Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-95-03005/USCOURTS-ca10-95-03005-0/pdf.json

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

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UNITED STATES COURT OF APPEALS 

Tenth Circuit 

Byron White United States Courthouse 

1823 Stout Street 

Denver, Colorado 80294 

(303) 844-3157 

Patrick J. Fis h e r, Jr. 

Clerk 

Elis abeth A. Shumaker 

Chief De puty Cl e rk 

June 24 , 1996 

TO : ALL RECIPIENTS OF THE CAPTIONED OPINION 

RE: 95 - 3005 Arst v. Sti fel, Nicolaus 

June 11, 1996 by t he Honorable Terry C. Kern 

Please b e advised of the foll owing correction to the 

capt i oned d ecision : 

The attorneys were listed incorrectly with respect to 

parties r epresented. 

Please replace page one of the opinion with the r evised 

page one whi ch has been included f or your convenience. 

encl 

Very truly yours, 

Patri ck Fi sher, Clerk 

j . -; j_)u;/-- /I lv~<-W Be th Morris 

Deputy Clerk 

Appellate Case: 95-3005 Document: 01019756143 Date Filed: 06/24/1996 Page: 1 
PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

RODGER M. ARST, 

Plaintiff-Appellant, 

vs. 

STIFEL, NICOLAUS & COMPANY, INC., 

and ODIS E. SHOAF , JR., 

Defendants-Appellees. 

No. 95-3005 

FILED 

United States Court or Appeals 

Tenth Circuit 

JUN 11 1996 

PATRICK FISHER 

Clerk 

Appeal from the United States District Court 

for the District of Kansas 

(D .C. No . 93-1299-PFK) 

Joe Rebein of Shook, Hardy & Bacon, P.C., Kansas City, Missouri, 

(Barbara A. Harmon and Brett D. Leopold of Shook, Hardy & Bacon, 

P.C. of Overland Park, Kansas, and Kurt A. Harper of Sherwood & 

Harper, Wichita, Kans as wi t h him on the brief) for PlaintiffAppellant. 

Reggie c. Giffin of Morrison & Hecker, Kansas City, Missouri 

(John C. Nettel s, Jr. of Morrison & Hecker, Wichita, Ka nsas, and 

James A. Walker of Triplett, Woolf & Garretson, L.L.P., Wichita, 

Kansas, wi th him on the b rief) for Defendants-Appe llees. 

Before BRORBY and McWILLIAMS, Circuit Judges, and KERN, District 

Judge.· 

*The Honorable Terry C. Kern, United States District Judge 

(continued ... ) 

Appellate Case: 95-3005 Document: 01019756143 Date Filed: 06/24/1996 Page: 2 
PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

FILED 

Vaited Stata Court or Appeals Tentb Clrc&alt 

JUN 11 1996 

RODGER M. ARST, 

PATRICK FISHER 

Clerk 

Plaintiff-Appellant, 

vs. No. 95-3005 

STIFEL, NICOLAUS & COMPANY, INC., 

and ODIS E. SHOAF, JR., 

Defendants-Appellees. 

Appeal from the United States District Court 

for the District of Kansas 

(D.C. No. 93-1299-PFK) 

Reggie c. Giffin of Morrison & Hecker, Kansas City, Missouri (John 

c. Nettels, Jr. of Morrison & Hecker, Wichita, Kansas, and James A. 

Walker of Triplett, Woolf & Garretson, L.L.P., Wichita, Kansas, 

with him on the brief) for Plaintiff-Appellant. 

Barbara A. Harmon (Brett D. Leopold with her on the brief) of 

Shook, Hardy & Bacon, P.C. of Overland Park, .Kansas (Joe Rebein of 

Shook, Hardy & Bacon, P.C., Kansas City, Missouri, and Kurt A. 

Harper of Sherwood & Harper, Wichita, Kansas, with her on the 

brief) for Defendants-Appellees. 

Before BRORBY and McWILLIAMS, Circuit Judges, and KERN, District 

Judge ... 

*The Honorable Terry c. Kern, United States District Judge 

(continued ... ) 

Appellate Case: 95-3005 Document: 01019756143 Date Filed: 06/24/1996 Page: 3 
KERN, District Judge. 

In this appeal we are asked to consider whether the district 

court properly granted Defendants' motion for summary judgment. 

Plaintiff-Appellant Rodger M. Arst ("Arst") sued DefendantsAppellees Stifel, Nicolaus & Company, Inc. ("Stifel Co.") and Odis 

E. Shoaf, Jr. ("Shoaf"), asserting claims under Kansas common law 

for breach of fiduciary duty and claims under the Kansas Securities 

Act, Kan. Stat. Ann. § 17-253 (1994), and the Securities Exchange 

Act of 19 3 4 , 15 U. S . C . § 7 8 ( j ) { 19 81) . We affirm the District 

Court's grant of summary judgment in part and reverse in part and 

remand for further proceedings. 

J:. Facts. In 1990, Physician Corporation of America (PCA) 

engaged Stifel Co. to act as an accommodating broker for PCA 

shares. Stifel Co. was to put together buyers and sellers of PCA 

stock on an unsolicited basis, charging both parties a commission. 

·( ... continued) 

for the Northern District of Oklahoma, sitting by designation. 

2 

Appellate Case: 95-3005 Document: 01019756143 Date Filed: 06/24/1996 Page: 4 
Stifel would not make recommendations concerning the stock, nor 

make a market in the stock. (Although PCA had originally asked 

Stifel Co. to serve as a market maker, Stifel Co. had declined.) 

PCA advised its shareholders by mail that it had made arrangements 

with Stifel Co. to accommodate the purchase and sale of PCA stock 

and that shareholders should contact Odis Shoaf, a senior vice 

president of Stifel Co., if they wanted to buy or sell shares. On 

various occasions since 1990, Mr. Shoaf purchased PCA shares for 

himself and family without revealing to the shareholders that he 

was the purchaser. Stifel Co. had instructed Shoaf not to disclose 

his purchases to PCA shareholders because Stifel Co. wanted to 

remain a neutral go-between and was concerned that Shoaf's 

purchases could be construed as recommendations. Shoaf asserts 

that he paid the same amount as other buyers of the PCA shares 

minus his regular commission. 

Appellant Arst purchased 37,500 shares of PCA stock for $2.00 

in the 1980s, before Stifel Co. was engaged as an accommodating 

broker. Around August 1992, Arst contemplated selling his PCA 

shares. Arst called Shoaf on August 17 to inquire about the price 

of the stock and the market for the shares. Shoaf apparently told 

Arst some unfavorable facts and opinions about PCA's strength and 

future as a company. Shoaf did not mention rumors circulating 

3 

Appellate Case: 95-3005 Document: 01019756143 Date Filed: 06/24/1996 Page: 5 
about PCA's plans to go public--rumors that Shoaf apparently had 

mentioned to other people. There is no evidence that Shoaf was 

privy to inside information. 

On August 18, 1996, Arst authorized Shoaf to sell all of his 

37,500 PCA shares at $4.625 per share--the going price. Shoaf sold 

some of Arst's shares to third parties and, without telling Arst, 

bought 10, 110 shares for himself and his family on August 19. 

Shoaf testified that at the time Arst commissioned Shoaf to sell 

the shares, Shoaf did not know whether he or his family would 

purchase any of the shares. Prior to closing the transaction, Arst 

signed a nonsolicitation letter that stated that Shoaf had not 

solicited the sale and that Arst agreed not to hold Stifel Co. or 

Shoaf responsible for any damages or other liability arising out of 

the transaction. At the conclusion of the transaction in August 

1992, Stifel Co. sent Arst a confirmation slip that stated the 

names of the buyers of his shares would be furnished upon written 

request. At the time of the closing, Arst did not inquire who had 

bought his shares. 

In November 1992, PCA announced its plans to go public. In 

December, PCA stock split four for three, and in March 1993, PCA 

made a public offering at $15.25 per share. In April 1993, Arst 

sent Shoaf and Stifel Co. a written request for the names of the 

4 

Appellate Case: 95-3005 Document: 01019756143 Date Filed: 06/24/1996 Page: 6 
purchasers of his stock. Defendants refused to disclose the names. 

Arst then filed suit in state court against Stifel Co. and Shoaf, 

who removed the case to federal court. Defendants ultimately 

revealed the names of the purchasers of Arst's shares after being 

compelled by court order. 

Arst brought claims against Shoaf and Stifel Co. under Kansas 

common law for breach of fiduciary duty and claims under the Kansas 

Securities Act, Kan. Stat. Ann. § 17-253, the Securities Exchange 

Act of 1934, 15 U.S. C. § 78 (j), and SEC Rules lOb-S and lOblO(a} (7) (i}. Defendants filed a motion for summary judgment. The 

District Court granted Defendants' motion, holding that SEC Rule 

10b-10(a) (7) (i) did not provide a private cause of action and that 

Defendants did not have the requisite fiduciary duty to support 

liability under the remainder of Plaintiff's claims. 

appeals the district court's order. 

:!I:. Discussion 

Arst now 

We review the district court's grant of summary judgment de 

novo, applying the same standard as the district court under 

Fed.R.Civ.P. 56{c). Universal Money Centers. v. American Tel. & 

5 

Appellate Case: 95-3005 Document: 01019756143 Date Filed: 06/24/1996 Page: 7 
Tel. Co., 22 F.3d 1527 , 1529 (lO th Ci r.), c ert. denied, 115 S.Ct . 

655 (1994 ) . Summary judgment is appropriate if "there i s no 

genuine issue a s to any material fact and . . the moving party is 

entitled to a judgment a s a matter of l aw. 11 Fed .R. Civ . P . 56(c). 

We examine the factual record a nd r easonable inferences therefrom 

in the light mos t favorable to the nonmoving party. ~ If t here 

is no genuine issue of material fact i n dispute , we must determine 

whet her the distr ict court correct l y applied the law. Appli e d 

Genetics I nt e rn. v. First Affiliated Securitie s, 912 F.2d 1238 , 

1241 (lOth Cir. 1990 ). 

A. Cause of Action under Rule lOb -lO(a) (7) (i). Arst brought 

a claim under SEC Rule lOb - lO (a ) {7 ) (i ) , 17 C.F.R. § 24 0 . 10blO (a) (7) (i), f or Defendants' failure to disclose the name s of t he 

buyers of his stock. The rul e provides in relevant part: 

Rule lOb-10. Confirmation of Transactions 

{a) It s hall be unlawful for any broker o r d ealer to 

effe ct for or with t he accoun t of a customer any transaction 

in, or to induce the pur chase or sale by such cu stomer o f, any 

s ecurity . unless s uch broker or d ealer, a t o r before 

comple t i on of s uch t ransaction, gives or sends to s uch 

customer written notification disclosing : 

(7 ) I f he is acting a s agent f or such customer, for 

s ome other person, or for b o th such customer and s ome 

other person , 

{i) The name of the othe r person from whom the 

security was purchased , or to whom it was sold, for 

such c ustomer or the fact tha t such informatio n 

will be furnished upon written request of such 

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Appellate Case: 95-3005 Document: 01019756143 Date Filed: 06/24/1996 Page: 8 
customer . . . . 

Defendants complied with their initial obligations under the Rule 

by informing Arst at the completion of the transaction that the 

names of the buyers of his shares would be furnished upon written 

request; however, when Arst subsequently made such a written 

request eight months later; Defendants refused to furnish the names 

until compelled by court order. 

Rule lOb-lO(a) {7) {i), which was promulgated by the SEC 

pursuant to § lO(b) of the Securities Exchange Act of 1934, 15 

U.S.C. § 78(j), does not expressly provide for a private cause of 

action for a violation of its terms. 11Absent an express grant of 

a private cause of action, a mere proscription of behavior does not 

justify an inference of a private cause of action for its 

violation; instead, there must be some evidence that Congress 

intended one." Coosewoon v. Meridian Oil Co., 25 F.3d 920, 929 

(lOth Cir. 1994) {interpreting the Federal Oil and Gas Royalty 

Management Act) (quoting Pullman v. Chorney, 712 F.2d 447, 449 

(lOth Cir. 1983)) {citing Transamerica Mortgage Advisors, Inc. 

{TAMA) v. Lewis, 444 U.S. 11 (1979)}. The Supreme Court has stated 

that in determining the scope of conduct prohibited by§ lO(b) of 

the Exchange Act, the statute under which Rule lOb-lO(a) (7) {i} was 

promulgated, the text of the statute controls the court's decision. 

7 

Appellate Case: 95-3005 Document: 01019756143 Date Filed: 06/24/1996 Page: 9 
Central Bank v. First Interstate Bank, 114 S. Ct. 1439, 1446 

{1994). The Court admonished that although a private plaintiff may 

bring suit against violators of§ 10(b) 1 a private plaintiff may 

not bring a suit under an SEC regulation promulgated pursuant to § 

lO(b) for acts not prohibited by the text of § lO(b) . .W. The 

Court explained1 "To the contrary/ our cases considering the scope 

of conduct prohibited by§ lO(b) in private suits have emphasized 

adherence to the statutory language, 'the starting point in every 

case involving construction of a statute.'" lJ:L.. (citing Ernst & 

Ernst v. Hochfelder, 425 U.S. 185, 197 (1976)). 

In the instant case, the critical language in J lO(b) is "in 

conn~ction with." Section lO(b) makes it unlawful for any person 

(b) To use or employ, in connection with the purchase or sale 

of any security registered on a national securities exchange 

or any security not so registered, any manipulative or 

deceptive device or contrivance in contravention of such rules 

and regulations as the Commission may prescribe as necessary 

or appropriate in the public interest or for the protection of 

investors. 

15 u.s.c. § 78 (j) (b) (1981) {emphasis added). 

This court has construed "in connection with" to require a 

causal connection between the allegedly deceptive act or omission 

and the alleged injury. ~Westinghouse Credit Corp. v. Bader & 

Dufty, 627 F.2d 221, 223 (lOth Cir. 1980}; Vincent v. Moench, 473 

8 

Appellate Case: 95-3005 Document: 01019756143 Date Filed: 06/24/1996 Page: 10 
F.2d 430, 435 (lOth Cir. 1973} . 2 See also Angelastro vl 

Prudential-Bache Securities, 764 F. 2d 939, 942, 944 (3rd Cir.) 

(finding an implied private cause of action under Rule lOb-16 and 

noting that the Third Circuit has construed§ lO(b) as mandating 

that there be some causal connection between the alleged fraud and 

the harm incurred when the security is purchased or sold), cert. 

denied, 474 U.S. 935 (1985); Liberty National Insurance Holding Col 

v. Charter Co., 734 F.2d 545, 555 (11th Cir. 1984) (noting that the 

"in connection with" element requires a causal relationship between 

the claimed deception and a subsequent purchase or sale) . 

In the instant case, there is no such causal relationship 

between the alleged deception by Defendants and any harm incurred 

from the sale of Arst's shares. The allegedly deceptive practice 

prohibited by Rule lOb-lO(a) (7) (i)--Defendants' failure to reveal 

the buyers' names--occurred after the sale. Since Defendants' 

allegedly deceptive conduct could not have had an impact on Arst's 

decision to sell his shares, Defendants' conduct was not "in 

connection with11 the purchase or sale of a security§ lO(b). In 

other words, while Defendants' conduct was proscribed by the Rule, 

2 Although both of these cases involved suits for equitable 

relief, the requirement for a causal connection applies with 

equal force when, as here, the suit is for money damages. 

9 

Appellate Case: 95-3005 Document: 01019756143 Date Filed: 06/24/1996 Page: 11 
it was not· prohibited by the statute. Therefore, Defendants' 

failure to disclose the names of the purchasers of Arst's shares 

after the closing of the transaction did not give rise to a private 

cause of action. 

B. Alleged breach of fiduciary duty. Arst claims that 

Defendants breached their fiduciary duties to Arst in two respects: 

first, by failing to disclose that Shoaf was buying Arst's shares 

on Shoaf's account; and second, by failing to provide Arst complete 

and accurate information about PCA prior to the closing of the 

transaction. Arst contends that Shoaf and Stifel Co., as 

fiduciaries, had a common law duty to disclose this information; 

therefore, their failure to disclose constituted a breach of their 

fiduciary duty. Since there was no express fiduciary relationship 

between Defendants and Arst, 3 any fiduciary duty must arise under 

an implied-in-law fiduciary relationship. ~ Rajala v. Allieq 

Corp., 919 F. 2d 610, 614 (lOth Cir. 1990) (citing Denison State 

Bank v. Macteira, 640 P.2d 1235, 1241 (Kan. 1982)) I cert. denied, 

3 PCA notified its shareholders in writing that Stifel Co. 

would be serving as an accommodating broker. We do not construe 

this communication as establishing an express contractual 

fiduciary relationship between Defendants and PCA shareholders. 

~Rajala v. Allieq Corp., 919 F.2d 610, 614 (lOth Cir. 1990} 

(delineating instances in which a fiduciary relationship is 

specifically created by contract or formal legal proceeding) , 

cert. denied, 500 U.S. 905 (1991). 

10 

Appellate Case: 95-3005 Document: 01019756143 Date Filed: 06/24/1996 Page: 12 
500 U.S. 905 (1991). We will first address Defendants' alleged 

breach for failure to disclose self-dealing and then address their 

alleged breach for failure to disclose information about PCA. 

1. Duty to disclose self-dealing. Any state law fiduciary 

duty of Defendants arose from their agency relationship with Arst. 

~Hill v. Bache Halsey Stuart Shields. Inc., 790 F.2d 817, 824 

{lOth Cir. 1986) (applying Colorado law). Shoaf, on behalf of 

Stifel Co., was Arst's agent for the purpose of conducting the sale 

Arst ordered. As an agent, Shoaf was a fiduciary 'with respect to 

matters within the scope of [the] agency.'" Id. (citing Restatement 

(Second) of Agency§ 13 (1958)). See also Hendersqn v. H9sspr, 594 

P. 2d 650, 658 {Kan. 1979) ("The relationship existing between a 

principal and agent is a fiduciary one .... ")(citing Merchant v. 

Foreman, 322 P.2d 740, 745 (Kan. 1958)}. 

To be sure, the scope of Shoaf's agency, and his attendant 

fiduciary duties, were limited. Shoaf had nondiscretionary 

authority in the sale of Arst' s shares: he was to sell the 

specified amount of shares at the agreed-upon price. Therefore, 

the fiduciary duty Shoaf owed Arst was to carry out the ordered 

sale with due care and loyalty and not to make unauthorized sales. 

11 

Appellate Case: 95-3005 Document: 01019756143 Date Filed: 06/24/1996 Page: 13 
~Hill, 790 F.2d at 824-25. 4 See also Merchant v. Eoreman, 322 

P.2d 740, 745 (Kan. 1958) (~[I]n all transactions concerning and 

affecting the subject matter of his agency, it is the duty of the 

agent to act with the utmost good faith and loyalty for the 

furtherance and advancement of the interests of his principal") 

(citations omitted) . 

Arst 1 s claim of self-dealing implicates Shoaf's duty of 

loyalty as a fiduciary. Under Kansas law of agency, when Shoaf 

decided to purchase on his own account the subject matter of the 

agency--i.e., Arst's PCA shares--Shoaf had the duty to disclose 

this purchase to Arst. The Kansas Supreme Court notes, "[W)here a 

fiduciary relationship is established between [a principal and 

agent) the law views with suspicion and scrutinizes very closely 

4 Our holding that Shoaf had a limited fiduciary 

relationship with Arst is not at odds with our holding in Hotmar 

v. Lowell H. Listrom & Co., 808 F.2d 1384 (lOth Cir. 1987). That 

case involved a claim by an investor that his broker had breached 

fiduciary duties with respect to a nondiscretionary account. We 

noted that under Kansas law the existence of a fiduciary duty 

depends on the facts and circumstances in-each case. We held 

that in the absence of an agreement by the broker to control the 

account, the broker did not have a fiduciary duty "to execute 

only those orders he considered •suitable' for one in [the 

investor's] position, and hence, no breach of fiduciary duty was 

shown." .I!i... at 1387 n.3. In the instant case, we hold that 

Shoaf had a far narrower fiduciary duty than claimed in Hotmar. 

Shoaf, as agent, had a fiduciary duty to carry out the requested 

sale with due care and loyalty to the principal. 

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Appellate Case: 95-3005 Document: 01019756143 Date Filed: 06/24/1996 Page: 14 
all dealings between them in the subject matter of the agency to 

see that the agent has dealt with the utmost good faith and 

fairness." Merchant, 322 P.2d at 745 (citations omitted). Section 

389 of the Second Restatement of Agency establishes an agent's duty 

to disclose self-dealing. "Unless otherwise agreed, an agent is 

subject to a duty not to deal with his principal as an adverse 

party in a transaction connected with his agency without the 

principal's knowledge." Although the Kansas Supreme Court did not 

explicitly adopt this section of the Restatement in Merchant, it 

did cite § 390 (dealing with the duties of an agent acting on his 

own accoun t) which encompasses § 389. Specifically, the Kansas 

Supreme Court cited the following comment to § 390 of the 

Restatement, which cross-references § 389: "Hence, the disclosure 

[by the agent to the principal] must include not only the fact that 

the agent is acting on his own account, but also all other facts 

which he should realize have or are likely to have a bearing upon 

the desirability of the transaction, from the viewpoint of the 

principal." Restatement (Second) of Agency § 390 cmt. a (1958). 

(emphasis added). Therefore, Shoaf's duty of loyalty as an agent 

included a duty to disclose his purchases of the PCA shares on his 

own account. See also Reuschlein & Gregory, The Law of Agency & 

Partnership (2nd ed. 1990) § 67 at 126 ("An agent must disclose to 

13 

Appellate Case: 95-3005 Document: 01019756143 Date Filed: 06/24/1996 Page: 15 
his principal that he is the purchaser of proper t y from t he 

p r incipal." } . 

Defendant s contend t ha t t hey are not subject to the t e rms or 

rationale of this rule becau s e Shoaf did not deal with Arst as a n 

adverse party. Defendants assert that the p rice was externally 

set: t he procedures set up by Stifel Co. a n d a lle g e dly followed by 

Shoaf were t ha t Shoaf would pay the same price as the other buyers. 

Theref ore , they a rgue, there was no possib ility o f a conflict of 

interests. 

The Rest a t ement an t icipates t h is type of argument and expl a ins 

that even under t h ese circumstances the agent has a dut y to 

discl ose purchases on his own account . 

[I ]n the absence of a known custom or a n agreement, an agent 

employed to sell at the market price cannot, without 

d i sclosu re t o the principal, properl y buy the goods on his own 

account , e ven though he pays a higher price for them than the 

principal could obtain elsewhere ... . Likewise, ordinarily, 

an agent appointed to buy or to s e l l at a fixed price violates 

h is d ut y to the principal if, withou t the principal's 

acquiescence , he buys from or s ells the specified article to 

h imsel f at t he specified pri c e , even though i t is impossible 

to obtain more or as much. 

Restatement (Second) of Agency § 389 cmt. c (1958). We hol d tha t 

i r respective of Shoaf's control over the price he paid for the 

shares, he had a duty t o d isc lose purchases on his own account. 

His failure to so discl ose t herefore con stituted a breach of his 

14 

Appellate Case: 95-3005 Document: 01019756143 Date Filed: 06/24/1996 Page: 16 
fiduciary duty under Kansas law, and he was not properly entitled 

to summary judgment in his favor as to this claim. 

2. Duty to give investment advice. Arst contends that in 

addition to a duty to disclose self-dealing, Defendants had a duty 

to give Arst advice about the transaction, including the prospects 

of PCA making a public offering. Arst argues that Shoaf assumed 

this broader fiduciary duty by dispensing his opinion regarding the 

strength and future of PCA. The district court held that 

Defendants had no such duty. We agree with the district court. 

In Rajala v. Allied Co~p., 919 F.2d 610 (lOth Cir. 1990), we 

analyzed the requirements under Kansas law of an implied fiduciary 

relationship. While the existence of an implied fiduciary 

relationship "depends on the facts and circumstances of each 

individual case, " i_d_,_ at 614, the Supreme Court of Kansas has 

prescribed certain broad principles in making such a determination: 

A fiduciary relationship imparts a position of peculiar 

confidence placed by one individual in another. A fiduciary 

is a person with a duty to act primarily for the benefit of 

another. A fiduciary is in a position to have and exercise, 

and does have and exercise influence over another. A 

fiduciary relationship implies a condition of superiority of 

one of the parties over the other. Generally, in a fiduciary 

relationship, the property, interest or authority of the other 

is placed in the charge of the fiduciary. 

~ at 614 (quoting Denison State Bank v. Madeira, 640 P.2d 1235, 

1241 (1982)). Each of the general considerations listed in Denison 

15 

Appellate Case: 95-3005 Document: 01019756143 Date Filed: 06/24/1996 Page: 17 
need not be present in every case in which a fiduciary relationship 

is alleged. Rajala, 919 F.2d at 614. 

The Kansas Supreme Court has emphasized that "the overriding 

consideration in the law of fiduciary relationships [is] that 'one 

may not abandon all caution and responsibility for his own 

protection and unilaterally impose a fiduciary relationship on 

another without a conscious assumption of such duties by the one 

sought to be held liable as a fiduciary.'" Rajala, 919 F.2d at 614 

(quoting Denison, 640 P.2d at 1243-44). We have held that 

''conscious assumption of the alleged fiduciary duty is a mandatory 

element under Kansas Law." Rajala, 919 F.2d at 615. Under Kansas 

law a party seeking to establish the existence of a fiduciary 

relationship must prove it by clear and convincing evidence. ~ 

(citing Wolf v. Brungardt, 524 P.2d 726, 736 (Kan. 1974)). 

Arst has not met this burden of proof. Shoaf held himself out 

strictly as a go-between: matching sellers and buyers of PCA stock. 

(Shoaf and Stifel Co. refused to act as market maker, which would 

have implicated broader fiduciary duties.) That Shoaf made some 

comments concerning the strength and prospects of PCA is not 

sufficient to prove that Shoaf consciously assumed a broader 

16 

Appellate Case: 95-3005 Document: 01019756143 Date Filed: 06/24/1996 Page: 18 
fiduciary relationship beyond that of an accommodating broker. 5 

Arst could not abandon all caution and responsibility for his own 

protection and unilaterally impose a fiduciary relationship on 

Shoaf to dispense complete and accurate investment advice 

concerning the PCA stock without a conscious assumption of such 

duties by Shoaf. Penison, 640 P.2d at 1243-44. See also Hotmar v. 

Lowell H. Listrom & CQ., 808 F.2d 1384, 1387 & n.3 (lOth Cir. 

1987) . Indeed, Arst was well aware that Shoaf and Stifel Co. were 

acting as agents for both buyers and sellers of PCA stock. Arst 

was "fully competent and able to protect his own interests." 

Denison, 640 P.2d at 1243-44. As the District Court found, Arst 

was an experienced businessman who had made previous investments. 

He had a broker, other than Shoaf, with whom he could have 

discussed his decision to sell the PCA stock. Arst v. Stifel 

Nicolaus & Co., 871 F. Supp. 1370, 1384 (D.Kan. 1994). Upon an 

examination of the record, viewing all factual disputes in favor of 

the nonmoving party, White v. G~n~ral Motors CQrp., 908 F.2d 669, 

5 Referring to the principles enumerated in Denison to 

establish an implied fiduciary relationship, the relationship 

between Arst and Defendants most closely resembles the last one: 

when the property of one party is placed in the charge of 

another. As we· explained, Shoaf's authority over this property 

was nondiscretionary; therefore, his fiduciary duty was limited 

to executing Arst's orders concerning the disposition of this 

property with due care and loyalty. 

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Appellate Case: 95-3005 Document: 01019756143 Date Filed: 06/24/1996 Page: 19 
670 (lOth Cir. 1990), ~ert. denied, 498 U.S. 1069 (1991), we find 

no evidence to support Arst's claim that Shoaf consciously assumed 

a fiduciary duty to dispense accurate and complete investment 

advice. Therefore, his failure to dispense such information did 

not constitute a breach of a fiduciary duty. 

c. SEC Rule 10b-5 and Kan. Stat. Ann. § 17-1253. Arst 

alleges that Shoaf's failure to disclose self-dealing and failure 

to advise Arst about the prospects of a public offering also 

constituted violations of Rule lOb-S, 17 C.F.R. 240-lOb-S, and "the 

Kansas Securities Act, and specifically K.S.A. § 17-12S3." (Amend. 

Compl. ~ 12.). Rule lOb-S provides in pertinent part: 

It shall be unlawful for any person, directly . . 

(a) To employ any device, scheme, or artifice to defraud, 

(b) To make any untrue statement of a material fact or to omit 

to state a material fact necessary in order to make the 

statements made, in light of the circumstances under which 

they were made, not misleading, or 

(c) To engage in any act, practice or course of business which 

operates or would operate as a fraud or deceit upon any 

person, in connection with the purchase or sale of any 

security. 6 

6 The language of Kan. Stat. Ann. 17-12S3(a) closely tracks 

that of Rule lOb-S. Section 17-1253(a) provides, 

It is unlawful for any person, in connection with the offer, 

sale or purchase of any security, directly or indirectly, 

to: 

(1) Employ any device, scheme or artifice to defraud; 

(2) make any untrue statement of a material fact or to omit 

to state a material fact necessary in order to make the 

(continued ... ) 

18 

Appellate Case: 95-3005 Document: 01019756143 Date Filed: 06/24/1996 Page: 20 
It is well established that Rule lOb-S provides a private 

cause of action. Central Bank v. First Interstate Bank, 114 S. Ct. 

1439, 144S-46 (1994). We have explained the elements of liability 

under this rule as follows: 

In order to establish primary liability under§ lO(b), a party 

must allege and prove facts showing that the conduct 

complained of occurred 'in connection with' the purchase or 

sale of a security--that the actor made an untrue statement of 

a material fact, or failed to state a material fact, that in 

so doing, the party acted knowingly and with intent to deceive 

or defraud, and that plaintiff relied on the 

misrepresentations, and sustained damages as a proximate 

result of the misrepresentation. 

Farlow v. Peat Marwick. Mitchell & Co., 9S6 F.2d 982, 986 (lOth 

Cir. 1992). In regards to a lOb-S claim alleging a failure to 

disclose information, 7 we explained, 

6 ( ••• continued) 

statements made, in the light of the circumstances under 

which they are made, not misleading; or 

(3) engage in any act, practice or course of business which 

operates or would operate as a fraud or deceit upon any 

person. 

Since Plaintiff makes no particularized claim under the Kansas 

Securities Act, we will evaluate that claim under the same 

elements as its federal counterpart. ~Comeau v. Rupp., 810 F. 

Supp. 1127, 11S7 (D. Kan. 1992) (observing the closeness in 

language and requisite elements between § 17- 12S3(a) and Rule 

lOb-S ). 

7 Plaintiff did not argue in his appellate brief or at oral 

argument that Defendants had made misrepresentations in violation 

of Rule lOb-S; plaintiff argue d only that defendants failed to 

disclose infor mation in violation of that rule. Therefore , we 

(continued ... ) 

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Appellate Case: 95-3005 Document: 01019756143 Date Filed: 06/24/1996 Page: 21 
The failure to disclose material information is actionable 

only when one is under a duty to do so. And the duty to 

disclose arises when one party has information that the other 

party is entitled to know because of a fiduciary or other 

similar relation of trust and confidence between them. A duty 

arises from the relationship between the parties not merely 

because one party has an ability to acquire information. 

Without a duty to disclose, silence cannot be made fraudulent. 

Windon Third Oil and Gas v. Federal Deposit Ins., 805 F.2d 342, 347 

(lOth Cir. 1986) (citing Chiarella v. United States, 445 U.S. 222, 

228, 231 n. 14 (1980)). See also Dirks v. SEC, 463 U.S. 646, 655 

( 1983) (holding that a duty to disclose "arises . from the 

existence of a fiduciary relationship."). 

For the reasons discussed above, Shoaf had no duty to disclose 

information about the strength and prospects of PCA stock, 

including the possibility of a public offering. Therefore, his 

failure to disclose this information does not support liability 

under either federal or state securities statutes. And there is no 

evidence in the record that Shoaf was privy to inside information 

that he might have been obligated to disclose. However, as we 

explained above, Shoaf did have a duty to disclose the fact that he 

7 ( ••• continued) 

nclude that Plaintiff has waived the former issue. ~ 

Abercrombie v. City of Catoosa, Okla., 896 F.2d 1228, 1231 (lOth 

Cir. 1990); Jordan v. Bowen, 808 F.2d 733, 736 (lOth Cir.), cert. 

denied, 484 U.S. 925 (1987); Bledsoe v. Garcia, 742 F.2d 1237, 

1244 (lOth Cir. 1984). 

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Appellate Case: 95-3005 Document: 01019756143 Date Filed: 06/24/1996 Page: 22 
purchased the shares on his own account. This failure alone does 

not establish liability under Rule lOb-5 I but in light of the 

record, the remaining elements for liability under Rule lOb-S--

including scienter 1 materiality, and causation--present genuine 

issues of material fact for a jury. Therefore, Arst has presented 

facts sufficient to withstand summary judgment with respect to his 

claim that Defendants' failure to disclose self-dealing violated 

federal and state securities laws. 

IV. Conclusion. 

In sum, we hold as follows: (1) Plaintiff does not have a 

cause of action under Rule lOb-10 (a) (7) (i); (2) Plaintiff has 

presented facts sufficient to withstand summary judgment as to his 

claims under Kansas common law and state and federal securities 

statutes alleging Defendants' failure to disclose self-dealing; and 

(3) Plaintiff has not presented facts sufficient to withstand 

summary judgment as to his claims under Kansas common law and state 

and federal securities statutes alleging Defendants' failure to 

dispense investment advice. We therefore AFFIRM the judgment of 

the United States District Court for the District of Kansas in part 

and REVERSE in part and REMAND this case for further proceedings in 

accordance with this opinion. 

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