Bennet v. Kiggins

• Decision Date: 18 August 1977
• Docket Number: No. 10089.,No. 10351.<SMALL><SUP>*</SUP></SMALL>,No. 10546.<SMALL><SUP>*</SUP></SMALL>,10089.,10351.<SMALL><SUP>*</SUP></SMALL>,10546.<SMALL><SUP>*</SUP></SMALL&gt
• Citation: 377 A.2d 57
• Parties: Clarence H. BENNETT, et al., Appellants, v. Gilbert KIGGINS et al., Appellees.
• Court: D.C. Court of Appeals

377 A.2d 57

Clarence H. BENNETT, et al., Appellants, v. Gilbert KIGGINS et al., Appellees.

No. 10089.

No. 10351.^*

No. 10546.^*

District of Columbia Court of Appeals.

Argued November 17, 1976.

Decided August 18, 1977.

Ellsworth T. Simpson, Washington, D. C., for appellants.

Andrew J. Connick, New York City, pro hac vice, by special leave of the court, for appellees. James A. Hourihan and Gail Starling Marshall, Washington, D. C., were on the brief for appellees.

Before GALLAGHER, NEBEKER and MACK, Associate Judges.

NEBEKER, Associate Judge:

This is an appeal from a grant of summary judgment on cross-motions for that relief. The unverified complaint alleged that certain fraudulent misrepresentations and omissions attributable to appellees were made to appellants in connection with the latters' purchases of undivided interests in joint ventures. These ventures, known as Series 1 and Series 5, were organized for the exploration and production of oil and gas by the Hanover Planning Company, Inc. (Hanover) a wholly owned subsidiary of Hornblower & Weeks-Hemphill, Noyes (Hornblower). We affirm the grant of summary judgment to the appellees.

Hanover was organized in March, 1969, by Hornblower to arrange and manage, as agent, a number of joint ventures through which customers of Hornblower could participate in the exploration for oil and gas. Appellees were, at all relevant times, either general partners of Hornblower or officers of Hanover. Appellants Clarence and Dorothy Bennett are husband and wife, and appellant National Standards Association, Inc. is a corporation wholly owned by the Bennetts.

The complaint alleged five basic misrepresentations and one omission which were claimed to constitute fraud. Three of the misrepresentations related to the offer of units in Series 1: (1) The risk in such ventures would be minimized because a major portion of the investment would be devoted to those areas in which there were successful oil drilling operations. (2) Only a small portion of the investment would be used for wildcat drilling. (3) Within two or three years following the purchase of the units in Series 1, the investor would be provided with the opportunity for liquidity by means of an exchange offer of the units for shares in an established and well-known oil company, such as Mesa Petroleum.

Two misrepresentations and an omission were claimed as to the sale of units in Series 5: (4) A memorandum directed to all participants in Series 3, a similar venture, had attached to it a schedule showing income projections from existing Series 3 properties. This memorandum allegedly was used as a factual basis for the projected performance of Series 5 and as an inducement for appellants' purchase of units in Series 5. Moreover, the projections for Series 3 allegedly were false and were known or should have been known by appellees to be false at the time the projections were made. (5) In negotiating the sale of units in Series 5, the sales representative stated that appellants' initial investments would be returned to them before Hornblower received anything.¹ (6) No disclosure was made during the sale of Series 5 to appellants of the fact that the partners of Hornblower had already planned or were contemporaneously planning to alter the capital structure of Hanover and then to offer to exchange stock in Hanover for units in the various Series as a means of providing the liquidity to the investors mentioned in (3) above. This belatedly disclosed plan allegedly resulted in appellees profiting inordinately at the expense of investors in the various Series.

The first two alleged misrepresentations were contained in the prospectus for Series 1. The third, according to appellants, was made by Robert Menzel, a registered representative employed by Hornblower, when he was persuading appellants to buy units in Series 1. As to the fourth, the memorandum on Series 3 was prepared by Hornblower to describe recommended development work on property interests owned by the Series 3 drilling program. The memorandum was generally available in the Hornblower offices at the time appellants were there deciding whether to invest in Series 5. The fifth allegation, regarding Hornblower's compensation, was a representation claimed to have been made in connection with Menzel's sale of Series 5 units to appellants. Finally, the claimed omission during the sales pitch for Series 5 units was a conclusion by appellants based on the overall advantageous effect to appellees of the concluded exchange offer.

After extensive pretrial discovery and oral argument on the cross-motions for summary judgment, the trial court concluded that there were no genuine issues as to any material facts and accordingly granted summary judgment to appellees. This court's function on the appeal of a grant of summary judgment is to determine whether any material factual issue exists. Super.Ct. Civ.R. 56(c); Dewey v. Clark, 86 U.S.App. D.C. 137, 143, 180 F.2d 766, 772 (1950). Viewing the record in the light most favorable to the opposing party, Adickes v. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970), we are satisfied that there are no disputed material factual issues bearing on the existence of the alleged fraud. Accordingly, summary judgment was properly granted appellees. See International Underwriters, Inc. v. Boyle, D.C. App., 365 A.2d 779 (1976).

The parties failed to include in the record on appeal their respective statements of material fact as to which there is no genuine issue. Such statements were required to be filed in the trial court in conjunction with the motions for summary judgment. See Super.Ct.Civ.R. 12-I(k). For purposes of our review, those statements were a necessary part of the record on appeal. We ordered them included as a supplemental record. See D.C.App.R. 10(1). Our examination of the record has been made in light of these statements. We may not consider unsupported contentions of factual dispute contained elsewhere in a memorandum filed in opposition to summary judgment. See Dillard v. Travelers Insurance Co., D.C. App., 298 A.2d 222, 224 (1972); Kron v. Young & Simon, Inc., D.C.App., 265 A.2d 293, 295 (1970). A material factual dispute must be pleaded as required by Super.Ct. Civ.R. 12-I(k) and 56(e).

Fraud is never presumed and must be particularly pleaded. It must be established by clear and convincing evidence, which is not equally consistent with either honesty or deceit. See Super.Ct. Civ.R. 9(b). Zoslow v. National Savings & Trust Co., 91 U.S.App.D.C. 391, 201 F.2d 208 (1952); Wynne v. Boone, 88 U.S.App.D.C. 363, 191 F.2d 220 (1951). The essential elements of common law fraud are: (1) a false representation (2) in reference to material fact, (3) made with knowledge of its falsity, (4) with the intent to deceive, and (5) action is taken in reliance upon the representation. United States v. Kiefer, 97 U.S.App.D.C. 101, 228 F.2d 448 (1955), cert. denied, 350 U.S. 933, 76 S.Ct. 305, 100 L.Ed. 815, rehearing denied, 350 U.S. 977, 76 S.Ct. 431, 100 L.Ed. 847 (1956); Rosenberg v. Howie, D.C. Mun.App., 56 A.2d 709 (1948); Sankin v. 5410 Connecticut Avenue Corp., 281 F.Supp. 524 (1968), aff'd sub nom. Benn v. Sankin, 133 U.S.App.D.C. 361, 410 F.2d 1060 (1969), cert. denied, 396 U.S. 1041, 90 S.Ct. 681, 24 L.Ed.2d 685 (1970). Nondisclosure or silence, as well as active misrepresentation, may constitute fraud. See St. Louis Union Trust Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 412 F.Supp. 45 (E.D.Mo. 1976). One pleading fraud must allege such facts as will reveal the existence of all the requisite elements of fraud. Facts which will enable the court to draw an inference of fraud must be alleged, and allegations in the form of conclusions on the part of the pleader as to the existence of fraud are insufficient. Applying these standards to the record, we cannot say that the conclusion of the trial court finding no genuine issue as to material facts bearing on fraud was error.

On the undisputed facts, no representations or omissions in connection with appellants' purchases of units in the Hanover drilling funds were fraudulent. Fraud could only be discerned, if at all, by means of impermissible speculation. On deposition, Clarence Bennett admitted that the first two representations claimed to be fraudulent were not false² Moreover, any lack of financial success of Series 1 was warned against in the Series 1 prospectus which noted:

The business of exploring for and producing oil and gas is highly speculative and involves risk of loss. . . . Therefore, there can be no assurance that the Program will be a success financially or that moneys invested by the participants will be recouped. In view of the foregoing, and the impact of Federal tax laws, the offering of the Units is directed primarily to persons whose income is subject to Federal income taxes at high rates. . . .

In light of appellants' admissions and the disclosed speculative nature of oil ventures in general, there is no genuine issue as to the first two allegations.

As to the third alleged misrepresentation, Hornblower's sales representative, Robert Menzel, stated on deposition that it was his estimate, and it was an estimate given to him, that within approximately three to five years an attempt would be made to convert the units to a going operation which would make the interests negotiable. No trial is necessary to determine whether this representation promised mere liquidity or whether it promised liquidity via stock in an established oil company — the latter apparently foreclosing by implication Hanover stock as the vehicle for liquidity.

A promissory representation, or a representation as to future events asserted in a common law fraud action, should only be considered a misrepresentation of fact where the evidence shows that the promise was made without the intent to perform, or that the promisor had knowledge that the events would not...