Opinion ID: 475444
Heading Depth: 2
Heading Rank: 1

Heading: Federal Securities Claim

Text: 20 The district court directed a verdict in favor of BancTexas on appellants' federal securities claim because it found appellants had failed to establish damages under the proper measure of damages. Appellants now urge us to reverse this judgment on two grounds. First, they insist that the district court used an improper standard by which to evaluate damages, and second, they argue that sufficient evidence existed to establish the damages under either the standard the court used or the standard they urge. 21 The district court used the out-of-pocket measure of damages set out in Huddleston v. Herman & MacLean, 640 F.2d 534, 555 (5th Cir.1981), aff'd in part and rev'd in part on other grounds, 459 U.S. 375, 103 S.Ct. 683, 74 L.Ed.2d 548 (1983). Under Huddleston, in a Rule 10b-5 action a purchaser of securities may recover against a defendant with whom the purchaser was not in privity or who owed the purchaser no fiduciary duty only the difference between the price paid and the 'real' value of the security ... at the time of the initial purchase by the defrauded buyer. Id. at 556. 22 Appellants argue first that the district court should have adopted a recissional measure of damages under the rule of Chasins v. Smith, Barney & Co., Inc., 438 F.2d 1167, 1173 (2d Cir.1970). Appellants contend that the instant case is distinguishable from Huddleston and is analogous to Chasins in that it does not involve a misrepresentation of price, but rather an inducement to purchase. We find appellants' argument on this point unpersuasive. This case is squarely within the rule of Huddleston. Huddleston indeed explicitly reserves the Chasins recissional measure of damages for cases in which the purchaser and defendant are in privity or in which the defendant owes some fiduciary duty to the purchaser. Id. at 554. In Chasins, the plaintiff had been lured into purchasing securities on the basis of misrepresentations made by a broker. A broker is within the category of those who owe a special fiduciary duty to one who purchases securities from the broker or upon the broker's advice. See Huddleston, 640 F.2d at 554; see also Garnatz v. Stifel, Nicolaus & Co., Inc., 559 F.2d 1357, 1360 (8th Cir.1977), cert. denied, 435 U.S. 951, 98 S.Ct. 1578, 55 L.Ed.2d 801 (1978). 23 A bank, unless it is acting as a broker or in a situation closely analogous to that of a broker, is not within the category of parties against whom recissional damages may be awarded. BancTexas' position in this case is analogous to that of the accountant-defendant in Huddleston who was held responsible only under the out-of-pocket standard. BancTexas did not act either directly or as agent in the selling of the interests to the Energy Program. Nor was BancTexas in the position of a fiduciary with regard to any of the appellants. 3 To hold BancTexas liable under a recissional standard would be to place on [it] the burden of any decline in the value of securities between the date of purchase and the date of sale even though only a portion of that decline may have been proximately caused by the defendant's wrong. Huddleston, 640 F.2d at 555. 24 Appellants argue next that even under the Huddleston standard, they have met their burden of proving damages. Specifically, they contend that the value of their interests at the time of purchase was zero, and thus that there are entitled to recover from the bank all payments made in connection with the oil and gas leases less whatever income may have been produced. Appellants' argument is without merit on this claim as well. 25 Despite their assertion that they received only a bundle of rights in purchasing these leases, appellants in fact acquired tangible assets. Leases that permit the exploration and exploitation of mineral resources are of considerable value. See Phillips Petroleum Co. v. Cowden, 241 F.2d 586, 590 (5th Cir.1957); Wilson v. Texas Co., 237 S.W.2d 649, 650 (Tex.Civ.App.1951). The leases purchased by appellants here are assets of this kind. 4 Appellants make no allegations that BancTexas made any misrepresentation as to the value of the leases, but only as to the competency of Wells-Battelstein to operate them. The equipment purchased by appellants was also tangible property of some value. 26 Appellants' argument that these interests were, nevertheless, valueless because of the incompetence and inexperience of Wells-Battelstein is unpersuasive. Appellants, who were experienced in these types of ventures, had the option under the operating agreements to remove Wells-Battelstein as operator. Appellants reliance on Woods v. Barnett Bank of Fort Lauderdale, 765 F.2d 1004 (11th Cir.1985), is misplaced. In Woods, the Court held that bonds upon which the issuer had defaulted had a value of zero notwithstanding the fact that only a portion of the proceeds released were diverted to an improper end. Id. at 1013. Appellants in this case, however, hold tangible assets consisting of oil and gas leases and drilling equipment. These types of assets are readily distinguishable from bonds in that they have an intrinsic value that may be realized upon resale. Bonds, on the other hand, have no inherent value aside from the issuer's financial soundness and commitment. We hold, therefore, that the district court correctly ruled that appellants had not established any damages under the out-of-pocket standard of Huddleston. 27 Appellants fall back upon the contention that the damages the jury awarded were proper consequential damages. 5 A plaintiff in a Rule 10b-5 action may properly recover consequential damages from a defendant where the plaintiff was induced to invest on the basis of a material misrepresentation or an omission. James v. Meinke, 778 F.2d 200, 206 (5th Cir.1985). The district court in the case before us described the nature and scope of appropriate consequential damages: [T]he cost of: selling the leases, drilling to deeper layers to increase production or storing oil awaiting a price increase, all in the hope of recouping losses. In essense ... [consequential damages] would have been the additional expenses incurred by the energy programs as a result of BancTexas' negligence misrepresentations. We cannot accept appellants' argument that all their payments made in connection with the leases qualify as consequential damages. As set out above, there was no evidence introduced into the record indicating that the leases appellants received were worth less than what appellants paid. 28 Appellants could have sought consequential damages for additional expenses that resulted from BancTexas' misrepresentations that led to the hiring of Wells-Battelstein as the lease operator. Of the $7,759,941 in payments to Wells-Battelstein outlined in appellants' Exhibit H, it is possible that some may have justified a claim of consequential damages. If appellants had broken down the figures in their key exhibit to show how much of the claimed damages could properly have been awarded as consequential damages, some portion of their award might have survived BancTexas' motions. By not doing so, appellants cannot now be heard to argue this issue. See James, 778 F.2d at 207. We therefore affirm the district court's ruling. 29 Finally, appellants ask that we remand the case for a new trial with regard only to damages if we affirm the district court's ruling. We cannot do so. Appellants are not entitled to relitigate the issue of damages. The authorities appellants cite to support their position are not on point. Sorrels v. Texas Bank & Trust Co. of Jacksonville Texas, 597 F.2d 997 (5th Cir.1979), in which the issue of damages was remanded for a new trial, was decided upon review of a motion for a new trial, not upon review of a motion for directed verdict or for judgment notwithstanding the verdict that we must undertake here. 30 Davis v. Safeway Stores, Inc., 532 F.2d 489 (5th Cir.1976), was remanded because the evidence in that case was insufficient to support the full amount of damages awarded. Unlike the instant case, however, there was enough evidence of damages in Davis to support some award, albeit a lower one. Finally, in Gleason v. Title Guarantee Co., 300 F.2d 813 (5th Cir.1962), the issue of damages was remanded because damages had been awarded under an incorrect legal standard, not because of the nonexistence of evidence to support the award. Appellants had adequate opportunity to present sufficient evidence as to damages in this case. They did not do so and thus are bound by the decision.