Johns Hopkins University v. Hutton

• Decision Date: 10 December 1968
• Docket Number: Civ. No. 15098.
• Citation: 297 F. Supp. 1165
• Parties: The JOHNS HOPKINS UNIVERSITY v. James M. HUTTON, Jr., et al.
• Court: U.S. District Court — District of Maryland

297 F. Supp. 1165

The JOHNS HOPKINS UNIVERSITY v. James M. HUTTON, Jr., et al.

Civ. No. 15098.

United States District Court D. Maryland.

August 15, 1968.

Supplementary Opinion December 10, 1968.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Edmund P. Dandridge, Jr., John Henry Lewin and Venable, Baetjer & Howard, Baltimore, Md., for plaintiff.

John F. King, Baltimore, Md., John A. Wilson, Michael J. DeSantis and Shearman & Sterling, New York City, for defendants.

FRANK A. KAUFMAN, District Judge.

The Johns Hopkins University (Hopkins) seeks summary judgment over the vigorous opposition of defendants. The record is voluminous; the cast of characters is numerous; and the narration of the opposing versions of an unusual financial tale could easily outlast several double features. Defendants contend that the case is too complex for summary judgment. The answer to that contention, however, is easily discerned after the material, undisputed facts are culled from the massive record and are permitted to stand alone. In such posture they compel, against the background of applicable law, only one conclusion: This case is ripe for summary judgment for plaintiff.

The defendants are James M. Hutton, Jr., et al., copartners, doing business as W. E. Hutton & Co. (Hutton), a stock brokerage firm with its principal place of business in New York City, and with numerous branch offices, including one in Baltimore. Hopkins alleges that Hutton violated duties which it owed to Hopkins under the Securities Act of 1933 (the '33 Act), the Securities and Exchange Act of 1934 (the '34 Act) and the common law. Specifically, Hopkins alleges that Hutton made misrepresentations of, and omitted to disclose, material facts, and also engaged in fraudulent and negligent conduct. The controversy arises out of the purchase by Hopkins on March 1, 1961, of an oil and gas production payment for $1,300,000 from Trice Production Company (Trice) in connection with which transaction Hutton received a commission from Trice.

Since Hopkins began this suit on November 1, 1963, the parties have indefatigably engaged in discovery, legal and factual argument, and motion hearings. Before oral argument on Hopkins' motion for summary judgment, Hutton's chief counsel stated in his main affidavit that Hutton had deposed eleven, and Hopkins twelve, witnesses, involving 7,401 pages of testimony; that Hutton had marked as exhibits approximately 818 documents and Hopkins had so marked about 212 documents, or a total of 1,030 documents; that Hutton had served upon Hopkins two sets of interrogatories and two sets of requests for admissions and that Hopkins had served upon Hutton thirteen sets of interrogatories and seven sets of requests for admissions, embodying a total of more than 2,083 separate inquiries in such interrogatories and requests for admissions. This Court calculates that the pleadings, the motions, the discovery documents, the main and supplementary affidavits of Hutton's chief counsel, and other factual and legal memoranda and commentary to the Court exceed 12,000 pages.

There have been lengthy hearings and conferences, involving several scores of days before this Court and before a special Master who was at one time appointed with regard to objections to discovery interposed by both sides. After Hopkins filed its original complaint, Hutton answered and prayed a jury trial, Hopkins later was granted leave to file an amended complaint, Hutton answered, and Hutton later sought to file a third-party complaint against Ragnar D. Naess, et al., co-partners doing business as Naess & Thomas, Hopkins' investment counsel, for contribution as joint tort-feasors, charging Naess with statutory and common law violations. Chief Judge Thomsen of this Court denied Hutton leave to file the third-party complaint, "primarily because of the complication of issues which would result from the filing of the third party complaint, but also because of the delay and expense to Hopkins, the unreasonable expense to Naess, and the laches of Hutton." Johns Hopkins University v. Hutton, 40 F.R.D. 338 (D.Md.1966).

Hopkins' amended complaint is set forth in seven counts: (1) Section 12(2) of the '33 Act; (2) Section 10(b) of the '34 Act and Rule 10b-3 of the Securities and Exchange Commission (S.E.C.); (3) Section 10(b) of the '34 Act and Rule 10b-5 of the S.E.C.; (4) Section 15(c) (1) of the '34 Act; (5) Section 17(a) of the '33 Act; and (6) and (7) under the common law for (a) false representation and fraudulent conduct and (b) making false representations negligently and with reckless indifference as to their truth.

Hopkins' motion for summary judgment was presented with regard to each of the first five or statutory counts. Near the close of his rebuttal, during oral argument on Hopkins' motion for summary judgment, Hopkins' counsel stated that if the Section 12(2) equitable relief sought by Hopkins under count one of the amended complaint should be granted, Hopkins would consider itself fully satisfied (Tr. 458-463). Therefore, since summary judgment will be granted to Hopkins under count one, the issues raised by the other counts are moot.¹

Hopkins' Amended Complaint was summarized by Judge Thomsen at 40 F.R.D. 338, 340-341, supra, as follows:

In 1960, Hutton was employed by Trice to act as its adviser, broker and agent in the sale of production payments carved out of certain oil and gas properties owned by Trice. Hutton offered for sale and sold three such production payments, including the one offered for sale and sold to Hopkins, and Trice paid Hutton commissions amounting to 2% of the sales price obtained.

Pursuant to that arrangement, Hutton and Trice offered to sell to Hopkins a production payment out of certain oil and gas properties of Trice located in Texas, Oklahoma and Louisiana, described in a brochure prepared by Hutton and Trice and delivered by them to the Treasurer of Hopkins. The brochure stated that Trice desired to sell production payments in the amount of $2,700,000; that a commitment for approximately $1,400,000 had been received from a bank as a separate first production payment from certain properties; that a second production payment of approximately $1,300,000 from the same properties and from five additional properties (which would be subordinate to the bank's production payment except as to the five additional properties) would also provide for certain net profits interests; and that, based on stated estimates of the value and rate of realization of the oil and gas reserves in the properties subject to the second production payment, the purchaser thereof would realize a substantial sum in excess of its cost.

Hutton represented to Hopkins, as a further material inducement to purchase the production payment, that the estimates of future net revenues and rate of realization from the oil and gas reserves set forth in the brochure were the estimates of independent engineers who had studied each of the properties.

Hutton also recommended to Hopkins and to Naess, Hopkins' financial adviser, that they select Chester L. Brown, Vice-president of Petroleum Consultants, Inc., to make a study of the reserves and a check of said estimates on behalf of Hopkins, at Trice's expense. In making this recommendation Hutton did not reveal that the employee of Hutton who was dealing with Hopkins had been for many years an intimate friend and associate of Brown, had recently encouraged him to form his consulting engineering company and had indicated to Brown that Hutton would employ him in connection with this production payment. In early 1961, without the knowledge of Hopkins, Hutton employed Brown, at the joint expense of Hutton and Trice, to make a study and estimate of said reserves not for Hopkins but for Hutton and Trice; instructed Brown to make a report which would omit details; concealed from Brown that Hopkins had been led by Hutton to believe that Brown was an independent engineer acting for Hopkins; concealed from Brown the existence of the reports and estimates that had been made by independent engineers for Trice concerning which Hutton had made representations to Hopkins; and failed to request Brown to make any check of such reports or estimates.

While Brown was making his study and estimates for Hutton and Trice, Hutton represented to Hopkins that Brown was making the study and estimate as Hopkins' `independent reservoir engineer', and, acting as such, was checking the earlier reports and estimates of said reserves made by the independent engineers. Hutton represented to Hopkins that Brown's study and estimates showed that the figures previously presented by Hutton were conservative and that Hopkins could expect repayment of its investment with interest in a shorter time and could expect a greater return from its net profits interest than had been estimated by the original independent engineers. Hutton forwarded to Hopkins Brown's report which confirmed those representations.

Relying to a material degree on each of said material representations made by Hutton, Hopkins purchased for $1,300,000 the production payment and net profits interests on March 1, 1961.

On October 15, 1962, Trice filed in the United States District Court for the Eastern District of Texas, Tyler Division, a Petition for Reorganization under Chapter X of the Bankruptcy Act. In early 1963, Hopkins received a report disclosing that the reserves of oil and gas in the properties included in the $1,300,000 production payment purchased by Hopkins were substantially less than as represented by Hutton. Also in 1963, within one year prior to the filing of the original complaint herein, Hopkins learned for the first time that the alleged representations made by Hutton were false, and learned for the first time of the alleged skulduggery in connection with Brown's report.

In their answer to the...