Adams v. Smith
| Citation | 734 P.2d 843 |
| Decision Date | 04 November 1986 |
| Docket Number | No. 64044,No. 2,64044,2 |
| Parties | 1986 OK CIV APP 32 Fred ADAMS, Jr., John Ansbro, G.L. Bradfield, Philip L. Brown, Donald B. Burgess, Roy O. Burgess, William T. Burgess, George R. Folger, Robert E. Gordon, Ernest Kirby, Jr., F.B. Morales, Ralph E. Parker, John E. Reid, Jr., Ronald R. Renner, Ethel Renner, Agustin Romero, Jr., Lisa Romero, Luis Romero, Peter Romero, Raquel Romero, Charles H. Sickels III, Gilbert W. Smith, and Bobby Theilen, Appellees, v. Chester E. SMITH, Jr., an individual, d/b/a Caney Valley Oil and Gas Company, Appellant. Court of Appeals of Oklahoma, Division |
| Court | United States State Court of Criminal Appeals of Oklahoma. Court of Civil Appeals of Oklahoma |
Patrick H. Kernan, Kernan and Kernan, Edgar H. Parks, III, Parks & Buck, Tulsa, for appellees.
David L. Weatherford, Ungerman, Conner & Little, Jeffrey Levinson, Levinson & Smith, Tulsa, for appellant.
Defendant appeals from the trial court's order awarding partial summary judgment to Plaintiffs in this action based on violations of the Oklahoma securities registration statutes. Having reviewed the record and applicable law, we affirm in part and reverse and remand in part.
In the early part of 1978, Defendant Smith acquired oil and gas leasehold interests in Tulsa and Washington Counties. Smith began doing business as Caney Valley Oil and Gas Company and began selling interests in these leaseholds to various friends and acquaintances. Between 1978 and 1982, he sold fractional interests in thirty-seven different wells to approximately eighty different investors. Some of these wells were productive while others were unsuccessful.
As each interest was sold, the investor and Smith signed a "Letter of Agreement" which referred to the fraction of interest which was being purchased, the amount paid, the location and name of the well, and the statement that Smith was the owner of a working interest in a well "to be drilled and [investor] agrees to purchase a portion of said working interest from Smith." It is undisputed that these oil and gas interests were securities within the meaning of the Oklahoma statutes.
On January 1, 1983, Smith sold his interests in all the wells to Defendant Alan R. Grigg and Arg Oil and Gas Company. Pursuant to the terms of a lease acquisition agreement between Smith and Grigg, Grigg began operating the wells. In February 1983, Smith notified his investors that his financial difficulties had forced him to sell his interest to Grigg. Grigg followed this notification with a letter to the investors in March 1983. In that same notification, Grigg sent the investors an operating agreement and requested payment of the investors' proportionate share of the operating expenses. Most of the investors refused to contribute their proportionate share, asserting that their interest was not a working interest. Throughout the spring of 1983, Grigg continued operations of the wells and continued to make demands of the investors for operating expenses. In June 1983, he offered to purchase each of the individual interests. Many of the investors refused this offer and twenty-one of them filed this action on October 7, 1983. Two further plaintiffs were added in the first amended petition which was filed on January 5, 1984.
The twenty-three individual plaintiffs filed this action against Smith, his oil company, Grigg, and Grigg's oil company. The petition listed nine causes of action, some against Smith and Grigg individually, while others named all Defendants. Numerous amended petitions, demurrers, and motions have been filed by the parties. Defendant Grigg's motion for partial summary judgment against Plaintiffs was sustained and is the subject of a companion appeal also decided on this date. Adams v. Grigg, No. 64,394 (Okla.Ct.App. Nov. 4, 1986).
This appeal concerns the propriety of Plaintiffs' motion for partial summary judgment on their first cause of action against Smith which was sustained on November 26, 1984. Smith alleges that the motion for summary judgment was improper because several of the claims were barred by the statute of limitations, because there was misjoinder of causes of action, and because a factual controversy exists concerning the securities registration requirements.
Our decision is confined to Plaintiffs' first cause of action which was brought solely against Smith. The petition alleges numerous violations, both of federal and state statutes, as well as common law fraud. This appeal, however, concerns only the allegation of selling unregistered securities in violation of Oklahoma law. Plaintiffs asserted that Smith had violated 71 O.S.1981 § 301, by selling unregistered securities. Partial summary judgment was granted for Plaintiffs under 71 O.S.1981 § 408(a)(1), which provides the civil remedy against those who sell unregistered securities in violation of section 301. Subsection 408(a)(1) provides that any person who offers or sells a security in violation of section 301 is liable for the following:
(i) in the case of an offer or sale of a security by such means, to the person buying the security from him, who may sue either at law or in equity to recover the consideration paid for the security, together with interest at ten percent (10%) per year from the date of payment, costs, and reasonable attorneys' fees, less the amount of any income received on the security, upon the tender of the security, or for damages if he no longer owns the security. Damages are the amount that would be recoverable upon a tender, less the value of the security when the buyer disposed of it, and interest at ten percent (10%) per year from the date of disposition.
The Oklahoma securities statutes contain their own statutes of limitations. The appropriate limitation period for an action brought against a seller of unregistered securities is found in subsection 408(e), which states: "No person may sue under subsection (a)(1) of this section more than three (3) years after the sale."
From the outset of the proceedings, Smith has challenged the timeliness of Plaintiffs' claims. Smith asserts that as a matter of law, the statute of limitations in subsection 408(e) bars those claims for sales which occurred prior to October 7, 1980. This court agrees.
As stated above, the Oklahoma statutes provide that no person may sue for rescission of the sale of unregistered securities more than three years after the sale. 71 O.S.1981 § 408(e). The federal counterpart to this statute of limitations is also three years and found at 15 U.S.C. § 77m (1982).
The Oklahoma Securities Act defines "sale" to include "every contract of sale of, contract to sell, or disposition of, a security or interest in a security for value." 71 O.S.1981 § 2(13). Plaintiffs concede that some of the "sales" in their petition occurred more than three years prior to October 7, 1983. However, they assert several theories under which the statute of limitations has either never begun to run or has been tolled.
Although there are no cases from Oklahoma state courts applying the Oklahoma statutes, we find highly persuasive the federal cases determining this issue in relation to both federal and state limitation periods. A review of the cases reveals that the federal courts have consistently construed language in the federal counterpart to subsection 408(e) to bar all claims which occurred more than three years previous to the filing of the complaint. See, e.g., Gale v. Great Southwestern Exploration, 599 F.Supp. 55 (N.D.Okla.1984); Engl v. Berg, 511 F.Supp. 1146 (E.D.Pa.1981); Benoay v. Decker, 517 F.Supp. 490 (E.D.Mich.1981) aff'd without opinion, 735 F.2d 1363 (6th Cir.1984).
Plaintiffs attempt to argue that their claims are not barred because Smith's sales of securities were continuous. This "continuing violation" argument has been soundly rejected by the federal courts. In Rochambeau v. Brent Exploration, Inc., 79 F.R.D. 381 (D.Colo.1978), the plaintiff filed an action for rescission for failure of the defendants to file a registration statement in violation of federal law. In finding that the plaintiff's claim was barred by the statute of limitations and rejecting his "continuing violation" argument, the court stated that "the rights and obligations of the parties were fixed by that agreement and were thereafter governed by that agreement, no matter what course of action either chose to take." Id. at 384.
The "continuing violation" theory has been rejected even when the plaintiffs make a series of payments concerning the same security. After reviewing the case law in the area, the federal courts in Texas rejected the argument in Bryant v. Uland, 327 F.Supp. 439, 447 (S.D.Tex.1971), stating:
The violation which commences the running of the statute must be the first violation. Otherwise, the statute of limitations would be rendered meaningless. This is particularly true where, as in the present case, the plaintiff has control over succeeding violations, i.e., by making further installment payments. (Emphasis added.)
From the evidence presented in both support and opposition to the motion for summary judgment, it is clear that the rights of the parties were fixed at the time the letter agreements were signed. Each individual letter agreement was a separate sale and had no relation to succeeding agreements. Plaintiffs acknowledged the completion of each sale in their amended petition, stating that these interests were "offered and sold by Smith."
Similarly, the federal courts have uniformly rejected the doctrine of equitable tolling in relation to violations of federal securities regulations. The doctrine does not apply to federal limitations periods "where Congress has provided for such by clear and unambiguous language." Brick v. Dominion Mortgage and Realty Trust, 442 F.Supp. 283, 291 (W.D.N.Y.1977). The "explicit language" provided in the statutes...
To continue reading
Request your trial
-
Wilson v. Al McCord Inc.
...we have contrary guidance from an Oklahoma appellate court. We are persuaded by the Oklahoma Court of Appeals' decision in Adams v. Smith, 734 P.2d 843 (Okla.App.1986). Adams, decided after the notice of appeal was filed in this case, held that the sale of a fractional working interest in a......
-
Baroi v. Platinum Condo. Dev., LLC
...same as Nevada and holding the limitations period ran from the moment the parties' rights and duties became fixed); Adams v. Smith, 734 P.2d 843, 845-46 (Okla. Ct. App. 1986) (interpreting Oklahoma's securities law defining "sale" the same as Nevada and holding that limitations period ran f......
-
Cali-Ken Petroleum Co., Inc. v. Miller, Civ. A. No. C87-0137-BG(H).
...of limitations could be extended indefinitely by the simple expedient of multiple installment payments. Id., citing Adams v. Smith, 734 P.2d 843 (Okla.Ct.App.1986). The Elkin Sisters agreement also came into existence before September 25, 1984. Defendants offered the Elkin Sisters interest,......