Petition — Security Management Co. v. Rothenberg

Supreme Court brief1980

Ask Donna

What actually matters in this document.

Text

Supreme Court, U. S.

FILED

80-339 | SEP2 = 1980

CASE NO. _____ J [MICHAEL RODAK, JR., CLERK:

SUPREME COURT OF THE UNITED STATES

OCTOBER 1980 TERM

SECURITY MANAGEMENT CO., INC.

AND BRUCE R. DAVIS,

PETITIONERS

vs.

JACK ROTHENBERG AND

SHIRLEY ROTHENBERG,

RESPONDENTS

PETITION FOR CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

PETITION FOR CERTIORARI

Robert A. Elsner

COUNSEL FOR PETITIONERS

512 Gas Light Tower

235 Peachtree Street,N.E.

Atlanta, Georgia 30303

(404) 577-6800

J. Timothy White

J. Michael Lamberth

ON THE PETITION

46 Fifth Street, N.E.

Atlanta, Georgia 30365

(404) 892-3400

QUESTIONS PRESENTED

(1) Did the district court abuse

its discretion in dispatching for review,

pursuant to Federal Rule of Civil Procedure

54(b), a ruling granting a summary inter-

locutory adjudication on a pendent state

law claim, while leaving the federal

Claim pending in a case in which diversity

did not exist, federal jurisdiction

existing soley on the basis of Section

27 of the Securities Exchange Act of

1934?

(2) Does a proper exercise of discretion

require a district court to provide

a written statement of reasons for granting

certification of judgment pursuant to

Rule 54(b) of the Federal Rules of Civil

Procedure?

(3) Is the federal court of appeals

ruling on the contract of guaranty in

conflict with a ruling by the Georgia

Court of Appeals in a case in which

the Georgia Court of Appeals had before

it the same two contracts of guaranty

as are at issue in this case and therein

affirmed a grant of summary judgment

to petitioners?

(4) In view of the related Georgia

Court of Appeals decision and its policy

implications, did the federal court

of appeals err in refusing to stay its

hand so as to afford the Georgia courts

the opportunity to construe the two

contracts in a declaratory judgment

action instituted by petitioners after

rendition of the decision by the federal

court of appeals, but during the pendency

of the motions for rehearing?

(5) Did the federal court of appeals

err in refusing to certify questions

to the Georgia Supreme Court so as to

obtain guidelines for construing the

iii

contracts in view of a related decision

by the Georgia Court of Appeals which

was based on public policy considerations?

LISTING OF ALL PARTIES

The plaintiffs in the district

court are Jack Rothenberg and Shirley

Rothenberg. The defendants are Security

Management Co., Inc., Sidney I. Rose,

George S. Stern, Bruce R. Davis, Harvey

U. Rubin, and Sidney I. Rose and George

S. Stern d/b/a Rose & Stern, a Georgia

partnership. Only Bruce R. Davis and

Security Management Co., Inc. were named

defendants on the state law claim which

was dispatched by the district court

pursuant to Rule 54(b). Accordingly,

Security Management Co., Inc. and Bruce

R. Davis were the appellants in the

Court of Appeals in the Fifth Circuit

and Jack Rothenberg and Shirley Rothenberg

were the appellees.

TABLE OF CONTENTS

PAGE

OPINIONS BELOW... cccccccccccccccees 1

JURISDICTION. .ccccccccccccccccsccces

STATUTES Revue Es osc eee ba eawencies

Ss ww

STATEMENT OF THE CASE...-cccccccccs

REASONS FOR GRANTING THE WRIT:

1. The decisions below conflict

with decisions of the United

States Supreme Court as to the

proper interpretation of Rule

54 (BD) cccccccccvccccccccccccoes 11

2. The decisions below are in

conflict with a case decided

last term by the United States

Supreme Court and are in con-

flict with decisions from the

Second, Third, and Seventh

Cee cic auetoee cone ewieees 22

3. The decisions below are in

direct conflict with an author-

itative decision rendered by the

Georgia Court of Appeals....... 26

4. The refusal of the Fifth

Circuit to certify questions or

to enter a stay is in direct con-

flict with decisions of the United

States Supreme Court......seee. 36

CONCLUSION. .ccccccccccccccccccccsces 40

APPENDIX:

Opinion of the United States

Court of Appeals for the Fifth

CIrCuit..cccccccccccscccccccces la

Order by the United States Court

of Appeals for the Fifth Circuit

denying motion to stay........ lla

Order by the United States

District Court for the Northern

District of Georgia granting

the motion for summary judgment

on the guaranty claim......... 13a

Order by the United States

District Court for the

Northern District of Georgia

denying motion for reconsider-

ation of its ruling on the

GUGTOREY CERI s c2cc 00s 0ose esac 18a

Order by the United States

District Court for the

Northern District of Georgia

directing entry of judgment

pursuant to Rule 54(b)........ 24a

Judgment by the United States

Court of Appeals for the Fifth

Circuit of which review is

SOUGNE. ccccscvcccccccvcevscvcece 26a

Notice by Court of Appeals for

the Fifth Circuit denying motions

SOE EGRORLCING. ci civcecsasevers 28a

vii

Document (guaranty) "B"....... 30a

Document (guaranty) "A"....... 39a

TABLE OF AUTHORITIES

Cases Cited

Aboussie v. Aboussie, 441 F.2d 150

(5th Cir. BUA 6 66.064 6008 16 Rb 20 06d 19

Acker v. Corinthian Condominium Corp.,

145 Ga.App. 288, 243 S.E. 2d 683

BL gp. | are are eee ns ee 32

Allis-Chalmers Corp. v. Philadelphia

Electric Co., 521 F.2d 360 (3rd Cir.

Sv eeesd sas bbe aes cede hewn beens 24

Arlinghaus v. Ritenour, 543 F.2d 461

(2nd Cir. Po re ee eee ae ee 24,25

Cold Metal Process Co. v. United Eng.

& Fdry. Co., 351 U.S. 445 (1956)... 14,22

Commissioner v. Bosch, 387 U.S. 456

Fo gg TA er er ar eee a 27

Curtiss-Wright Corp. v. General

Electric Co., _ U.S.__, 64 L.Ed 2d

viii

l CE) 660006 $.00b 06s 460668866868 HO 12,13

14, 21-

23,26

Erie Railroad Company v. Tompkins,

304 U.S. 64 (AS SR hc 6 s0esectseeneees 36

Esplin v. Hirschi, 402 F.2d 94, 105

(10th Cir. AOGE) oc voec0000058 6866808 18

First Southern Fed. Sav. v. First

Southern Sav., 614 F.2d 71 (5th Cir.

SPO) 6 6080p 06h db 660 0660 ee eb ease een 26

Fox v. Glickman Corp., 253 F.Supp.

1005 (S.D. N.Y. REGO) ccceeoevecsesess 18

Gumer v. Shearson, Hammill & Co., Inc.,

516 F.2d 283 (2nd Cir. 1974)....... 24

Kaiser Steel Corp v. W.S. Ranch Co.,

391 U.S. 593 CABSSS i cocesvecececéeoce 38,40

Lehman Brothers v. Schein, 416 U.S.

386 (1974) cc cccccccvccccvevecsccces 37

Maternally Yours v. Your Maternity

Shop, 234 F.2d 538 (2nd Cir. 1956). 27

Miree v. United States, 242 Ga 126,

249 S.E. 2d 573 (1978) ..cccccccvece 38

Nor-Tex Agencies, Inc. v. Jones, 482

F.2d 1093 (5th Cir. 1973).......0. 18

Pisano v. Security Management Co.,

Inc., 148 Ga. App. 567,251 S.E. 2d

758 iii etebne eben ened eeoeesccececc 20,27

29,35

Rothenberg v. Security Management Co.,

Inc., (5th Cir. Dt cucinecesscece 3

Sears, Roebuck & Co. v. Mackey, 351

U.S. 427 Di itkeekeoeseeecoovcece 12,22

Sitzer v. Lang, 145 Ga. App. 159, 243

S.E. 2d 95 Dents oebeeeeeeee sec 32

Six Companies v. Joint Highway District

No. 13, 311 U.S. 180 (1940)........ 28

Stoner v. New York Life Ins. Co., 3ll

U.S. 464 PEP eeeeeeeceecoesocococes 27

Texaco, Inc. v. Hurt, 118 Ga. App.

413, 164 S.E. 2d 278 (1968)........ 34

U.S. General, Inc. v. City of Joliet,

598 F.2d 1050 (7th Cir. 1979)...... 24

United Mine Workers v. Gibbs, 383 U.S.

715 CRPGS) coc cevevocessesasesececce 14,26

United States Life Insurance Company

v. Delaney, 328 F.2d 483 (5th Cir.

RE bob he O26 60660 6b 4tee 66m ds eds 38

W.S. Ranch Co. v. Kaiser Steel Corpor-

ation, 388 F.2d 257 (10th Cir.

Df Ge a er aye pe eae ere ee 38

West v. Amer. Tel. & Tel. Co., 311 U.S.

223 CRS <6 oWe ob aoe bo eee eww nnever 28

Wigand v. Flo-Tek, Inc., 609 F.2d 1028

(2nd car. BETO 626 6 es 0036666608 6:0 00 16

Wolf v. Frank, 477 F.2d 467 (5th Cir.

BOTS & 60660 66 Pawo O060 608 e bE RECS 19

Statutes Involved

28 U.S.C. SLSSE TE ccdccccvecescedecs 1

Ga. Code §22-511 (a) CaP eo 4 6eca dees 3,34

Rule Cited

Federal Rule of Civil Procedure 54(b). 2,8,

11-15,

17,19-26

Treatise

GEORGIA ENCYCLOPEDIA OF LAW........ 31-32

Article

Brown, (Certification-Federalism in

Action, 7 CUMBERLAND L. REV. 456

2. Bg) Pe PR ee See ge een eee 37

OPINIONS BELOW

The opinions and orders of the

Court of Appeals for the Fifth Circuit

appear in the Appendix hereto. The

opinion of the Court ~* Appeals for

the Fifth Circuit is reported at 617

F.2d 1149 (5th Cir. 1980). The opinions

and orders of the United States District

Court for the Northern District of Georgia

relevant to the appeal also appear in

the Appendix hereto.

JURISDICTION

The judgment of the Court of Appeals

for the Fifth Circuit was entered on

May 29, 1980. A timely motion for rehearing

was denied on July 22, 1980, and this

petition for certiorari was filed within

90 days of that date. This Court's

jurisdiction is invoked under 28 U.S.C.

§1254(1).

STATUTES INVOLVED

The relevant Federal Rule of Civil

Procedure is Rule 54(b) which states:

"(b) Judgment Upon Multiple Claims

or Involving Multiple Parties.

When more than one claim for relief

is presented in an action, whether

as a Claim, counterclaim, cross-

Claim, or third party claim, or

when multiple parties are involved,

the court may direct the entry

of final judgment as to one or

more but fewer than all of the

claims or parties only upon an

express determination that there

is no just reason for delay and

upon an express direction for the

entry of judgment. In the absence

of such determination and direction,

any order or other form of decision,

however designated, which adjudicates

fewer than all the claims or the

rights and liabilities of fewer

than all the parties shall not

terminate the action as to any

of the claims or parties, and the

order or other form of decision

is subject to revision at any time

before the entry of judgment adjudi-

cating all the claims and the rights

and liabilities of all the parties."

The relevant Georgia Code Section

is Georgia Code Section 22-511 (a) (1)

which states:

"(a) The board of directors of

a corporation may, from time to

time, declare and the corporation

thereupon shall pay dividends on

its outstanding shares in cash,

property, or its own shares, except

when the corporation is insolvent

or when the payment thereof would

render the corporation insolvent

Or when the declaration or payment

thereof would be contrary to any

restrictions contained in the articles

of incorporation, and subject to

the following provisions:

(1) Dividends may be declared and

paid in cash or property only out

of the unreserved and unrestricted

earned surplus of the corporation,

Or out of the unreserved and unre-

stricted net earnings of the current

fiscal year, computed to the date

of declaration of the dividend,

br the next preceding fiscal year."

STATEMENT OF THE CASE

Bruce R. Davis ("Davis") was an

individual involved in real estate

development and apartment management

in the metropolitan Atlanta, Georgia

area through his solely owned company,

Security Management Co., Inc. ("Security

Management"). In the summer of 1972,

a stock package was offered to certain

investors in the form of equal number

of shares in Security Management Co,

Inc. and in a new corporation

Security Investments Properties, Inc.

("Properties"). For each $50,000.00

invested, individuals would receive

8,000 shares of stock in Security Manage-

ment, 8,000 shares of class "C" stock

in Properties, and a guaranty of dividends

from Properties. Under the terms of

the guaranty, Davis and Security Management

guaranteed that Properties would pay

dividends to its shareholders. Dividends

were paid by Properties to its shareholders

in accordance with the guaranty until

a Chapter XI proceeding was filed by

Properties in October, 1974. Properties

was eventually adjudicated a bankrupt.

Jack Rothenberg was one individual

who acquired one unit of the stock package

for $50,000.00. He transferred the

stock to his wife, Shirley Rothenberg,

in 1974.

In January 1977, the Rothenbergs

filed this action in the district court

seeking recovery on a eight count complaint.

Upon motion by the defendants, three

federal securities claims (those based

on §12(1), §12(2), and §17(a) of the

Securities Act of 1933) were dismissed

in July of 1977. The two Georgia securities

Claims were dismissed in November of

1977. The §12(1) and §12(2) claims,

as well as the two Georgia securities

Claims, were dismissed as barred by

the applicable statutes of limitations.

The only federal claim left pending

was predicated on §10(b) of the Securities

Exchange Act of 1934 and Rule 10b-5

promulgated pursuant thereto. Jurisdiction

over that federal claim was predicated

on §27 of the Securities Exchange Act

of 1934. The only other claims left

pending were predicated on the Georgia

law of fraud and deceit and a claim

on the guaranty against Davis and Security

Management. Jurisdiction over those

two claims was allegedly predicated

on the concept of pendent jurisdiction,

since no diversity exists between the

parties.

After granting a summary judgment

against Davis and Security Management

on the guaranty claim in January of

1978, the district judge, without supplying

a statement of reasons, directed the

Clerk to enter judgment on that count

on July 3, 1978. (App. at 24a-25a).

The federal claim predicated on Rule

10b-5 was left pending along with the

Claim for fraud and deceit under the

Georgia law.

The Court of Appeals for the Fifth

Circuit in an opinion handed down on

May 29, 1980, affirmed the judgment

of the district court. (App. at la-

10a). The Court of Appeals ruled that

it was within the discretion of the

district judge to determine whether

he should provide a statement of reasons

for entering a Rule 54(b) certification.

(App. at 4a). The Court of Appeals

also ruled that the district judge did

not abuse his discretion in entering

the certification even though the district

judge was made aware at the time of

the entry of the certification an issue

identical to the one presented to him

was being appealed to the Court of Appeals

of Georgia by other shareholders of

Properties who had sued Davis and Security

Management on the guaranty in a state

court and against whom a summary judgment

had been entered. The Fifth Circuit

ruled that the decision which was subsequently

handed down by the Court of Appeals

of Georgia did not interpret both of

the documents (Document "A" and Document

"B") which had surfaced in the litigation,

even though the Georgia trial court

had unequivocally ruled on the basis

of both documents. (App. at 6a-9a).

Without citing a single Georgia case

and without specifically discussing

the ramifications of the Georgia Court

of Appeals case, the Fifth Circuit construed

Document "B" and concluded there was

liability on the part of Davis and Security

Management. (App. at 8a-9a).

On June 9, 1980, Davis and Security

Management instituted an action against

10.

Jack Rothenberg and Shirley Rothenberg

in the Superior Court of DeKalb County,

Georgia, seeking a declaratory judgment

with respect to both Document "A" and

Document "B". In addition to the motion

for rehearing, Davis and Security Management

moved the Court of Appeals for the Fifth

Circuit to stay its hand pending resclution

of the declaratory judgment action.

In addition, Davis and Security Management

on motion for rehearing argued that

the Fifth Circuit should certify questions

to the Supreme Court of Georgia if it

did not enter a stay. The motion to

stay was denied on July 21, 1980. (App.

at lla-l2a). The motions for rehearing

and rehearing en banc were denied on

July 22, 1980. (App. at 28a-29a).

Throughout this litigation and that

in the Georgia courts, petitioners have

used the terms Document "A" and Document

ll.

"B". A copy of Document "A" appears

in the Appendix. (App. at 39a-50a).

A copy of Document "B" also appears

in the Appendix. (App. 30a-38a). In

its opinion, the Fifth Circuit used

the term Guaranty rather than Document.

REASONS FOR GRANTING THE WRIT

1. The decisions below conflict with

decisions of the United States Supreme

Court as to the proper interpretation

of Rule 54(b).

Rule 54(b) of the Federal Rules

of Civil Procedure provides that a district

court may direct entry of a final judgment

as to one or more but fewer than all

of the claims in a case involving multiple

Claims or multiple parties only on an

express determination that there is

no just reason for delay and upon an

express direction for the entry of judgment.

The role of the district court under

12.

Rule 54(b) is to act as a "dispatcher".

Sears, Roebuck & Co. v. Mackey, 351

U.S. 427, 435 (1956). The decision

to release for final appeal is vested

ii: the discretion of the district court,

but is subject to review for an abuse

of discretion. Sears, Roebuck & Co.

v. Mackey, supra at 437. In reviewing

a Rule 54 certification by a district

court, the function of the court of

appeals requires two steps. The first

step is to scrutinize the district court's

evaluation of such factors as the inter-

relationship of the claims so as to

prevent piecemeal appeals in cases which

should be reviewed only as single units.

Curtiss-Wright Corp v. General Electric

Co. _U.S. _, 64 L.Ed. 2d 1, 12 (1980).

If the court of appeals determines that

the juridical concerns are satisfied,

then the court of appeals should show

13.

substantial deference to the discretionary

judgment of the district court. Curtiss-

Wright Corp. v. General Electric Co.,

Supra.

In the case at bar, the district

judge confronted the question whether

to certify the ruling on the guaranty

Claim while leaving pending the federal

Claim on the basis of Rule 10b-5. Petitioners

contend that a Rule 54(b) certification

of a pendent state claim would rarely,

if ever, be a proper exercise of discretion

by a district judge. Certainly it was

not under the facts of this case.

The district court had the constitutional

power to adjudicate the state law guaranty

Claim only if the guaranty claim and

the 10b-5 claim grew from a common nucleus

of operative facts and if the claims

were such that a plaintiff would ordinarily

be expected to try them all in one judicial

14.

proceeding. United Mine Workers v.

Gibbs, 383 U.S. 715, 725 (1966). If

jurisdiction existed to adjudicate the

guaranty claim, then it must follow

that the guaranty claim and the 10b-

5 claim arose from the same facts and

were claims such that a plaintiff would

ordinarily be expected to try them in

One proceeding.

In determining whether to certify

pursuant to Rule 54(b), it is incumbent

upon the district court to examine the

relationship of the adjudicated claims

to the unadjudicated claims. Cold Metal

Process. Co. v. United Eng. & Fdry.

Co., 351 U.S. 445, 452 (1956). Proper

exercise of discretion further requires

that the relationship between claims

be examined so as to prevent piecemeal

review in cases which should be reviewed

only in single units. Curtiss-Wright

15.

Corp, supra. In the case at bar, the

guaranty claim and the 10b-5 claim arose

from the same factual nucleus and were

such that a plaintiff would be expected

to try them in one case. Yet, the district

court entered a Rule 54(b) certification

on the guaranty claim and the court

of appeals affirmed this exercise of

discretion. The necessary implication

from the certification is that 10b-5

Claims and the guaranty claim did not

arise from the same factual nucleus

and should not be tried in the same

proceeding. The certification was clearly

an abuse of discretion under the applicable

standards.

In addition to the factual relationship

between the claims, the election of

remedies doctrine is a relevant factor

in determining whether or not the Rule

54(b) certification was proper. The

16. “oy

amount of the judgment on the guaranty

($40,381.60) was the present value of

the difference between the amount invested

($50,000.00) and the total amount of

dividends ($8,625.00) raid before the

bankruptcy proceeding was commenced.

In opposing the motion on the guaranty

and the request for certification, petitioners

argued to the district court that the

Rothenbergs had elected to rescind the

stock purchase by praying for return

of their investment in the complaint

and by asserting the claims under §12(1)

and §12(2). See Wigand v. Flo-Tek,

Inc., 609 F.2d 1028, 1035-1036 (2nd

Cir. 1979). The district court ruled

that the Rothenbergs had utilized Federal

Rule of Civil Procedure 8, which permits

alternative pleading, so there had been

no binding election to rescind. (App.at

15a-l6a). Even if the district court

17.

were correct in granting the summary

judgment motion on the guaranty, the

entry of the Rule 54(b) certification

before adjudication of the 10b-5 claim

was improper. A judgment on both the

guaranty and the 10b-5 claim would result

in double recovery. The ruling on the

guaranty should have remained in the

breast of the district court until adjudi-

cation of the 10b-5 claim. After such

adjudication, the Rothenbergs could

elect which judgment they wished to

be entered should they also prevail

on the 10b-5 claim.

Another juridical concern is the

relationship between the guaranty claim

and the 10b-5 claim with respect to

the measure of damages. The Rothenbergs

contend in the district court they seek

actual damages. The measure of actual

damages is the difference between the

18.

price paid and the fair market value

of the security at the time of the trans-

action. See Nor-Tex Agencies, Inc.

v. Jones, 482 F.2d 1093, 1097 (5th Cir.

1973). The recovery is reduced by any

monies received on the investment.

See Esplin v. Hirschi, 402 F.2d 94,

105 (10th Cir. 1968); Fox v. Glickman

Corp., 253 F. Supp. 1005, 1010 (S.D.

NY 1966).

In the case at bar, the amount

of the judgment on the 10b-5 claim,

if the Rothenbergs are successful, could

in no case exceed the amount of the

judgment on the guaranty. Actual damages

could notexceed the amount invested

($50,000.00) reduced by the amount of

the dividend payments ($8,625.00).

That is the amount of the judgment on

the guaranty. If the stock had value

at the time of purchase, then the recovery

19.

on the 10b-5 claim would be less than

the amount of the judgment on the guaranty.

What is crucial for Rule 54(b)

purposes is that the effect of entry

of the judgment on the guaranty is to

extinguish the 10b-5 claim since a judgment

on the 10b-5 claim could in no event

exceed the amount of the judgment already

entered. See Aboussie v. Aboussie,

44] F.2d 150, 157 (5th Cir. 1971).

No actual damages under 10b-5 can exist

if the guaranty judgment stands. If

no actual damages can be recovered,

the 10b-5 claim is extinguished as is

the basis for federal jurisdiction.

See Wolf v. Frank, 477 F.2d 467, 478-

479 (5th Cir. 1973).

The final juridical factor that

should have been weighed by the district

court in determining whether to enter

20.

a Rule 54(b) certification, and by the

court of appeals in determining whether

that certification was an abuse of discretion

was the status of Pisano v. Security

Management Co. Inc., 148 Ga. App. 567,

251 S.E. 2d 798 (1978). At the time

of certification the district court

had been informed by documents placed

in the record that the Pisano case was

being appealed to the Georgia Court

of Appeals. That case involved the

same two documents as are at issue in

the case at bar. Rather than holding

the decision on the guaranty in its

breast and proceeding to adjudicate

the 10b-5 claim, the district court

dispatched the ruling on the guaranty

Claim as a final judgment, thus affording

no opportunity for reconsideration of

the ruling upon an authoritative deter-

mination of the issues by the Georgia

21.

courts. The conclusion by the court

of appeals that Pisano had no substantive

significance is based on hindsight,

and was not a conclusion which the district

judge could have reached in the exercise

of discretion at the time of the certification.

The Rule 54(b) certification entered

on this pendent state claim was done

routinely and without reflection. The

request was made by counsel for the

Rothenbergs by means of a letter to

the district judge. There is no indication

that the district judge considered the

juridical concerns referenced in Curtiss-

Wright, since there is no written statement

of reasons supporting the conclusion

reached. (App. at 24a-25a). The district

judge who entered the certification

was not the one to whom the caSe was

Originally assigned, and he was not

the judge who entered the order dismissing

22.

three of the four federal securities

Claims. His opportunity for familiarity

with the case was limited. The factual

and legal relationship between the claims,

as well as the existence of the opportunity

for an authoritative resolution in the

state court, all compel the conclusion

that it was an abuse of discretion to

enter the Rule 54(b) certification.

The decisions by the district court

and the court of appeals are in conflict

with Curtiss-Wright Corp. v. General

Electric Co., supra, Cold Metal Process

Co. v. United Eng. & Fdry. Co., supra,

and Sears, Roebuck & Co. v. Mackey,

Supra.

2. The decisions below are in conflict

with a case decided last term by the

United States Supreme Court and are

in conflict with decisions from the

Second, Third, and Seventh Circuits.

Pd ot *

/ \

A \

In Curtiss-Wright Corp. v. General

Electric Co. U.S. , 64 L.Ed. 2d

— isle pao

1 (1980) this Court reversed a ruling

by the Third Circuit that a district

court had abused its discretion in entering

a Rule 54(b) certification. In reaching

that conclusion, however, this court

noted that the district court had provided

a written statement of reasons supporting

its decision to certify and had identified

the relevant factors supporting its

conclusion. Curtiss-Wright Corp. v.

General Electric Co., supra at 64 L.Ed

2d 9. Thus, while the Supreme Court

did not explicitly hold a written statement

of reason identifying relevant factors

was required, it is implicit from the

opinion in Curtiss-Wright Corp. that

a proper exercise of discretion requires

an articulation of the reasons and an

evaluation of the relevant factors.

24.

In this case, the Court of Appeals

for the Fifth Circuit has expressly

held that a brief, reasoned statement

Supporting that a Rule 54(b) certification

is not required from a district court.

(App. at 4a). This holding is in conflict

with U.S. General, Inc. v. City of

Joliet, 598 F.2d 1050, 1051 (7th Cir.

1979), Arlinghaus v. Ritenour, 543 F.2d

461, 463-464 (2nd Cir. 1976), Gumer

v. Shearson, Hammill & Co., Inc., 516

F.2d 283, 285-286 (2nd Cir. 1974),

and Allis-Chalmers Corp. v. Philadelphia

Electric Co., 521 F.2d. 360, 361-367

(3eq@ Cie. 1975).

The principal reasons for requiring

a written statement are set forth in

Arlinghaus v. Ritenour, supra. As noted

in that opinion, if the district judge

is not required to put his reasons in

writing, the press of business in the

25.

district court may well result in Rule

54(b) certifications being granted routinely

and without the active exercise of discretion.

If these certifications are granted

routinely, then the strong federal policy

against piecemeal appeals would be frustrated.

Requiring a written statement not only

benefits the reviewing court, but it

also benefits the district judge in

reaching his decision. The district

judge in putting his reasons on paper

may find that what might at first appear

to be a proper case for certification

is not one at all. When the reasons

are committed to paper, the reviewing

court is aided in discharging its function

of determining if there has been an

abuse of discretion. Arlinghaus v.

Ritenour, supra at 464.

Petitioners contend certiorari

should be granted to resolve the conflicts

26.

in the circuits. In addition, certiorari

is desirable on this issue so district

judges will not misinterpret Curtiss-

Wright v. General Electric Corp. and

commence entering Rule 54(b) certifications

without committing their reasons to

writing. The long standing policy

against piecemeal review should not

be easily frustrated.

3. The decisions below are in direct

conflict with an authoritative decision

rendered by the Georgia Court of Appeals.

There has been no dispute in any

of the proceedings that Georgia law

applied to the guaranty claim since

the alleged jurisdictional basis was

the concept of pendent jurisdiction.

Clearly, there could have been no argument

that Georgia law would not control.

See United Mine Workers v. Gibbs, 383

U.S. 715, 726 (1966); First Southern

27.

Fed. Sav. v. First Southern Sav., 614

F.2d 71, 73 (5th Cir. 1980); Maternally

Yours v. Your Maternity Shop, 234 F.2d

538, 540 541 (2nd Cir. 1956). The dispute

in this case has centered around determining

Georgia law.

In its opinion, the Fifth Circuit

appears to acknowledge implicitly that

the ruling in Pisano v. Security Management

Co. Inc., 148 Ga. App. 567, 251 S.E.

2d. 798 (1978) would have been authoritative

if the Georgia Court of Appeals had

ruled on the basis of both Document

"A" and Document "B". (App.at 6a).

Such acknowlegement is consistent with

Supreme Court precedents on the binding

nature of rulings by intermediate state

appellate courts on issues of state

law where there is no federal interest

at stake. Commissioner v. Bosch, 387

U.S. 456, 465 (1967); Stoner v. New

28.

York Life Ins. Co., 311 U.S. 464 (1940);

West v. American Tel. & Tel. Co., 311

U.S. 223 (1940); Six Companies v. Joint

Highway District No. 13, 311 U.S. 180

(1940). The issue worthy of certiorari

in the case at bar is that the Fifth

Circuit has misconstrued the opinion

of the Georgia Court of Appeals and

has sanctioned a result which is directly

contrary to the pronounced public policy

of the state of Georgia. Such a ruling

necessarily impacts well established

principles of federalism.

The Pisanos and the Rothenbergs

sued on the same two documents. The

state trial judge and the district judge

ruled on the basis of both documents.

The Court of Appeals of Georgia and

the Fifth Circuit heard the same arguments.

Indeed, counsel for the Rothenbergs

appeared before the Georgia Court of

29.

Appeals in the Pisano Case by way of

an amicus curiae brief. See Pisano

v. Security Management Co. Inc., 148

Ga. App. 567, 570 (1978). The decisional

base of the Fifth Circuit's opinion,

i.e. that the opinion in Pisano did

not treat Document "B", was an issue

argued by counsel for the Pisanos on

motion for rehearing to the Georgia

Court of Appeals and on application

for certiorari to the Georgia Supreme

Court. Clearly, neither the Georgia

Court of Appeals nor the Supreme Court

of Georgia consider the issue to have

any merit since the motion for rehearing

was denied and certiorari was not granted.

The Fifth Circuit reached its conclusion

that the Georgia Court of Appeals did

not rule on the basis of Document "B"

because certain language in the opinion

stated the obligation of the guarantor

30.

was to advance money to the corporations

sufficient to pay the dividends, whereas

Document “B" contained language which

Stated the guarantors were to pay any

short fall in the dividends directly

to the investors of record. Such a

distinction has no substantive merit

when the rationale of the Pisano opinion

is examined, sanctions a result which

is directly contrary to the result reached

in Pisano, and contains the implicit

suggestion that the Georgia Court of

Appeals did not rule on all the issues

before it.

In its opinion, the Georgia Court

of Appeals states that it construed

the evidence adduced by both parties

and examined the documents. Pisano,

Supra at 567 and 569. The court states

it considered ",...seven different predicates

utilized by the trial court in granting

3l.

summary judgment to Davis and [Security]

Management". Pisano, supra at 568.

The opinion contains no language limiting

its affirmance in any way. Rather,

it focuses on the concepts involved

and reaches its result taking into

consideration the public policy of the

state of Georgia.

The opinion of the panel reflects

their fundamental misunderstanding of

the Georgia law concerning guaranties.

The misconception is not surprising

Since none of the Fifth Circuit panel

is Georgia trained, and the Georgia

trained district judge did not have

benefit of Pisano. It is hornbook law

in Georgia that a guaranty involves

three parties, i.e., the guarantor,

the principal, and the beneficiary (or

obligee). GEORGIA ENCYCLOPEDIA OF LAW,

Guaranty and Suretyship §3. Since a

32.

guaranty involves a promise to answer

for the obligation of another, the

obligation of the guarantor is discharged

if the .principal obligation is extinguished.

GEORGIA ENCYCLOPEDIA OF LAW, Guaranty

and Suretyship §24; Acker v. Corinthian

Condominium Corp., 145 Ga.App. 288,

291-292, 243 S.E. 2d 683 (1978). The

obligations of a guarantor are strictly

construed and will not be extended by

implication. Sitzer v. Lang, 145 Ga.

App.159, 243 S.E. 2d 95 (1978).

In the case at bar, the obligation

of the guarantors under either document

was direct since both documents provided

for a direct right of action against

the guarantor. (App. at 36a and 48a).

Since the direct right of action existed,

it makes no difference in the Pisano

analysis whether the language of the

document specified the money for the

33.

dividends was to be paid directly to

the investors by the guarantors or advanced

by the guarantors to the company and

then paid to the investors. The direct

or indirect payment of the dividends

by the guarantors would not affect the

guarantors' rights against the company.

In either case, the guarantors would

have a claim for reimbursement against

the company, aS principal. GEORGIA

ENCYCLOPEDIA OF LAW, Guaranty and Suretyship

§28.

With an understanding of the principles

of Georgia law on guaranties, the rationale

of the Pisano opinion becomes clear.

The Pisano court was referring to the

entire bundle of rights held by the

Pisanos, and hence did not need to refer

to the different documents as separate

guaranties. Davis and Security Management,

as guarantors, were obligated to pay

34.

to the Pisanos dividends, if the dividends

were not paid by Properties. What discharged

the obligation to pay the dividends

was the insolvency and bankruptcy of

Properties which made it legally imper-

missible for Properties to pay dividends.

Georgia Code §22-5ll(a).

The public policy considerations

in the Pisano opinion arose as a result

of the arguments made by the Pisanos.

They contended, as do the Rothenbergs,

that the bankruptcy of the corporation

and its resultant legal inability to

pay dividends did not result in a discharge

on the guaranty since the bankruptcy

of the principal does not generally

discharge the guarantor. See Texaco,

Inc. v. Hurt, 118 Ga. App. 413, 164

S.E. 2d 278 (1968). The Georgia Court

of Appeals' answer to that contention

was that such a construction of the

35.

documents would mean that the Pisanos,

the Rothenbergs, and others holding

that class stock were creditors of the

corporation rather than stockholders,

and a thorough examination of the documents

reflected they were stockholders, not

creditors. The Georgia Court of Appeals

ruled the public policy of Georgia precluded

converting the plain language of the

documents into a loan contract which

would result in converting stockholders

into creditors in the event of corporate

insolvency. Pisano, supra at 569-579.

The effect of the opinion by the

Fifth Circuit is to sanction a result

which is in conflict with the pronounced

public policy of Georgia. The documents

in question, according to the Georgia

Court of Appeals, should not be construed

to turn the shareholder agreements and

guaranty contract into a loan agreement.

36.

That is precisely what the Fifth Circuit

has done.

Petitioners respectfully urge the

grant of the writ of certiorari to correct

the misinterpretation of Georgia law.

The Fifth Circuit opinion resurrects

the ghosts sought to be laid to rest

by Erie Railroad Company v. Tompkins

304 U.S. 64 (1938). Certiorari should

be granted to avoid needless friction

between the federal and Georgia court

systems.

4. The refusal of the Fifth Circuit

to certify questions or to enter a stay

is in direct conflict with decisions

of the United States Supreme Court.

After the panel rendered its decision,

the petitioners filed a state court

action seeking a declaratory judgment

with respect to both Document "A" and

Document "B". Petitioners also moved

the Fifth Circuit to stay its hand pending

resolution of the declaratory judgment

action. The motion was denied on July

21, 1980.

As was argued by petitioners on

rehearing, certification would have

been one proper alternative. Lehman

Brothers v. Schein 416 U.S. 386 (1974).

The Fifth Circuit panel contained no

lawyers trained in Georgia law. The

Georgia-trained district judge did not

have benefit of the Pisano opinion at

the time he rendered his ruling, so

he could not assess the policy implications

of the decision. Further, it is not

unheard of for the Fifth Circuit to

misconstrue state law. See Lehman Brothers

v. Schein 416 U.S. 386, fn. 6 (1974);

Brown, Certification-Federalism in Action,

7 CUMBERLAND L. REV. 456 (1977). Certifi-

cation is available in Georgia and has

38.

been utilized by the Fifth Circuit.

Miree v. United States, 242 Ga. 126,

249 S.E. 2d 573 (1978).

Less cumbersome than a certification

would be the entering of a stay to afford

the Georgia courts the opportunity to

provide an authoritative resolution

to the state law issues. Many of the

general policy arguments for granting

a stay in a case involving issues of

state law are set forth by Judge Brown

of the Fifth Circuit in his concurring

opinion in United States Life Insurance

Company v. Delaney 328 F.2d 483, 485-

489 (5th Cir. 1964) (en banc), and in

his concurring and dissenting opinion

in W.S. Ranch Co. v. Kaiser Steel Corpor-

ation, 388 F.2d 257, 262-267 (10th Cir.

1967), reversed Kaiser Steel Corp. v.

W.S. Ranch Co., 391 U.S. 593 (1968)

39.

(per curiam). This case goes one step

further. Since there is no independent

federal jurisdiction for the state law

Claim (diversity is not present), the

federal courts are under no duty to

adjudicate the guaranty claim. The

exercise of pendent jurisdiction is

a matter of discretion; needless decisions

of state law should be avoided to promote

comity and justice between the litigants

since only state courts can authoritatively

determine state law. United Mine Workers

v. Gibbs, 383 U.S. 715, 726 (1966).

The state forum (the Superior Court

of DeKalb County, Georgia) is available

which can provide an authoritative resolution.

The Pisano decision reflects important

policy concerns of the state of Georgia;

the federal court of appeals has sanctioned

a result in contravention of that policy.

The federal judiciary should not preclude

a resolution of state policy concerns

by the Georgia courts.

EA a Oe. ae TST e eRe eNO NTT n

40.

The denial of the motion for a

stay is in direct conflict with Kaiser

Steel Corp. v. W.S. Ranch Co., 391 U.S.

593 (1968) (ver curiam). Georgia courts

can provide a speedy resolution to the

state law issues and should be allowed

to do so.

CONCLUSION

For the foregoing reasons, a writ

of certiorari should be issued to review

the judgment and opinion of the Fifth

Circuit.

Robert A. Elsner

Counsel for Petitioners

J. Timothy White

J. Michael Lamberth

On the Petition

[APPENDIX FOLLOWS]

la.

Jack ROTHENBERG and Shirley

Rothenberg, Plaintiffs-Appellees,

Vv.

SECURITY MANAGEMENT CO.,

INC., et al.,

Defendants-Appellants.

No. 78-2631.

United States Court of Appeals

Fifth Circuit

May 29, 1980.

Appeal from the United States Dis-

trict Court for the Northern District

of Georgia.

Before GOLOBERG, CHARLES CLARK

and THOMAS A. CLARK, Circuit Judges.

PER CURIAM:

In affirming the instant appeal,

we write to clarify two points, one

procedural and one substantive.

1. Rule 54(b) Certification

[1] Davis and Security Management

2a.

Co., Inc., urge the following as the

law of this circuit: "In entering a

rule 54(b) certification [Fed.R.Civ.P.

54(b)], a district court should include

a statement explaining its reasoning

for determining [that] there is no just

reason for delay." In support of this

proposition, they cite Huckeby v. Frozen

Food Express, 555 F.2d 542, 550 (5th

Cir. 1977), and Schwartz v. Compagnie

General Transatlantique, 405 F.2d 270,

274-275 (2d Cir. 1968). Neither authority

Supports this assertion. In the disposition

portion of Huckeby, this circuit declined

to review the dismissal of a would-be

intervenor's complaint in a Title VII

action but pointed out that on remand

the district court could be asked to

determine whether rule 54(b) was applicable.

Our mandate stated, "In the event that

the district court decides to certify

3a.

its order for appeal, it should include

a brief statement explaining why there

is no just reason for delay. Gumer

v. Shearson, Hammill & Co., Inc., 516

F.2d 283, 286 (2d Cir. 1974); Allis-

Chalmers Corp. v. Philadelphia Electric

Co., 521 F.2d [360] at 364 [3d Cir.]."

555 F.2d at 550. Thus, in a case already

subjected to extensive review, we found

it appropriate in our mandate to require

the inclusion of a brief statement of

reasons if the district court on remand

exercised its discretionary power to

proceed under rule 54(b). We did not

go as far as the Second and Third Circuits

in the cases cited above as to "suggest"

to district courts that they make a

brief, reasoned statement in support

of their determination in all rule 54

(b) certifications. See Gumer v. Shearson,

Hammill & Co., Inc. 516 F.2d at 286.

‘

Nor did we exercise our supervisory

4a.

power to include Gumer's practice "as

a requirement for all rule 54(b) certifi-

cations." A}lis-Chalmers Corp. v. Phil-

adelphia Electirc Co., 521 F.2d at 364.

Rule 54(b) contains no specific

requirement that a district court include

a statement explaining its reasoning

for applying the rule. Huckeby did

not intend to supplement the rule as

a matter of general practice. The in-

clusion of such a statement is left

to the discretion of the district court

and is not imposed as a requirement

in all cases. Thus, the district court

was not in error in making the rule

54(b) certifications without such an

explanatory statement. However, when

the case is of such a nature that the

reasons for the 54(b) certification

are unclear, it may be necessary for

5a.

adequate appellate review to require

that the district court's reasons be

Stated. What is said here is intended

to encourage, not inhibit, such helpful

explanations in any future cases, although

we hold only that it is not a required

procedure in this circuit at this time.

2. Interpretation of the Guaranty.

[2] Davis and Security Management

Co., Inc., complain that the rule 54(b)

certification in the instant case prevented

the district court from knowing that

the Georgia Court of Appeals would reach

a contrary result in a case styled Pisano

v. Security Management Co., Inc., 148

Ga.App. 567, 251 S.E.2d 798 (1978).

The chronology shows that the district

court below granted plaintiff's motion

for partial summary judgment on January

26, 1978, and denied a motion for recon-

sideration on April 18, 1978. The State

6a.

Court of Fulton County entered its order

and judgment in Civil Action No. 621029,

styled Pisano, et al. v. Davis and Security

Management Co., Inc., on May 12, 1978.

The rule 54(b) certification in the

instant case was made on June 30, 1978,

after the district court had been advised

that the Georgia decision in Pisano

was on appeal. The Georgia Court of

Appeals rendered its decision on November

14, 1978, and denied rehearing on December

20, 1978. The Supreme Court of Georgia

denied certiorari on February 7, 1979.

Pisano would have substantive signif-

icance only if the Georgia court had

authoritatively interpreted the legal

meaning of the guaranty agreement on

which the district court depended.

We determine that it did not. Thus,

there was no conflict between the decision

of the Georgia Court of Appeals and

the district court.

7a.

The controversy centers upon whether

the Georgia adjudication interpreted

the so-called B guaranty or limited

its construction to the A guaranty only.

The original complaint in Pisano was

based upon the A guaranty only. MThree

days before the entry of the decision

of the state court of Fulton County,

the complaint was amended also to exhibit

the B guaranty. The order and judgment

of the Fulton County court was placed

on three alternative grounds. The first

was that plaintiffs acknowledged that

neither guaranty was known to them at

the time they purchased their stock.

The court concluded initially that the

lack or reliance meant that plaintiffs

could not recover judgment on either

document. The second alternative ground

found no evidence in the record entitling

plaintiffs to proceed on the B guaranty

8a.

and that the A guaranty alone entitled

the defendants to summary judgment based

upon the construction of that instrument.

The third alternative ground viewed

the A and B guaranty together and concluded

that the defendants were entitled to

judgment as a matter of law.

The language of the opinion of

the Georgia Court of Appeals discusses

and analyzes a single guaranty instrument,

one that obligated the guarantors in

the event of non-payment of a quarterly

dividend to advance the corporation

sufficient funds in the form of a loan

to enable the company to pay the stipulated

dividend. The Court of Appeals was

describing the A guaranty only. The

guaranty agreement relied upon by the

district court in this case is obviously

the B guaranty, which contained an obligation

9a.

directly from the guarantors to the investors,

including the Rothenbergs.1l Thus, there

is no conflict between the ultimate

resolution of the Georgia case and the

decision in the court below.

All other points raised by the

instant appeal are without merit.

AFFIRMED.

1. Guaranty B provides as follows:

GUARANTORS' OBLIGATION AS TO DIVI-

DENDS

The Guarantors, jointly and severally,

guarantee to the Investors of record,

their successors and assigns (if said

successors and assigns are allowed by

the Articles of Incorporation of the

Company) that the Company will distribute

an annual cash dividend of .5625 Dollars

per share, payable quarterly, for each

outstanding share of Classes B, C and

D cumulative stock held by the Investors

of record. If, during any such quarter,

the Company does not distribute such

an amount, and such amount is due pursuant

the Articles of Incorporation of the

Company, the Guarantors will, within

thirty days after the end of such quarter,

pay the Investors of record an amount

equivalent to the difference between

10a.

the quarterly amount owed to said Investors

and the dividends actually paid during

that quarter. For the purpose of this

paragraph the quarterly periods shall

be computed from the beginning of the

year following the incorporation of

the Company.

Notwithstanding the foregoing,

the Guarantors, jointly and severally,

guarantee to the Investors of record,

their successors and assigns (if said

successors and assigns are allowed by

the Articles of Incorporation of the

Company) that the Company will, by December

31, 1972, have distributed as cash dividends

an amount at least equal to .234375

Dollars, a sum equivalent to 5/12 of

the annual dividend, for each outstanding

share of Classes B, C and D cumulative

stock held by the Investors of record.

If the Company does not distribute such

an amount, the Guarantors will, within

thirty days after December 31, 1972,

pay to the Investors of record an amount

equivalent to the difference between

-234375 per share, a sum equivalent

to 5/12 of the annual dividend, and

the dividends actually paid to the point

of time.

lla.

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 78-2631

JACK ROTHENBERG and

SHIRLEY ROTHENBERG,

Plaintiffs-Appellees,

versus

SECURITY MANAGEMENT CO.,

INC., ET AL.,

Defendants-Appellants.

July 21, 1980

Appeal from the United States District

Court for the Northern District of Georgia

Before GOLDBERG, CHARLES CLARK and THOMAS

A. CLARK, Circuit Judges.

12a.

BY THE COURT:

IT IS ORDERED that appellants’

motion to stay further appellate proceedings

and issuance of mandate is denied.

13a.

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF GEORGIA

ATLANTA DIVISION

JACK ROTHENBERG

and SHIRLEY ROTHENBERG

V. CIVIL ACTION

FILE NO. C77-151A

SECURITY MANAGEMENT CO., INC.;

SIDNEY I. ROSE; GEORGE S. STERN;

BRUCE R. DAVIS; HARVEY U. RUBIN;

and SIDNEY I. ROSE and GEORGE

S STERN d/b/a ROSE & STERN,

A Georgia Partnership.

(Filed January 27, 1978)

ORDER

This action arises from alleged

violations of federal and Georgia securities

laws. Court orders of June 30, 1977

and November 17, 1977 disposed of several

motions, but the parties have returned

to the court at this time for a disposition

14a.

of further difficulties.

1. Pending before the court is

a motion for partial summary judgment.

The focus of the motion is Count VIII

of the complaint which concerns a guaranty

executed by defendants Bruce R. Davis

and Security Management Co., Inc. ("SMI")

The guaranties were executed on

August 1, 1972. The first promises

investors of record in Security Investment

Properties, Inc. stock a return of

".5625 Dollars per share, payable quarterly."

It provides further:

If, during any such quarter,

the Company does not distribute

such an amount, and such amount

is due pursuant to the Articles

of Incorporation of the Company,

the Guarantors will, within thirty

days after the end of such quarter,

pay to the Investors of record

15a.

an amount equivalent to the difference

between the quarterly amount owed

to said Investors and the dividends

actually paid during the quarter.

Plaintiffs allege Shirley Rothenberg,

as investor of record in 8000 shares

of common stock, actually received $8,625.00.

Plaintiffs allege $50,000.00 was actually

due under this guaranty and seek an

award in this motion of $41,375.00.

Defendants Davis and SMI first

argue that plaintiffs may not proceed

on the guaranty because they have elected

the remedy of rescission and restitution.

Although plaintiffs may have sought

recission and restitution while seeking

to enforce this contract, Rule 8(a)

Federal Rules of Civil Procedure clearly

provides for the demand of alternative

forms of relief. Defendants do not

argue restitution has been made and

16a.

the bar to inconsistent relief would

not arise as a defense to this motion.

Next, defendants point to the second

guaranty which only obligates them to

make loans to SIP in the event of SIP's

inability to make the promised payments.

Defendants note SIP has filed for bankruptcy

and under the provisions of Ga. Code

Ann. §22-5ll(a), an insolvent corporation

may not pay dividends.

Whatever the merits of defendant's

arguments as to the second guaranty,

they have ignored their obligations

under the aforementioned first guaranty.

The obligation to make payment of the

dividends is clear and unequivocal under

the first guaranty. The two contracts

are separate and independent and do

not require reference to one in interpreting

the other. The contract is plain and

its construction is for the court.

17a.

Ga. Code Ann. §20-701. The inability

to enforce one contract will not forestall

enforcement of obligations on the other

where the true intention is clear.

See, Carsello v. Touchton, 231 Ga. 878,

880 (1974). ...

6. Accordingly, the motion for

partial judgment as to Count VIII is

GRANTED. The motion to compel production

of documents is GRANTED. The motion

to compel answers to interrogatories

is GRANTED. The motion to withdraw

as counsel is GRANTED. The Motions

to amend are GRANTED.

SO ORDERED this 25th day of January,

1978.

/s/ Harold L. Murphy

UNITED STATES DISTRICT

JUDGE

18a.

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF GEORGIA

ATLANTA DIVISION

JACK ROTHENBERG and

SHIRLEY ROTHENBERG

Vv. CIVIL ACTION

FILE NO. C77-151A

SECURITY MANAGEMENT

CO., INC.; et al.

(Filed April 20, 1978)

ORDER

This action arises from alleged

violations of federal and Georgia securities

laws. On January 25, 1978, the court

granted a motion for partial summary

judgment and several discovery motions.

These issues have now been disputed

anew.

1. Pending before the court is

19a.

the motion for reconsideration of defendants

Security Management Co. ("SMI") and

Bruce R. Davis. Movants contend the

document upon which the court based

its grant of partial summary judgment

was not properly authenticated and was

not proper for consideration on the

motion. It is clear, however, that

a summary judgment will be upheld “where

material introduced pursuant to that

motion was uncertified, or otherwise

inadmissible, and yet unchallenged".

Davis v. Howard, 561 F.2d 565, 569 (5th

Cir. 1977). See, Auto Drive-Away Co. v.

I.C.C., 360 F.2d 446, 448 (5th Cir.

1966); Lawson v. American Motorists Ins.

Co., 217 F.2d 724, 726 (5th Cir. 1954).

Defendants' objections, however meritorious,

have been waived.

Defendants contend an ambiguity

was created by the existence of two

20a.

guaranties with small, yet potentially

significant differences. Defendants

contend the existence of these distinctions

has created a jury question. The defendants

are not supported by the law of Georgia

in this contention, however. "Construction

of written contracts, even if they are

ambiguous, is a matter for the court."

A jury issue arises only if the ambiguity

remains after application of the relevant

rules of construction. Hardin v. Great

Northern Nekoosa, 237 GA. 594, 597 (1976);

Chalkley v. Ward, 119 Ga. App. 227,

235 (1969).

The relevant rule of construction

requires that two instruments executed

at the same time, between the same parties,

relative to the same subject matter,

be taken as parts of the same agreement.

See, Hardin, supra; Peerless Casualty Company

v. Housing Authority, 228 F.2d 376,

21a.

381 (5th Cir.1955). The agreement

before the court therefore requires

the Guarantors (movants here) to lend

Securities Management Properties, Inc.

("SMP") the amount necessary for SMP

to satisfy it's dividend obligations.

When SMP became insolvent, the payment

of dividends was barred by law. Ga.

Code Ann. §22-51l)a). In this instance,

the agreement provides for the payment

of dividends by the Guarantors. It

was the Guarantor's direct payment obligation

the court was enforcing in making the

grant of summary judgment. Other inter-

pretations might be possible, but none

would completely avoid the agreement

the Guarantors strive so hard to ignore.

2. The defendants contend summary

judgment is not proper in the full amount

of $41,375.00 because of the majority

22a.

of this sum is not yet due. "Where

a party bound by an executory contract

repudiates his obligation before the

time for performance, the other party

has the option tc treat the contract

as ended so far as future performance

is concerned, and to maintain an action

at once for the damages occasioned by

the breach." City of Royston v. Littrell

Engr. Co., 87 Ga. App. 903,906 (1953).