Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-87-01247/USCOURTS-ca10-87-01247-0/pdf.json

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

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PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

MIDAMERICA FEDERAL SAVINGS AND ) 

LOAN ASSOCIATION, a federal savings and) 

loan association, ) 

Plaintiff-Appellee, 

v. 

SHEARSON/AMERICAN EXPRESS INC., a 

Delaware corporation, and DON CROW, an 

individual, 

Defendants-Appellants. 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

PILED 

Uflited States Courc of Appeals 

'Tenth Cirrnit 

SEP 2 3 1989 

ROBERT L HOEC!(ER 

Clerk 

No. 87-1247 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE NORTHERN DISTRICT OF OKLAHOMA 

(D.C. No. 84-C-10-C) 

Lloyd S. Clareman (Harvey D. Myerson, of Finley, Kumble, Wagner, 

Heine, Underberg, Manley, Myerson & Casey, of New York, New York; 

and Claire v. Eagan, of Hall, Estill, Hardwick, Gable, Golden & 

Nelson, of Tulsa, Oklahoma, with him on the briefs), of Finley, 

Kumble, Wagner, Heine, Underberg, Manley, Myerson & Casey, of New 

York, New York, for the Defendants-Appellants. 

Sam P. Daniel, Jr. (Richard P. Hix and Charles s. Plumb, of 

Doerner, Stuart, Saunders, Daniel & Anderson, of Tulsa, Oklahoma, 

with him on the brief), of Doerner, Stuart, Saunders, Daniel & 

Anderson, of Tulsa, Oklahoma, for the Plaintiff-Appellee. 

Before MOORE, TACHA, and BALDOCK, Circuit Judges. 

TACHA, Circuit Judge. 

Appellate Case: 87-1247 Document: 01019936273 Date Filed: 09/28/1989 Page: 1 
The defendants, Shearson/American Express Inc. (Shearson) and 

Don Crow, appeal from a judgm'ent entered on a jury's verdict 

finding that the defendants breached their fiduciary duty to 

MidArnerica Federal Savings and Loan Association (MidAmerica), 

violated section 12(2) of the Securities Act of 1933, 15 U.S.C. 

§ 77!, and violated section 408(a)(2) of the Oklahoma Securities 

Act, Okla. Stat. Ann. tit. 71, § 408(a)(2) (West Supp. 1989). 

Only the section 408(a)(2) and fiduciary duty claims remain before 

this court. 1 On appeal, the defendants allege that the district 

court erred in denying their motions for directed verdict and 

judgment notwithstanding the verdict, in instructing the jury on 

various issues, in failing to order a new trial on all issues due 

to the erroneous instructions relating to the section 12(2) claim, 

and in denying compelled arbitration of the claims arising under 

state law. We affirm. 

I. 

We view the evidence and all reasonable inferences drawn 

therefrom in the light most favorable to the jury's verdict. See 

Kitchens~ Bryan County Nat'l Bank, 825 F.2d 248, 251 (10th Cir. 

1987); Schwager~ Sun Oil Co., 591 F.2d 58, 62 (10th Cir. 1979). 

In December i982 MidArnerica established a new money market 

fund that attracted over $74 million in new deposits by January 

15, 1983. Because these deposits were attracted in part by 

MidArnerica's offer of a "bonus" interest rate for the initial 

1 The trial court ordered a new trial on the section 12(2) 

claim acknowledging that it had erroneously instructed the jury as 

to that issue. The section 12(2) claim was later dismissed 

pursuant to Rule 4l(a)(l) of the Federal Rules of Civil Procedure. 

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deposit term, these deposits were deemed to be "very short term" 

and "[interest] rate sensitive." MidAmerica therefore desired to 

reinvest the funds for approximately six months in a short-term 

investment security yielding in excess of its 10.75% to 11.25% 

cost of money. 

MidAmerica spoke to Shearson representative Don Crow about 

their investment needs. MidAmerica had a longstanding 

relationship with Crow, having purchased securities through him 

since as early as 1979. At the time of the transaction giving 

rise to this suit, Crow handled between two-thirds and threequarters of MidAmerica's securities investments. Crow understood 

MidAmerica's investment requirements, and told MidAmerica that 

their goals were obtainable. He advised MidAmerica to invest in 

GNMA Series I Unit Investment Trusts ("GNMA unit trusts"). Crow 

represented to MidAmerica that the GNMA unit trusts would trade 

like "straight" GNMA's, securities with which MidAmerica had 

investment experience. He further represented that the GNMA unit 

trusts would be more suitable for MidAmerica's needs than the 

straight GNMA's. 

Crow's advice was not well-founded. A GNMA unit trust is 

essentially a packaged version of several issues of straight 

GNMA's. Because straight GNMA's required a minimum investment of 

$25,000, small investors were effectively precluded from 

investing. The GNMA unit trust concept was designed to allow 

individuals to invest relatively small amounts in GNMA securities 

through pooling their funds. 

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Despite their apparent similarity, significant differences 

exist between the two GNMA investment vehicles. Crow never 

explained these distinctions to MidAmerica. Unlike straight 

GNMA's, which permit volume purchasers such as MidAmerica to 

obtain a discount on the purchase price, the GNMA unit trust did 

not offer such a discount. Further, the GNMA unit trusts carried 

an additional three and one-half percent sales charge that was not 

applicable to straight GNMA's. The sales charge reduced the 

effective yield of GNMA unit trusts, making them particularly 

unsuitable for investors such as MidAmerica who required a short 

term investment to provide needed liquidity. Consequently, 

instead of fulfilling MidAmerica's financial goal of a profitable 

short-term investment, the GNMA unit trust practically "locked in" 

a loss because, even assuming MidAmerica held the investment for 

two years and there was no downward movement in the security's 

market price, the yield would have been below MidAmerica's cost of 

money. 2 

In reliance upon Crow's recommendation, MidAmerica's chief 

securities investment advisor, Steve Allen, placed an initial 

order with Crow on January 12, 1983, for $10 million in GNMA unit 

2 If the maturity date of the underlying GNMA securities extended 

beyond this two year period, a profit theoretically could be 

possible through capital appreciation caused by a decline in 

interest rates, if such appreciation was sufficient to offset the 

sales charge and the loss resulting from the differential between 

MidAmerica's cost of funds and the yield on the GNMA unit trust. 

This profit potential would not necessarily make this investment 

suitable for MidAmerica, however, as the same potential for 

capital gain fiom an interest rate decline would have existed in a 

straight GNMA security that did not require payment of the sales 

charge. 

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trusts hedged by 100 futures contracts. Allen then left 

MidAmerica for a new position. 

Allen was temporarily replaced by Ron Smith, an outside 

consultant who had previously advised MidAmerica with regard to 

management issues. Smith lacked Allen's experience with 

securities, and Crow was aware of this fact. Smith was hired to 

implement the GNMA unit trust investment strategy that had been 

developed for the money market funds. Consistent with this 

strategy, he placed three more orders for GNMA unit trusts in the 

amounts of $15 million, $10 million, and $15 million respectively. 

MidAmerica hedged two of these purchases but, acting against 

Crow's advice and its own original investment strategy, decided 

not to hedge the third. 

On the trade dates for each of the four orders, Shearson 

mailed to MidAmerica a sale confirmation and a twenty-eight page 

statutory prospectus. Each prospectus contained multiple 

references to the one-time sales charge. The prospectuses arrived 

after Allen's departure from MidAmerica, and no one at MidAmerica 

reviewed the prospectuses until March, when Allen's permanent 

replacement, Larry Merryman, arrived. MidAmerica relied upon 

Crow's representations during the interim period and therefore 

remained unaware of the sales charge. Further, from January 20 

until early March, Crow reported to MidAmerica inflated daily 

quotes of the market value of their investment because he failed 

to take into account the initial sales charge. This caused 

MidAmerica to believe falsely that the investment was yielding at 

a higher rate. 

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Larry Merryman became MidAmerica's new Chief Financial 

Officer on March 1, 1983. He began his job by reviewing the GNMA 

unit trust investments and immediately became concerned about 

their appropriateness for MidAmerica. Merryman expressed these 

concerns to the president of MidAmerica, Donald Ingle, and 

explained the ramifications of the sales charge. 

After learning of the sales charge, MidAmerica proceeded to 

register an objection to the transactions with Crow and other 

Shearson representatives. MidAmerica's attorney, Gene Howard, 

contacted Crow on March 7 and discussed the possibility of working 

out a rescission of the purchases. Howard proceeded to New York 

and, on March 8-9, conferenced with Shearson's general counsel and 

other Shearson representatives regarding rescission of the 

purchases. Shearson ultimately rejected MidAmerica's offer of 

rescission. MidAmerica subsequently sold the securities in 1984 

for a substantial loss. 

In January 1984, MidAmerica filed suit raising nine claims 

based on the defendants' alleged violations of the Securities Act 

of 1933, the Securities Exchange Act of 1934, the Oklahoma 

Securities Act, and various other pendent state claims. Eight of 

those claims ultimately went to trial. The jury returned verdicts 

in July of 1985 for the defendants on five claims but was unable 

to reach verdicts on the section 12(2), section 408(a)(2), and the 

breach of fiduciary duty claims. A new trial was set for these 

remaining three claims. 

In October 1984, prior to the second trial on the remaining 

three claims, Shearson moved to compel arbitration. The district 

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I 

I 

court denied this motion and the claims went to trial during April 

and May of 1986. The jury returned verdicts for MidAmerica on all 

three counts. This appeal followed. 

II. 

The defendants allege that the district court erred in 

denying their motions for summary judgment and directed verdict on 

the section 408(2) claim. Because an issue of state law is 

presented here, we give some deference to the resident district 

judge's interpretation, but ultimately review de novo whether the 

district judge applied the proper legal standards. See Wilson v. 

Al McCord Inc., 858 F.2d 1469, 1473 (10th Cir. 1988). 

A. 

As the Supreme Court has stated in the analogous context of 

interpreting federal securities statutes, 

the starting point in construing a statute is the 

language of the statute itself. Moreover, "if the 

langugage of a provision of the securities laws is 

sufficiently clear in its context and not at odds with 

the legislative history, it is unnecessary 'to examine 

the additional considerations of "policy" ... that may 

have influenced the lawmakers in their formulation of 

the statute.' 11 

Randall Y...!.. Loftsgaarden, 478 U.S. 647, 656 (1986) (citations 

omitted) (quoting Aaron Y...!.. SEC, 446 U.S. 680, 695 (1980)) 

(reviewing damages provision of section 12(2) of the 1933 Act). 

We believe that the language of section 408(a)(2) is sufficiently 

clear "to invoke this 'plain language' canon," id. 

Section 408(a)(2) of the Oklahoma Securities Act provides in 

relevant part: 

(a) Any person who: 

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( 

\ 

(2) offers or sells or purchases a security by 

means of any untrue statement of a material fact or any 

omission to state a material fact necessary in order to 

make the statements made, in the light of the 

circumstances under which they are made, not misleading 

(the other party not knowing of the untruth or 

omission), and who does not sustain the burden of proof 

that he did not know, and in the exercise of reasonable 

care could not have known, of the untruth or omission, 

is liable ..•. 

Okla. Stat. Ann. tit. 71, § 408(a)(2). 

In order to prevail, MidAmerica was required to show the 

following: (i) that the defendants offered or sold securities by 

means of an untrue statement or omission of a material fact; (ii) 

that such untrue statement or omission caused other of the 

defendants' statements to be misleading; and (iii) that MidAmerica 

did not know that the statement was untrue or that a material fact 

had been omitted. The record reflects that MidAmerica satisfied 

these requirements and that Crow's actions on behalf of Shearson 

fall within the purview of the statute. 

Taking into account only Crow's oral representations, the 

record shows that MidAmerica satisfied the first two requirements. 

The GNMA unit trusts are securities under the applicable federal 

and state securities laws. Shearson representative Crow sold the 

GNMA unit trusts to MidAmerica pursuant to investment discussions 

between Crow and MidAmerica's chief securities investment advisor, 

Allen. Crow's oral representations to Allen regarding the GNMA 

unit trusts omitted the fact that investment in those securities 

would include a one-time, three and one-half percent sales 

charge -- a fact material to the transaction. This omission 

regarding the sales charge made Crow's other statements to Allen, 

such as the statement that GNMA unit trusts traded like straight 

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Appellate Case: 87-1247 Document: 01019936273 Date Filed: 09/28/1989 Page: 8 
GNMA's, misleading. In fact, straight GNMA's would trade 

similarly to GNMA unit trusts only if the sales charges were 

omitted and volume discounts were permitted for purchases of the 

unit trusts. 

The primary dispute here sterns from the interpretation of the 

third requirement, given that Shearson disclosed to MidArnerica the 

sales charge for each unit trust order in the prospectuses which 

arrived at MidArnerica after Allen had left. Allen's interim 

replacement did not read the prospectuses and relied exclusively 

on Crow's oral representations while he handled the GNMA unit 

trust investments. MidArnerica did not have actual knowledge of 

Crow's omissions until March 1983 when MidArnerica's new permanent 

investment advisor, Merryman, began work. The defendants argue 

( that because MidArnerica received a prospectus fully disclosing the \ 

sales charge after placing each order and had ten days from the 

receipt of each to register a complaint concerning the 

transaction, knowledge of the information contained in the 

prospectuses should be imputed to MidArnerica as a matter of law. 

We disagree. 

The defendants' argument centers on the fact that the 

omission from the oral communication was later disclosed to 

MidArnerica in the written prospectus. The oral communications 

with Crow provided the inducement for the transactions, however, 

and in these circumstances we find Crow's omissions at the time of 

offer to be sufficient under the statute. 

Section 408 holds liable any person "who offers or sells 

•• a security !?_y means of any untrue statement of a material 

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fact or any omission." Okla. Stat. Ann. tit. 71, § 408(a)(2) 

(emphasis added). Placing the words "offers or sells" in the 

alternative indicates that liability may be founded upon either 

act. Further, although the "by means of'' language in the statute 

"requires some causal connection between the misleading 

representation or omission and plaintiff's purchase," Sanders v. 

John Nuveen & Co., 619 F.2d 1222, 1225 (7th Cir. 1980) 

(interpreting section 12(2) of the 1933 Act), the statute does not 

require that a sale be effected solely on the basis of the 

misleading representation or omission. Finally, nothing in 

section 408(a) restricts the scope of actionable 

misrepresentations or omissions to those made in writing. 

Here, Crow's misleading statements induced MidAmerica to 

purchase the GNMA unit trusts as an effective short term 

investment vehicle for their money market funds. This inducement 

occurred before Shearson sent the prospectuses revealing the true 

nature of the investment. The record reflects that MidAmerica did 

not have actual knowledge of the salea.charge prior to March 1983. 

The sales were therefore carried out by means of the misleading 

oral communications, and they occurred without any knowledge of 

the misleading nature of such statements. 

The face of section 408(a)(2) is clear in requiring that 

plaintiff show only lack of knowledge of a misleading statement or 

omission in order to prevail. Section 408 is designed to protect 

purchasers, and requires only that the purchaser "not know[] of 

the untruth or omission." Under the circumstances of this case, 

where the oral representations were the inducement for the sale 

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and the correct information was not provided to MidAmerica prior 

to the first purchase in this transaction, we decline to impute 

constructive knowlege of the information contained in the 

prospectuses to MidAmerica. 

B. 

As stated above, the issue before us concerns section 

408(a)(2) of the Oklahoma Securities Act, which we find to be 

unambiguous on its face. That Act, however, is meant to be read 

in coordination with the related federal securities provision, 

section 12(2). 3 Section 501 of the Oklahoma Securities Act 

specifically provides that the Act "shall be so construed as to 

effectuate its general purpose to make uniform the law of those 

states which enact it and to coordinate the interpretation and 

administration of this act with the related federal regulation." 

3 The language of§ 408(a)(2) is substantially similar to the 

language of section 12(2) of the Federal Securities Act of 1933. 

Section 12(2) provides in relevant part: 

Any person who 

(2) offers or sells a security •.. by means of 

a prospectus or oral communication, which includes 

an untrue statement of a material fact or omits to 

state a material fact necessary in order to make 

the statements, in light of the circumstances under 

which they were made, not misleading (the purchaser 

not knowing of such untruth or omission), and who 

shall not sustain the burden of proof that he did 

not know, and in the exercise of reasonable care 

could not have known, of such untrust or omission, 

shall be liable to the person purchasing such security 

from him .. 

15 u.s.c. § 771. 

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Okla. Stat. Ann. tit. 71, § 501 (West 1987); see also State Y...!.. 

Hoephner, 574 P.2d 1079, 1081 (Okla. Crim. App. 1978). We find 

that section 12(2) and its case law lend further support to our 

conclusion that section 408(a)(2) requires only that purchasers 

show a lack of actual knowledge of an untruth or omission to 

prevail. 

Shearson's claim that knowledge of the information contained 

in the prospectuses should be imputed to MidArnerica as a matter of 

law is based in part on the principle that writings are generally 

favored over oral communications. See Acme Propane Inc. Y.!._ 

Tenexco, Inc., 844 F.2d 1317, 1322 (7th Cir. 1988) ("in the law of 

securities a written disclosure trumps an inconsistent oral 

statement"). In support of their position, Shearson quotes the 

Seventh Circuit's statement that "the securities laws are designed 

to induce issuers to commit their representations to writing, and 

judicial use of the writings as authoritative disclosure promotes 

certainty and thus planning," Teamsters Local 282 Pension Trust 

Fund Y...!.... Angelos, 762 F.2d 522, 530 (7th Cir. 1985). The Seventh 

Circuit, however, was reviewing the requirements of Rule l0b-5, 17 

C.F.R. § 240.l0b-5 ("Rule l0b-5''). The language of section 12(2) 

dictates a different outcome. 

Section 12(2) states that "any person" who "offers or sells a 

security •.• by means of a prospectus or oral communication, 

which ••. omits to state a material fact" may be liable to an 

unknowing purchaser. 15 u.s.c. § 77! (emphasis added). On its 

face, then, section 12(2) makes actionable misleading omissions 

from either oral communications or written prospectuses. If 

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Congress intended sellers of securities to be held liable only 

when there is not complete disclosure in the prospectus, it could 

have limited the scope of the statute in that regard. "We must 

presume that Congress acts with deliberation, rather than by 

inadvertence, when it drafts a statute." United States v. 

Motamedi, 767 F.2d 1403, 1406 (9th Cir. 1985). The fact that 

there may be both oral communications and a written prospectus 

involved in a transaction, and that section 12(2) places them in 

the alternative cuts against mandating that the prospectus take 

precedence, particularly here where the sales were induced by 

means of the oral misrepresentations. 

Further, the words "offers or" were added to section 12(2) in 

a 1954 amendment. One scholar recognized the significance of this 

change where a buyer reads a misleading 'preliminary prospectus' 

and purchases securities on that basis without reading the 

corrected final prospectus: 

[The] incident of the split original definition of 

"sale" into separate definitions of "sale" and "offer," 

must be given some meaning •... [I]t is possible in 

§ 12(2) to give meaning to both phrases -- "offers or" 

and "by means of" -- by grounding liability on the use 

of a misleading prospectus or other document that was 

corrected before the sale unless it is clear that the 

correction was brought to the buyer's attentionbefore 

he bought. 

L. Loss, Fundamentals of Securities Regulation 891 (1988) 

(emphasis in original). 

This analysis is instructive in the present situation. Here 

the misleading omission was corrected by the prospectus. 

MidAmerica, however, relied only upon the oral representations and 

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had no reason to believe the prospectuses would reveal information 

that would radically change the transaction. 

Shearson contends that relying on the language of the statute 

is inadequate and that the Tenth Circuit case of Zobrist v. Coal-

!.!.. Inc., 708 F.2d 1511 (10th Cir. 1983), mandates that the 

contents of a prospectus always be imputed to the purchaser who 

receives it. That case states that "the knowlege of information 

contained in a prospectus or an equivalent document authorized by 

statute or regulation, should be imputed to investors who fail to 

read such documents." Id. at 1518. Zobrist, however, does not 

control this case and arose from a suit alleging violations of 

section lO(b) of the Securities Exchange Act of 1934 ("section 

lO(b)''), 15 U.S.C. § 78j(b), and Rule lOb-5 promulgated 

thereunder. We decline to extend the rule in Zobrist to claims 

arising under section 12(2). 

The standards for bringing a claim under section lO(b) and 

Rule lOb-5 differ from those governing section 12(2). Under Rule 

lOb-5, uniike sections 12(2) or 408(a)(2), a purchaser must show 

justifiable or reasonable reliance on the defendant's 

misrepresentations in order to prevail. See Zobrist, 708 F.2d at 

1516. If the purchaser had no right to rely on the defendant's 

misrepresentations, '"an essential linchpin of its [lOb-5] claim 

is missing. 111 Angelos, 762 F.2d at 525 (quoting lower court 

opinion). The justifiable reliance requirement has led to various 

circumstances where, although defendants may have made material 

misrepresentations or lied in the context of a securities sales, 

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the purchasers' claims were not actionable. Id. at 529-31 

(listing examples). 

Section 12(2), on the other hand, has no requirement of 

justifiable reliance on the part of a purchaser. Because of this, 

a purchaser's investment sophistication is immaterial to a section 

12(2) claim. Sanders v. John Nuveen ~ Co., Inc., 619 F.2d 1222, 

1229 (7th Cir. 1980), cert. denied, 450 U.S. 1005 (1981); Hill 

York Corp.~ American Int'l Franchises, Inc., 448 F.2d 680, 696 

(5th Cir. 1971). A purchaser has no duty to investigate a 

seller's possible fraud and need not verify a statement's 

accuracy. Further, cases setting forth the elements of a section 

12(2) claim typically state simply that the "plaintiffs must prove 

that they 'had no knowledge of any untruth or omission'." Currie 

_~Cayman Resources Corp., 835 F.2d 780, 783 (11th Cir. 1988) 

(quoting Hill York Corp., 448 F.2d at 695); see also Junker v. 

Crory, 650 F.2d 1349, 1359 (5th Cir. Unit A 1981); Sanders, 619 

F.2d at 1229; In re Olympia Brewing Co. Sec. Litig., 612 F. Supp. 

1367 (N.D. Ill. 1985). 

The case law makes clear that plaintiffs under section 12(2) 

are not held.to the same standard of care as are plaintiffs under 

section l0b-5. "Section 12(2) does not establish a graduated 

scale of duty depending upon the sophistication and access to 

information of the customer. A plaintiff under§ 12(2) is not 

required to prove due diligence. All that is required is 

ignorance of the untruth or omission." Sanders, 619 F.2d at 1229 

(citations omitted). One scholar noted that "it is a firmly 

entrenched principle of§ 12(2) that the '[a]vailability elsewhere 

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of truthful information cannot excuse untruths or misleading 

omissions' by the seller." Kaminsky, An Analysis of Securities 

Litigation Under Section 12(2) and How it Compares with Rule lOb-

~, 13 Hous. L. Rev. 231, 267-68 (1976) (quoting Dale Y....:.. Rosenfeld, 

229 F.2d 855, 858 (2d Cir. 1956)). 

Taken together, section 12(2) and its case law support our 

conclusion that the plain meaning of both section 12(2) and 

section 408(a)(2) requires only that purchasers of securities show 

a lack of actual knowledge of a material omission in order to 

prevail. This will not place any undue burden on the part of 

sellers. Here, Crow induced the sale of the GNMA unit trusts 

through oral misrepresentations which he knew were being relied 

upon by MidAmerica. He had a duty to inform MidAmerica of the 

omissions prior to MidAmerica's purchases. Simply sending a 

prospectus at a time in which he knew MidAmerica lacked an 

investment advisor was not sufficient. We read the lack of 

knowledge requirement of section 12(2) according to the statute·'s 

plain meaning and find that MidAmerica's lack of actual knowledge 

of Shearson's misrepresentations is sufficient to satisfy the 

requirement under section 408(a)(2). 

III. 

Shearson contends that they were not in a fiduciary 

relationship with MidAmerica as a matter of law and that the 

district court erroneously instructed the jury on the law 

governing the breach of fiduciary duty. Again, we review de novo 

the district court's interpretation of state law. See Wilson v. 

Al McCord, 858 F.2d at 1473. 

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( Although the Oklahoma courts have refrained from announcing a 

precise definition of the term "fiduciary relationship," see In re 

Continental Resources Corp. (Continental Ill. Nat'l Bank & Trust 

Corp. Y.!.. FDIC), 799 F.2d 622, 625 (10th Cir. 1986); In re Estate 

of Beal (Thompson Y.!.. Gammon), 769 P.2d 150, 155 (Okla. 1989), the 

Oklahoma Supreme Court recently set forth standards used to 

determine whether a fiduciary relationship exists under Oklahoma 

law: 4 

[A] "fiduciary relationship" ••• exists whenever 

trust and confidence are placed by one person in the 

integrity and fidelity of another •..• "'[Fiduciary] 

relation' is not confined to any specific association of 

parties. It appears when the circumstances make it 

certain the parties do not deal on equal terms, but on 

the one side there is an overmastering influence, or, on 

the other, weakness, dependence or trust, justifiably 

reposed, in both an unfair advantage is possible." 

••• In each case we have looked at the facts 

and found a relationship which would allow a reasonably 

prudent person to repose confidence in the other. 

In re Estate of Beal, 769 P.2d at 154-55 (citations omitted) 

(quoting In~ Null's Estate, 153 A. 137 (Pa. 1930)). 

In another case, the Oklahoma Supreme Court stated that a 

fiduciary relationship extends to relationships in which 

there is confidence reposed on one side and resulting 

domination and influence on the other. The relationship 

need not be legal but it may be either moral, social, 

4 In re Estate of Beal (Thompson Y.!_ Gammon), 769 P.2d 150 

(Okla. 1989), involved the determination of whether a 

"confidential relationship" existed for purposes of a will 

contest. The court stated that "[a] 'confidential relationship' 

is generally synonymous with a 'fiduciary relationship,'" and 

noted that in practice and result the two are indistinguishable. 

Id. at 154-55; see also Fipps Y.!.. Stidham, 50 P.2d 680, 683 (Okla. 

1935). We, therefore, look to the standards set forth in In re 

Estate of Beal in determining whether the district court correctly 

appliedthe law of Oklahoma on the issue of whether a fiduciary 

relationship existed. 

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domestic or merely personal • • • • [A] fiduciary 

relationship springs from an attitude of trust and 

confidence and is based on some form of agreement, 

either expressed or implied, from which it can be said 

the minds have been met to create a mutual obligation. 

Lawrance v. Patton, 710 P.2d 108, 111-12 (Okla. 1985) (footnotes 

omitted). 

Before a court will declare a relationship fiduciary it "will 

require a relation where there is weakness on one side and 

strength on the other resulting in dependence or trust justifiably 

reposed in the stronger." In re Estate of Beal, 769 P.2d at 155. 

Shearson was in a position of strength because its agent, Crow, 

held himself out to MidAmerica as a securities broker-dealer with 

expertise in the area of this transaction and who had knowledge of 

MidAmerica's specific needs. Although it cannot be said that 

( MidAmerica was completely ignorant regarding the business of 

buying and selling securities, at the time of these transactions 

MidAmerica was temporarily without the advice of an in-house 

financial investment advisor. MidAmerica informed Crow of this 

fact and Crow knew MidAmerica was relying on his advice. 

MidAmerica justifiably put its trust in Crow based, in part, on 

their long-standing business relationship and Crow's knowledge of 

MidAmerica's situation. 

Crow's misleading omissions regarding the GNMA unit trust 

transactions further placed the parties in unequal positions. 

Crow knew the circumstances surrounding the GNMA unit trust 

purchases but failed to fully inform MidAmerica of key provisions 

of the sale,~, the three and one-half percent sales charge. 

MidAmerica therefore went through with the sales uninformed. 

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Crow's misrepresentations to MidAmerica coupled with MidAmerica's 

long-standing relationship with and reliance upon Crow, 

justifiably "lulled [MidAmerica] into a sense of security from 

which [it] did not awaken," Fipps, 50 P.2d at 684, until 

MidAmerica regained a permanent in-house investment advisor. Crow 

implicitly accepted MidAmerica's trust by continuing to advise 

MidAmerica as to the investment while aware that MidAmerica had no 

other advisor with whom to consult. Although the fact that 

MidAmerica's account with Shearson was nondiscretionary would 

generally cut against the finding of a fiduciary relationship, 

here that fact is not sufficient to defeat MidAmerica's claim. 

Although Shearson did not execute any orders beyond those 

authorized by MidAmerica, MidAmerica's authorization stemmed from 

its reli•nce upon Crow's misrepresentations. We therefore hold 

that sufficient evidence exists to support the jury's conclusion 

that a fiduciary relationship existed between Shearson and 

MidAmerica and that Crow, on behalf of Shearson, took unfair 

advantage of that relationship in breach of his fiduciary duties. 

The district court instructed the jury on the law regarding 

breach of fiduciary duty as follows: 

The third cause of action plaintiff alleges is that 

the Defendants, Shearson and Crow, acted as broker/ 

dealers to MidAmerica over a long period of time, and 

specifically in connection with the offers to sell and 

sales to MidAmerica of units in the GNMA Series I Unit 

Investment Trust, and thus had a fiduciary relationship 

with MidAmerica. 

• • . [Y]ou are instructed that in order to 

recover under its claim of fiduciary duty, MidAmerica 

must prove by a preponderance of the evidence that the 

Defendants breached a fiduciary duty owed MidAmerica in 

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connection with MidAmerica'~ purchase of the GNMA Unit 

Trust securities. 

The Court also instructs you that a fiduciary 

relationship exists where one party places special 

confidence and responsibility in the other, and the 

other gains some benefit. In the context of securities 

investments, a fiduciary duty develops between a broker 

and a customer when a broker holds itself out to a 

customer as possessing special knowledge or expertise 

with respect to security investment advice and 

recommends an investment by the customer in a particular 

security. 

The broker receives an economic benefit from making 

the recommendation, and the customer makes the 

investment based upon the broker's advice. 

Involvement by the broker and the customer in 

earlier investment transactions, including but not 

limited to acts as a consultant or providing investment 

advice in earlier transactions, can also support the 

creation of a fiduciary duty by the broker to the 

customer. 

In Big Horn Coal Co. Y..!. Commonwealth Edison Co., 852 F.2d 

1259, 1271 (10th Cir. 1988), this court articulated the standard 

to be applied when reviewing jury instructions: 

[W]hen examining a challenge to jury instructions, we 

review the record as a whole to determine whether the 

instructions "state the law which governs and provided 

the jury with an ample understanding of the issues and 

the standards applicable." Ramsey Y..!. Culpepper, 738 

F.2d 1092, 1098 (10th Cir. 1984). We thus "consider all 

that the jury heard and, from standpoint of the jury, 

decide 'not whether the charge was faultless in every 

particular but whether the jury was misled in any way 

and whether it had understanding of the issues and its 

duty to determine these issues.'" Durflinger Y..!. 

Artiles, 727 F.2d 888, 895 (10th Cir. 1984) (quoting 

Alloy Int'l Co. Y..!. Hoover-NSK Bearing Co., 635 F.2d 1222 

(7th Cir. 1980)). 

Big Horn Coal Co. v. Commonwealth Edison Co., 852 F.2d 1259, 1271 

(10th Cir. 1988). 

Here, the court's instructions regarding breach of fiduciary 

duty, although not specifically tracking the language of the 

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Oklahoma cases, clearly provided the jury with an understanding of 

the issues and the standards to apply. The instructions convey to 

the jury conditions which may create an unequal relationship 

between a broker-dealer and a client, and indicate that a 

fiduciary duty exists when the party in the weaker position 

reasonably places its confidence and responsibility in the party 

in the stronger position. The instructions further convey the 

idea that a breach occurs when the party in the stronger position 

takes advantage of and benefits from that position. Th~ court 

made the instructions specific to a relationship between a brokerdealer and a client because that is the relationship at issue. We 

hold that the court's instructions sufficiently stated the law of 

Oklahoma regarding breach of fiduciary duty and provided the jury 

with ample understanding of the issues for their determination. 

IV. 

Shearson contends that the amount of damages awarded for the 

breach of fiduciary duty claim was excessive and lacked support in 

the record. "[A]bsent an award so excessive as to shock the 

judicial conscience and to raise an irresistible inference that 

passion, prejudice, corruption or other improper cause invaded the 

trial, the jury's determination of the damages is considered 

inviolate." Malandris v. Merrill Lynch, Pierce, Fenner~ Smith, 

703 F.2d 1152, 1168 (10th Cir. 1981) (en bane) (plurality opinion) 

(quoted in Specht Y.!. Jensen, 832 F.2d 1516, 1528) (10th Cir. 

1987)); see also Aspen Highlands Skiing Corp. v. Aspen Skiing Co., 

738 F.2d 1509, 1526-27 (10th Cir. 1984). 

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The district court's instruction regarding the damages award 

was proper. We construe the Oklahoma statutory provision for 

noncontractual damages, Okla. Stat. Ann. tit. 23, § 61 (West 

1987), broadly. See,~, Sade~ Northern Natural Gas Co., 483 

F.2d 230, 236 (10th Cir. 1973); see also King~ City of Guymon, 

523 P.2d 1154 (Okla. Ct. App. 1974). Viewing the evidence in the 

light most favo~able to the verdict, we cannot say that the award 

is beyond the scope of the evidence before the jury, that it 

shocks the judicial conscience, or that it raises an irresistible 

inference of passion or prejudice. 

v. 

Shearson argues that the district court erred in finding that. 

Shearson had waived its right to compel arbitration of the 

Oklahoma Securities Act section 408(a)(2) and breach of fiduciary 

duty claims. Where the dispositive facts are undisputed, the 

denial of a motion to compel arbitration, based on a finding of 

waiver, is a legal conclusion which we review de novo. Fraser v. 

Merrill Lynch, Pierce, Fenner! Smith, Inc., 817 F.2d 250 (4th 

Cir. 1987); Fisher~ A.G. Becker Paribas, Inc., 791 F.2d 691 (9th 

Cir. 1986); see Peterson~ Shearson/American Exp., Inc., 849 F.2d 

464 (10th Cir. 1988). The findings upon which the conclusion of 

waiver is based, however, are questions of fact which must be 

accepted unless clearly erroneous. Reid Burton Constr. v. 

Carpenters Dist. Council, 614 F.2d 698 (10th Cir.), cert. denied, 

449 U.S. 824 (1980); 5 Del~ Webb Constr. v. Richardson Hosp. 

5 Reid Burton Construction does not explicitly state that the 

determination of waiver is a legal conclusion subject to de novo 

(Footnote Continued on Following Page) 

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Auth., 823 F.2d 145, 150 (5th Cir. 1987) (quoting Price Burnham 

Lambert, Inc., 791 F.2d 1156, 1159 (5th Cir. 1986)). 

The trial court held that Shearson's actions, namely its 

delay in asserting its contractual right to arbitrate and its 

extensive participation in litigation, constituted a waiver of its 

right to compel arbitration. 6 Shearson claims that it did not 

waive its arbitration right because it sought arbitration of the 

state law claims at the earliest practicable time subsequent to 

the U.S. Supreme Court's decision in Dean Witter Reynolds, Inc. v. 

Byrd, 470 U.S. 213 (1985). Shearson maintains that the state law 

claims were nonarbitrable under the "intertwining doctrine," which 

provided that "[w]hen arbitrable and nonarbitrable claims arise 

out of the same transaction, an~ are sufficiently intertwined 

factually and legally, the district court .•. may in its 

(Footnote Continued from Previous Page) 

review. See 614 F.2d at 703 ("The findings of trial court on the 

defendant~conduct must be accepted unless they are clearly 

erroneous." ''[W]e cannot say that the finding of waiver by 

defendants ... was clearly erroneous.") The court, however, 

differentiates between the standards of review for findings of 

fact and actual trial court decisions: "We conclude that the 

court's findings here were not clearly erroneous and that its 

holding that defendants' conduct in the court proceedings 

prevented assertion of their arbitration right was not in error." 

Id. (emphasis added). We, therefore, interpret Reid Burton 

Construction as reviewing the issue of waiver de novo in accord 

with Tenth Circuit law. 

6 "Defendants' activities in the lawsuit, i.e., their Answer, 

Motion for Summary Judgment, Motion for Directed Verdict, and the 

entire discovery process, are all devoid of any mention, much less 

an assertion, of the contractual right to arbitrate. Defendants' 

purposeful taking advantage of and enjoining the benefits of 

federal court litigation cannot now be followed by an afterthought 

attempt to shfit the lawsuit into arbitration for what appears to 

be the limited purpose of gaining a more favorable forum for the 

remaining claims." MidAmerica Sav. ~ Loan Ass'n. ~ Shearson/ 

American Exp., Inc., No. 84-L-10-C (N.D. Okla. Feb. 5, 1986) 

(order denying motion to compel arbitration.). 

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discretion deny arbitration as to the arbitrable claims and try 

all the claims together in federal court." Id. 216-217 (footnote 

omitted). Byrd rejected that doctrine. Id. at 217. Shearson 

claims that the federal and state law claims were intertwined so 

that, until Byrd, it could not have sought arbitration of the 

state law claims because of the nonarbitrable nature of the 

~ection 12(2) claim. In Peterson, this court rejected Shearson's 

argument and stated that "[g]iven the open state of the law and 

the discretionary nature of the [intertwining] doctrine, Shearson 

probably should have requested arbitration of the state claims at 

the outset." 849 F.2d at 467. 

Shearson argues, however, that it moved to compel arbitration 

at a point when MidAmerica would have suffered no prejudice, i.e., 

at the time the second trial was ordered but not yet tried. 

Shearson relies in part on the Federal Arbitration Act's strong 

policy favoring arbitration. See Volt Information Sciences, Inc. 

Y.!. Board of Trustees of Leland Stanford Junior Univ., 109 S. Ct. 

1248, 1253-54 (1989). It is generally true that courts will 

resolve "any doubts concerning .•• waiver, delay, or a like 

defense to arbitrability" in favor of arbitration. Nesslage v. 

Pork Sec., Inc., 823 F.2d 231 (8th Cir. 1987) (quoting Moses H. 

Cone Memorial Hosp. Y.!. Mercury Constr. Co., 460 U.S. 1, 24-25 

(1983)). Further, a party alleging a waiver of arbitration bears 

a heavy burden of proof. Peterson v. Shearson/American Exp., 

Inc., 849 F.2d at 466. 

The Peterson court set forth several factors that this court 

must examine in determining whether a party has waived its right 

to arbitration: 

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(1) [W]hether the party's actions are inconsistent with 

the right to arbitrate; (2) whether "the litigation 

machinery has been substantially invoked" and the 

parties "were well into preparation of a lawsuit" before 

the party notified the opposing party of an intent to 

arbitrate; (3) whether a party either requested 

arbitration enforcement close to the trial date or 

delayed for a long period before seeking a stay; (4) 

whether a defendant seeking arbitration filed a 

counterclaim without asking for a stay of the 

proceedings; (5) "whether important intervening steps 

[e.g., taking advantage of judicial discovery procedures 

not available in arbitration] had taken place"; and (6) 

whether the delay "affected, misled, or prejudiced" the 

opposing party. 

Id. at 467-468 (quoting Reid Burton Constr. 614 F.2d at 702). 

Applying these factors to the facts in this case, we find 

that Shearson's actions showed an intent to waive its right to 

arbitration. First, Shearson acted inconsistently with an intent 

to arbitrate by engaging in extensive litigation and delaying its 

attempt to compel arbitration until after the completion of one 

full trial and the resolution of post-trial motions. Second, 

Shearson's partial success at the first trial, winning verdicts on 

five claims against it, proves that it fully and effectively 

invoked the "litigation machinery." Third, Shearson sought 

arbitration after a delay of more than twenty months and did not 

seek a stay at any time during that period. Fourth, although 

Shearson filed no counterclaims, it participated in all steps 

necessary to litigation, including the entire discovery process. 

Upon examination of these four factors alone, it is obvious that 

Shearson intended to utilize the judicial system rather than the 

arbitration process to resolve the claims against it. 

Finally, with respect to Shearson's contention that 

MidAmerica would not be prejudiced by arbitration, the facts 

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indicate that MidAmerica had already been prejudiced by Shearson's 

actions. First, procedures not available in arbitration, such as 

common discovery steps, had been undertaken by both parties. 

Second, MidAmerica expended the time and effort necessary to 

participate in full litigation. It is difficult to say that 

MidAmerica has not been affected· or misled. See Peterson, 849 

F.2d at 468 (holding that appellant's delay in filing a motion to 

compel arbitration until four months after the Byrd decision and 

approximately five weeks prior to the rescheduled trial date 

"affected and probably misled" appellee, who had already prepared 

for trial); Reid Burton Constr., 614 F.2d at 103 (holding that 

defendant's request to arbitrate on the day of trial constituted 

sufficient prejudice for waiver of arbitration). We hold that 

Shearson waived its right to arbitrate the pendent state law 

claims. 

VI. 

Shearson contends that the trial court erred in failing to 

instruct the jury on Shearson's theories of the case and 

affirmative defenses. These include: imputation to MidAmerica of 

knowledge of the contents of the prospectuses; waiver; laches and 

ratification; ramifications of MidAmerica's removal of the hedges; 

MidAmerica's waiver of entitlement to rescissionary damages; and 

application of Oklahoma Securities Act section 408(f). See Okla. 

Stat. tit. 71, § 408(f) (1987) (current version at Okla. Stat. 

tit. 71, § 408(i) (Supp. 1989)). A party is entitled to an 

instruction based on their theory of the case only if (1) the 

instruction is legally correct; (2) the theory is supported by the 

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evidence; and (3) the desired instruction is brought to the 

court's attention in a timely manner. Pierce v. Ramsey Winch Co., 

753 F.2d 416, 425 n.10 (5th Cir. 1985); see also Bold Y.!. Simpson, 

802 F.2d 314, 318 (8th Cir. 1986) (party entitled to instruction 

if legally correct and supported by evidence); Higgins Y.!. Martin 

Marietta Corp., 752 F.2d 492, 496 (10th Cir. 1985) (entitled to 

instruction on theory of case only if supported by competent 

evidence). 

Here, Shearson's claims center largely on Shearson's requests 

for instructions concerning MidAmerica's receipt of statutory 

prospectuses and imputation to MidAmerica of knowledge of the 

prospectuses' contents. Because knowledge of the prospectuses may 

not be imputed to MidAmerica under sections 12(2) and 408, see 

infra p. 6-15, Shearson's theories based on the alternative 

proposition are not legally correct. Shearson was thus not 

entitled to instructions based on such theories. 

Similarly, a review of the record and applicable law reveals 

that Shearson's additional requests for instructions articula~ing .. 

Shearson's theories of the case and affirmative defenses either 

lack basis in the law or support in the record. We find no merit 

in Shearson's claims. 

VII. 

Shearson claims that, after giving an erroneous section 12(2) 

instruction, the district court erred in ordering a partial new 

trial on that claim alone. Shearson argues that the instructional 

error impacted on the jury's ability to fairly determine the other 

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claims, and that the court should therefore have ordered a 

complete new trial. 

Whether a new trial should be granted is a decision left to 

the informed discretion of the district court, which is in a 

better position to evaluate claims of jury confusion or other 

error. Mid-West Underground Storage, Inc. v. Porter, 717 F.2d 

493, 502 (10th Cir. 1983). We review a trial court's grant or 

denial of a new trial under an abuse of discretion standard. Id.; 

National R.R. Passenger Corp. Y.!. Koch Indus., Inc., 701 F.2d 108, 

110-11 (10th Cir. 1983); Thompson Y.!. Kerr-McGee Refining Corp., 

660 F.2d 1380, 1388 (10th Cir. 1981). 

Rule 59(a) of the Federal Rules of Civil Procedure recognizes 

the court's power to order a partial new trial: "A new trial may 

be granted to all or any of the parties and on all or part of the 

issues • • " "A new trial on part of the issues is appropriate 

where 'it clearly appears that the issue to be retried is so 

distinct and separable from the others that a trial of it alone 

may be had without injustice.'" K-B Trucking Co. Y.!. Riss Int'l 

Corp., 763 F.2d 1148, 1163 n.22 (10th Cir. 1985) (quoting Gasoline 

Prods. Co. v. Champlin Refining Co., 283 U.S. 494, 500 (1931)). 

Shearson maintains that the section 12(2) instructional error 

prejudiced the jury's determination of the other two claims, 

particularly the Oklahoma section 408(a)(2) claim which has 

statutory language similar to section 12(2). We disagree. Here 

the trial court was careful to separate the three claims for the 

jury's determination in the instructions, and it directed the jury 

to consider damages separately for each cause of action. In 

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addition, the jury returned three different verdict amounts, thus 

demonstrating its separate consideration of each claim. See 

Stoetzel v. Continental Textile Corp. of Am., 768 F.2d 217 (8th 

Cir. 1985). Following the Supreme Court's direction that 

"appellate courts should be slow to impute to juries a disregard 

of their duties, and to trial courts a want of diligence or 

perspicacity in appraising the jury's conduct," Fairmount Glass 

Works~ Cub Fork Coal Co., 287 U.S. 474, 485 (1933), we hold that 

the district court did not abuse its discretion in refusing to 

order a complete new trial. 

VIII. 

We conclude that the court did not err in denying defendants' 

motions for directed verdict or judgment notwithstanding the 

verdict, motion for new trial, and motion to compel arbitration. 

We conclude that the trial court did not err in refusing to order 

a complete new trial or in concluding that the award of damages 

was neither excessive nor unsupported by the record. We further 

conclude that the court properly instructed the.jurY. as to the 

applicable law. We AFFIRM. 

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