SECURITIES AND EXCHANGE COM. v. CM Joiner Leasing Corp.

• Citation: 133 F.2d 241
• Decision Date: 19 April 1943
• Docket Number: No. 10440.,10440.
• Parties: SECURITIES AND EXCHANGE COMMISSION v. C. M. JOINER LEASING CORPORATION et al.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

133 F.2d 241 (1943)

SECURITIES AND EXCHANGE COMMISSION v. C. M. JOINER LEASING CORPORATION et al.

No. 10440.

Circuit Court of Appeals, Fifth Circuit.

February 1, 1943.

Writ of Certiorari Granted April 19, 1943.

John F. Davis, Solicitor, Securities and Exchange Commission, and Louis Loss, Attorney, Securities and Exchange Commission, both of Philadelphia, Pa., and O. H. Allred and R. F. Milwee, Jr., Attorneys, Securities and Exchange Commission, both of Fort Worth, Tex., for appellant.

D. A. Frank, of Dallas, Tex., for appellees.

Before SIBLEY and HUTCHESON, Circuit Judges, and KENNERLY, District Judge.

Writ of Certiorari Granted April 19, 1943. See 63 S.Ct. 994, 87 L.Ed. ___.

KENNERLY, District Judge.

This suit was filed in the District Court February 16, 1942, by appellant, the Securities and Exchange Commission, against appellees, the C. M. Joiner Leasing Corporation (for brevity called Corporation) and C. M. Joiner. John T. Johnson, individually and trading as the Miller Leasing Company, was also sued, but the case as to him was disposed of by agreed decree in favor of appellant.

The suit arises under the Securities Act of 1933, (Title 15, U.S.C.A., Sections 77a to 77aa, 48 Stat. 74). Appellant alleged that Corporation about 1940 became the owner of Oil and Gas Lease or Leases on 3000 acres of land in McCulloch County, Texas, called the "Joiner Paramount Development," and that appellees had been and were, themselves, and through Johnson, their agent, offering, in many parts of the United States, to sell or assign, and were selling and assigning, such lease or leases on, in and as it or they covered tracts of from 2½ to 20 acres out of the 3000-acre tract, and in doing so were sending through the United States mails false and misleading literature, letters, etc. with respect thereto. Claiming that such sales or assignments involved sales of a "security" as defined by Section 2(1) of the Act, appellant sought, under the provisions of the Act, to enjoin appellees from so doing. The District Judge thought that such sales and assignments did not involve sales of a security, and rendered judgment for appellees. Appellant has appealed and is here complaining of the judgment.

Appellant concedes that the sole question presented by its appeal is whether such sales and assignments involve sales of a security as defined by Section 2(1) of the Act.

The facts are not greatly, if at all, in dispute. The Corporation is engaged in the business of buying and selling oil and gas leases and developing oil and gas properties in Texas. C. M. Joiner is its president and directing head. The other officers are Joiner's wife and a secretary. All of the stock of the Corporation is owned by these officers and one Shuman. About 1940 the Corporation secured the assignment to it of oil and gas lease or leases covering about 3000 acres of land in McCulloch County, Texas. The record does not show the form of the lease or leases, but the parties have treated them as being, and presumably they are, in the form of an ordinary Texas Commercial Mineral Lease carrying an Interest in the land.¹ The assignment to Corporation was from A. L. Anthony, a drilling contractor who had previously blocked up the acreage and acquired the lease or leases thereon. The record does not show the form of such assignment, but it has been treated as being, and presumably is, in the form of the ordinary Texas Commercial Assignments of oil and gas leases, which passes title to an interest in the land. Part of the consideration for the assignment was the obligation of Corporation to drill a well for oil or gas on the 3000 acres of land.

In accordance with such drilling obligation, Corporation contracted with Anthony and Anthony agreed to drill a well to a depth of 2000 feet (unless oil or gas in paying quantities be encountered at a lesser depth) on the 3000 acres, for which Anthony was to be paid at the rate of $2.50 per foot. At the time this contract was made, Corporation did not have sufficient funds to pay for the drilling of the well, but it expected to obtain the necessary funds principally from the sale or assignment of such lease or leases on and as it or they covered small tracts of land out of the 3000 acres and surrounding the well. Anthony drilled the well down to about 1375 feet without striking either oil or gas and abandoned it about December 1941.

The Corporation and Joiner, themselves and through the medium of Johnson, have offered for sale or assignment and sold and assigned such lease or leases on, in and as it or they covered specific tracts varying in size from 2½ to 20 acres out of the 3000 acres, at prices ranging from $5 to $15 an acre. The record shows that up to September 10, 1941, sales and assignments had been made by Corporation, Joiner and Johnson to between 50 and 80 persons scattered over the United States. The form of the assignments by Corporation to Johnson (trading as the Miller Leasing Company) is the ordinary Texas Commercial Assignment of oil and gas leases and is shown by the record.² Likewise the form of assignments from Johnson to purchasers.³ The form of assignments by Corporation directly to its purchasers is not shown by the record, but are treated as being, and we presume they are, the same as or similar to the form of assignment from Corporation to Johnson. The record also shows the form of application a purchaser was invited to make.⁴

In other words, it is clearly shown that what Corporation was offering for sale and selling and assigning was a leasehold interest in specific tracts out of the 3000 acres, or as defined by Texas courts — an interest in the land of specific tracts out of the 3000 acres.

With respect to the methods and representations used by Corporation, Joiner and Johnson to secure purchasers, the Trial Judge found fraud.⁵ We approve his findings — indeed, the evidence would justify stronger findings of fraud.⁶ In some instances, leasehold interest in specific tracts were offered before any public announcement had been made as to the location of the "Joiner Paramount Development," the public being invited to purchase leasehold interests in then undescribed and unlocated tracts of land, the details as to location, etc. to be subsequently revealed to purchasers. Even after the location was made public, Corporation and Joiner generally made the selection of the purchasers' tract or tracts of land.

It is a matter of common knowledge that persons engaged in the oil industry in Texas and elsewhere buy, sell, assign and traffic in oil, gas and mineral leases, and particularly those covering land near producing oil or gas wells or wells being drilled. The only thing that differentiates these sales and assignments by Corporation to purchasers from the usual and ordinary sales and assignments between those engaged in the oil industry is the fact that Corporation and Joiner themselves and through their agent, Johnson, used high pressure and fraudulent methods in inducing persons to make purchases from them. The coverage of the Act is limited to the sale, etc. of "securities" as defined in section 2(1),⁷ and we do not think these sales and assignments are sales of securities as defined by such section, nor do we think that the high-pressure and fraudulent methods used serves to bring them within such definition. As suggested by the District Judge, there are available to the Government in proper cases the mail fraud statutes to stop such practices. To hold that such sales and assignments, which, as stated, are interests in land, are sales of securities would be stretching and straining the coverage of the Act far beyond what Congress intended.

There is much to be said in favor of the view that since Section 2(1) includes the sale or assignment of "fractional undivided interest in oil, gas, or other mineral rights," there are excluded sales or assignments of mineral rights in — not undivided interests — but specific tracts. We think, however, the true test is the title or rights of the purchaser after his purchase, i. e., what title, right, or interest the purchaser had after all had been said and done with respect to his purchase. That was the test in Atherton v. United States, 9 Cir., 128 F.2d 463, and in many other cases upon which appellant relies. The representations made by Corporation, et al. before or after the sale, whether true or false, are only pertinent insofar as they throw light on the rights of the purchaser after the sale. The record here shows that purchasers from Corporation of the leasehold interest in the 2½-acre to 20-acre tracts took under the laws of Texas an interest in land in the specific tract or tracts purchased by them, but no more. They took no interest in tracts of other purchasers, nor in unsold tracts of Corporation, nor in Corporation's well, nor any production therefrom. They took what every purchaser of an interest in land takes, i. e., the chance that by the happening of some event — in this case the promised production of oil or gas in Corporation's well — the value of their tract might be increased, but that is the only benefit they would have received from the production from Corporation's well. And appellant's case is not helped by the fact that while each purchaser could have developed his tract, he probably did not intend to do so, but depended on Corporation to develop its holding, since, as stated, purchasers were to take no part of the proceeds of Corporation's development. Even if, as appellant apparently claims, the representation made by Corporation and Joiner that the well would be drilled and other similar representations were express or implied obligations by Corporation, such obligations did not serve to give purchasers a greater right or interest in their tracts than as stated. In some of the literature mailed by Corporation and Joiner, statements are made that the purchaser of a lease on a certain sized tract in McCulloch County would get ...