759 F.2d 838 (11th Cir. 1985), 83-7573, Foster v. Jesup and Lamont Securities Co., Inc.
|Docket Nº:||83-7573, 84-7255.|
|Citation:||759 F.2d 838|
|Party Name:||J. Don FOSTER, an individual, Plaintiff-Appellee, v. JESUP AND LAMONT SECURITIES CO., INC., a corporation, Defendant-Appellant, Cross-Appellee. J. Don FOSTER, an individual, Plaintiff-Appellant, Cross-Appellee, v. TEXAS PARTNERS '80 LTD., a limited partnership, Minnick Resources Management, Inc., a corporation, F. Wendell Minnick, an individual, Je|
|Case Date:||May 06, 1985|
|Court:||United States Courts of Appeals, Court of Appeals for the Eleventh Circuit|
[Copyrighted Material Omitted]
John L. Schaub, John L. Taylor, Jr., Atlanta, Ga., William H. Hardie, Jr., Mobile, Ala., for defendant-appellant, cross-appellee Jesup and Lamont Securities Co., Inc.
W. Ramsey McKinney, Jr., Mobile, Ala., for J.D. Foster.
Appeals from the United States District Court for the Southern District of Alabama.
Before KRAVITCH and ANDERSON, Circuit Judges, and ATKINS [*], District Judge.
R. LANIER ANDERSON, III, Circuit Judge:
This securities case requires us to consider what conduct makes one a "seller" within the meaning of Sec. 12(2) of the Securities Act of 1933. 1 Because we conclude that appellant was not a "seller" of the securities in question, we reverse the district court's judgment with respect to appellee's Sec. 12(2) claim. Appellant has also been found liable under Alabama securities laws. We conclude that the legal sufficiency of these latter claims depends on important questions of state law that have not been ruled upon by the courts of Alabama. Accordingly, we certify these questions to the Alabama Supreme Court for instruction.
Foster, plaintiff below, invested in a Texas limited partnership in December, 1980 (Texas Partners '80, Ltd., hereafter "Texas Partners"). Texas Partners' ostensible business purpose was to develop oil and gas wells. In fact, no substantial drilling operations were undertaken on behalf of the partnership, and Foster lost the amount he invested.
Foster bought his interest from Minnick, sole shareholder and president of Minnick Resources Management, Inc., which was the general partner in Texas Partners. 2 The only party involved with Texas Partners that defended before the district court and the only party opposing Foster before this court is Jesup & Lamont Securities Co. ("Jesup & Lamont"), a New York securities dealer whose name appeared on the Texas Partners offering document.
Jesup & Lamont first became involved in the offering in June of 1980 when its president, Curd, and its vice-president, Thors, met with Minnick to discuss the firm's participation. Minnick and Jesup & Lamont subsequently entered into an agency agreement whereby the firm promised to use its "best efforts" to sell interests in Texas Partners. Jesup & Lamont was to receive a ten percent commission for interests it sold, and a two percent commission for interests sold by Minnick. Jesup & Lamont was not required by the agreement to sell any interests, but only to use its best efforts in that regard.
Following the initial meeting with Minnick, Curd inquired of Minnick's former employers and of his banker about Minnick's standing in the investment community. These references were favorable, and reported that Minnick "had a reputation of being successful in oil and gas." 4 Rec. at 347. Jesup & Lamont did not investigate other particulars about Minnick, such as how he had fared in specific oil and gas deals or his standing with trade creditors. Jesup & Lamont also did not investigate the particulars of the Texas Partners undertaking,
such as the status of the partnership's leases or the financial feasibility of the planned drilling operations.
The Texas Partners venture went forward and an offering memorandum was prepared for use in the sale of interests in the partnership. Minnick testified by deposition that he drafted the offering memorandum, but that it was reviewed by a lawyer at Shea & Gould, a New York law firm that represented Minnick in the proposed offering. Shea & Gould was also general counsel to Jesup & Lamont. Jesup & Lamont had no role in the drafting or printing of the offering memorandum, the cost of which was borne by Minnick. Three hundred copies were printed and delivered to Minnick, who sent thirty copies to Jesup & Lamont.
The offering memorandum comprises sixty pages of text and nine exhibits. The cover of the memorandum displays the limited partnership's name at the top and Jesup & Lamont's name, address, and phone number at the bottom, with the notation that the firm is a member of the New York Stock Exchange. 3 The same general information about Jesup & Lamont is presented on the first inside page and a legend appears in two places early in the document stating that "These Limited Partnership Interests are being primarily distributed through Jesup & Lamont Securities Co., Inc." Pl.Ex. 1. In the text of the offering memorandum is the information that Texas Partners and Jesup & Lamont had entered into a best efforts selling arrangement, and that "In addition, other persons may receive commissions for selling Interests, including Minnick Resources Management, Inc." Id. at 4. The offering memorandum is dated July 30, 1980.
Jesup & Lamont and Minnick rescinded their sales agency agreement shortly after this date. 4 In his deposition, Minnick testified that he had been unhappy with Jesup & Lamont's performance. At trial, Curd testified that Jesup & Lamont had decided "the item was basically not marketable." 4 Rec. at 348. Although the principals agreed to rescind the best efforts agreement, they disagreed about who should pay for the offering documents. Minnick wanted Jesup & Lamont to pay the printing costs because the firm's lack of success had resulted in rescission of the agreement. Jesup & Lamont took the position that it had no responsibility to pay because the agreement only required "best efforts," which the firm felt it had given. There is no dispute in the record that Minnick told Curd he was going to remove Jesup & Lamont's name from the document. Minnick testified he attempted to do so for several offering documents by using scissors to cut out at least some of the references to Jesup & Lamont. Jesup & Lamont did not attempt to have Minnick surrender to the firm the offering documents in his possession.
Foster was first introduced to Texas Partners by his accountant, Jordan, who had met Minnick in May of 1980. Jordan testified by deposition that he traveled to New York in November of 1980 on business not related to Texas Partners, but which involved Jesup & Lamont. Jordan took advantage of this opportunity to question Curd about Minnick's prior activities. Curd reassured him about Minnick even though, unknown to Jordan, Jesup & Lamont had already withdrawn from the Texas Partners offering. Jordan testified that at the November meeting, Curd told him "We are involved in this offering document and we know of nothing that would effect [sic] our relationship with Mr. Minnick." 3 Rec. at 195. At trial, Curd denied the occurrence of the meeting at which this statement allegedly was made.
Minnick and Foster were brought together for the first time by Jordan at a meeting attended by the three in Jordan's Alabama office in late December of 1980. The meeting lasted for one to two hours and focused
on Foster's possible purchase of an interest in Texas Partners. Foster questioned Minnick about his background and about the particulars of the undertaking. Minnick made representations about the amount of money that had already been raised by Texas Partners, and told Foster that the money was to be used in drilling numerous wells. Foster was given a copy of the offering memorandum, which bore Jesup & Lamont's name. He testified he studied the document after the meeting and relied on it in eventually deciding to buy one-half of an interest in Texas Partners. Foster did not communicate directly with anyone at Jesup & Lamont before he invested in Texas Partners.
The specific representations in the offering memorandum Foster said he relied on that later proved false were: (1) that Jesup & Lamont was involved in the offering; (2) that the proceeds of the offering would be used by Texas Partners in development drilling for oil and gas; (3) that the general partner, Minnick Resources Management, Inc., would contribute five percent of the drilling costs; and (4) that investments would be refunded if a minimum amount were not raised.
Jordan's association with Minnick continued after Foster's purchase. Jordan learned from work he did for the drilling company, Pyron Exploration and Drilling Corp., that Texas Partners had not raised the required minimum in investments. Further, Jordan discovered that the money raised by Texas Partners had not been applied to development drilling as promised. When Jordan notified Foster of these facts, Foster called Minnick, who assured him that the money he had invested would be refunded. When Minnick failed to refund his money, Foster filed suit in federal district court claiming violations of both state and federal securities laws.
Proceedings Before the District Court
Foster presented four counts in his first complaint. In Count I, he claimed damages for the sale of an unregistered security, which is made unlawful by Sec. 5 of the Securities Act of 1933, 5 and actionable by Sec. 12(1) of that Act. 6 The district court dismissed this federal registration claim as time barred and that decision has not been appealed. Count I also stated a registration claim under Alabama law. We discuss this latter claim in the section of this opinion addressed to certification of...
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