Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-88-02274/USCOURTS-ca10-88-02274-0/pdf.json

Parties Involved:
Anderson-Prichard Pipe Line Corporation
Not Party
Anson Pipeline Co.
Not Party
Anson Refining Co.
Not Party
Atex Oil Company
Appellant
Atex Oil Company of Oklahoma Inc.
Not Party
Atex Oil Company of Texas
Appellant
Atex Pipeline Co.
Not Party
Atex Refining Company
Appellant
Atex Stations, Inc.
Appellant
Ray Bell
Appellant
Continental Illinois National Bank & Trust Company of Chicago
Appellee
Federal Deposit Insurance Corporation
Appellee
Meredith R. Sheets, Inc.
Not Party
Oklahoma Pipeline Co
Not Party
Trudy Perry
Not Party

Document Text:

f'tLtt.b 

Uoitc:d Sta~ Ctm,c of Appeals 

Tenth Circuit 

UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT 

AP~ 241g 

ltOBERT L. HOECKER 

Clerk 

FEDERAL DEPOSIT INSURANCE 

CORPORATION, 

Plaintiff, 

FEDERAL DEPOSIT INSURANCE 

CORPORATION, as Receiver of 

First National Bank and Trust 

Company of Oklahoma City, 

Oklahoma, 

Plaintiff/Counterclaim 

Defendant, 

CONTINENTAL ILLINOIS NATIONAL 

BANK & TRUST COMPANY OF 

CHICAGO, 

Plaintiff/Appellant, 

v. 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

RAY BELL; ATEX OIL COMPANY; ) 

ATEX OIL COMPANY OF TEXAS; ) 

ATEX STATIONS, INC.; ATEX ) 

REFINING COMPANY; ANDERSON- ) 

PRICHARD PIPE LINE CORPORATION; ) 

ATEX OIL COMPANY OF OKLAHOMA ) 

INC.; OKLAHOMA PIPELINE CO.; ) 

ANSON PIPELINE CO.; ANSON ) 

REFINING CO.; and ATEX PIPELINE) 

co. I ) 

Defendants/Appellees, 

and 

MEREDITH R. SHEETS, INC., 

Defendant, 

) 

) 

) 

) 

) 

) 

) 

) 

No. 88-2229 

(D.C. No. CIV-84-2386-P) 

(W.D. Oklahoma) 

Appellate Case: 88-2274 Document: 01019972091 Date Filed: 04/24/1990 Page: 1 
) 

ATEX OIL COMPANY OF OKLAHOMA ) 

INC.; ATEX PIPELINE CO.; and ) 

OKLAHOMA PIPELINE CO., ) 

) 

Defendant/Third-Party ) 

Plaintiff, ) 

) 

v. ) 

) 

TRUDY PERRY, ) 

) 

Third-Party Defendant. ) 

FEDERAL DEPOSIT INSURANCE 

CORPORATION, 

Plaintiff/Appellee, 

and 

CONTINENTAL ILLINOIS NATIONAL 

BANK & TRUST COMPANY OF 

CHICAGO, 

Plaintiff, 

FEDERAL DEPOSIT INSURANCE 

CORPORATION, as Receiver of 

First National Bank and Trust 

Company of Oklahoma, City, 

Oklahoma, N.A., 

v. 

Plaintiff/Counterclaim 

Defendant, 

RAY BELL; ATEX OIL COMPANY; 

ATEX OIL COMPANY OF TEXAS; 

ATEX STATIONS, INC.; and 

ATEX REFINING COMPANY, 

Defendants/Appellants, 

and 

ANDERSON-PRICHARD PIPE LINE 

CORPORATION; ATEX OIL COMPANY 

OF OKLAHOMA INC.; OKLAHOMA 

PIPELINE CO.; ANSON PIPELINE 

CO.; ANSON REFINING CO.; ATEX 

-2-

No. 88-2274 

(D.C. No. CIV-84-2386-P) 

(W.D. Oklahoma) 

Appellate Case: 88-2274 Document: 01019972091 Date Filed: 04/24/1990 Page: 2 
PIPELINE CO.; and MEREDITH R. ) 

SHEETS, INC. , ) 

) 

Defendants, ) 

) 

ATEX OIL COMPANY OF OKLAHOMA ) 

INC.; ATEX PIPELINE CO.; and ) 

OKLAHOMA PIPELINE CO., ) 

) 

Defendants/Third-Party ) 

Plaintiffs, ) 

) 

v. ) 

) 

TRUDY PERRY, ) 

) 

Third-Party Defendant. ) 

ORDER AND JUDGMENT* 

Before MOORE, BRORBY, and EBEL, Circuit Judges. 

This appeal is a companion to Federal Deposit Ins. Corp. v. 

Bell, 892 F.2d 64 (10th Cir. 1989), in which we held that 12 

U.S.C. § 1823(e) shields the FDIC from defenses raised in its 

action to recover on certain loan guaranties. The FDIC's judgment 

of $51,604,074.30 was subsequently funded, in essence, when a jury 

awarded Ray Bell, guarantor of those loans, $51,604,074.30, on his 

counterclaims for common law and securities fraud against the 

*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: 88-2274 Document: 01019972091 Date Filed: 04/24/1990 Page: 3 
lending bank,. Continental Illinois National Bank & Trust Company 

of Chicago (CINB). That judgment was predicated on Bell's theory 

that CINB fraudulently induced him to assume all of the guaranties 

pledged in the acquisition of two refineries. Although the jury 

eschewed the conclusion that CINB misrepresented the value of the 

refineries, the jury found CINB failed to disclose material 

information which, Bell asserted, would have altered his decision 

to increase his guaranties. CINB now appeals the adverse verdict 

on the ground that liability for nondisclosure arises only from a 

duty to disclose. Because we conclude CINB had no duty to 

disclose, Bell's central counterclaims collapse. We reverse the 

judgment in part and remand for a new trial on damages. 

I. Background 

The facts of this case echo many of the reverberations 

experienced in the oil industry in the early 1980's. In 1978, 

An-Son, a group of companies involved in crude oil production, and 

Atex Refining Company, which operated a chain of hundreds of 

gasoline stations, formed the Oklahoma Refining Company (ORC), to 

acquire two refineries in Cyril and Thomas, Oklahoma. Carl 

Anderson, a principle in An-Son, assumed a 66% share of the 

guaranties securing the refineries' purchase, and Ray Bell, who 

controlled Atex, assumed the remaining 34% of liability. Term and 

revolving loans from CINB and First National Bank of Oklahoma 

City1 funded ORC's acquisitions and operations. While An-Son 

1First National Bank (FNB) was not a party in the underlying 

lawsuit. 

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Appellate Case: 88-2274 Document: 01019972091 Date Filed: 04/24/1990 Page: 4 
supplied crude oil to the ORC refineries, Atex looked to ORC as a 

source of supply for its retail stations. As a board member, Bell 

attended ORC's monthly management meetings and received written 

reports of the refineries' production and financial condition. 

In the early 1980's, CINB increased its loans to An-Son, with 

which it had a long-standing lending relationship, to finance both 

ORC and An-Son's exploration program. Nevertheless, during this 

period, CINB's in-house staff of refinery engineers, which 

monitored the market values of refineries in CINB's loan 

portfolio, reassessed ORC, estimating that its value declined from 

$35.2 million to $22.3 million. Subsequently, CINB issued one of 

several internal "Watch Loan Reports" on ORC, indicating the need 

for special supervision of the account. 

In the early months of 1983, Bell met with various 

individuals 2 to discuss the prospect of adding the two ORC 

refineries to his then-existing refinery in Tonkawa, Oklahoma. 3 

Already familiar with the operations of the Cyril and Thomas 

plants and always concerned about assured sources of refined 

products for his stations, Bell was receptive to structuring a 

deal that would give him a majority position in ORC. In late 

March, a reorganization agreement was executed in which one of 

Bell's Atex companies, Atex Stations, Inc., acquired An-Son's 

2According to Bell, he met privately with Derek Morrison, CINB's 

representative responsible for the ORC loans, and discussed the 

value of the ORC refineries and CINB's continued willingness to 

fund the ORC operation. 

3Bell 

with 

City. 

loans 

had already discussed buying the remaining interests in ORC 

Ed Alexander, a senior vice-president at FNB of Oklahoma 

FNB was a principal lender to Atex and participated in 

to ORC. 

-5-

Appellate Case: 88-2274 Document: 01019972091 Date Filed: 04/24/1990 Page: 5 
interest in ORC. 4 In exchange for Bell's assuming Anderson's 

guaranties, CINB restructured ORC's debt, refinancing one of ORC's 

large receivables and making letters of credit available to 

continue keeping the refineries in operation. Despite monthly 

increases in letters of credit bringing the total facility to 

approximately $99.8 million by June 1984, the refineries were 

unable to overcome the continuing shock waves rippling through the 

industry as oil prices went into a free-fall. In September 1984, 

despite six refinancings of the operating debt, ORC filed a 

petition under Chapter 11. 

As the ensuing proceedings played out, the FDIC5 recovered a 

judgment from Bell for $51,604,074.30 on his personal guaranties 

of the ORC debt. Bell's counterclaims for common law fraud and 

securities fraud against CINB were tried to a jury. The core of 

Bell's theory was the alleged conversation he had with Derek 

Morrison, who supervised the ORC loans, in which Morrison stated 

that ORC's refineries were worth $47 million and promised CINB's 

continued financing. On the basis of those representations, Bell 

contended, he pledged his assets and assumed the risk of 100% of 

the ORC guaranties. Bell presented evidence that CINB 

misrepresented the value of the refineries and did not disclose 

4Anson Refinery Company, ANRC, was the vehicle through which 

An-Son held its interest in ORC. In the agreement, An-Son sold 

50,000 shares of ANRC common stock to Atex Stations, Inc., the 

Atex entity which purchased the stock, although it was not a party 

to the lawsuit. 

5In late 1984, FDIC granted special assistance to CINB and 

acquired the ORC loan and right to sue on the guaranties. CINB, 

however, remained liable for the counterclaims asserted in the 

foreclosure action. 

-6-

Appellate Case: 88-2274 Document: 01019972091 Date Filed: 04/24/1990 Page: 6 
key internal -loan documentation in order to protect its customer, 

Carl Anderson, and salvage its own lending position. In defense, 

CINB depicted Bell as a sophisticated businessman who was 

intimately familiar with ORC's financial problems by virtue of his 

regularly attending monthly board meetings. According to CINB, 

Bell, against advice of his own refinery men, undertook the risk 

not only hoping to secure a source of gas for his stations but 

also believing he could turn his investment around over a 

five-year period. 

The jury returned special interrogatories which separated the 

common law fraud and securities claims. The jury did not answer 

the first question: 

1. Do you find by clear and convincing evidence 

that the Atex Group was defrauded by Continental when 

the Atex Group purchased An-Son's interest of ORC as a 

result of Continental's alleged misrepresentations of 

ORC's value? 

The jury answered yes to the second question: 

2. Do you find by clear and convincing evidence 

that the Atex group was defrauded by Continental when 

the Atex group purchased Anson's interest of ORC as a 

result of Continental's failure to disclose material 

information regarding the value of ORC to the Atex 

group? 

The jury did not answer the third question: 

3. Do you find by clear and convincing evidence 

that the Atex Group was defrauded by Continental when 

the Atex [sic] mortgaged property and pledged stock on 

June 18, 1984 as a result of Continental's alleged 

promise to provide ten year refinancing? 

In response to the securities claims, the jury found CINB 

violated Rule l0(b)-5 and Section 12(2) of the Securities Act of 

1933 and Section 408(a)(l) of the Oklahoma Securities Act, and 

that CINB was a "substantial factor'' in the sale of the An-Son 

-7-

Appellate Case: 88-2274 Document: 01019972091 Date Filed: 04/24/1990 Page: 7 
securities and a "controlling person" of Anson Transportation 

Company and Anson Refining Company when ORC was sold. Although 

the jury returned a $51 million verdict based on the court's 

instruction, the court adjusted the amount upon finding that the 

additional $604,074.30 difference with the FDIC judgment was "too 

severe a penalty for failure to object to a typographical error in 

the instructions." 

In a subsequent hearing, the district court equated the 

jury's failure to answer the first and third questions with a no 

answer 6 and rejected CINB's reserved argument that the omission 

theory should not have been submitted to the jury. The court 

suggested a number of inferences based on the evidence, "but one 

inference that could have been drawn was that Continental Bank 

arguably knew that if they disclosed the information that was in 

question with respect to the nondisclosure allegation that Atex 

wouldn't buy or go through with the purchase." (R. I, Motion 

Hearing March 25, 1988, at 11). CINB now appeals the denial of 

its motions for directed verdict, j.n.o.v., and new trial, on the 

issues of common law fraud, securities violations, and damages. 

II. Omission Theory 

CINB contends that the jury's finding no misrepresentation 

was made to Bell annihilates the basis on which the jury could 

6The parties continue to argue whether the failure to answer 

questions one and three is deemed a waiver of these issues or is 

tantamount to a no answer. The technical response to this 

question, however, does not affect the arguments of this appeal. 

-8-

Appellate Case: 88-2274 Document: 01019972091 Date Filed: 04/24/1990 Page: 8 
find CINB failed to disclose material information. CINB urges the 

omission theory must be predicated on a duty to disclose arising 

either from a special relationship or by undertaking to offer 

information. Since there was no fiduciary relationship between 

CINB and Bell, and the jury found CINB had not undertaken to 

disclose information when it found no misrepresentation, the 

omission theory must fail. 

Bell counters that CINB's contention should be rejected 

because it attempts to create an inconsistency in the jury's 

verdict. 

disclose. 

Any representation, Bell asserts, triggers a duty to 

When information is particularly within CINB's 

knowledge and it ventures to make some representation, Bell 

maintains CINB is bound to tell the whole truth, offering Oklahoma 

statutes and case law as authority. 7 

Were all representations to trigger a duty to disclose, we 

would throw a wild card into our current deck of commercial 

relations. Thus, to make a representation actionable it must be 

dealt from a duty to disclose arising either from a fiduciary 

relationship or the offering of some information after inquiry is 

made. Nothing in Oklahoma's common law of fraud or Rule l0b-5 

suggests an affirmative duty to disclose all material information 

absent this foundational nexus. 8 

7Bell also relies on an unpublished order of this court, Spiva v. 

Bryant, No. 86-2317 (10th Cir. 1988). Tenth Cir. R. 36.3 states 

"[u]npublished opinions and orders and judgments have no 

precedential value and shall not be cited." (Emphasis added.) 

8see Starkman v. Marathon Oil Co., 772 F.2d 231, 238 (6th Cir. 

1985), cert. denied, 475 U.S. 1015 (1986), noting "the established 

view •.• that a duty to speak' must exist before the disclosure 

(Continued to next page.) 

-9-

Appellate Case: 88-2274 Document: 01019972091 Date Filed: 04/24/1990 Page: 9 
For example, recently in MSA Tubular Prods., Inc. v. First 

Bank and Trust Co., 869 F.2d 1422 (10th Cir. 1989), we held that a 

bank which undertakes to make representations of material facts in 

response to a credit inquiry has "the duty to either remain silent 

or to tell the truth." Id. at 1424 (citing Deardorf v. 

Rosenbusch, 201 Okla. 420, 206 P.2d 996 (1949)). In MSA Tubular, 

plaintiff had called defendant bank whose name had been given as a 

reference for its customer's credit. Despite the customer's 

history of overdrafts known to the bank officers, the bank told 

plaintiff the customer's account had average deposits sufficient 

to clear a $95,000 check drawn on the account. Citing 

Uptegraft v. Dome Petroleum Corp., 764 P.2d 1350 (Okla. 1988), we 

reversed the dis.tr ict court's holding on summary judgment that the 

bank owed plaintiff no duty. Although Oklahoma courts had not 

precisely addressed this question, we held that Oklahoma law 

imposes liability if "[o]ne who assumes to speak when under no 

duty to do so[] suppress[es] pertinent facts or state[s] less 

than the whole truth." Id. at 1353. 9 

Similarly, in Grubb v. Federal Deposit Ins. Corp., 868 F.2d 

1151 (10th Cir. 1989), plaintiff recovered a judgment against 

(Continued from previous page.) 

of material facts is required under Rule l0b-5.'' (citation 

omitted). 

9The Uptegraft case involved the partial disclosure of information 

from one co-tenant to another. Although Oklahoma does not 

recognize a fiduciary duty between co-tenants, see Heggem v. 

Kilpatrick, 133 Okla. 145, 271 P. 643, 647 (1928), the Uptegraft 

court stated that while silence "violate[s] no rule of equity, 

yet, if he volunteers to speak and to convey information which may 

influence the conduct of the other party, he is bound to disclose 

the whole truth." 764 P.2d at 1354. 

-10-

Appellate Case: 88-2274 Document: 01019972091 Date Filed: 04/24/1990 Page: 10 
First National, his bank, for violations of federal and state 

securities laws and common law fraud based upon the bank's failure 

to disclose material information when plaintiff purchased bank 

securities from First National. In its discussion of whether 

plaintiff's reliance was justified, the court stated, "Although 

Grubb had dealt with First National in prior loan transactions, 

First National owed Grubb no fiduciary duty to disclose that it 

conducted its own examination of Security State's loan portfolio. 

Nevertheless, ample evidence shows that First National volunteered 

information about that examination and affirmatively 

misrepresented its results." Id. at 1164. 

In both MSA Tubular and Grubb, the duty to disclose may 

ultimately be created by the initial inquiry. 10 However, if you 

don't ask, you can't hold another liable for not telling you what 

later allegedly caused the harm. Nor can inferences drawn from 

the act itself substitute for the inquiry. Thus, in our case, for 

Bell to premise liability on CINB's failure to disclose key 

information exclusively in its control, Bell had to prove (1) the 

inquiry was made, and (2) a false or an incomplete response, only 

half of the truth, was given. We cannot infer either element 

solely from the fact of the ultimate purchase. 

In his direct testimony, Bell relates FNB's first discussing 

his purchase of ORC and a series of management meetings with CINB 

representatives during which conversations about ORC took place. 

Bell testified that in March 1983, he and Derek Morrison met 

10 In Grubb, the district court granted the bank's motion for 

directed verdict on the claim of breach of fiduciary duties. 

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Appellate Case: 88-2274 Document: 01019972091 Date Filed: 04/24/1990 Page: 11 
privately before a management meeting. During .this meeting, Bell 

stated Morrison told him the refineries were worth $47 million 

(R. VI, 203), and CINB would issue all letters of credit necessary 

to run the refineries. (R. VI, 205). In cross-examination, 

defense counsel asked Bell why during six depositions he had never 

discussed the alleged private meeting with Morrison and questioned 

Bell about ORC's financial statements and his conversations with 

Anderson and Morrison. Bell's testimony established that he 

understood the liquidation value of the refineries as a means of 

calculating how much would be transferred in the deal. In 

response to the question asked in one deposition whether he had 

checked around about other refinery sales, Bell answered he had 

not, explaining: 

No, sir, I felt that this was worth it and it would have 

been worth it had the banks continued to provide us 

letters of credit. And it would have been worth it and 

we'd have paid it off. It wouldn't have made any 

difference what it was worth, but it would have been 

worth it to us • • . • Obviously, I thought it was 

worth it or I wouldn't of [sic] gone forward. 

(R., 315-16). 

In contrast, Bell's key actor, Morrison, testified that he 

was first introduced to Bell at the March ORC management meeting. 

At that meeting, the financial report issued on ORC reflected a 

$1.7 million loss for January 1983. (R. IX, 948). Morrison 

stated he never met privately with Bell or related the refineries' 

worth or CINB'S internal evaluation of the loan. Morrison stated 

that Bell did not ask for the evaluation. (R. IX, 945-50). In 

the final deal, Morrison described the complex financial exchanges 

resulting in Bell's acquiring Anderson's profit interest in the 

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Appellate Case: 88-2274 Document: 01019972091 Date Filed: 04/24/1990 Page: 12 
Tonkawa refinery and 66% interest in ORC in exchange for 

Anderson's letter of credit to cover one of An-Son's large 

receivables in ORC. No cash was exchanged in the transaction. 

Instead, Bell assumed An-Son's obligation represented by the 

guaranties. (R. IX, 976). 

In the face of this disparate testimony, the jury found CINB 

did not misrepresent ORC's value or promise continued financing. 

That is, Bell failed to prove the existence of the overt act of 

misrepresenting ORC's value. Thus, whether, in fact, the alleged 

private meeting transpired, this factual underpinning to create a 

duty to disclose is missing. 

On the other hand, to establish the covert act of omitting 

material information, the half-truth theory, Bell had to prove he 

sought information, and CINB ventured to offer only part of the 

information within its exclusive ken. However, we cannot find, 

except by inference from facts not found by the jury, that Bell 

made the inquiry in the first instance. Nor can we work back from 

the fact of the purchase to supply these elements of proof. The 

evidence established that Bell was familiar with ORC's financial 

condition because of his participation on the board. Although 

CINB had issued loan watch reports and revised its internal 

evaluation of the asset, CINB has no duty to disclose these 

internal documents unless the evidence establishes CINB offered 

only some of them, Grubb, or misrepresented their contents. 

FDIC v. Palermo, 815 F.2d 1329, 1336 (10th Cir. 1987.) 11 Because 

11In Palermo,the bank's o£ficer told plaintiff that 

$130,000 note on property which plaintiff contemplated 

(Continued to 

-13-

it held a 

purchasing. 

next page.) 

Appellate Case: 88-2274 Document: 01019972091 Date Filed: 04/24/1990 Page: 13 
Bell and CINB had no preexisting relationship and "the 

circumstances of the transaction were not such as to create a 

relationship of trust and confidence, then the threshold 

requirement of a duty to disclose has not been met." Jett v. 

Sunderman, 840 F.2d 1487, 1493 (9th Cir. 1988} (duty to disclose 

does not arise merely because bank is aware of terms of financing 

instrument in action under Rule l0b-5}; see also Schlifke v. 

Seafirst Corp., 866 F.2d 935 (7th Cir. 1989). 

Under Oklahoma law, evidence of each element of fraud must 

be presented before the issue may be submitted to a jury. 

P.E.A.C.E. Corp. v. Oklahoma Natural Gas Co., 568 P.2d 1273 (Okla. 

1977). A party alleging fraud by misrepresentation or 

nondisclosure must prove the following elements: (1) a material, 

false representation or nondisclosure was made; (2) knowledge of 

the falsity, or recklessly without any knowledge of its truth; (3) 

the intention that the listener act upon it; (4) the listener's 

actual reliance; and (5) resulting injury. 

Petroleum Co., 760 P.2d 174 (Okla. 1988). 

Silk v. Phillips 

Moreover, Oklahoma 

''imposes a high standard of proof on the party alleging fraud." 

Federal Deposit Ins. Corp. v. Palermo, 815 F.2d at 1335. 

(Continued from previous page.} 

In fact, the bank had previously loaned only $50,000 on the 

property. "Had [the bank officer] merely represented that he 

considered the property to be worth $130,000, Palermo's acceptance 

of this opinion would have been at his own risk. But Palermo 

testified that [the bank officer] represented that [its morgagee] 

actually owed $130,000 on the property. This was · a 

misrepresentation of fact, not an opinion." 815 F.2d at 1336. 

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Appellate Case: 88-2274 Document: 01019972091 Date Filed: 04/24/1990 Page: 14 
Without Bell's establishing CINB's duty to disclose, Bell 

cannot now rely on the alleged misrepresentation to create the 

foundation for liability. Bell can neither prove the inquiry nor 

the response. Absent this essential underpinning, the evidence of 

fraud should not have been submitted to the jury. 

This failure of proof is equally fatal to Bell's claims for 

securities violations. To state a claim under Rule lOb-5, Bell 

must establish CINB (1) made an untrue statement of material fact 

or omitted a material fact that rendered the statements made 

misleading, (2) in connection with a securities transaction, (3) 

with the intent to mislead, and which (4) caused plaintiff's harm. 

Schlifke, 866 F.2d at 943. Absent the first element, liability 

does not attach. 

We use the same standard as did the district court to decide 

whether there is evidence to support Bell's claim of fraud by 

omission. Despite its concern that "there are some legal issues 

tied up with the duty to disclose," the district court believed 

the jury properly reached its verdict. Because we believe the 

proof is all one way or so overwhelmingly preponderant in favor of 

the movant that a rational jury could not conclude that CINB had a 

duty to disclose, McKinney v. Gannett Co., 817 F.2d 659, 663 (10th 

Cir. 1987), we reverse the denial of CINB's motion for directed 

verdict and judgment notwithstanding the verdict. 12 

12The disposition of the underlying claim necessarily resolves the 

federal securities issues raised. 

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Appellate Case: 88-2274 Document: 01019972091 Date Filed: 04/24/1990 Page: 15 
III. Stock Registration 

The jury found CINB violated 71 Okla. Stat., § 30113 • CINB 

appeals the jury's adverse verdict on this claim, urging the sale 

met either the non-issuer exemption, 71 Okla. Stat., § 40l(b)(l), 

or the limited offering exemption, 71 Okla. Stat., § 401 

(b)(9)(A), and, alternatively, the requisite legend stating the 

stock was not registered appeared on the stock certificate. As an 

affirmative defense, CINB had the burden of proving the securities 

in question were exempt from registration. Wilson v. Al McCord 

Inc., 858 F.2d 1469, 1475 (10th Cir. 1988); Parrish v. Ben-Jon Oil 

Co., 666 P.2d 1308 (Okla. App. 1983). 

Although the evidence was controverted, we are unable to say 

that CINB established the ANRC securities were exempt from 

registration under either subsection. The non-issuer exemption is 

swallowed up by the complex structure of An-Son Corporation which 

ultimately emerged as the issuer in the transaction. Nor does 

CINB establish an exemption under § 40l(b)(9), any sale by an 

issuer to not more than twenty-five persons if 

1. the issuer reasonably believes that all purchasers 

. are purchasing for investment; 

2. no commission is paid or given, directly or 

indirectly, as consideration for any such 

solicitation or sale; 

3. no public advertising or solicitation is used in 

any such solicitation or sale; and 

4. in the event a notification or other form is 

required to be filed with the Securities and 

Exchange Commission pursuant to Regulation D under 

the Securities Act of 1966 in connection with such 

1311 Okla. Stat., § 301 states: "It is unlawful for any person to 

offer or sell any security in this state unless (1) it is 

registered under this act or (2) the security or transaction . is 

exempted under Section 401." 

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Appellate Case: 88-2274 Document: 01019972091 Date Filed: 04/24/1990 Page: 16 
sale, . the notification described in any rule 

adopted pursuant to division 3 of subparagraph B of 

this subsection is filed with the Administrator in 

connection with such sale. 

Although An-Son's vice president, James Brown, was asked questions 

to establish some of these elements, his answers are controverted, 

and we cannot say with assurance that a reasonable jury could not 

find CINB failed to establish the affirmative defense. Finally, 

Oklahoma law is exacting with regard to the requisite nonregistration legend. Parrish v. Ben-Jon Oil Co., 666 P.2d at 

1310. CINB's principle of integration covering the transfer of 

the stock certificate and assignment document is not a substitute 

for the required legend. CINB did not meet its burden of proving 

the securities transfer was exempt under Oklahoma's registration 

laws, and the district court did not err in denying CINB's motions 

for directed verdict and j.n.o.v. 

IV. Damages 

Because the claims for common law and securities fraud have 

been eliminated, we remand this case for a new trial on the single 

issue of the appropriate damages to be awarded on the surviving 

non-registration claim as governed by 71 Okla. Stat., § 408(a)(2). 

Under § 408, Bell is entitled to recover the purchase price 

actually paid for the An-Son securities as well as interest at 10% 

a year from the date of payment. Costs and reasonable attorney's 

fees, less the amount of any income received on the security, upon 

tender of the security, are recoverable. In sum, we REVERSE the 

denial of CINB's motions for directed verdict and j.n.o.v. on the 

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Appellate Case: 88-2274 Document: 01019972091 Date Filed: 04/24/1990 Page: 17 
claims of common law and secur-ities fraud and REMAND the action 

for a redetermination of damages. 

Entered for the Court 

John P. Moore 

Circuit Judge 

-18-

Appellate Case: 88-2274 Document: 01019972091 Date Filed: 04/24/1990 Page: 18