John B. Fawcett v. Robert H. Heimbach

In the summer of 1980, Heimbach had the opportunity to purchase
shares of common stock in Medical Graphics Corporation (MGC). The
stock was "legend stock," and it could not be sold, traded or
pledged for a period of two years. The minimum block of shares
that could be purchased was 8,000.

Heimbach was not financially able to purchase the minimum
increment and asked Fawcett to join him in the purchase of the
stock. Heimbach and Fawcett agreed they would contribute equally
to the purchase of 8,000 shares at $1.90 per share. Their
agreement was memorialized in a document entitled "Letter of
Understanding," dated August 21, 1980. The agreement provided
Heimbach and Fawcett would hold equal and undivided interests in
the shares and the shares would be sold only by agreement of both
parties with the proceeds divided equally. Pursuant to the
parties' agreement, a certificate for 8,000 shares was purchased
and held in Heimbach's name for the benefit of both parties.

On March 4, 1983, Heimbach sold 1,500 shares of the MGC stock at a
price of $11.75 per share and received $17,623.50. Heimbach did
not request Fawcett's permission to sell the shares. He also
failed to disclose the sale to Fawcett and did not divide the
proceeds.

On April 23, 1983, Heimbach sold 1,000 shares of stock at a price
of $11.00 per share. The sale was again made without permission
from or disclosure to Fawcett. The proceeds of the sale were not
divided.

In the summer of 1983, Fawcett wanted to sell some shares and
approached Heimbach. Heimbach agreed, and a formal addendum was
written for the contract. During the conversations leading up to
this sale, Fawcett also gave permission to Heimbach to sell 1,000
shares for his own benefit. This effectively ratified the sale of
shares Heimbach made in April 1983, but Heimbach did not disclose
the earlier sale to Fawcett in the course of the transaction.

On September 15, 1983, Heimbach again sold shares without telling
Fawcett and without sharing the proceeds of the sale. Heimbach
sold 500 shares of the stock at $12.00 per share, receiving a
total of $5,839.88.

Sometime prior to January 1985, Heimbach deposited the remaining
4,000 shares of the stock he and Fawcett had purchased in a margin
account in his own name. He also pledged the shares of stock as
security and, through the margin account, borrowed funds against
those shares. Heimbach did not advise Fawcett of these actions.

Heimbach initially borrowed $3,443 against the shares. In April
1985, he used the shares as security to borrow an additional
$2,214.42. On May 16, 1986, Heimbach borrowed $9,632.90. On August
6, 1986, Heimbach borrowed $8,751.75. On August 28, 1986, Heimbach
borrowed $5,202.

Although previous borrowings had been used to purchase stock that
remained in the margin account, the August borrowing resulted in a
check payable to Heimbach or to his order. This money was not
divided with Fawcett.

In October 1986, Heimbach borrowed $7,001.75, which he used to
purchase MGC stock. This stock remained in the margin account. By
January 1987, the value of the stock reached $14.50 per share. In
February 1987, Heimbach increased the debt against the stock by
more than $25,000. The

indebtedness of the margin account exceeded the value of the shares.
On November 5, 1986, the shares of stock were sold as part of a margin
call. Heimbach subsequently was required to pay in $16,000 to balance
the account. During the entire sequence of events, Heimbach never advised
Fawcett that he had deposited the shares in a margin account or that the
shares had been sold.

Between 1980, when the MGC stock was purchased, and 1994, the
parties spoke two to four times per year regarding the stock. On
occasion, when the value of the stock was high, Fawcett questioned
whether they ought to sell their remaining shares of stock.
Heimbach did not disclose that the original shares had been sold
or lost; instead, he made statements to lead Fawcett to believe
the stock was still held pursuant to their agreement and that
holding the stock was a wise investment.

On March 11, 1994, Fawcett asked Heimbach to arrange to have
Fawcett's shares of MGC stock placed in his name. Although the
shares had been lost due to the margin call, Heimbach initially
told Fawcett the shares were encumbered in a margin account. He
did not admit his actions until Fawcett demanded he "come clean."
Heimbach simultaneously purchased 3,000 shares of the stock at the
then-current market price of $6.75 per share and gave Fawcett a
certificate for 3,000 shares of MGC stock on May 13, 1994.

On September 11, 1996, Fawcett filed an action for conversion,
fraud, breach of contract, and breach of fiduciary duty against
Heimbach.

The court found that Heimbach converted Fawcett's shares on three occassions. It concluded the damages for each instance of conversion would be the value of the stock at the time of the conversion. The court held Heimbach violated Minn.Stat. sec. 80A.01 and Fawcett was entitled to recover attorney fees under Minn.Stat. sec. 80A.23, subd. 2.

Unknown

Unknown

Affirmed in part and reversed in part by the Court of Appeals of Minnesota. See: 591 N.W.2d 516 (Minn.App. 1999). The date shown above is the date of the appellate court decision and not the trial date.