Seaboard Planning Corp. v. PowellSeaboard Planning Corp. v. Powell
“Blue Sky” laws are the basis of the suit of complainants, Edward P. Powell and wife, Lessie S. Powell (Powells), seeking rescission and damages for misrepresentation and fraud in the sale of securities to
Chief issues are: (1) Were the Powells defrauded and, if so, should Lexton be held liable along with Yates and Seaboard? (2) Are the Powells entitled to attorneys’ fees? Also argued is the two year statute of limitations. Yates was a self-employed security salesman and tax practitioner in Taylorsville, Mississippi, where he prepared tax returns for clients, including the Powells. In 1973 he became a qualified and registered security agent, certified by the secretary of state. Yates learned that the Powells, with limited education, sold their farm (which he knew was their only substantial asset) for approximately $70,000. When the seventy-seven-year-old Mr. Powell (Mrs. Powell was sixty-eight) discussed with Yates the matter of buying bonds, Yates discouraged him from buying bonds and called one Verilli (of Seaboard) to recommend an investment for Mr. Powell. Verilli put Yates in contact with McGavern, Vice-President of Lexton-Ancira, Inc., and general partner of Lexton-Ancira Real Estate Income Partners, Ltd. Lexton-Ancira Real Estate Income Partners, Ltd. is a limited partnership established to obtain current cash flow and tax advantages for the limited partners as well as capital growth through debt reduction and appreciation in real estate values which was accomplished by investing in real estate. The promoters sell limited partnership units (which Yates sold the Powells) to persons in higher federal income tax brackets, and by taking advantage of the depreciation provisions of the federal revenue statutes and regulations, produce considerable tax savings. Not sued were the limited partners: participants only in the profits and losses of the enterprise. Their liability is limited to the extent of their investment in the partnership, and they have no control over the actions of the partnership which the general partners manage. Persons in low income tax brackets generally do not profit from this type partnership.
McGavern sent Yates a prospectus, and after Yates had given it a cursory examination he drove to the Powells’ house on December 21, 1973. Yates told the Powells that he recommended this investment, and that this was a correct vehicle if Mr. Powell needed his money immediately. He also told them that the company intended to pay eight percent interest. During this approximately one hour interview, the Powells did not read the prospectus, and Yates did not discuss the entire prospectus with them. Yates succeeded in selling them forty units of the limited partnership for which Powell wrote Yates a $20,000 check.
Yates knew that the year of the sale was the only year that Mr. Powell had anything to sell to create any substantial tax liability, and that in the next year Mr. Powell, in all likelihood, was going to be back in a low income tax bracket, but did not explain this to them. Mr. Powell, a farmer most of his life, quit farming in 1965 because of a hip operation, and sold his farm because he was unable to take care of a large acreage. He had never owned corporate stock and did not know what a prospectus or a mutual fund order was. Mr. Powell had only a
The Powells received $400 checks representing eight percent interest on their investment the first two quarters of 1974, but the third quarterly dividend check was only $200 instead of $400. Mr. Powell complained to Yates in October 1974, and Yates made reassuring statements to Mr. Powell at that time. At the end of 1974, Powell received no check at all from Lexton, and came back to Yates to question him. When he did not get a satisfactory answer from Yates, he retained a lawyer and filed suit. Yates had written Lexton regarding liquidation of the Powells’ investment but was told that the securities had no established market and no cash-in value.
WAS YATES’ MISREPRESENTATION OF MATERIAL FACTS SUFFICIENT TO CONSTITUTE FRAUD, MAKING HIM AND SEABOARD LIABLE? To satisfy the general requirements of legal fraud, the proof must show, among other facts, that the party charged made false representations knowingly, or unknowingly under such circumstances that he ought to have known they were false whether he did or not. Scienter in a literal sense is not an essential ingredient of actionable fraud where, as here, Yates “should have known” his representations were false. Mayfield Motor Co., Inc. v. Parker, 222 Miss. 152, 159, 75 So.2d 435 (1954). There is no question that Yates was the agent of Seaboard and acted as such.
There is in the record testimony to the following: Yates never read the prospectus in full and failed to tell Powell that the investment involved a high degree of risk; Powell, though contradicted by Yates, testified that Yates promised him a guaranteed return of eight percent per annum, and that the investment could be cashed in at any time with a small discount. The record shows that when Powell asked Yates, “How can I get my money back? What can I do to get my money back?” Yates’ answer was, “I told him this was a correct vehicle if he needed money immediately... .” Yates claimed that he left a prospectus with Powell but Powell denied this.
We hold that Yates (Seaboard‘s registered agent), under the evidence, was correctly found by the chancellor to be guilty of legal fraud under
IS THE POWELLS’ CAUSE OF ACTION BARRED BY THE STATUTE OF LIMITATIONS?
The defendants claim that the statute started running at the time of delivery of the prospectus on December 21, 1973, more than two years prior to January 9, 1976, when suit was filed. Because of the relative unsophistication of the plaintiffs, the Powells argued (and the chancellor agreed) that their cause of action accrued when they did not receive the full $400 payment in October for the third quarter of 1974.
Assuming, however, that Yates did leave the prospectus with the Powells, would they, by ordinary care, have discovered Yates’ misrepresentations? To start the running of
WAS THE CHANCELLOR IN ERROR WHEN SHE RULED THAT THE POWELLS WERE NOT ENTITLED TO RELIEF AGAINST ALL OF THE LEXTON DEFENDANTS, INCLUDING THE CORPORATE GENERAL PARTNER AND THE INDIVIDUAL GENERAL PARTNERS? Stated differently, should Lexton be jointly liable with Seaboard and Yates because of the actions of Yates within the purview of the (“Blue Sky“) Mississippi Securities law? The Powells so argue; Yates and Seaboard contend that they committed no fraud but that, if they are to be held liable, Lexton should also be held liable.
The lower court found that Yates was the registered agent and representative for Seaboard but refused to find that Lexton was liable for the acts of the salesman, Yates. Noted by the chancellor was the fact that none of the Lexton defendants participated in the sale of the securities to the Powells.
The Powells contend that Yates acted for all the Lexton defendants, and that under First Mobile Home Corp. v. Little, 298 So.2d 676 (Miss. 1974), it is not “necessary that agency exist for an issuer to be liable for the misrepresentation of another.” They say this is so because
Every sale or contract of sale of any security made in violation of any provision of this chapter shall be voidable at the election of the purchaser, who shall be entitled to recover from the seller in an action at law... . (Emphasis added).
For some reason, in enacting
To apply First Mobile Home as argued here would tend to make all issuers insurers by holding “agent” to include anyone in or remotely having connection with the chain of distribution of securities. When she refused to impose liability on the Lexton defendants, the following evidence was before the chancellor. Yates testified that McGavern (of Lexton) did not have anything to do with the sale other than explain the
Upon testimony presented to her, the chancellor correctly held that Lexton (including all the partners therein) did not participate in the sale of the security to the Powells or induce the Powells to make the purchase. Absent either a principal and agent relationship or any actual participation in wrongdoing on the part of Lexton, the chancellor correctly refused to hold Lexton liable on authority of First Mobile Home. We conclude that the lower court properly refused to hold Lexton jointly liable with Seaboard and Yates based on any theory of agency or any statute cited.2 Our ruling in no way reaches (and is without prejudice to) any cause of action or claim Yates and Seaboard may possibly have against Lexton related to the funds which Yates induced the Powells to pay out.
SHOULD THE CHANCELLOR HAVE MADE AN AWARD OF ATTORNEYS’ FEES TO THE POWELLS? We think it clear that
As to the amount of attorneys’ fees to be awarded the Powells, the record as made can hardly be said to be adequate. The chancellor upon meager proof merely ruled that such fees were not allowable in this case, and made no determination as to what would constitute a reasonable and proper award, if granted. There were before her certain itemized statements of attorneys, but the proof as to whether the listed items charged were reasonable and proper was skimpy at best. Upon the record, justice will be better served by remand for the sole purpose of making a determination of the proper amount of attorneys’ fees. The lower court will grant the proper parties an opportunity to present proof regarding the amount of attorneys’ fees and fix the amount accordingly. Johnson v. Howard, 167 Miss. 475, 141 So. 573 (1932). Attorneys’ fees as then awarded shall relate to both trial and appeal.
DOES
We deem it necessary to make only brief mention of the argument of the Powells that the prospectus which they finally received was not in conformance with the rules promulgated by the secretary of state‘s office. On that basis, they assert (as an additional ground) that they are entitled to recovery. We have already held that they are entitled to recovery as against the defendants Yates and Seaboard. In this regard we note that the secretary of state approved the prospectus, and we find no defects therein of such a nature as to constitute fraud or its equivalent, and thereby make Lexton liable.
We hold that the chancellor correctly found against Yates and Seaboard, and her decree against them for $20,000 plus interest will be affirmed.4 In decreeing that the Lexton defendants were not liable, the chancellor will also be affirmed. Remand is ordered for the sole purpose of fixing the amount of attorneys’ fees to be awarded the Powells as against Yates and Seaboard. The decree against Peerless Insurance Company in the amount of $5,000 will be affirmed, and the amount of $5,000, when paid by the surety, will be credited toward the decree against Yates and Seaboard. Court costs will be assessed against all of the defendants or parties against whom the Powells are granted relief.
AFFIRMED IN PART, AND REMANDED FOR FIXING AMOUNT OF ATTORNEYS’ FEES.
PATTERSON, C.J., SMITH and ROBERTSON, P. JJ., and SUGG, WALKER, LEE, BOWLING and COFER, JJ., concur.