Appeal from judgment entered in the United States District Court for the Southern District of New York (Metzner, J.) dismissing at various stages of the proceedings claims grounded on section 10(b) of Securities Exchange Act of 1934 and Rule 10b-5 adopted thereunder; section 12(2) of Securities Act of 1933; and common law fraud. Cross-appeal from dismissal of attorney malpractice claim. Affirmed.
Pratt and Miner, Circuit Judges, and Motley, District Judge.*fn*
Plaintiff-appellant Royal American Managers, Inc. ("RAM") appeals from a judgment entered in the United States District Court for the Southern District of New York (Metzner, J.) dismissing claims grounded on section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, 15 U.S.C. § 78j(b) (1982) & 17 C.F.R. § 240.10b-5 (1988); section 12(2) of the Securities Act of 1933, 15 U.S.C. § 77l(2) (1982); and common law fraud. RAM instituted this action against IRC Holding Corporation ("IRC"), Joseph A. Ambriano (an officer and director of IRC), and IRC's attorney, Gerald Dolman, after purchasing 49% of the stock of Interamerica Reinsurance Corporation ("Interamerica"), a New York-licensed reinsurance company wholly owned by IRC. RAM alleged that the purchase was based upon certain misrepresentations made by Dolman and Ambriano, one to the effect that prior approval of the transaction by the New York State Insurance Department ("NYSID") would be unnecessary. RAM contended also, and maintains on appeal, that the purpose of the transaction has been frustrated because prior approval of NYSID in fact was required and not obtained.
The claims were dismissed by the district court, some at the close of evidence for lack of proof, some in conformity with a jury verdict, and some by decision of the court after the verdict. See Royal American Managers, Inc. v. IRC Holding Corp., [1988-1989 Transfer Binder] Fed.Sec.L.Rep. (CCH) 94,091, at 91,095 (S.D.N.Y. Oct. 20, 1988). On appeal, RAM contends that the district court erred in: (1) dismissing for lack of proof the section 10(b), section 12(2) and common law fraud claims brought against Dolman; (2) refusing to permit amendment of the pleadings to include a claim against Dolman for professional malpractice; (3) deciding without submitting to the jury the section 12(2) claims against IRC and Ambriano; and (4) finding that IRC and Ambriano were not vicariously liable under section 12(2) for Dolman's alleged misrepresentations. In addition, IRC and Ambriano appeal from the district court's dismissal of their cross-claim against Dolman for malpractice, in the event any of RAM's claims against them are reinstated.
In the spring of 1984, RAM became interested in purchasing a company in the insurance or reinsurance business. Discussions ensued between James R. Wining, who was RAM's Vice-Chairman, and Ambriano of IRC regarding the possible sale by IRC of the issued and outstanding capital stock of Interamerica. By October, Willie A. Schonacher, Jr., RAM's Chairman and Chief Executive Officer, entered into the discussions.
Wining and Schonacher met with Ambriano on October 8, 1984, whereupon Wining proposed purchasing 50% of the stock. Ambriano rejected this proposal on the grounds that (1) he did not wish to relinquish control and (2) such a deal would require prior approval of NYSID, since a 50% transfer might constitute a "change of control" of Interamerica, see N.Y. Ins. Law § 1506(a)(2) (McKinney 1985).*fn1 Ambriano wished to avoid the prior-approval process, which could span nine months. It was decided that the parties should contact Dolman -- attorney for IRC and director and executive committee member of Interamerica -- to discover if prior approval would be required. Although RAM had access to its own counsel, namely Frank J. Ross, Jr., Ambriano pointed out that Dolman previously was employed by NYSID and in that capacity was instrumental in drafting the regulations pertinent to the inquiry. Soon after the October 8 meeting, Wining telephoned Dolman, who opined that a 50% sale might require prior approval of NYSID, but that a 49% sale would not.
On October 30, 1984, Ambriano and Dolman met with Wining, Schonacher and Ross to prepare for the sale of the 49% stake. At that meeting, Dolman mentioned his former employment at NYSID and again stated he was of the opinion that prior approval was unnecessary. Ambriano allegedly represented that certain nominees of RAM would participate in the directorship and management of Interamerica.*fn2 Dolman and Ross left the meeting early, after which RAM agreed in principle to purchase the 49% interest in the corporation. Accordingly, the attorneys prepared the instruments needed to effect the transfer.
All the parties met at a final meeting in December 1984. Ambriano complained that the terms of the sale agreement drafted by Ross did not reflect the terms expressed by the parties in the previous meeting. When Ross began to raise questions about the transaction, Ambriano demanded that the attorneys leave. The attorneys departed as requested, and at the ensuing meeting of Ambriano, Schonacher and Wining only, the representations made earlier allegedly were repeated.
RAM ultimately purchased 49% of the stock for $3.75 million. NYSID soon learned of the purchase and informed Dolman that prior approval was necessary. It based its view on section 1501(a)(2) of the New York Insurance Law, which provides that "control shall be presumed to exist if any person directly or indirectly owns, controls or holds with the power to vote ten percent or more of the voting securities of any other person." N.Y. Ins. Law § 1501(a)(2) (McKinney 1985). Dolman replied to NYSID that, in his opinion, the "presumption" of 1501(a)(2) was overcome, because a sale of 49%, with 51% retained by the seller, did not constitute a change of control and thus did not require prior approval.
NYSID neither accepted nor rejected the sale, but instead repeatedly requested information of RAM. At first, RAM provided some information, but by the fall of 1985 it ceased to reply to NYSID's requests, and asked that the matter be put on hold.
The impasse with NYSID has not as yet been resolved, and the alleged promises of participation in directorship and management have not been fulfilled. At all times up to the commencement of this action, RAM has retained ownership of the stock.
RAM commenced this action against IRC, Ambriano and Dolman, seeking principally damages and rescission of the sale and alleging that all three defendants committed securities fraud-in violation of section 10(b), Rule 10b-5 promulgated thereunder, and section 12(2)-and common law fraud. IRC and Ambriano cross-claimed against Dolman for malpractice, seeking "contribution from Dolman in the event RAM recovers a judgment against [IRC] and/or ...