Enntex Oil & Gas Co. (of Nevada) v. State

• Decision Date: 13 December 1977
• Docket Number: No. 8516,8516
• Citation: 560 S.W.2d 494
• Parties: Blue Sky L. Rep. P 71,391 ENNTEX OIL & GAS COMPANY (OF NEVADA) et al., Appellants, v. The STATE of Texas, Appellee.
• Court: Texas Court of Appeals

Page 494

560 S.W.2d 494

Blue Sky L. Rep. P 71,391

ENNTEX OIL & GAS COMPANY (OF NEVADA) et al., Appellants,

v. The STATE of Texas, Appellee.

No. 8516.

Court of Civil Appeals of Texas, Texarkana.

Dec. 13, 1977.

Rehearing Denied Jan. 24, 1978.

Earl L. Yeakel, III, Kammerman, Yeakel, Trickey & Overstreet, Austin, for appellants.

John L. Hill, Atty. Gen. of Texas, Bill Flanary, Asst. Atty. Gen., Austin, for appellee.

ODEN, Justice.

Enntex Oil & Gas Company (of Nevada), Spindletop Oil & Gas Company, Oklahoma Coal & Oil Company, Laprada Oil & Gas Company, Texas Coal & Energy Company, Paul E. Cash, J. W. Heflin and Joe B. Owen, appeal from a judgment entered in the 14th Judicial District Court of Dallas County, Texas, permanently restraining and enjoining them from, "In any way, and by any manner or means, either or (sic) directly or indirectly, promoting, issuing, selling, offering to sell, negotiating for sale, advertising, dealing or distributing securities, including but not limited to, instruments representing interest in or under oil or gas leases or investment contracts within or from within the State of Texas, without complying with the registration and licensing requirements of Section 7(A)(1) and (12) of Article 581 V.C.S." Appellee, The State of Texas, acting by and through its Attorney General and at the specific request of its Securities Commissioner, applied for the permanent injunction ultimately entered alleging, inter alia, that the appellants offered to sell, sold, issued and dealt in and with securities, namely certificates representing interest in or under oil, gas and mining leases, without complying with the licensing and registration requirements of the Securities Act of Texas, Tex.Rev.Civ.Stat.Ann. art. 581-1, et seq. The judgment from which the appeal has been perfected was entered based on a finding that appellants offered for sale and did sell, issue and deal in and with securities, namely certificates or an instrument representing an interest in or under an oil, gas or mining lease, without complying with the Securities Act of Texas, Tex.Rev.Civ.Stat.Ann. art. 581-1, et seq. Appellants, with the exception of Spindletop Oil & Gas Company, do not allege that the evidence fails to support the fact findings of the trial court upon which the permanent injunction was predicated. Spindletop Oil & Gas Company does assert herein that there is no evidence in the record that it violated the Texas Securities Act, Tex.Rev.Civ.Stat.Ann. art. 581-1, et seq. The pivotal issues to be resolved on appeal pertain to appellants' allegations that their dealings and activities were solely in interstate commerce and any regulation thereof by appellee would be an unreasonable restraint on interstate commerce and that appellee applied the Texas Securities Act against them in a manner which violated their rights of equal protection and due process under the Constitutions of the United States and the State of Texas.

Enntex Oil & Gas Company (of Nevada), Oklahoma Coal & Oil Company, Laprada Oil & Gas Company, and Texas Coal & Energy Company, were corporations organized for the purpose of selling undivided interests in oil and gas leases located within the State of Texas. They were either incorporated in the State of Texas or doing business in the State of Texas pursuant to certificates of authority issued by the Secretary of State of Texas. These appellants, in furtherance of their corporate purpose, through telephone solicitations normally originated in Texas, sold undivided interests in oil and gas leases located in Texas to non-residents of Texas. An offering sheet describing the interests to be offered for sale was filed with the Securities and Exchange Commission of the United States pursuant to Schedule D of Regulation B promulgated by said Commission pursuant to the Securities and Exchange Act of 1933. Each offering sheet bore the following caveat on its first page:

"THE SECURITIES AND EXCHANGE COMMISSION HAS NEITHER APPROVED

NOR DISAPPROVED THE INTERESTS HEREBY OFFERED AND IT IS A CRIMINAL OFFENSE TO REPRESENT THAT THE COMMISSION HAS APPROVED SUCH INTERESTS OR PASSED UPON THEIR MERITS OR VALUE OR HAS MADE ANY FINDING THAT THE STATEMENTS IN THIS OFFERING SHEET ARE CORRECT."

Companies such as the corporate appellants and their offerings are commonly referred to as "Schedule D's" because of the nomenclature of the form filed with the Securities and Exchange Commission of the United States. A "Schedule D" filing is in fact an exemption from registration under the Securities and Exchange Act of 1933. All oil and gas leases offered for sale were located in the State of Texas. The appellants did not make any sales to Texas residents; however, monies derived from sales to non-residents of Texas were sometimes received in Texas and deposited to bank accounts maintained in Texas. The offering sheets filed with the Securities and Exchange Commission of the United States and mailed to potential investors were prepared in Texas and mailed to potential investors from the State of Texas. It is noteworthy that in many instances the only non-Texas aspect of the corporate activities was the location of the investor. Those appellants engaged in sales scrupulously avoided making sales to Texas residents.

Joe B. Owen owns 33 1/3% Of the issued and outstanding stock of Laprada Oil & Gas Company. Paul E. Cash and J. W. Heflin each own 33 1/3% Of the issued and outstanding stock of Oklahoma Coal & Oil Company, Laprada Oil & Gas Company and Texas Coal & Energy Company. Furthermore, Paul E. Cash and J. W. Heflin each own 41% Of the issued and outstanding stock of Southern Bankers Investment Company which owns 100% Of the issued and outstanding stock of Spindletop Oil & Gas Company. Spindletop Oil & Gas Company owns 100% Of the issued and outstanding stock of Enntex Oil & Gas Company (of Nevada). The record is silent as to the identity of the owner or owners of the remaining 18% Of Southern Bankers Investment Company stock, and the remaining 33 1/3% Of Texas Coal & Energy Company stock and Oklahoma Coal & Oil Company stock; however, Paul E. Cash and J. W. Heflin could, acting in concert, control the activities of all corporate appellants.

It is not suggested that appellants' activities qualified as "exempt transactions" under Tex.Rev.Civ.Stat.Ann. art. 581-5 or that the securities offered (undivided interests in oil and gas leases located within the State of Texas) were "exempt securities" under Tex.Rev.Civ.Stat.Ann. art. 581-6. Article 581-4(E) provides that:

"The terms 'sale' or 'offer for sale' or 'sell' shall include every disposition, or attempt to dispose of a security for value. The term 'sale' means and includes contracts and agreements whereby securities are sold, traded or exchanged for money, property or other things of value, or any transfer or agreement to transfer, in trust or otherwise. Any security given or delivered with or as a bonus on account of any purchase of securities or other thing of value, shall be conclusively presumed to constitute a part of the subject of such purchase and to have been sold for value. The term 'sell' means any act by which a sale is made, and the term 'sale' or 'offer for sale' shall include a subscription, an option for sale, a solicitation of sale, a solicitation of an offer to buy, an attempt to sell, or an offer to sell, directly or by an agent or salesman, by a circular, letter, or advertisement or otherwise, including the deposit in a United States Post Office or mail box or in any manner in the United States mails within this state of a letter, circular or other advertising matter. Nothing herein shall limit or diminish the full meaning of the terms 'sale,' 'sell' or 'offer for sale' as used by or accepted in courts of law or equity. The sale of a security under conditions which entitle the purchaser or...