Currie v. Cayman Resources Corp.

• Decision Date: 26 September 1984
• Docket Number: No. C82-1902A.,C82-1902A.
• Parties: O. CURRIE v. CAYMAN RESOURCES CORPORATION, Cayman Production Company, Cayman Corporation, Reb Petroleum Company f/k/a Rebpet, Inc., Rebpet, Ltd. 1976-2, Rebpet 1977-1 Drilling Program, Rebpet Partners, Ltd. 1978, Robert E. Best, R.W. McCleskey, Jr., Melvin L. Wellons, David M. Whitney, William C. Rankin, Rebpet Investments, Inc., Donald W. Fowler, J.G. O'Donohoe, Hugh Echols.
• Court: U.S. District Court — Northern District of Georgia

595 F. Supp. 1364

O. CURRIE v. CAYMAN RESOURCES CORPORATION, Cayman Production Company, Cayman Corporation, Reb Petroleum Company f/k/a Rebpet, Inc., Rebpet, Ltd. 1976-2, Rebpet 1977-1 Drilling Program, Rebpet Partners, Ltd. 1978, Robert E. Best, R.W. McCleskey, Jr., Melvin L. Wellons, David M. Whitney, William C. Rankin, Rebpet Investments, Inc., Donald W. Fowler, J.G. O'Donohoe, Hugh Echols.

No. C82-1902A.

United States District Court, N.D. Georgia, Atlanta Division.

September 26, 1984.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Karen B. Bragman, Charles T. Huddleston, Jeffrey M. Smith, Bondurant, Miller, Hishon & Stephenson, Atlanta, Ga., for plaintiff.

David A. Rabin, Morris & Manning, Atlanta, Ga., for defendants Rebpet, Ltd. 1976-2, Rebpet 1977-1 Drilling Program, Rebpet Partners, Ltd. 1978, Robert E. Best, R.W. McCleskey, Jr., Melvin L. Wellons, Rebpet Investments, Inc.

Paul Webb, Jr., Philip S. Coe, Webb & Daniel, Atlanta, Ga., for defendants Cayman Resources Corp., Cayman Production Co., Cayman Corp., Rebpet, Ltd. 1976-2, Rebpet 1977-1 Drilling Program, Rebpet Partners, Ltd. 1978, David M. Whitney, William C. Rankin.

Powell, Goldstein, Frazer & Murphy, Atlanta, Ga., for defendants Cayman Resources Corp., Cayman Production Co., Cayman Corp., Reb Petroleum Co. f/k/a Rebpet, Inc., Rebpet, Ltd. 1976-2, Rebpet 1977-1 Drilling Program, Rebpet Partners, Ltd. 1978, Melvin L. Wellons, David M. Whitney, William C. Rankin.

J.G. O'Donohoe, pro se.

ORDER

MOYE, Chief Judge.

This action, involving sixteen defendants, concerns various alleged violations of the Securities Act of 1933 (Securities Act), the Securities Exchange Act of 1934 (Exchange Act), and regulations of the Securities and Exchange Commission promulgated thereunder. In addition, the plaintiff further alleges various state law claims pursuant to the laws of Georgia and Texas. Jurisdiction is predicated on section 22(a) of the Securities Act, 15 U.S.C.A. § 77v(a) (West 1981), section 27 of the Exchange Act, 15 U.S.C.A. §§ 78aa (West 1981), and pendent jurisdiction.

The case is currently before the Court on motions to dismiss issuing from two of the defendants. Hugh Echols, one defendant, moves to dismiss pursuant to Fed.R.Civ.P. 12(b) (Rule 12(b)), or alternatively, to require the plaintiff to post an undertaking for the payment of fees and expenses pursuant to section 11(e), 15 U.S.C.A. § 77k(e)(3) (West 1981), of the Exchange Act. Mr. Echol's motion pertains to the plaintiff's complaint as amended through the first and second amendments.

The case is also before the Court on the motion of Cayman Resources Corporation, Cayman Production Company, and Cayman Corporation (Cayman defendants) to dismiss the third count of the complaint as amended through the third amendment (Amendment) pursuant to Rule 12(b).

The plaintiff's Amendment states the claims that currently have vitality; i.e., some of the claims set forth in the original complaint have been dropped. For this reason, those grounds of Mr. Echols' motion to dismiss which respond to claims now lacking vitality will not be considered by this Court. The plaintiff has set forth the following claims in counts I through X of the complaint, as amended, against the defendants, namely, that Mr. Echols and others are liable under or for:

(1) section 10(b) of the Exchange Act, 15 U.S.C.A. § 78j(b) (West 1981) (section 10(b)), and rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5 (1983) (rule 10b-5);

(2) section 12(2) of the Securities Act, 15 U.S.C.A. § 77l(2) (West 1981) (section 12(2));

(3) section 17(a)(1) through (3), 15 U.S. C.A. § 77q(a) (West 1981) of the Securities Act;

(4) section 12(1) of the Securities Act, 15 U.S.C.A. §§ 77l1 (1) (West 1981) (section 12(1)), and section 5(a) of the Securities Act, 15 U.S.C.A. §§ 77e(a) (West 1981) (section 5(a));

(5) O.C.G.A. §§ 10-1-372, 10-5-12, 51-6-1, & 14-9-27 (1982);

(6) Tex.Rev.Civ.Stat.Ann. art. 581-33 A(2) (Vernon 1964 & Supp.1984);

(7) Georgia and Texas common law fraud;

(8) breach of fiduciary duties as general partner;

(9) negligence; and

(10) breach of the limited partnership agreements.

Mr. Echols has moved for dismissal on those grounds which have continuing vitality as follows: (1) each count alleging fraud is defective for failure to plead with the particularity required by Rule 9(b), (2) each count stated in the complaint is barred by the applicable statute of limitations, (3) the third count is defective because no private right of action can be brought under section 17(a) of the Securities Act, (4) the plaintiff has failed to set forth claims under the Georgia Securities Act of 1973, the Georgia Uniform Limited Partnership Act, and Georgia's Uniform Deceptive Trade Practices Act upon which relief can be granted, (5) the plaintiff's claim for negligence is similarly defective, and (6) the plaintiff's claim for breach of the limited partnership agreements is similarly defective. The Cayman defendants have moved to dismiss count three of the Amendment on the same ground as Mr. Echols.

For the reasons set forth below, the Court grants the motion of Mr. Echols to dismiss in part and grants the motion of the Cayman defendants to dismiss count three of the complaint, as amended. The Court is confronted with a rather lengthy set of interrelated documents upon which the current controversy must be resolved. In consequence, it is necessary to set forth the operative facts and procedural posture in some detail before attempting any discussion of the legal problems in this case.

I. FACTUAL BACKGROUND

On August 30, 1982, Mr. Currie filed a somewhat nebulous, multiple-count complaint in this Court. The plaintiff's original complaint included allegations against the Cayman defendants and against David M. Whitney and William Rankin, as "officers and/or directors" of the Cayman defendants. It also included allegations against REB Petroleum company (formerly REBPET, Inc.), REBPET, Ltd. 1976-2, REBPET 1977-1 Drilling Program, REBPET Partners, Ltd. 1978, REBPET Investments, Inc., and Robert E. Best, R.W. McCleskey, Jr., and Melvin L. Wellons, as "officers and/or directors" of REB Petroleum Company, its successors and assigns, and as "officers and/or directors" of REBPET Investments, Inc. In a second amendment, mistakenly entitled "Third Amendment to Complaint,"¹ the plaintiff added J.G. McDonohoe and Hugh Echols as defendants in connection with their role as alleged directors² of REB Petroleum Company and its successors and assigns.³ This amendment also added Donald W. Fowler as a defendant in connection with his role as a former director of the REB defendants and as current director of Cayman Resources Corporation.

According to the plaintiff's complaint, as amended, the REB and Cayman defendants are small, independent oil companies involved in the production and sale of hydrocarbon substances. The REB Petroleum Company financed its operations by the formation of limited partnerships, of which it was the sole general partner. Interests in these partnerships were sold to limited partners such as the plaintiff. The offer and sale of these partnerships were represented as "private offerings" of securities therefore exempt from Securities and Exchange Commission registration requirements. Nor were they registered in the states of Georgia or Texas. The plaintiff eventually purchased limited partnership interests in three such limited partnerships. The REB defendants made use of the mails and interstate telephone to sell and transmit the limited partnership agreements and prospectus to the plaintiff.

According to the plaintiff's further allegations, one or more of the REB defendants engaged in a variety of misrepresentations to the plaintiff in order to induce him to contribute capital for the purchase of these limited partnership interests. As of the commencement of the lawsuit, the plaintiff had made total capital contributions in excess of $400,000. The plaintiff further alleges misrepresentations and misconduct by the REB defendants involving a series of amendments to the limited partnership agreements providing for an increase in certain "non-consent" assessments on prospects held by the REB defendants. Complaint, filed August 30, 1982, at ¶¶ 1-50, 65, 72, 78, & 85.

The Cayman defendants became involved in the present dispute as a result of the REB defendants' exchange of the plaintiff's interests in the three limited partnerships for 263,018 shares of common stock in Cayman Resources Corporation, effective March 19, 1982. This occurred pursuant to a registered offer to exchange, and the stock was distributed to the plaintiff. In the exchange, Cayman Production Company became the general partner of the limited partnerships in question. The plaintiff alleges various material misrepresentations and misconduct on the part of the Cayman defendants in connection with this exchange. Plaintiff's first amendment to complaint, filed December 23, 1982, at ¶¶ 130-31.

On December 23, 1982, the plaintiff filed his first amendment to his complaint, including additional legal claims against the defendants. The REB defendants answered the original complaint on December 30, 1982, subsequently answering the first amendment on January 13, 1983. On September 9, 1983, the Cayman defendants filed a motion to dismiss, or alternatively, a motion for a more definite statement. The REB defendants (with the exception of Mr. Echols, Mr. McDonohoe, and Mr. Wellons) then decided, notwithstanding the earlier answers, to file a motion to dismiss the complaint as amended, or, alternatively, to require the plaintiff to post an undertaking for the payment of the defendants' fees and expenses. This motion was filed on November 16, 1983, and the motion to dismiss was modeled on the Cayman defendants' motion. On January 23, 1984, the plaintiff moved for leave to file a "third amendment" (actually a second amendment, as noted above) in order to add...