Dunbar v. RKG Engineering Inc.

• Decision Date: 09 February 1988
• Docket Number: No. 9574,9574
• Citation: 746 S.W.2d 314
• Parties: Blue Sky L. Rep. P 72,726 J.R. DUNBAR, Appellant, v. RKG ENGINEERING, INC., Bert Hurlbut and R.K. Ganter, Appellees.
• Court: Texas Court of Appeals

Page 314

746 S.W.2d 314

Blue Sky L. Rep. P 72,726

J.R. DUNBAR, Appellant, v. RKG ENGINEERING, INC., Bert Hurlbut and R.K. Ganter, Appellees.

No. 9574.

Court of Appeals of Texas Texarkana.

Feb. 9, 1988.

Melvin Wilcox, III, Smead, Anderson, Wilcox & Dunn, Longview, for appellant.

E. Lawrence Merriman, Merriman, Patterson & Allison, Longview, for Bert Hurlbut.

Warren Burnett, Odessa, Larry Zinn, San Antonio, for RKG Engineering and R.K. Ganter.

GRANT, Justice.

J.R. Dunbar appeals a judgment in which his purchase of an oil and gas interest was found not to fall under the Texas Securities Act. The jury found that Dunbar was a participant in a joint venture. The defendants, RKG Engineering Inc., Bert Hurlbut and R.K. Ganter, moved for judgment on the basis that this finding is a complete defense to an action under the Texas Securities Act.

Dunbar contends generally on appeal that the existence of a joint venture is not a defense to his claim of Securities Act violations by RKG Engineering, Hurlbut and Ganter. He also argues that the jury's failure to find Hurlbut to be an issuer, dealer, or salesman of a security was against the overwhelming weight of the evidence, and that Hurlbut fell into these categories as a matter of law.

Dunbar, Hurlbut and Ganter entered into an agreement in 1978 along with a number of other investors in which they purchased percentages of thirteen oil and gas leases. In return for their investment, the investors each received a percentage working interest in the well by assignment from the defendants and joint rights to control of the enterprise. After the purchase, Dunbar held the largest share of any single investor, a ten percent interest. The group drilled several wells, none of which was commercially productive, and later agreed to sell the leases for a minimal return.

Dunbar does not allege fraud or misrepresentation, but complains that Hurlbut, Ganter and RKG Engineering violated the Texas Securities Act. He argues that the sale of a working interest constitutes a sale of a security under the definition provided in the Texas Securities Act. Tex.Rev.Civ.Stat.Ann. art. 581-4(A) (Vernon 1964). He further contends that the security was not registered and does not fall within an exemption, therefore its sale was illegal. Tex.Rev.Civ.Stat.Ann. art. 581-7(A)(1) (Vernon Supp.1988). Dunbar also contends that he should recover because the sale was conducted by unlicensed salesmen in violation of Tex.Rev.Civ.Stat.Ann. art. 581-12 (Vernon 1964).

The jury found that RKG Engineering, Inc., as well as Ganter, acted as an issuer, dealer or salesman of a security in the sale of the working interest to Dunbar, but further found that the parties were involved in a joint venture. ¹ Dunbar does not appeal this finding, but argues that it is not a competent defense to his claim.

Dunbar argues that the assignment of a portion of a leasehold interest constitutes the sale of an unregistered security. He is correct in his statement that the interest sold falls within the statutory definition of a security. Article 581-4(A) in part defines a security as "any instrument representing any interest in or under an oil, gas, or mining lease."

He goes on to argue that since the assignment was a security under this definition, the question of whether a joint venture existed is not a defense for appellees. He then contends that since the defense does not apply, Ganter and RKG Engineering are liable under the Texas Securities Act for selling unregistered securities without a license, and asks that the cause be either reversed and rendered or remanded for a new trial on that basis.

Dunbar's major argument is based on his effort to distinguish this case from the leading case of Brown v. Cole, 155 Tex. 624, 291 S.W.2d 704 (1956). In Brown, suit was brought for recovery on much the same grounds as in the present case, following the sale of stock certificates in a Mexican mining corporation which later went bankrupt, with a corresponding loss of the investors' money. The...