Hayden v. McDonald
| Decision Date | 28 August 1984 |
| Docket Number | No. 84-5003,84-5003 |
| Citation | 742 F.2d 423 |
| Parties | Blue Sky L. Rep. P 72,084 Austin HAYDEN, James Hartzell, Lee Greenslit, Frank Johnson, Dwain Kasel, James Nordlie, James Maki, Michael H. Bitterman, Donald C. Severtson, Jeanne Stewart and Vernon D. Kotula, Appellees, v. Orison F. McDONALD, individually, Orison F. "Mack" McDonald, II, individually, d/b/a Ole Chaparral and McDonald Investments, Inc., a Texas corporation, Appellants. Austin HAYDEN, James Hartzell, Lee Greenslit, Frank Johnson, Dwain Kasel, James Nordlie, James Maki, Michael H. Bitterman, Donald C. Severtson, Jeanne Stewart, Vernon D. Kotula, Donn Barber, Bernie Beaver, Lyle Bing, James Brown, L.T. Demeules, John Emmer, Don Erickson, Patrick Farley, Dennis Frandsen, Robert A. Godfrey, Karl Gramith, Howard Gruhlke, Cecil Herring, Lee Heutmaker, Vernice Heutmaker, Earl Heyerdahl, Sheldon Hoffman, Jim Hoversten, Delbert Kelzer, Robert Kepple, George Krienke, James Loosen, John McCormick, James McKevitt, Carol Mozzetti, James Munn, E.J. Pacheco, William Phelps, David Remes, James Reissner, Terry Ripley, Arnold Smith, D.P. Tschimperle, Gust Zahariades and Donald Zibell, Appellees, v. Orison F. McDONALD, individually, Orison F. "Mack" McDonald, II, individually, d/b/a Ole Chaparral, and McDonald Investments, Inc., a Texas corporation, Appellants. John W. ADLER, Sally F. Adler, Carol Adler Zsolnay, Diane L. Adler, Lisa M. Adler, Leslie O. Frishman, Dean L. Greenberg, Henry Hanson, Harold L. Rutchick and Howard D. Stacker, Appellees, v. Orison F. McDONALD, individually, Orison F. "Mack" McDonald, II, individually, d/b/a Ole Chaparral and McDonald Investments, Inc., a Texas corporation, Appellants. Harold L. RUTCHICK, Appellee, v. Orison McDONALD, II, also known as Mack McDonald, individually, and d/b/a Ole Chaparral and McDonald Investments, Inc., a Texas corporation, Appellants. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Jay M. Vogelson, Moore & Peterson, Dallas, Tex., for appellants.
James M. Strother, Larkin, Hoffman, Daly & Lindgren, Ltd., Norman L. Newhall and Timothy H. Butler, Lindquist & Vennum, Minneapolis, Minn., for appellees.
Before LAY, Chief Judge, and HEANEY and ARNOLD, Circuit Judges.
The defendants--Orison F. "Mack" McDonald, II (d/b/a Ole Chaparral), Orison F. McDonald, and McDonald Investments, Inc.--appeal from a district court order granting summary judgment in this state securities law action in favor of fifty-six individuals who purchased undivided working interests in various oil and gas leases from the defendants. The defendants assert, inter alia, that the district court erred in classifying these interests as securities under the Minnesota Blue Sky Act, Minn.Stat.Ann. Secs. 80A.01-.31 (West Supp.1984), and in deciding that various affirmative defenses to the plaintiffs' action for rescission and restitution were unavailable as a matter of law. We agree with the district court that the undivided working interests were securities which should have been registered under Minnesota statutory law and that the alleged affirmative defenses other than in pari delicto do not bar summary judgment. We remand for the resolution of factual questions which remain regarding the defendants' in pari delicto defense; for determinations of which individual sales were not made within the applicable statute of limitations and jurisdictional provisions of the Minnesota Blue Sky Act; and for modification of the court's judgment to award restitution only to those plaintiffs who made purchases which may properly be rescinded at this stage of the proceedings.
The plaintiffs initially filed four separate complaints in the United States District Court for the District of Minnesota, alleging numerous violations of both federal and state securities laws. In the main, they sought to rescind their purchases of undivided working interests in certain oil and gas leases from the defendants and a refund of their purchase monies. The district court consolidated the cases and bifurcated the issue of nonregistration under the Minnesota Blue Sky Act from the other claims in the complaints. The court's subsequent rulings on this state nonregistration issue are the subject of the present appeal.
On August 30, 1982, the court empaneled a jury to try the bifurcated claim of nonregistration under the Minnesota Blue Sky Act. Prior to beginning trial, however, the court considered several motions by the parties. In particular, it heard extensive argument and testimony on the plaintiffs' motion for pretrial rulings that the undivided working interests were securities under Minnesota law and their motion to strike all evidence on the defendants' alleged affirmative defenses. Because the parties did not dispute that the defendants made numerous sales of undivided working interests in oil and gas leases located in Texas to each plaintiff and that none of these interests was ever registered as a security in Minnesota, the defendants would be liable for rescission and restitution under Minn.Stat.Ann. Sec. 80A.23(1) (West Supp.1984) unless the interests were not securities or the defendants raised a proper defense to the action. The court ruled from the bench that the interests at issue were securities and that the defendants' alleged affirmative defenses--waiver, estoppel, ratification, and in pari delicto --were unavailable as a matter of law. It then dismissed the jury.
On October 14, 1982, the court held a further hearing to garner all proposed evidence in support of or in opposition to its earlier rulings; in effect, it sought to establish that there were no genuine issues of material fact concerning what amounted to a summary judgment for the plaintiffs on the state nonregistration issue. See Fed.R.Civ.P. 56. The court admitted two depositions of defendant Mack McDonald and allowed the defendants three-and-one-half weeks to submit a complete offer of proof on the evidence which would support any of their alleged affirmative defenses.
The defendants submitted their offer on November 10, 1982, and supplemented it on November 23, 1982. The district court reviewed the pleadings, depositions, exhibits, and offers of proof, and on December 14, 1982, issued a memorandum and order reaffirming its prior rulings. Hayden v. McDonald, Civil Nos. 4-80-620, 4-81-194, 4-81-468 & 4-81-195 (D.Minn. December 14, 1982). It held as a matter of law that the interests were securities as defined in Minn.Stat.Ann. Sec. 80A.14(18) (West Supp.1984). It also held that the affirmative defense of waiver was unavailable in this securities action by virtue of section 80A.23(10) of the Minnesota Blue Sky Act, id. Sec. 80A.23(10); that, assuming estoppel were a proper affirmative defense to a securities violation, the defendants failed to allege or offer proof sufficient to sustain an estoppel defense as a matter of law; and that four plaintiffs who found new buyers for the defendants--Tschimperle, Heutmaker, Maki, and Zibell 1--were not so culpable as to be held in pari delicto with the defendants as a matter of law.
The court went on to find all defendants liable for the nonregistration and to adopt an "integration" theory to bring all sales to the plaintiffs within the statute of limitations and the jurisdictional reach of the blue sky laws. It then awarded restitution, interest, attorneys' fees, and costs to the plaintiffs totaling $3,270,292.78. On December 20, 1982, the court amended its order to reflect that the affirmative defense of ratification, as asserted by the defendants in their pretrial request for jury instructions, was no more than another label for the waiver defense which was statutorily abrogated under the Minnesota Blue Sky Act.
The defendants immediately appealed from the December 14 and December 20, 1982, orders, asserting (1) that genuine issues of material fact remained regarding the "securities" label placed on the interests at issue and regarding their affirmative defenses, (2) that the district court committed several errors in construing Minnesota law, (3) that some plaintiffs raised nonregistration claims barred by the statute of limitations or the jurisdictional provisions of the Minnesota Blue Sky Act, (4) that Orison F. McDonald was not liable for the acts of McDonald Investments, and (5) that the court erred in refusing to reduce the award to reflect the past tax benefits received by the plaintiffs as a result of their purchase of the undivided working interests. After full briefing and oral argument on the merits, we held that the district court's certification of its decision on nonregistration as a final judgment under Fed.R.Civ.P. 54(b) was an abuse of discretion. Hayden v. McDonald, 719 F.2d 266, 267-270 (8th Cir.1983). We thus dismissed the appeal because the court had not finally resolved the plaintiffs' remaining federal securities law claims and their claim of fraud under the Minnesota Blue Sky Act. Id. at 270.
On December 30, 1983, the district court granted the plaintiffs' motion to dismiss the remaining federal and state law counts. In effect, the plaintiffs put all their eggs into the state nonregistration basket. The defendants filed a new notice of appeal. The parties submitted supplemental briefs on the same issues earlier appealed, and we heard additional argument. The merits of the district court's summary judgment rulings are now properly before us.
Many of the facts and much of the law woven into the basket now holding the plaintiffs' 3.2 million eggs are not in dispute. The defendants admit they sold hundreds of undivided working interests in oil and gas leases to the plaintiffs, none of which was registered in accordance with Minnesota securities laws. Each sale was accompanied by three documents: (1) a Private Placement Agreement, describing the oil and gas lease and the rights and obligations of the respective parties; (2) an Operating...
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