th Cir. R. 34.1.9. The cases are therefore ordered 

submitted without oral argument. 

* This order and judgment has no precedential value and shall 

not be cited, or used by any court within the Tenth Circuit, 

except for purposes of establishing the doctrines of the law of 

the case, res judicata, or collateral estoppel. 10th Cir. R. 

36.3. 

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Appellate Case: 90-6081 Document: 010110031040 Date Filed: 02/28/1991 Page: 2 
Plaintiffs filed suit alleging that defendants, through their 

agents, made fraudulent misrepresentations regarding the financial 

health of a banking institution involved in a stock purchase in 

order to obtain financial backing. The district court granted 

defendants summary judgment on all claims. Plaintiffs appeal that 

ruling. Defendants cross appeal the district court's denial of 

their motion for sanctions. We affirm the district court in all 

respects. 

In 1985, David Durrett and Miles Mitzner approached 

plaintiffs regarding an investment in the recapitalization of 

Commercial Bank, N.A., in Oklahoma City, Oklahoma. Durrett and 

Mitzner hoped to form a group of investors to purchase stock in 

Commercial Bank. At the time, Mitzner and Durrett were bank 

officers at Citizen's National Bank and Trust of Oklahoma City. 

All of the plaintiffs were customers of Citizen's Bank. 

Plaintiffs allege that statements Durrett and Mitzner made in 1985 

misrepresented the financial condition of the bank and the risk 

involved in the investment. 

In March 1986, plaintiffs received a private offering 

memorandum describing the financial condition of Commercial Bank. 

After they received it, each plaintiff signed a subscription 

agreement to purchase the stock. The memorandum carefully 

outlined the severe financial problems the bank faced. 

contained the following admonition: 

It also 

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR 

TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS 

MEMORANDUM, AND ANY INFORMATION OR REPRESENTATION NOT 

CONTAINED IN THIS MEMORANDUM MUST NOT BE RELIED UPON AS 

HAVING BEEN AUTHORIZED BY THE COMPANY. 

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Appellate Case: 90-6081 Document: 010110031040 Date Filed: 02/28/1991 Page: 3 
II R. tab 110 at 6 (emphasis in original). 

Durrett and Mitzner also approached defendants seeking 

investors for the recapitalization project. Although they first 

spoke with American Fidelity Corporation (AFC) representatives 

about the investment in 1985, none of the defendants committed to 

it until early 1986. American Fidelity Assurance Company 

ultimately invested $50,000 in the project. The individual 

defendants were officers of AFC. Defendants William and Lynda 

Cameron were AFC shareholders who invested $2,100,000 in the 

recapitalization. The AFC group held the vast majority of the 

stock in Commercial Bank. Despite the infusion of capital, the 

bank ultimately failed. The stock became worthless. 

Plaintiffs filed this lawsuit in January 1989, asserting six 

claims for relief. They included: 1) violations of § l0(b) of 

the Securities and Exchange Act of 1934 and§ 12(2) of the 

Securities Act of 1933; 2) RICO violations; 3) violations of the 

Oklahoma Securities Act; 4) violations of various banking and 

consumer credit laws; 5) common law fraud; and 6) breach of 

fiduciary duty. 

The district court granted summary judgment based on the 

applicable statutes of limitations and plaintiffs' failure to 

submit any competent evidence that Durrett and Mitzner were agents 

of the defendants. The court also held that plaintiffs confessed 

the validity of defendants' summary judgment motion on the fourth 

cause of action dealing with consumer credit and banking 1 laws. 

1 Plaintiffs have not appealed this portion of the district 

court's ruling. 

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Appellate Case: 90-6081 Document: 010110031040 Date Filed: 02/28/1991 Page: 4 
After judgment was entered, defendants filed a motion for 

sanctions under Fed. R. Civ. P. 11 and Okla. Stat. tit. 71 

§ 408(i). 2 The district court denied that motion. In their cross 

appeal, defendants assert that plaintiffs' claims were frivolous 

and that the district court abused its discretion in failing to 

grant fees and costs. We address each of these issues below. 

I 

We review the grant of summary judgment de nova, applying the 

same standard used by the district court. Abercrombie v. City of 

Catoosa, 896 F.2d 1228, 1230 (10th Cir. 1990). Pursuant to 

Fed. R. Civ. P. 56(c), summary judgment is appropriate only when 

there are no genuine issues of fact and the moving party is 

entitled to judgment as a matter of law. Celotex Corp. v. 

Catrett, 477 U.S. 317, 322 (1986). 

With the exception of the RICO claim, all causes of action 

involved in this case are governed by a two year statute of 

limitations period that begins to run on the date that a plaintiff 

knew or should have known of the alleged fraud. The two year 

limitations period found in Okla. Stat. tit. 12 § 95 governs 

plaintiffs' § l0(b) claim. See Aldrich v. McCulloch Properties, 

Inc., 627 F.2d 1036, 1041 (10th Cir. 1980) (most applicable state 

law statute of limitations governs period for federal securities 

violation because there is no federal limitations period). 

Section 95 also governs plaintiffs' fifth and sixth causes of 

2 This provision formerly was found at Okla. Stat. tit. 71 

§ 408(f). 

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Appellate Case: 90-6081 Document: 010110031040 Date Filed: 02/28/1991 Page: 5 
action alleging common law fraud and breach of fiduciary duty. 

The two year limitations period found in Okla. Stat. tit. 71 

§ 408(e) (before 1988 amendment) governs plaintiffs' claim under 

the Oklahoma Securities Act. Finally, 15 U.S.C. § 77(m) provides 

a one year statute of limitations for the § 12(2) claim in 

plaintiffs' first cause of action. The remaining RICO claim has a 

four year limitations period and therefore was timely filed. 3 

The limitations period in this fraud action began to run when 

plaintiffs discovered, or should have discovered, the alleged 

misrepresentations or omissions. See Feldman v. Pioneer 

Petroleum, Inc., 606 F. Supp. 916, 922 (W.D. Okla. 1985), aff'd, 

813 F.2d 296 (10th Cir.), cert. denied, 484 U.S. 954 (1987). The 

district court held as a matter of law that regardless of any 

misrepresentations, the March 1986 offering memorandum should have 

put plaintiffs on notice of any errors in Durrett and Mitzner's 

statements. II R. tab 110 at 8-9. We agree. 

The offering memorandum was very explicit in describing the 

risks involved in the investment. It stated, in part: 

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THE PURCHASE OF THESE SECURITIES INVOLVES A HIGH DEGREE 

OF RISK. 

* * * 

Civil RICO claims are generally subject to a four year 

limitations period. See Agency Holding Corp. v. Malley-Duff & 

Assocs., 483 U.S. 143, 156 (1987); Bath v. Bushkin, Gaims, Gaines 

& Jonas, 913 F.2d 817, 820 (10th Cir. 1990). The earliest accrual 

for the RICO action alleged in this case was March 1986. Because 

plaintiffs filed that cause of action in January 1989, it is 

timely. 

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Appellate Case: 90-6081 Document: 010110031040 Date Filed: 02/28/1991 Page: 6 
As a result of an examination of the Bank performed by 

the Comptroller of the Currency (the "Comptroller") in 

the second quarter of 1985, the Bank became subject to 

an Order to Cease and Desist (the "Comptroller's 

Order"), which currently remains in effect .... The 

Bank is not currently in compliance with items (5), (9), 

(10), (14) or (16) of this paragraph [certain 

requirements of the Comptroller's Order]. 

* * * 

On October 7, 1985, the Federal Deposit Insurance 

Corporation ("FDIC") issued its Findings of Unsafe and 

Unsound Practices and Condition and Order of Correction 

(the "FDIC Order") to the Bank. . . . Failure to 

comply with the FDIC Order may be grounds for 

cancellation of the FDIC deposit insurance coverage for 

the Bank. 

* * *· 

In addition to those loans classified as "Loss" and 

directed to be charged off, the Comptroller's current 

examination has classified $825,370 in Bank assets as 

"Doubtful" and $6,038,580 in Bank assets as 

"Substandard". As a result, management believes that 

the Bank will sustain additional loan losses and write 

downs in assets acquired in foreclosure in an amount 

which reflects the risks associated with this high level 

of classified assets. Although the Bank has established 

an allowance for possible loan losses at a level which 

management believes will be sufficient to absorb 

additional losses, there can be no assurance that the 

allowance will be adequate. Further, the Bank's 

earnings have been and will continue to be affected 

adversely by its nonperforming assets and charges to 

income relating to additional provisions to its loan 

loss reserve. 

* * * 

THE UNAUDITED FINANCIAL STATEMENTS OF THE BANK INDICATE 

THAT THE BANK IS PRESENTLY INSOLVENT. 

* * * 

Id. at 6-7. These statements were in addition to the admonition 

against prior representations found in the memorandum. 

When, as here, the offering memorandum explicitly sets out 

the risks involved, knowledge of the information contained within 

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Appellate Case: 90-6081 Document: 010110031040 Date Filed: 02/28/1991 Page: 7 
it will be imputed to the investor. 

F.2d 1511, 1518 (10th Cir. 1983). 

Zobrist v. Coal-X, Inc., 708 

Accordingly, the statute of 

limitations began to run in March 1986 when the plaintiffs 

received the offering memorandum. Because plaintiffs did not file 

the claims outlined above within two years of that date, they are 

barred. Thus, we need only consider the agency theory as it 

relates to plaintiffs' RICO cause of action. 

II 

Although plaintiffs acknowledge that they never spoke to any 

of the defendants regarding the stock purchase, they assert that 

Mitzner and Durrett were acting as agents of the defendants when 

they made the alleged misrepresentations in 1985. In support, 

plaintiffs filed the affidavit of Donald Fitzgerald, an attorney 

for one of the plaintiffs. In that affidavit, Fitzgerald states 

that Durrett told Fitzgerald and plaintiff Kornblit that Durrett 

was acting as an agent for "C.W. Cameron, his family and corporate 

interests." II R. tab 110 at 10. 

The party who 

burden of proving it. 

307 F.2d 230, 233 

evidence, statements 

asserts the existence of an agency has the 

See Atchison, T. & S. F. Ry. v. Bouziden, 

(10th Cir. 1962). Absent corroborating 

of an alleged agent are generally 

inadmissible to establish the agency relationship. Jones v. World 

Publishing Co., 512 P.2d 124, 127-28 (Okla. 1973); see also 3 

C.J.S. Agency§ 516 (1973). Here, there is no such corroborating 

evidence. The Fitzgerald affidavit is therefore inadmissible. 

We likewise reject plaintiffs' argument that Fitzgerald's 

statements fall within two exceptions to the hearsay rule. First, 

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Appellate Case: 90-6081 Document: 010110031040 Date Filed: 02/28/1991 Page: 8 
they assert that the affidavit is admissible under Rule 

801(d)(l)(A) or (B) as a prior consistent or inconsistent 

statement. Second, they argue that it is independently admissible 

under Rule 801(d)(2)(C), (D), or (E) as an admission of a party 

opponent. 

Fitzgerald's statement cannot come within the exception for 

prior consistent or inconsistent statements. 4 The statement 

contained in the Fitzgerald affidavit was not made under oath. 

Moreover, the affidavit cannot be used as a prior consistent 

statement at this stage of the proceedings. The record contains 

no evidence here of improper motive or recent fabrication. 

Plaintiffs' attempts to prophesy what Durrett's testimony would be 

at trial in order to bring the statement within the rule are 

unavailing. 

Likewise, the Fitzgerald affidavit is not an admission of a 

party opponent. 5 The record contains no evidence to support 

4 

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Fed. R. Evid. 801(d)(l)(A) and (B) state: 

(d) Statements which are not hearsay. A statement is 

not hearsay if--

(1) Prior statement by witness. The declarant 

testifies at the trial or hearing and is subject to 

cross-examination concerning the statement, and the 

statement is (A) inconsistent with the declarant's 

testimony, and was given under oath subject to the 

penalty of perjury at a trial, hearing, or other 

proceeding, or in a deposition, or (B) consistent with 

the declarant's testimony and is offered to rebut an 

express or implied charge against the declarant of 

recent fabrication or improper influence or 

motive .... 

Under Fed. R. Evid. 801(d)(2), a statement is not hearsay if: 

The statement is offered against a party and is (A) the 

Continued to next page 

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Appellate Case: 90-6081 Document: 010110031040 Date Filed: 02/28/1991 Page: 9 
plaintiffs' assertion that defendants either authorized statements 

made to Fitzgerald or adopted them. Furthermore, there is nothing 

to support plaintiffs' assertion that Durrett was somehow 

conspiring with defendants or was working for them. 

In their brief on appeal, plaintiffs also argue that the 

deposition testimony of Jimmie R. Phagan "show[s] an agency status 

on the part of Durrett." Brief of Appellants at 15. Because 

plaintiffs never submitted Phagan's depositions to the district 

court, 6 we refuse to consider those depositions as evidence of 

Durrett's alleged agency status. See Whitlock v. Duke Univ., 829 

F.2d 1340, 1343 (4th Cir. 1987) (refusing to consider on appeal 

depositions "taken prior to the granting of summary judgment below 

but not submitted to the district court before summary judgment 

was entered"); see also Frito-Lay, Inc. v. Willoughby, 863 F.2d 

1029, 1035-36 (D.C. Cir. 1988) (appellate court may not consider 

evidence not before district court at time summary judgment was 

granted); Dominick v. Dixie Nat'l Life Ins. Co., 809 F.2d 1559, 

Continued from previous page 

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party's own statement in either an individual or a 

representative capacity or (B) a statement of which the 

party has manifested an adoption or belief in its truth, 

or (C) a statement by a person authorized by the party 

to make a statement concerning the subject, or (D) a 

statement by the party's agent or servant concerning a 

matter within the scope of the agency or employment, 

made during the existence of the relationship, or (E) a 

statement by a coconspirator of a party during the 

course and in furtherance of the conspiracy. 

Plaintiffs referred to Phagan's deposition testimony in their 

brief in opposition to defendants' motion for summary judgment. 

See IR. tab 74, Brief in Support at 2-4. Plaintiffs, however, 

never filed Phagan's depositions with the district court. In an 

order dated March 19, 1990, we denied plaintiffs' motion to 

supplement the record with those depositions. 

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Appellate Case: 90-6081 Document: 010110031040 Date Filed: 02/28/1991 Page: 10 
1573 (11th Cir. 1987) (same); Impossible Elecs. Techniques, Inc. 

v. Wackenhut Protective Sys., 669 F.2d 1026, 1034 n.9 (5th Cir. 

1982) (same). We therefore conclude that the district court 

appropriately granted summary judgment in favor of defendants. 

III 

Finally, we turn to defendants' cross appeal. They seek fees 

and costs under both Fed. R. Civ. P. 11 and Okla. Stat. tit. 71 

§ 408(i). Section 408(i) allows a court to assess reasonable 

attorney's fees if it determines that a plaintiff's case is 

"without substantial merit." The district court denied 

defendants' motion under both provisions. We review this decision 

under an abuse of discretion standard. See Adamson v. Bowen, 855 

F.2d 668, 673 (10th Cir. 1988). Using this standard, we must give 

the district court's decision considerable deference. See 

Crabtree ex rel. Crabtree v. Muchmore, 904 F.2d 1475, 1478 (10th 

Cir. 1990). Indeed, "[i]t is not the role of the circuit court to 

second-guess" a district court's decision to deny sanctions. See 

Hughes v. City of Fort Collins, No. 90-1205, slip op. at 6 (10th 

Cir. Feb. 25, 1991). 

The district court found that plaintiffs could have conducted 

a reasonable investigation and still not predicted the court's 

ruling on the statute of limitations issue. We agree. 

Plaintiffs' conduct must be judged under an "objective 

reasonableness" standard. See Burkhart ex rel. Meeks v. Kinsley 

Bank, 804 F.2d 588, 590 n.3 (10th Cir. 1986). In the district 

court, plaintiffs asserted that they agreed to invest before 

receiving the offering memorandum and that they did not believe 

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Appellate Case: 90-6081 Document: 010110031040 Date Filed: 02/28/1991 Page: 11 
. . 

the memorandum altered the basic agreement. Based on this 

reasoning, they argued that the offering memorandum was not 

dispositive of the statute of limitations issue. In light of such 

reasoning, we will not second-guess the district court's decision 

to deny the instant sanctions motion. 

Accordingly, the judgment of the district court is AFFIRMED. 

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Entered for the Court 

James K. Logan 

Circuit Judge 

Appellate Case: 90-6081 Document: 010110031040 Date Filed: 02/28/1991 Page: 12