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Wyndham Associates v. Bintliff

decided: June 26, 1968.

WYNDHAM ASSOCIATES ET AL., PLAINTIFFS-APPELLANTS,
v.
DAVID C. BINTLIFF, A. G. MCNEESE, JR., L. B. TYBOR, AMERICAN STOCK EXCHANGE, MORONEY, BEISSNER & CO., INC., A. G. BECKER & CO., INC., DEFENDANTS-APPELLEES, AND GOODKIND, NEUFELD & CO., INC., DEFENDANT-APPELLANT. MAURICE M. FRIEDMAN ET AL., PLAINTIFFS-APPELLANTS, V. DAVID C. BINTLIFF, THE CHASE MANHATTAN BANK, N.A., A. G. MCNEESE, JR., L. B. TYBOR, AMERICAN STOCK EXCHANGE, MORONEY, BEISSNER & CO., INC., A. G. BECKER & CO., INC., DEFENDANTS-APPELLEES, AND GOODKIND, NEUFELD & CO., INC., DEFENDANT-APPELLANT



Lumbard, Chief Judge, and Smith and Anderson, Circuit Judges.

Author: Lumbard

LUMBARD, Chief Judge:

These two class actions involve claims against eight defendants for alleged violations of the federal securities laws. On November 30, 1967, the District Court for the Southern District of New York, Sylvester J. Ryan, J., entered orders severing the claims against two of the eight defendants and transferring the actions against the remaining six defendants to the District Court for the Southern District of Texas, Houston Division. The plaintiffs and one of the transferred defendants -- Goodkind, Neufeld & Co., Inc. -- appeal from these orders, the District Court having certified that the orders involve a controlling question of law as to which there is a substantial ground for difference of opinion and that an immediate appeal may materially advance the ultimate termination of the litigation, and this Court having granted the applications of plaintiffs and Goodkind for leave to appeal pursuant to 28 U.S.C. ยง 1292(b). For the reasons stated below, we affirm the orders of the District Court.

Seven of the defendants were named in the Wyndham action. The subsequent Friedman complaint essentially repeats the allegations of the Wyndham complaint, but names one additional defendant, The Chase Manhattan Bank, N.A. For the purposes of these appeals, we shall treat the two actions as one.

The plaintiffs are shareholders of Westec Corporation who bought their shares on the American Stock Exchange. Westec is a Nevada corporation with its principal office in Houston, Texas. Eighteen of the twenty-one plaintiffs are citizens of New York; two are citizens of Connecticut and one is a citizen of California.

Defendant Bintliff is a financier who owned a substantial number of shares of Westec common stock. Defendants McNeese and Tybor are officers of the Bank of the Southwest of which Bintliff was a director. Bintliff, McNeese and Tybor are citizens and residents of Texas.

The defendants Moroney, Beissner & Co., Inc. (hereafter Moroney), A. G. Becker & Co., Inc. (hereafter Becker), and Goodkind, Neufeld & Co., Inc. (hereafter Goodkind) are stock brokerage firms. Moroney has its principal office in Houston, Texas; Becker's principal office is in Illinois; Goodkind's princpal office is in New York.

The defendant American Stock Exchange (hereafter Exchange) is located and operates only in New York. Defendant Chase Manhattan Bank, N.A. (hereafter Chase), is a national banking association established within the Southern District of New York.

The complaint alleges that Bintliff engaged in a scheme to manipulate the market price of Westec stock and that Moroney, Becker and Goodkind aided and abetted the manipulative scheme by making false and misleading statements concerning Westec stock and by their participation in transactions in Westec stock. It alleges that McNeese and Tybor aided and abetted the unlawful conduct of Bintliff and the other defendants by inducing and arranging financing for transactions in Westec stock; and that the Chase aided and abetted the manipulative scheme by participating, as co-registrar and co-transfer agent, in a distribution of Westec stock, despite the fact that Chase knew or should have known that the stock, although subject to registration under the 1933 Securities Act, was not in fact registered. The complaint alleges that the Exchange, although it knew or should have known of the other defendants' unlawful conduct, permitted the defendants and others to use its facilities to manipulate the price of Westec stock, failed to take action to prevent such unlawful conduct, and failed to carry out properly the supervisory obligations imposed upon it by Section 6 of the Securities Exchange Act of 1934.

The defendants Bintliff, Moroney, Becker, McNeese and Tybor moved to transfer the action to Texas. Plaintiffs and the defendants Goodkind, Exchange and Chase opposed the transfer; each of these three defendants also moved for a severance of the claims against itself.

The district court severed the claims against the Exchange and the Chase and denied the motion to transfer as to these two defendants; the court ordered that the action against the remaining six defendants be transferred to Texas, and denied Goodkind's motion for a severance.

In ruling on these motions, the district court took note of the numerous proceedings relating to the affairs of Westec and alleged manipulations of Westec stock which are currently pending in the district court in Houston. Westec itself is in reorganization proceedings in that court under Chapter X of the Bankruptcy Act. In addition, Westec filed an action in that court for a declaratory judgment against Ernest M. Hall, Jr., Westec's former president, and James W. Williams, former chairman of its board, seeking an adjudication whether they had violated any provisions of the securities acts in connection with transactions in Westec stock, and a Westec stockholder filed a representative action against Hall, Westec and 21 other defendants claiming violations of the securities acts resulting from manipulations in Westec stock. Three other actions have recently been filed in the Houston district court -- one naming Bintliff, Moroney, Becker and 29 other defendants; one naming Bintliff, Moroney and 55 other defendants; one naming Bintliff, Becker, Goodkind and 22 other defendants. Furthermore, eleven cases concerning the Westec stock manipulations had already been transferred from the Southern District of New York to the Southern District of Texas. Judge Allen B. Hannay of the Houston court has been designated as statutory judge in the Westec reorganization and all suits pending in that district arising out of the affairs of Westec or related to them, including the eleven cases transferred from New York, have been assigned to Judge Hannay.

Ten of the actions previously transferred from the Southern District of New York were transferred by order of Judge Weinfeld, Schneider v. Sears, 265 F. Supp. 257 (1967). He found that "All ten actions are brought by stockholders of Westec and allege representative claims on behalf of other Westec stockholders similarly situated. * * * The gist of all the actions is that Hall and others in the highest levels of management, acting in concert with each other and with others, engaged in a fraudulent scheme to inflate artificially the price and value of Westec stock." Having noted the actions already pending in the Southern District of Texas with regard to the affairs and transactions in Westec stock, Judge Weinfeld concluded that -- in light of the location of the witnesses and documentary evidence, the strong policy favoring litigation of related claims in the same tribunal, and the relative calendar conditions in the two districts -- the convenience of parties and witnesses and the interests of justice would best be served by transferring the actions to the Southern District of Texas, Houston Division.

The eleventh action, which asserts claims against Bintliff and others arising out of the alleged manipulation of Westec stock, was transferred to Texas by order of Judge Palmieri, Cosmos Bank v. Bintliff et al., 67 Civ. 1984, July 20, 1967. He stated that "The alleged conspiracy to manipulate the market in Westec was carried on in Texas. * * Although this action, unlike those transferred in Schneider v. Sears, supra, is based on a specific loan transaction negotiated and consummated in New York, it is similar to those actions with respect to the allegations concerning the market manipulations of Westec ...


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