Anderson v. Aurotek

• Decision Date: 17 September 1985
• Docket Number: Nos. 84-3644,84-3645,s. 84-3644
• Citation: 774 F.2d 927
• Parties: Fed. Sec. L. Rep. P 92,377, 3 Fed.R.Serv.3d 177 Berge A. ANDERSON, et ux., Plaintiffs-Appellees, v. AUROTEK, et al., Defendants, and Willard E. Matheson, Defendant-Appellant. Dr. Berge ANDERSON, Plaintiff-Appellee, v. AUROTEK, et al., Defendants, and Lorraine J. Peters, surviving spouse and Personal Representative of James C. Peters, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 927

774 F.2d 927

Fed. Sec. L. Rep. P 92,377, 3 Fed.R.Serv.3d 177

Berge A. ANDERSON, et ux., Plaintiffs-Appellees, v. AUROTEK, et al., Defendants, and Willard E. Matheson, Defendant-Appellant.

Dr. Berge ANDERSON, Plaintiff-Appellee, v. AUROTEK, et al., Defendants, and Lorraine J. Peters, surviving spouse and Personal

Representative of James C. Peters, Defendant-Appellant.

Nos. 84-3644, 84-3645.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Dec. 6, 1984.

Decided Sept. 17, 1985.

Christopher B. Wells, Lane, Powell, Moss & Miller, Seattle, Wash., and John G. Schultz, Leavy, Schultz & Sweeney, Pasco, Wash., for plaintiffs-appellees.

Douglas Branson, Professor of Law, University of Puget Sound School of Law, Tacoma, Wash., for defendants/defendants-appellants.

Appeal from the United States District Court for the Western District of Washington.

Before BROWNING, Chief Judge, GOODWIN and SKOPIL, Circuit Judges.

PER CURIAM

Defendants Matheson, Peters, and Rutledge formed a joint venture to exploit the Yosemite mining claim in Idaho, one of a number of claims owned by Mother Lode, a corporation. The three purchased 75% of Mother Lode's stock, and caused Mother Lode to transfer the mining claims to themselves as joint holders. They also informed Aurotek, a corporation, to develop the Yosemite claim, each taking one-third of its stock. Rutledge was to raise the necessary capital and see that required legal work was done; Matheson was responsible for the day-to-day operations of the venture; and Peters was to furnish advice for on-site mining.

Rutledge contacted co-defendants Dootson, an attorney-CPA, and Lind, a tax attorney, to help organize the venture and draw up the necessary legal documents. Lind, Dootson and Rutledge brought in co-defendant Skaggs, a retailer of tax shelters, to sell interests in the mining venture to private investors. Investors were offered a package consisting of a fractional interest in the mining claim and a contract with Aurotek to provide the necessary mining services.

Lind referred Skaggs to the plaintiff, Anderson, whom Lind knew to be looking for a tax shelter. Anderson purchased 120 of 223 undivided interests in the claim from Matheson, Rutledge and Peters for $1,614.36 in cash and a promissory note for $6,457.44. He also executed an Operating Agreement with Aurotek under which he was to contribute $300,000 cash and a $600,000 promissory note in return for mining services. Neither the fractional interest nor the Operating Agreement was registered with the SEC or the appropriate Washington state agency.

Aurotek ran out of money without finding gold. Matheson, through Skaggs, asked Anderson to pay the promissory note. Anderson brought this action under state and federal Securities Acts against various entities and individuals involved in the venture. In due course Anderson moved for summary judgment under Sections 12(1) and 12(2) of the Securities Act of 1933, 15 U.S.C. Sec. 77 l (1)-(2) (1982), and analogous provisions of Washington statutes. ¹ The district court granted summary judgment against several of the defendants. Peters and Matheson appeal. We examine each possible basis for the district court's decision against these two defendants.

I.

Section 12(1) of the Securities Act of 1933 imposes liability on any person who "offers or sells a security" in violation of Section 5 of the 1933 Act, 15 U.S.C. Sec. 77e. Section 5 forbids the offer or sale of unregistered securities in interstate commerce, unless the securities are exempt from registration. SEC v. Murphy, 626 F.2d 633, 640 (9th Cir.1980). Matheson and Peters argue they did not "offer or sell a security" within the meaning of Section 12(1), or at a minimum that determining whether they did or did not do so requires resolution of disputed issues of fact.

Anderson contends the undisputed facts establish Matheson and Peters are liable as "participants" in the sale to plaintiff of a "security" consisting of the fractional interest in the mining claim and the Operating Agreement with Aurotek or, at a minimum, are liable as "issuers" and sellers to plaintiff of the fractional interest. We examine each claim in turn.

The term "seller" for purposes of Section 12 includes not only persons who transfer title, but also "participants" whose acts are "both necessary to and a substantial factor in the sales transaction." Murphy, 626 F.2d at 649-50. ² "The test is whether the injury to the plaintiff flowed directly and proximately from the actions of the defendant." Admiralty Fund v. Jones, 677 F.2d 1289, 1294 (9th Cir.1982).

The proximate cause analysis required by Murphy and Jones usually involves a question of fact for the jury. See W. Prosser, Handbook of the Law of Torts, 289-90 (4th ed. 1971). There are exceptions. In Murphy, the defendant's participation in the securities transaction was so pervasive that we found "[t]he conclusion that Murphy engaged in steps necessary to the distribution is inescapable," and therefore affirmed the grant of summary judgment. 626 F.2d at 652. In the present case neither Matheson nor Peters played so central a role in the arrangements for financing the project. Matheson consistently stated he had nothing to do with raising capital for the venture and did not deal with investors. Matheson did not meet Anderson until Anderson visited the mining site eight months after the purchase. Matheson's status as president and a promoter of Aurotek does not establish as a matter of law that he was a necessary or substantial factor in Anderson's purchase, especially in light of evidence that his responsibilities focused on technical and engineering aspects of the venture. While it is true that Matheson controlled the expenditure of all funds contributed by investors, reported periodically to investors on the progress of the venture, and provided necessary mining and management expertise, these activities took place after investors had purchased their interests, and cannot be presumed to have proximately caused Anderson's purchase.

Peters' participation in the sale to Anderson was even less substantial. Evidence that Peters participated in forming Aurotek, selecting and obtaining ownership of the mining property, and supervising mining operations at the site reflects his significant status in the project as a whole but, without more, cannot be found to have been "both necessary to and a substantial factor in the sales transaction" or to have proximately caused Anderson's loss.

At first blush, Anderson's assertion that Matheson and Peters were at least the issuers and sellers of the fractional interest in the Yosemite claim to Anderson, would appear to be beyond factual dispute. However, we are convinced a factual dispute must be resolved to determine the merits of Matheson and Peters' contention that when viewed in context and in light of "economic realities," United Housing Foundation, Inc. v. Forman, 421 U.S. 837, 848-49, 95 S.Ct. 2051, 2058-59, 44 L.Ed.2d 621 (1975), the fractional interest in the claim (for which Anderson advanced $8,071) was merely a part of an overall investment package...