Richard S. CALDWELL et al. v. TRANS-GULF PETROLEUM CORP. et al.
No. 56361.
Supreme Court of Louisiana
November 3, 1975
Rehearing Denied December 5, 1975
322 So. 2d 171
CALOGERO, Justice.
Graham Stafford, Schumacher, McGlinchey, Stafford, Mintz & Hoffman, New Orleans, for plaintiffs-respondents.
CALOGERO, Justice.
This case presents two legal issues for our determination:
(1) Is a fractional, undivided interest in a non-producing oil and gas lease a security
(2) Does a material issue of fact exist as to the liability of the three defendants herein who have been cast for return of the purchase price by a decision of the trial court sustaining plaintiffs’ motion for summary judgment?
Plaintiffs, Richard S. Caldwell and Nano John Turchi, filed suit against Trans-Gulf Petroleum Corporation, Hugh M. Sneed, and William J. Sneed, among others, for the return of the purchase price of fractional, undivided interests in certain nonproducing oil and gas leases, and reasonable attorneys’ fees. After securing admissions and answers to interrogatories, and taking several depositions, plaintiffs moved for and were granted summary judgment in their favor. On appeal to the Second Circuit that court unanimously affirmed the trial court‘s granting of plaintiffs’ motion for summary judgment against the aforementioned parties. The trial court‘s award of attorneys’ fees to plaintiffs was reversed and remanded by the Court of Appeal for further proceedings, because the court found that a genuine issue of fact existed as to the amount of such attorneys’ fees.
We granted writs upon application of the aforementioned defendants.
Securities, as defined by
It is not denied that the fractional interests in the oil and gas leases purchased by plaintiffs were in fact not registered with the Commissioner of Securities for the State of Louisiana.1
Defendants contend, however, that interests in oil and gas leases are not securities under the provisions of the Louisiana Blue Sky Law,
Two pertinent provisions of the Act which bear upon resolution of this issue are
Definitions
When used in this part, the following terms shall, unless the text otherwise indicates, have the following respective meanings:
(1) Security shall include, any note, stock, treasury stock, bond, debenture, evidence of indebtedness, warehouse receipt, certificate of interest of participation, or the right to subscribe to any of the foregoing, certificates of interest in a profit sharing agreement, certificate of deposit for a security, collateral trust certificate, pre-organization certificate, pre-organization subscription, voting trust certificate, any transferable share, investment contract, or beneficial interest in title to property, profits or earnings, or in general, any interest or instrument commonly known as a security, or any certificate of interest or participation in, temporary or interim bond, debenture, note, certificate, or receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. Security does not include any insurance or endowment policy or annuity contract fixed or variable, which is authorized to be written pursuant to Title 22 of the Louisiana Revised Statutes of 1950, as amended. (Emphasis provided)
. . . . . .
(5) Issuer shall mean and include every person who proposes to issue, has issued or who shall hereafter issue any security. Any person who acts as a promoter for and on behalf of a corporation, trust or unincorporated association or partnership of any kind to be formed shall be deemed to be an issuer. With respect to interests in oil, gas or mineral leases, royalties, or servitudes, any person who shall divide any interest in any such security for the purpose of sale of fractional parts thereof to the public shall be deemed an issuer. (Emphasis provided)
Although the Act does not in the definition of “security” specifically denominate fractional interests in oil, gas, and other minerals as securities, the definition of “issuer,” as may be seen from the underscored language above, includes persons “who shall divide any interest” in oil, gas or mineral leases “for the purpose of sale of fractional parts thereof to the public.” In this very sentence the type of mineral leasehold interest with which we are concerned in this lawsuit is referred to as a security (“. . . in any such security.“)
The apparent intent of this provision is to make the public sale of mineral leasehold rights, which have been fractionalized by the offeror, subject to the Act, but to make the Act inapplicable both where the owner publicly sells the entirety of his interest, and where he creates a fractional interest but not for the purpose of sale to the public.2
Although we agree with the result of the Court of Appeal in this case, that court relied upon the term “beneficial interest in title to property” (which is part of the definition of “security” in the Act) as including these sales of fractional working interests in non-producing oil and gas leases.
We find it unnecessary to conclude that interests in oil, gas, and mineral leases, or fractional interests thereof, fall within the language “beneficial interest in title to property, profits or earnings,” the provision in the Act‘s definition of “security” most nearly encompassing those mineral leasehold interests,3 in light of the fact that
Defendants argue that the inclusion in the act of the “issuer” definition of
While the foregoing is not, arguably, entirely without merit, we feel that the language contained in
We note that the Court of Appeal in its opinion did not specifically find that defendants’ public sales were of leasehold rights which had been fractionalized by defendant-offerors, but it is evident from a review of the record that such was the case. The secretary, Mr. William J. Sneed, admitted that he periodically received breakdowns of the people who had purchased fractional interests, along with the particular undivided fractional interest purchased by each such person. The president, Mr. Hugh Sneed, testified that the company was attempting to raise money by soliciting sales from members of the public, that he knew that fractional interests were being sold, and that “sometimes they got orders in the field when people would confirm then cancel out and it would place the company in a mighty embarrassing position.” It is evident, therefore, that defendants were not simply selling the entirety of acquired interests nor simply creating fractional interests for purposes other than sales to the public. But rather they were fractionalizing the leasehold rights prior to and for the purpose of sale to the public.
Alternatively defendants contend that the sales here involved are exempt transactions under the provisions of
Exempt Transactions
(12) Any transaction pursuant to an offer directed by the offeror to not more than ten persons in this state during any period of twelve consecutive months, whether or not the offeror or any of the offerees is then present in this state, if:
(a) The seller reasonably believes that all buyers in this state are purchasing for investment, and;
(b) no commissions or other remuneration is paid or given directly or indirectly for soliciting any prospective buyer
in this state; but the commissioner may by rule or order, as to any security or transaction or any type of security or transaction, withdraw or further condition this exemption, or increase or decrease the number of offerees permitted, or waive the conditions in subparagraphs (a) and (b) with or without the substitution of a limitation on remuneration. (Emphasis provided)
Defendants presented depositions and affidavits in connection with the motion for summary judgment to the effect that they did not direct their offer to more than ten persons in this state during any period of twelve consecutive months, that they reasonably believed that all buyers in the state were purchasing for investment, and that no commission or other remuneration was paid or given for soliciting any prospective buyer in the state.
From the depositions of William Sneed, Hugh Sneed and Clarence L. Apple, Jr., it is apparent that a commission of ten percent was paid to Apple for consummating the sale of fractional interests in the gas leases. Thus, defendants’ contention essentially is that Apple and others were not paid for soliciting prospective buyers but rather were paid for selling the fractional interests.
We agree with the Court of Appeal‘s treatment of this argument and its expression that accepting as true all defendants’ contentions, at a very minimum, the commission paid on a sale is an indirect remuneration for the solicitation of a prospective buyer. See
The sole remaining contention by defendants is that for liability of William J. Sneed and Hugh M. Sneed to attach under the statute they must be found to be included in
R.S. 51:715 . Civil Liabilities. . . . . .
B. Every person who directly or indirectly controls a seller liable under Subsection (A), every partner, officer, or director of such a seller, every person occupying a similar status or performing similar functions, every employee of such a seller who materially aids in the sale, and every broker-dealer or agent who materially aids in the sale are also liable jointly and severally with and to the same extent as the seller, unless the nonseller who is so liable sustains the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of the existence of the facts by reason of which the liability is alleged to exist. There is contribution as in cases of contract among the several persons so liable. (Emphasis provided)
The Court of Appeal found that no dispute exists in regard to the actions of Hugh M. Sneed and William J. Sneed which render them personally liable under the provisions of
The supportive evidence showed without contradiction that these two individuals were the principal officers of Trans-Gulf Petroleum Corporation. They admitted attending all directors’ meetings and having full knowledge of all material facts surrounding solicitations and sales, as well as the non-registry of the securities involved.
For the foregoing reasons the writ heretofore issued is recalled and the judgment of the Court of Appeal is affirmed.
DIXON, J., dissents and assigns reasons.
BOLIN, J., takes no part.
Richard S. CALDWELL et al. v. TRANS-GULF PETROLEUM CORP. et al.
No. 56361.
Supreme Court of Louisiana
November 3, 1975
DIXON, Justice (dissenting).
I respectfully dissent.
It seems to me that the blue sky law, being penal in nature, should not be expanded to control transactions not clearly included in the definitions of “securities.”
Oil, gas and mineral leases in Louisiana are not securities. They are real rights. In Louisiana, an undivided interest in land and an undivided interest in mineral leases are, in general, treated alike.
Contrary to the view of the majority, the preferred interpretation of